<PAGE> 1
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:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
ECCS, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
ECCS, INC.
ONE SHEILA DRIVE
TINTON FALLS, NEW JERSEY 07724
July 22, 1996
To Our Stockholders:
You are most cordially invited to attend the 1996 Annual Meeting of
Stockholders of ECCS, Inc. at 9:00 A.M., local time, on Thursday, August 22,
1996, at the offices of the Company, One Sheila Drive, Tinton Falls, New Jersey.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented to the meeting.
It is important that your shares be represented at this meeting to assure
the presence of a quorum. Whether or not you plan to attend the meeting, we hope
that you will have your stock represented by signing, dating and returning your
proxy in the enclosed envelope (which requires no postage if mailed in the
United States) as soon as possible. Your stock will be voted in accordance with
the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
Michael E. Faherty
Chairman of the Board
<PAGE> 3
ECCS, INC.
ONE SHEILA DRIVE
TINTON FALLS, NEW JERSEY 07724
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 22, 1996
The Annual Meeting of Stockholders (the "Meeting") of ECCS, Inc., a New
Jersey corporation (the "Company"), will be held at the offices of the Company,
One Sheila Drive, Tinton Falls, New Jersey, on Thursday, August 22, 1996, at
9:00 A.M., local time, for the following purposes:
(1) For the holders of Common Stock to elect six directors to serve
until the next Annual Meeting of Stockholders and until their respective
successors shall have been duly elected and qualified;
(2) For the holders of 6% Cumulative Convertible Preferred Stock,
Series B ("Series B Preferred Stock") and 6% Cumulative Convertible
Preferred Stock, Series C ("Series C Preferred Stock"), voting as a single
class, to elect one director to serve until the next Annual Meeting of
Stockholders and until his successor shall have been duly elected and
qualified;
(3) For the holders of Common Stock, Series B Preferred Stock and
Series C Preferred Stock to consider and vote upon a proposal to adopt the
1996 Non-Employee Directors Stock Option Plan;
(4) For the holders of Common Stock, Series B Preferred Stock and
Series C Preferred Stock to consider and vote upon a proposal to adopt the
1996 Stock Plan;
(5) For the holders of Common Stock to ratify the appointment of Ernst
& Young LLP as independent auditors for the year ending December 31, 1996;
and
(6) To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
Holders of Common Stock, Series B Preferred Stock and Series C Preferred
Stock of record at the close of business on June 26, 1996 are entitled to notice
of and to vote at the Meeting, or any adjournment or adjournments thereof. A
complete list of such stockholders will be open to the examination of any
stockholder at the Company's principal offices at One Sheila Drive, Tinton
Falls, New Jersey 07724 for a period of 10 days prior to the Meeting. The
Meeting may be adjourned from time to time without notice other than by
announcement at the Meeting. There are two proxies -- WHITE for Common Stock and
BLUE for Series B Preferred Stock and Series C Preferred Stock. If you hold both
common and preferred stock, both proxies should be completed, dated, signed and
returned in the enclosed envelope.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF
SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL ENSURE A QUORUM
AND SAVE THE COMPANY THE EXPENSE OF FURTHER SOLICITATION. EACH PROXY GRANTED MAY
BE REVOKED BY THE STOCKHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS
VOTED. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE
REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD SHOULD BE
SIGNED AND RETURNED TO ASSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
David J. Sorin
Secretary
Tinton Falls, New Jersey
July 22, 1996
THE COMPANY'S 1995 ANNUAL REPORT ACCOMPANIES THE PROXY STATEMENT.
<PAGE> 4
ECCS, INC.
ONE SHEILA DRIVE
TINTON FALLS, NEW JERSEY 07724
---------------------------------
PROXY STATEMENT
---------------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of ECCS, Inc. (the "Company") of proxies to be voted at
the Annual Meeting of Stockholders of the Company to be held on Thursday, August
22, 1996 (the "Meeting"), at the offices of the Company, One Sheila Drive,
Tinton Falls, New Jersey at 9:00 A.M., local time, and at any adjournment or
adjournments thereof. Holders of record of Common Stock, $.01 par value ("Common
Stock"), 6% Cumulative Convertible Preferred Stock, Series B, $.01 par value
("Series B Preferred Stock"), and 6% Cumulative Convertible Preferred Stock,
Series C, $.01 par value ("Series C Preferred Stock"), as of the close of
business on June 26, 1996, will be entitled to notice of and to vote at the
Meeting and any adjournment or adjournments thereof. As of that date, there were
4,333,171 shares of Common Stock, 1,600,000 shares of Series B Preferred Stock
and 500,000 shares of Series C Preferred Stock issued and outstanding and
entitled to vote. Each share of Common Stock is entitled to one vote on the
matters presented to holders of Common Stock at the Meeting. Each share of
Series B Preferred Stock is entitled to one vote on the matters presented to
holders of Series B Preferred Stock at the Meeting. Each share of Series C
Preferred Stock is entitled to one vote on the matters presented to holders of
Series C Preferred Stock.
If proxies in the accompanying forms are properly executed and returned,
the Common Stock, Series B Preferred Stock and Series C Preferred Stock
represented thereby will be voted in the manner specified therein. If not
otherwise specified, the Common Stock represented by the proxies will be voted
(i) FOR the election of six common stock nominees named below as Directors, (ii)
FOR the approval of a proposal to adopt the 1996 Non-Employee Directors Stock
Option Plan (the "Non-Employee Plan"), (iii) FOR the approval of a proposal to
adopt the 1996 Stock Plan (the "Stock Plan"), (iv) FOR the ratification of the
appointment of Ernst & Young LLP as independent auditors for the year ending
December 31, 1996, and (v) in the discretion of the persons named in the
enclosed form of proxy, on any other proposals which may properly come before
the Meeting or any adjournment or adjournments thereof. If not otherwise
specified, the Series B Preferred Stock and Series C Preferred Stock represented
by the proxies will be voted (i) FOR the election of the preferred stock nominee
named below as a Director, (ii) FOR the approval of a proposal to adopt the
Non-Employee Plan, and (iii) FOR the approval of a proposal to adopt the Stock
Plan. Any Stockholder who has submitted a proxy may revoke it at any time before
it is voted, by written notice addressed to and received by the Secretary of the
Company, by submitting a duly executed proxy bearing a later date or by electing
to vote in person at the Meeting. The mere presence at the Meeting of the person
appointing a proxy does not, however, revoke the appointment.
The presence, in person or by proxy, of holders of Common Stock having a
majority of the votes entitled to be cast at the Meeting shall constitute a
quorum for matters to be acted upon by holders of Common Stock. The presence, in
person or by proxy, of holders of Series B Preferred Stock and Series C
Preferred Stock, considered as single class, having a majority of the votes
entitled to be cast at the Meeting shall constitute a quorum for the election of
the preferred stock nominee as a Director. The presence, in person or by proxy,
of holders of each of Series B Preferred Stock and Series C Preferred Stock
having 66 2/3% of the votes entitled to be cast at the Meeting shall constitute
a quorum for all other matters to be acted upon by holders of Series B Preferred
Stock and Series C Preferred Stock. The affirmative vote by the holders of a
plurality of the shares of Common Stock, or Series B Preferred Stock and Series
C Preferred Stock, as the case may be, represented at the Meeting is required
for the election of Directors, provided a quorum is present in person or by
proxy. All actions proposed herein to be taken by the Common Stockholders, other
than the election of Directors, may be taken upon the affirmative vote of Common
Stockholders possessing a majority of the voting power represented at the
Meeting, provided a quorum is present in person or by proxy. All actions
proposed herein to be taken by the holders of the Series B Preferred Stock and
the holders of the Series C Preferred Stock, other than the election of
Directors, may be taken upon the affirmative vote of Stockholders possessing
66 2/3% of the
<PAGE> 5
voting power of each series of Preferred Stock represented at the Meeting,
provided a quorum is present in person or by proxy.
Abstentions are included in the shares present at the Meeting for purposes
of determining whether a quorum is present, and are counted as a vote against
for purposes of determining whether a proposal is approved. Broker non-votes
(when shares are represented at the Meeting by a proxy specifically conferring
only limited authority to vote on certain matters and no authority to vote on
other matters) are included in the determination of the number of shares
represented at the Meeting for purposes of determining whether a quorum is
present but are not counted for purposes of determining whether a proposal has
been approved and thus have no effect on the outcome.
This Proxy Statement, together with the related proxy card, is being mailed
to the Stockholders of the Company on or about July 22, 1996. The Annual Report
to Stockholders of the Company for the year ended December 31, 1995, including
financial statements (the "Annual Report"), is being mailed together with this
Proxy Statement to all Stockholders of record as of June 26, 1996. In addition,
the Company has provided brokers, dealers, banks, voting trustees and their
nominees, at the Company's expense, with additional copies of the Annual Report
so that such record holders could supply such material to beneficial owners as
of June 26, 1996.
ELECTION OF DIRECTORS
At the Meeting, seven Directors are to be elected (which number shall
constitute the entire Board of Directors of the Company) to hold office until
the next Annual Meeting of Stockholders and until their successors shall have
been elected and qualified. The holders of Common Stock, voting as a class, will
elect six Directors. The holders of Series B Preferred Stock and the holders of
the Series C Preferred Stock, voting as a class, will elect one Director.
It is the intention of the persons named in the enclosed forms of proxy to
vote the stock represented thereby, unless otherwise specified in the proxy, for
the election as Directors of the persons whose names and biographies appear
below. All of the persons whose names and biographies appear below are at
present Directors of the Company. In the event any of the nominees should become
unavailable or unable to serve as a Director, it is intended that votes will be
cast for a substitute nominee designated by the Board of Directors. The Board of
Directors has no reason to believe that the nominees named will be unable to
serve if elected. Each of the nominees has consented to being named in this
Proxy Statement and to serve if elected.
The current Board of Directors consists of Michael E. Faherty, Gregg M.
Azcuy, Gale E. Aguilar, James K. Dutton, Donald E. Fowler, Gustav H. Koven, III,
Frank R. Triolo and Thomas I. Unterberg, each of whom is standing for election
except for Mr. Koven. The nominees for election to the Board are as follows:
<TABLE>
<CAPTION>
SERVED AS A POSITIONS WITH
NAME AGE DIRECTOR SINCE THE COMPANY
- --------------------------- --- -------------- -----------------------------------
<S> <C> <C> <C>
COMMON STOCK NOMINEES:
Michael E. Faherty 61 1994 Chairman of the Board and Director
Gregg M. Azcuy 36 1996 President, Chief Executive Officer
and Director
Gale R. Aguilar 63 1995 Director
James K. Dutton 63 1994 Director
Donald E. Fowler 58 1996 Director
Frank R. Triolo 62 1996 Director
PREFERRED STOCK NOMINEE:
Thomas I. Unterberg 65 1996 Director
</TABLE>
There are no family relationships among any of the Directors, executive
officers and key employees of the Company.
2
<PAGE> 6
The principal occupations and business experience, for at least the past
five years, of each Director and nominee is as follows:
Mr. Faherty has served as Chairman of the Board of the Company since
December 1994. From December 1994 to June 1996, he also served as Chief
Executive Officer of the Company. Prior to that, from August 1994 through
October 1994, he provided consulting services to the Company. See "Executive
Compensation -- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements." Since February 1977 to the present, Mr. Faherty
has been the principal of MICO, a general business consulting firm. In
connection with such consulting business, from January 1992 to January 1994, Mr.
Faherty served as President and Chief Executive Officer of Shared Financial
Systems, Inc., a worldwide provider of software and consulting services to data
processing market segments that utilize on-line transaction processing. Prior to
that, also in connection with his consulting business, from February 1989 to
June 1992, Mr. Faherty was employed by Intec Corp., a company engaged in the
development and sale of hardware and software systems designed to measure online
defects, serving as President of such company during such time and, from
February 1990, serving as its Chairman. In addition, from December 1992 to the
present, Mr. Faherty has been a general partner of Faherty Property Co., a
family investment partnership. Mr. Faherty serves as a director of the following
publicly held companies: BancTec, Inc.; and Frontier Corporation ("Frontier").
He serves on the compensation and audit committees of BancTec, Inc.
In August 1995, ALC Communications Corporation ("ALC") merged into
Frontier. Mr. Faherty was a director of ALC until the time of such merger and
became a director of Frontier upon the consummation of such merger. On April 10
and 11, 1995, three lawsuits were commenced against ALC as a result of its
announced merger with Frontier. In two of those actions, each filed in the Court
of Chancery, New Castle County, Delaware by Martin Mayers and Mordecai Cohen,
respectively, Frontier was named as a defendant, although it has not yet been
served with process. The lawsuits purport to be class actions brought on behalf
of all ALC stockholders against ALC and its directors. Among other things, the
complaints sought to enjoin the merger and/or to obtain an award of damages. On
June 9, 1995, the Delaware court consolidated the three cases for all purposes
under Mayers v. Irwin, et al., C.A. No. 14196. On July 10, 1995, ALC and its
directors answered the consolidated complaint.
Mr. Azcuy has been a Director of the Company since June 1996. He joined the
Company in April 1994 as Executive Vice President, Products Division. In
September 1994, he became Acting Chief Operating Officer and, in February 1995,
became Vice President and Chief Operating Officer. In December 1995, he became
President and Chief Operating Officer. Since June 1996, he has served as
President and Chief Executive Officer. Prior to joining the Company, from 1993
to 1994, Mr. Azcuy was International Marketing Manager for Hitachi Data Systems
International, a manufacturer of mainframe storage products. From 1991 to 1993,
Mr. Azcuy was Vice President, Marketing and Sales, for System Industries, an
Open-Systems provider of storage solutions and, prior to that, from 1982, held
various managerial and sales positions within System Industries.
Mr. Aguilar has been a Director of the Company since March 1995. Currently
he is President of MITEM Corporation, a software development and publishing
company with headquarters in Menlo Park, California. He was formerly President
of Aguilar and Associates, a firm specializing in assisting high technology
companies with strategy, marketing and business development. Prior to that, he
was Executive Vice President of SF2, a company that pioneered the storage
technology known as RAID. From 1982 to 1988, Mr. Aguilar served as Senior Vice
President of Marketing, Strategy and Corporate Development for Prime Computer.
He was with IBM for 27 years holding several executive positions in Sales,
Marketing and Development. Mr. Aguilar currently serves as a director of MITEM
Corporation.
Mr. Dutton has been a Director of the Company since August 1994. He is
currently a consultant and private investor. From 1991 to May 1994, he was a
consultant to and President of Andor America Corporation, a distributor of high
end mainframe computer equipment and related software. He was a director of
System Industries, Inc. from 1985 to July 1993 and served as Chairman of the
Board from March 1992 to July 1993. He is currently a director of Caere
Corporation and Network Equipment Technologies, Inc., each a public company.
3
<PAGE> 7
Mr. Fowler has been a Director of the Company since June 1996. He is
currently President and Chief Executive Officer of Worlds, Inc., a leader in
software tools and technology. Prior to that, from 1986 to 1996, Mr. Fowler
served as Senior Vice President at Tandem Computers. Prior to that, he held
executive positions at Bechtel Group and IBM. He currently serves as Chairman of
the President's Cabinet at California Polytechnic State University.
Mr. Triolo has been a Director of the Company since June 1996. He is
currently Chairman of Knowledge Discovery 1, a software and services company.
Prior to that, from 1992 to 1994, Mr. Triolo served as a senior officer with
AT&T Global Information Solutions (now NCR). From 1985 to 1992, he was a senior
officer with Teradata Corporation. Prior to that he was a senior sales executive
with Amdahl Corporation.
Mr. Unterberg has been a Director of the Company since June 1996. Mr.
Unterberg is Managing Director of Unterberg Harris, an investment banking firm
which serves as the Company's financial advisor. Unterberg Harris was the
principal underwriter in the Company's initial public offering in 1993 and acted
as placement agent in the Company's private offerings of preferred stock in 1995
and 1996. From 1987 to 1989, Mr. Unterberg was head of Technology Investment
Banking at Lehman Brothers. From 1977 to 1986, he was a General Partner,
Managing Director and Chairman of L.F. Rothschild, Unterberg, Towbin. He
currently serves on the Board of several public companies, including Fractal
Design Corp., The AES Corporation, Electronics for Imaging, Inc. and Systems and
Computer Technology Corporation.
Pursuant to Mr. Faherty's employment agreement, as long as Mr. Faherty was
serving as Chief Executive Officer of the Company, the Company had to use its
diligent efforts to obtain the nomination and election of Mr. Faherty as a
Director of the Company. See "Executive Compensation -- Employment Contracts,
Termination of Employment and Change-in-Control Arrangements." Mr. Faherty
served as Chief Executive Officer of the Company until June 20, 1996.
Pursuant to the terms of the Company's Restated and Amended Certificate of
Incorporation, as amended, the holders of the Series B Preferred Stock and
Series C Preferred Stock, acting as a single class, have the right to designate
and elect two members of the Board of Directors. Such holders have exercised
such right with respect to one seat on the Board of Directors by designating Mr.
Unterberg to serve as a member of the Board. Such holders have not yet exercised
their right to designate a second member of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR THE BOARD OF DIRECTORS.
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors has a Compensation, Option and Stock Purchase Plan
Committee (the "Compensation and Option Committee"), which approves salaries and
certain incentive compensation for top level employees of and consultants to the
Company and which makes recommendations about stock option awards to employees
of and consultants to the Company; and an Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent auditors. The Compensation and Option Committee was organized in
June 1995 and combined the duties of the Compensation Committee and the Option
Committee. Each of the Compensation and Option Committee and the Audit Committee
currently consists of Gale R. Aguilar, James K. Dutton, Donald E. Fowler, Gustav
H. Koven, III, Frank R. Triolo and Thomas I. Unterberg. The Compensation and
Option Committee (or its predecessors) held four meetings in 1995. The Audit
Committee held two meetings in 1995. There were nine meetings of the Board of
Directors in 1995. Each incumbent Director attended at least 75% of the
aggregate of the total number of meetings of the Board held during the period
for which he was a Director and the total number of meetings held by all
Committees on which he served during the period in which he served.
COMPENSATION OF DIRECTORS
Each of the Company's outside (non-employee) Directors receives
compensation of $1,000 per meeting for each regularly-scheduled meeting in which
he or she participates, either in person or by telephone. In
4
<PAGE> 8
addition, each of the outside members of the Board who serves on a Committee of
the Board receives a $500 fee per meeting for each regularly-scheduled Committee
meeting in which such Committee member participates, either by telephone or in
person, as long as such Committee meeting or meetings is or are held on a day or
days other than the day of a regularly-scheduled Board meeting. If an outside
Board member participates in a regularly-scheduled Board meeting or Committee
meeting by telephone, such Board member qualifies for the participation fee only
if the meeting time exceeds three hours and such Board member has participated
for at least such period. Such Board member receives one-half the participation
fee if the meeting time exceeds one hour but is not more than three hours and
such Board member has participated for at least such period. No participation
fee is paid for any conference call other than regularly-scheduled Board or
Committee meetings. Pursuant to such arrangement, Messrs. Aguilar, Dutton and
Koven, each a current Director and nominee (other than Mr. Koven), received
$7,500, $6,500 and $8,500, respectively, in 1995, and Marbeth J. Shay and
Michael R. Bruce, each a former Director of the Company, received $5,500 and
$1,000, respectively, in 1995. The Company also reimburses each outside Director
for his or her reasonable expenses in connection with their attendance at
regularly-scheduled meetings of the Board or its Committees.
In addition, the Company may, from time to time and in the discretion of
the Board of Directors, grant options or warrants to Directors. On March 1,
1995, the Company granted to Mr. Aguilar 30,000 options under the Company's
Stock Option Plan (the "Plan") at an exercise price of $2 3/8 per share, 1/3 of
which were exercisable immediately, with the remaining 20,000 exercisable to the
extent of 1/3 on each of the first, second and third anniversary of the date of
grant. On May 19, 1995, pursuant to certain anti-dilution and price protection
provisions, in connection with the issuance of the Series B Preferred Stock, the
266,601 common stock warrants granted to Mr. Faherty were increased to 298,848
at a purchase price of $1.25 per share. See "Executive
Compensation -- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements." On June 20, 1996, the Company granted to each
of Messrs. Triolo, Fowler and Unterberg 30,000 options under the Plan at an
exercise price of $2 7/8 per share, 1/3 of which are exercisable immediately,
with the remaining 20,000 exercisable to the extent of 1/3 on each of the first,
second and third anniversary of the date of grant.
The Board of Directors has adopted, and is submitting to Stockholders for
approval, the Non-Employee Plan. Under the terms of the Non-Employee Plan, each
non-employee Director who first becomes a member of the Board after the approval
of the Non-Employee Plan by the Stockholders of the Company, shall be
automatically granted, on the date such person becomes a member of the Board, an
option to purchase 30,000 shares of the Common Stock. In addition, each
non-employee Director who is a member of the Board on the first trading day of
each year shall be automatically granted on such date, without further action by
the Board, an option to purchase 5,000 shares of the Common Stock. See "Proposal
To Approve 1996 Non-Employee Directors Stock Option Plan."
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the
Company:
<TABLE>
<CAPTION>
CAPACITIES IN IN CURRENT
NAME AGE WHICH SERVED POSITION SINCE
- ------------------------- --- ------------------------------------- --------------
<S> <C> <C> <C>
Michael E. Faherty 61 Chairman of the Board and Director 1996
Gregg M. Azcuy 36 President, Chief Executive Officer 1996
and Director
Louis J. Altieri 36 Vice President, Finance and 1995
Administration
Priyan Guneratne 40 Vice President, Operations 1995
</TABLE>
Mr. Altieri, C.P.A., joined the Company in September 1994 as Controller and
became Vice President, Finance and Administration in October 1995. Prior to
joining the Company, from October 1991 until August 1994, Mr. Altieri served as
corporate controller of Monroe Systems for Business, Inc., an international
manufacturer, distributor and service provider of business equipment. Prior to
that, from June 1985 until September 1991, he served as corporate
controller/treasurer of C.M. Ofray and Sons, Inc. and Lion Ribbon Company, each
a manufacturer of novelty ribbons to florists, wholesalers and large retailers.
5
<PAGE> 9
Mr. Guneratne joined the Company in 1992 as Director of Manufacturing for
the Company's Products Division and later served as Director of Engineering. He
became Vice President, Operations in 1995. Prior to joining the Company, from
1986, Mr. Guneratne served in various product and design positions for E-Systems
Garland Division, including Program Manager, Engineering Manager and Products
Manager. From 1976 through 1986, Mr. Guneratne held various positions in
engineering design and development at Unisys Corporation and Raytheon Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Directors, officers and shareholders who
beneficially own more than 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Exchange Act to file initial reports of
ownership and reports of changes in ownership with respect to the Company's
equity securities with the Securities and Exchange Commission (the "SEC"). All
reporting persons are required by SEC regulation to furnish the Company with
copies of all reports that such reporting persons file with the SEC pursuant to
Section 16(a).
Based solely on the Company's review of the copies of such forms received
by the Company, Marbeth J. Shay, a former officer and Director of the Company,
Michael E. Faherty, Chairman of the Company, Gregg M. Azcuy, President and Chief
Executive Officer of the Company, Louis J. Altieri, Vice President, Finance and
Administration, and Robert J. Liebman and Frank Pinto, each a former officer of
the Company, did not report on a timely basis certain 1995 Form 4 transactions.
In particular, Ms. Shay failed to report on a Form 4 the sale on June 30,
1995 of 18,800 shares indirectly held by her, at a price per share of $2.35. In
addition, Ms. Shay failed to report on a Form 4 the sale on July 24, 1995 of
20,100 shares indirectly held by her, at a price per share of $2.39. Such
transactions were reported on a Form 5 "Annual Statement of Changes in
Beneficial Ownership" which was filed on or before February 14, 1996 with the
SEC and with the Nasdaq National Market. Mr. Faherty failed to report on a Form
4 the issuance on May 19, 1995 of warrants to purchase 298,848 shares of Common
Stock at an exercise price of $1.25 per share. Such warrants were issued
pursuant to the anti-dilution provisions of 266,601 warrants previously issued
to Mr. Faherty. Such transaction was reported on a Form 4 which was filed in
March 1996 with the SEC and the Nasdaq National Market. Mr. Faherty also failed
to report on a Form 4 the purchase of 19,587 shares of Common at a purchase
price of $1.36 per share. Such shares were issued in lieu of deferred
compensation previously deferred by Mr. Faherty in the first quarter of 1996.
Such transaction was reported on a Form 4 which was filed in July 1996 with the
SEC and the Nasdaq Small Cap Market. Mr. Azcuy failed to report on a Form 4 the
issuance of options to purchase 80,000 shares of Common stock at an exercise
price of $2.125 per share. Such transaction was reported on a Form 4 which was
filed in April 1995 with the SEC and the Nasdaq National Market. Mr. Azcuy also
failed to report on a Form 4 the issuance of options to purchase 113,691 shares
of Common stock at an exercise price of $1.25 per share. Such options were
issued pursuant to the anti-dilution provisions of the 80,000 options previously
issued to Mr. Azcuy. Such transaction was reported on a Form 4 which was filed
in March 1996 with the SEC and the Nasdaq National Market. Mr. Altieri failed to
report on a Form 4 the issuance of options to purchase 20,000 shares of Common
stock at an exercise price of $2.125 per share. Such transaction was reported on
a Form 4 which was filed in April 1995 with the SEC and the Nasdaq National
Market. Mr. Liebman failed to report on a Form 4 the issuance of options to
purchase 20,000 shares of Common stock at an exercise price of $2.125 per share.
Such transaction was reported on a Form 4 which was filed in April 1995 with the
SEC and the Nasdaq National Market. Mr. Pinto failed to report on a Form 4 the
issuance of options to purchase 10,000 shares of Common stock at an exercise
price of $2.125 per share. Such transaction was reported on a Form 4 which was
filed in April 1995 with the SEC and the Nasdaq National Market.
6
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION IN 1995, 1994 AND 1993
The following Summary Compensation Table sets forth information concerning
compensation during the years ended December 31, 1995, 1994 and 1993 for
services in all capacities awarded to, earned by or paid to (i) all individuals
who served as the Company's Chief Executive Officer during 1995 (one
individual), (ii) the individuals who were the most highly compensated executive
officers of the Company, other than those serving as the Chief Executive Officer
during 1995, whose aggregate cash compensation exceeded $100,000 and who were
serving as executive officers at the end of 1995 (two individuals), and (iii)
certain additional individuals who would have fallen into category (ii) but for
the fact that the individual was not serving as an executive officer at the end
of 1995 (two individuals) ((i), (ii) and (iii), collectively, being the "Named
Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------
OTHER
ANNUAL AWARDS ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION ------------ COMPENSATION
POSITION YEAR ($) ($) ($) OPTIONS(#) ($)
(A) (B) (C) (D) (E) (G) (I)
------------------------------------- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Faherty,............. 1995 $117,500(1) $ -- $ -- 32,247(3) $ --
Chief Executive Officer 1994 7,307(2) -- -- 266,601(3) --
1993 -- -- -- -- --
Gregg M. Azcuy, President....... 1995 150,000 -- -- 163,691(5) --
and Chief Operating Officer 1994 109,616(4) -- -- 75,000(6) --
1993 -- -- -- -- --
Louis J. Altieri, Vice
President,.................... 1995 107,746 -- -- 59,000 --
Finance and Administration 1994 25,385 -- -- 6,000 --
1993 -- -- -- -- --
Frank Pinto, Jr., Vice
President,.................... 1995 102,581 -- -- 40,000 --
Sales and Marketing* 1994 100,577 -- -- 27,000(7) --
1993 68,000 10,000 -- 6,000 --
Robert J. Leibman, Vice
President,.................... 1995 150,022 19,036 -- 20,000 --
Sales* 1994 147,434 12,058 -- 30,000(8) --
1993 109,615 18,268 -- 15,000 --
</TABLE>
- ---------------
* Not serving in such position at the end of 1995.
(1) Such amount includes $28,846 which was deferred and received as 17,609
shares of restricted Common Stock in lieu of cash during 1996. Such number
of shares was calculated using the average market value of the Common Stock
for the fourth quarter of 1995 subject to a 39% discount.
(2) Mr. Faherty joined the Company as Chairman and Chief Executive Officer in
December 1994. He served as Chief Executive Officer until June 20, 1996. Mr.
Faherty's base salary is $125,000. The compensation reported herein as being
paid for services rendered as Chief Executive Officer does not include
amounts paid to Mr. Faherty by the Company pursuant to a consulting
agreement which the Company and Mr. Faherty entered into in August 1994 and
which was completed in October 1994. Pursuant to such consulting agreement,
Mr. Faherty provided consulting services in 1994 in the amount of $58,580,
of which $38,570 was paid during 1994 and $20,010 was paid in 1995. See
"-- Employment Contracts, Termination of Employment and Change-in-Control
Arrangements."
(3) In connection with his employment agreement, Mr. Faherty was granted
warrants to purchase 266,601 shares of Common Stock at a purchase price of
$1.75 per share, subject to anti-dilution and price protection provisions.
Such warrants vest as follows: 20% on December 6, 1994; 5% per month at the
end of each month during the first six months of his employment agreement;
25% on the completion of the
7
<PAGE> 11
first fiscal quarter (commencing with the first quarter of 1995) during his
employment that the Company achieves positive net income per share; and 25%
on December 6, 1995. Pursuant to anti-dilution and price protection
provisions contained in such warrants, in connection with a transaction
consummated in May 1995, Mr. Faherty was granted warrants to purchase
298,848 shares of Common Stock at a purchase price of $1.25 per share to
replace the previous grant of 266,601 warrants. Such anti-dilution and price
protection provisions terminated on December 31, 1995. See "-- Employment
Contracts, Termination of Employment and Change-in-Control Arrangements."
(4) Mr. Azcuy joined the Company in April 1994. On June 20, 1996, he became
President and Chief Executive Officer. Mr. Azcuy's base salary is $175,000.
(5) In February 1995, Mr. Azcuy was granted options to purchase 80,000 shares of
Common Stock. Pursuant to anti-dilution and price protection provisions
contained in such options, in connection with a transaction consummated in
May 1995, Mr. Azcuy was granted options to purchase 113,691 shares of Common
Stock at a purchase price of $1.25 per share to replace the previous grant
of 80,000 options. Such anti-dilution and price protection provisions
terminated on December 31, 1995.
(6) Includes 75,000 options granted in May 1994 which were repriced in October
1994.
(7) Includes 6,000 options granted in April 1993 and 15,000 options granted in
January 1994, both of which grants were repriced in October 1994.
(8) Includes 15,000 options granted in March 1993 which were repriced in October
1994.
OPTION AND WARRANT GRANTS IN 1995
The following table sets forth information concerning individual grants of
stock options or warrants made pursuant to the Plan or otherwise during 1995 to
each of the Named Executives. The Company has never granted any stock
appreciation rights.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS AT ASSUMED ANNUAL RATES
GRANTED TO EXERCISE MARKET OF STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE PRICE ON FOR OPTION TERM(3)
GRANTED IN FISCAL PRICE THE DATE EXPIRATION -----------------------------
NAME (#)(1) YEAR ($/SH) OF GRANT DATE 5%($) 10%($)
(A) (B) (C) (D) ($/SH)(2) (E) 0%($) (F) (G)
----------------------- ------- ---------- -------- --------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael E. Faherty..... 32,247 5.0% $ 1.25 (4) $1.75 12/6/04 $16,124 $ 51,614 $106,060
Gregg M. Azcuy......... 113,691 17.7% 1.25 (5) 1.75 2/1/05 56,846 181,971 373,927
25,000 3.9% 3.00 N/A 10/26/05 -- 47,168 119,527
25,000 3.9% 1.50 N/A 12/14/05 -- 23,584 59,763
Louis J. Altieri....... 20,000 3.1% 2.125 N/A 2/1/05 -- 26,728 67,732
10,000 1.6% 3.00 N/A 10/26/05 -- 18,867 47,811
29,000 4.5% 1.50 N/A 12/14/05 -- 27,357 69,326
Frank Pinto, Jr. ...... 10,000 1.6% 2.125 N/A 2/1/05 -- 13,364 33,866
30,000 4.7% 3.00 N/A 10/26/05 -- 56,601 143,433
Robert J. Leibman...... 20,000 3.1% 2.125 N/A 2/1/05 -- 26,728 67,732
</TABLE>
- ---------------
(1) An aggregate of 119,000 of such options were granted pursuant to and in
accordance with the Plan. Other than the warrants granted to Mr. Faherty,
such options become exercisable to the extent of 25% of the options granted
on the first anniversary of the date of grant, with an additional 25% of the
options granted becoming exercisable on each of the second, third and fourth
anniversary of the date of grant. The warrants granted to Mr. Faherty vest
as follows: 20% on December 6, 1994; 5% per month at the end of each month
during the first six months of his employment agreement; 25% on the
completion of the first fiscal quarter (commencing with the first quarter of
1995) during his employment that the Company achieves positive net income
per share; and 25% on December 6, 1995. The options terminate on the
expiration date, subject to earlier termination on the optionee's death,
disability or termination of
8
<PAGE> 12
employment with the Company. Options are not assignable or otherwise
transferable except by will or the laws of descent and distribution. In the
event of a reorganization of the Company, as defined in the Plan, the Board
of Directors may, in its discretion, accelerate the exercise dates of
outstanding options. An aggregate of 163,691 of such options were granted
outside the Plan. The material terms of such 163,691 options are
substantially similar to those options granted under the Plan.
(2) Applicable only to grants which have exercise prices that are less than the
market price of the underlying security on the date of grant.
(3) Based on a grant date fair market value equal to the grant date exercise
price per share of the applicable option or warrant for each of the Named
Executives and assumes no adjustments to the grant date exercise price.
(4) Pursuant to anti-dilution and price protection provisions contained in
warrants to purchase 266,601 shares of Common Stock, in connection with a
transaction consummated in May 1995, Mr. Faherty was granted warrants to
purchase 298,848 shares of Common Stock at a purchase price of $1.25 per
share to replace the previous grant of 266,601 warrants. Such anti-dilution
and price protection provisions terminated on December 31, 1995.
(5) Of such options, 80,000 were granted on February 1, 1995 at an exercise
price of $2.125 per share, 25,000 were granted on October 26, 1995 at an
exercise price of $3.00 per share and 25,000 were granted on December 14,
1995 at an exercise price of $1.50 per share. Pursuant to anti-dilution and
price protection provisions contained in the options to purchase 80,000
shares of Common Stock granted in February 1995, in connection with a
transaction consummated in May 1995, Mr. Azcuy was granted options to
purchase 113,691 shares of Common Stock at a purchase price of $1.25 per
share to replace the previous grant of 80,000 options. Such anti-dilution
and price protection provisions terminated on December 31, 1995.
9
<PAGE> 13
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
options during 1995 by each of the Named Executives and the year-end value of
unexercised in-the-money options or warrants.
AGGREGATED OPTION EXERCISES IN 1995
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL FISCAL
YEAR-END YEAR-END
(#) ($)(1)
SHARES --------------- ----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
(A) (B) (C) (D) (E)
------------------------------------ ----------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
Michael E. Faherty.................. -- -- 224,136/74,712 $112,068/149,424
Gregg M. Azcuy...................... -- -- 18,750/219,941 --(2)/56,846
Louis J. Altieri.................... -- -- 1,500/63,500 --/--(2)
Frank Pinto, Jr. ................... -- -- 6,750/67,000 --/--(2)
Robert J. Leibman................... -- -- 7,500/50,000 --/--(2)
</TABLE>
- ---------------
(1) Based on a year-end fair market value of $1.75 per share.
(2) None of such options or warrants were "in-the-money" as of December 31,
1995.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Except as set forth below, there are no employment contracts, termination
of employment or change-in-control arrangements with any of the Named
Executives.
On August 29, 1994, the Company entered into a consulting agreement with
Mr. Faherty pursuant to which Mr. Faherty provided consulting services to the
Company, including, among other things, the review of the Company's operations
and the development of a plan to restructure the Company's operations and
improve the Company's financial performance. Such consulting services were
provided at a rate of $170 per hour, not to exceed $2,000 per day, plus
expenses. In connection with the execution of such agreement, Mr. Faherty
executed a Consultant's Invention Assignment, Confidential Information and
Non-Competition Agreement. Mr. Faherty provided such consulting services in 1994
in the amount of $58,580, of which $38,570 was paid during 1994 and $20,010 in
1995.
In October 1994, the consulting arrangement ended upon the completion by
Mr. Faherty of his consulting assignment. Subsequently, on December 6, 1994, the
Company entered into an employment agreement with Mr. Faherty. Pursuant to such
agreement, Mr. Faherty served as the Chairman of the Board and Chief Executive
Officer, and agreed that a portion of his duties include the recruitment of a
President of the Company. Under the agreement, he is entitled to an annual
salary of $100,000, such salary to be increased by (i) $25,000 per annum at the
first time during Mr. Faherty's employment that the Company obtains equity or
debt financing of at least $3,000,000 in gross proceeds (which salary increase
was triggered upon the consummation of an accounts receivable financing
transaction in the first quarter of 1995) and (ii) $25,000 per annum upon the
completion of the first fiscal quarter (commencing with the first quarter of
1995) during Mr. Faherty's employment that the Company achieves positive net
income per share. Pursuant to the agreement, as long as Mr. Faherty was serving
as the Chief Executive Officer, the Company had to use its diligent efforts to
obtain the nomination and election of Mr. Faherty as a Director of the Company.
Mr. Faherty served as Chief Executive Officer until June 20, 1996.
The Company may terminate Mr. Faherty's employment without cause (as such
term is defined in Mr. Faherty's employment contract, unless otherwise noted
herein) upon action by the Board of Directors,
10
<PAGE> 14
and upon no less than thirty days prior written notice. Mr. Faherty may
terminate his employment without cause upon no less than thirty days prior
written notice. In the absence of grounds to terminate for cause and in the
event that the Company terminated Mr. Faherty's employment before June 6, 1995,
the Company had agreed to pay to Mr. Faherty his then current base salary
through such date. The Company may terminate Mr. Faherty's employment at any
time for cause. In such event, the Company has no further obligations to Mr.
Faherty.
The agreement provided that in the event of any termination of the
agreement by the Company without cause during the first six months of
employment, the Company was obligated to pay to Mr. Faherty six months' salary
(less salary amounts previously paid by the Company during such period). After
the expiration of such six-month period, if Mr. Faherty is terminated without
cause, the Company must pay 90 days salary. In the event of a Board-approved
action likely or intended to lead to a change of control (as such term is
defined in Mr. Faherty's employment contract), which Board action includes a
severance package for senior managers of the Company, Mr. Faherty has agreed to
accept, in lieu of the severance pay described in the preceding sentence,
whatever severance package is offered to such senior managers of the Company. If
(i) there is a change of control; (ii) Mr. Faherty is terminated without cause;
and (iii) no severance package is offered to senior managers of the Company, the
former severance pay provisions continue to apply.
Pursuant to his employment agreement, Mr. Faherty is eligible to receive
bonuses. Except as otherwise provided in the employment agreement, the amount of
any such bonuses is solely within the discretion of the Board of Directors of
the Company or, if standing, the Compensation Committee thereof. In addition,
the Company has agreed to pay to Mr. Faherty (i) $25,000 upon the completion of
each fiscal quarter (commencing with the first quarter of 1995) during Mr.
Faherty's employment for which the Company achieves positive net income per
share, if positive net income per share was not achieved during the previous
fiscal quarter, (ii) $40,000 upon the completion of each fiscal quarter during
Mr. Faherty's employment for which the Company achieves positive net income per
share, if positive net income per share was achieved for the previous fiscal
quarter, (iii) $100,000 upon the completion of each fiscal year during Mr.
Faherty's employment for which the Company achieves positive net income per
share. In no event, however, shall the aggregate bonuses payable for any fiscal
year of the Company exceed $150,000.
In connection with Mr. Faherty's employment agreement, on December 6, 1994,
the Company issued warrants to purchase 266,601 shares (the "Warrant Shares") of
Common Stock of the Company at a purchase price of $1.75 per share (the fair
market value of such shares on the date of issuance), which Warrant Shares
vested as follows: 20% on December 6, 1994; 5% per month at the end of each
month during the first six months of Mr. Faherty's employment; 25% upon the
completion of the first fiscal quarter (commencing with the first quarter of
1995) during Mr. Faherty's employment that the Company achieves positive net
income per share; and 25% on December 6, 1995. In the event of a change of
control, the Warrant Shares vest immediately prior to the consummation of any
such transaction.
Such warrants contain certain anti-dilution and price protection
provisions. In the event that the Company obtains equity financing during Mr.
Faherty's employment at a per share price of Common Stock less than the initial
exercise price of the Warrant Shares, the exercise price of the Warrant Shares
automatically shall be adjusted to an exercise price equal to such lower per
share price. The Company also has agreed that in no event will Mr. Faherty hold
warrants evidencing ownership of less than 4% of the Common Stock of the Company
(on a fully diluted basis) and, if necessary, the Company will issue additional
warrants (at the then current exercise prices) in order to maintain such 4%
minimum equity participation. The anti-dilution and price protection provisions
described in the foregoing two sentences lapsed on December 31, 1995. Pursuant
to such anti-dilution and price protection provisions, in connection with a
transaction consummated in May 1995, the warrants granted to Mr. Faherty were
increased to 298,848 at a purchase price of $1.25 per share. Mr. Faherty's
rights to the Warrant Shares are, in his sole discretion, assignable to his
family partnership or to a trust or trusts formed for the benefit of his
children.
In the event that the Company is sold within two years from December 6,
1994, the Company must pay, at Mr. Faherty's option and in lieu of all Warrant
Shares, a cash fee equal to the product of (i) the price per share paid by the
acquiror (or, in the event of an asset transaction, its equivalent), not to
exceed 150% of the
11
<PAGE> 15
then current warrant exercise price, and (ii) the total number of shares of
Common Stock then outstanding, on a fully diluted basis, multiplied by that
number which is equal to Mr. Faherty's percentage ownership of the Company, on a
fully diluted basis, represented solely by Mr. Faherty's Warrant Shares less 1%.
Notwithstanding the foregoing, if Mr. Faherty's employment with the Company is
terminated for cause (such term being defined separately for these purposes in
Mr. Faherty's employment agreement) or by his own volition and such termination
occurs within six months from December 6, 1994 but prior to the approval by the
Board of Directors of the Company of a specific transaction, or the pursuit
thereof, which provides for a sale of the Company, Mr. Faherty is not be
entitled to any cash fee.
In connection with the execution of Mr. Faherty's employment agreement, Mr.
Faherty agreed to certain confidentiality, non-competition, non-solicitation,
non-disclosure and invention assignment provisions.
In April 1994, the Company also entered into an employment agreement with
Frank Pinto, a former officer of the Company and a Named Executive, pursuant to
which the Company was not permitted to terminate Mr. Pinto's employment without
cause prior to April 5, 1995. Under the agreement, Mr. Pinto was entitled to a
salary of $100,000 per annum and was eligible to receive a bonus of up to
$30,000 if certain financial milestones were met in 1994. Such financial
milestones were not met in 1994. No such amounts were paid or are payable by the
Company.
In February 1995, the Board of Directors of the Company approved a proposal
to provide, for a one-year period commencing February 1, 1995, to Gregg Azcuy,
Louis J. Altieri, Robert Leibman and Frank Pinto, each a Named Executive, and
Priyan Guneratne, Vice President, Operations of the Company, Mark Ish, Director
of Engineering of the Company, and Rick Rice, Director of Professional Services
of the Company, certain change of control severance and bonus payments.
Specifically, the Company has agreed that (i) six months severance will be paid
to such persons in the event of certain terminations after a change in control
of the Company, and (ii) an incentive bonus will be paid if such persons are
still in the employ of the Company at the completion of a change in control,
such bonus to be calculated based on the consideration received by the Company
in the change of control. In February 1996, the Board of Directors approved a
proposal to extend the term of such plan for Messrs. Azcuy, Altieri, Guneratne,
Ish and Rice to February 1, 1997. The maximum severance and bonus payments which
could be payable to Mr. Azcuy exceeds $100,000. The maximum aggregate severance
and bonus payments which could be payable by the Company to all covered
employees under such plan currently is approximately $497,000.
In September 1995, Marbeth J. Shay, a former officer and Director of the
Company, resigned from the Board of Directors of the Company. Immediately prior
to her resignation, Ms. Shay served as Vice Chairman of the Board. Prior to
that, in November 1994, in connection with her retirement from active management
of the Company and resignation as an officer of the Company, Ms. Shay had
entered into a one-year consulting agreement with the Company pursuant to which
she was assisting the Company's management team in transitioning key Company
relationships. In consideration therefor, the Company agreed to pay to Ms. Shay
$40,000, payable in 12 monthly installments commencing December 29, 1994. All of
such amount has been paid by the Company, including payments totaling $36,667 in
the year ended December 31, 1995.
Pursuant to an agreement with the Company, (i) Ms. Shay received salary
continuation, at current rates, through March 31, 1995, and, thereafter, is
entitled to a maximum of $60,000, payable only out of the net income of the
Company, through December 31, 1996; (ii) Ms. Shay, together with her husband,
Dr. Shay, a former officer and Director of the Company, received from the
Company certain items of personal property valued at $14,800; (iii) Ms. Shay,
together with Dr. Shay, was paid rent by the Company in the amount of $1,800 per
month for an apartment the Company subleased from Dr. Shay and Ms. Shay from
December 15, 1994 through April 30, 1995; and (iv) Ms. Shay was granted certain
demand and piggy-back registration rights and certain limited rights to
participate in future offerings by the Company.
Under the Plan, in the event of a reorganization of the Company, as defined
in the Plan, the Board of Directors may, in its discretion, accelerate the
exercise dates of outstanding options.
12
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Option Committee currently is comprised of Gale R.
Aguilar, James K. Dutton, Donald E. Fowler, Gustav H. Koven, III, Frank R.
Triolo and Thomas I. Unterberg, none of whom was an officer of the Company as of
December 31, 1995.
There are no compensation committee interlocks.
Prior to her resignation from the Board of Directors, Ms. Shay served on
each of the Compensation Committee and the Option Committee (as such committees
were then constituted). In connection with the resignation of Ms. Shay and Dr.
Shay in 1994, Ms. Shay entered into a one-year consulting agreement with the
Company. Pursuant to agreements with the Company, (i) Ms. Shay received salary
continuation, at current rates, through March 31, 1995, and, thereafter, is
entitled to a maximum of $60,000, payable only out of the net income of the
Company, through December 31, 1996; (ii) Ms. Shay, together with her husband,
Dr. Shay, a former officer and Director of the Company, received from the
Company certain items of personal property valued at $14,800; (iii) Ms. Shay,
together with Dr. Shay, was paid rent by the Company in the amount of $1,800 per
month for an apartment the Company subleased from Dr. Shay and Ms. Shay from
December 15, 1994 through April 30, 1995; and (iv) Ms. Shay was granted certain
demand and piggy-back registration rights and certain limited rights to
participate in future offerings by the Company. See "-- Employment Contracts,
Termination of Employment and Change-in-Control Agreements."
On August 22, 1994, the Company granted to Mr. Dutton, a current Director
and nominee, options to purchase 30,000 shares of Common Stock at an exercise
price of $2 7/8. See "Election of Directors -- Directors' Compensation."
On March 1, 1995, the Company granted to Mr. Aguilar, a current Director
and nominee, options to purchase 30,000 shares of Common Stock at an exercise
price of $2 3/8. See "Election of Directors -- Directors' Compensation."
Edison Venture Fund, L.P. ("Edison") is entitled to certain rights with
respect to the registration of the shares held by it. Gustav H. Koven, III is a
general partner of Edison Partners, L.P. which is the general partner of Edison.
Under the terms of the agreement with Edison, if the Company proposes to
register any of its securities under the Securities Act of 1933, as amended (the
"Act"), Edison or persons who shall become holders of Edison's shares are
entitled to include their shares of Common Stock as part of such registration.
In addition, Edison or persons who shall become holders of Edison's shares may
require the Company to register their shares of Common Stock under the Act. In
general, the Company is required to effect registration at its own expense. All
of the foregoing registration rights are subject to certain conditions,
including the right of a managing underwriter of an offering to place certain
conditions on the number of shares to be registered.
13
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return on the Nasdaq Composite
Index and the Dow Jones Computer Industry Group Index (capitalization weighted)
for the period beginning on the date on which the SEC declared effective the
Company's Form 8-A Registration Statement pursuant to Section 12 of the Exchange
Act, and ending on the last day of the Company's last completed fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)(3)
AMONG THE COMPANY, THE NASDAQ COMPOSITE INDEX
AND THE DOW JONES COMPUTER INDUSTRY GROUP INDEX
(CAPITALIZATION WEIGHTED)
[GRAPH]
<TABLE>
<CAPTION>
DOW JONES
COMPUTER
INDUSTRY GROUP
INDEX
MEASUREMENT PERIOD NASDAQ (CAPITALIZATION
(FISCAL YEAR COVERED) COMPOSITE INDEX WEIGHTED) ECCS, INC.
--------------------- --------------- -------------- ----------
<S> <C> <C> <C>
6/14/93 100.00 100.00 100.00
12/31/93 111.54 98.90 75.00
12/31/94 107.96 80.04 16.15
12/31/95 151.12 171.46 29.17
</TABLE>
- ----------
(1) Graph assumes $100 invested on June 14, 1993 in the Company's Common Stock,
the Nasdaq Composite Index and the Dow Jones Computer Industry Group Index
(capitalization weighted).
(2) Total return assumes reinvestment of dividends.
(3) Year ending December 31.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Option Committee has furnished the following report:
The Company's executive compensation policy is designed to attract and
retain highly qualified individuals for its executive positions and to provide
incentives for such executives to achieve maximum Company performance by
aligning the executives' interest with that of shareholders by basing a portion
of compensation on corporate performance.
The Compensation and Option Committee generally determines base salary
levels for executive officers of the Company at or about the start of the fiscal
year and determines actual bonuses after the end of the fiscal year based upon
Company and individual performance.
The Company's executive officer compensation program is comprised of base
salary, discretionary annual cash bonuses, stock options and various other
benefits, including medical insurance and a 401K Plan which are generally
available to all employees of the Company.
14
<PAGE> 18
Salaries are established in accordance with industry standards through
review of publicly available information concerning the compensation of officers
of comparable companies. Consideration is also given to relative responsibility
and seniority and individual experience and performance. Salary increases are
generally made based on increases in the industry for similar companies with
similar performance profiles and/or attainment of certain division or Company
goals.
Bonuses are paid on an annual basis and are discretionary. The amount of
bonus is based on criteria which are designed to effectively measure a
particular executive's attainment of goals which relate to his or her duties and
responsibilities as well as overall Company performance. In general, the annual
incentive bonus is based on operational and financial results of the Company and
focuses on the contribution to these results of a business unit or division, and
the executive's individual performance in achieving the results.
The stock option program is designed to relate executives' and certain
middle managers' long-term interests to stockholders' long-term interests. In
general, stock option awards are granted on an annual basis if warranted by the
Company's growth and profitability. Stock options are awarded on the basis of
individual performance and/or the achievement of internal strategic objectives.
Certain stock options are subject to forfeiture in the event certain performance
goals are not met.
Based on review of available information, the Committee believes that the
current Chief Executive Officer's total annual compensation is reasonable and
appropriate given the size, complexity and historical performance of the
Company's business, the Company's position as compared to its peers in the
industry, and the specific challenges faced by the Company during the year, such
as changes in the market for computer products and manufacturers' product lines,
as well as variations in prices and distribution channels, and other industry
factors. No specific weight was assigned to any of the criteria relative to the
Chief Executive Officer's compensation.
In recognition of the Company's financial difficulties, including, but not
limited to, cash flow problems, existing during the period in which the Board of
Directors recruited Mr. Faherty as Chairman and Chief Executive Officer, he
agreed to accept an initial base salary less than market as reflected in certain
compensation surveys for companies of similar size engaged in broadly comparable
business activities. As described more fully elsewhere in this proxy statement,
his employment agreement provides for increases in base compensation and for
bonuses upon successful attainment of certain objectives which, if achieved,
would enable him to earn salary and bonus compensation at approximately the
statistical mean as set forth in such compensation surveys. Mr. Faherty deferred
his salary commencing October 1995. The deferred salary for 1995 was paid to Mr.
Faherty in March 1996 in the form of 17,609 shares of restricted Common Stock.
The Committee has attempted to heavily weight Mr. Faherty's total compensation
package towards potential common stock appreciation incentive by granting to Mr.
Faherty warrants to purchase 298,848 shares of Common Stock. Thus, although his
initial base salary was below market as reflected in the applicable surveys, Mr.
Faherty's compensation plan provides performance dependent opportunities to
increase total compensation to the market mean, including potential share
appreciation well above the mean.
Compensation, Option and Stock
Purchase Plan Committee Members
(as constituted at year end)
Gale R. Aguilar
James K. Dutton
Gustav H. Koven, III
15
<PAGE> 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are, as of June 26, 1996, approximately 69 holders of record of the
Company's Common Stock. The following table sets forth certain information, as
of June 26, 1996, regarding the beneficial ownership of the Company's Common
Stock by (i) each person who is known to the Company to own beneficially more
than 5% of the total number of shares of Common Stock outstanding as of such
date, (ii) each of the Company's Directors (which includes all nominees) and
Named Executives, and (iii) all Directors and current executive officers as a
group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER(1) OF BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
(i) Certain Beneficial Owners:
Marbeth J. Shay and
Joseph L. Shay, Ph.D.
112 Regents Place
Ponte Vedra, FL 32082................................ 1,213,091(3) 27.7
Unterberg Harris Private
Equity Partners, L.P.
Swiss Bank Tower
10 East 50th Street
New York, NY 10022................................... 1,040,488(4) 20.1
E&M RP Trust
c/o Edmund Shea
655 Brea Canyon Road
Walnut, CA 71789-3010................................ 443,696(5) 9.3
Tiedemann McCabe Global Telecom L.P.
c/o Jay McCabe
Tiedemann Bottress
535 Madison Avenue
New York, NY 10022................................... 310,364(6) 6.7
Edison Venture Fund, L.P.
997 Lenox Drive
Princeton Pike Corporate Center
Lawrenceville, NJ 08648.............................. 289,575 6.7
(ii) Directors (which includes all nominees)
and Named Executives:
Gustav H. Koven, III................................... 289,575(7) 6.7
James K. Dutton........................................ 16,666(8) *
Gale R. Aguilar........................................ 10,000(9) *
Michael E. Faherty..................................... 275,905(10) 6.0
Frank R. Triolo........................................ -- --
Donald E. Fowler....................................... -- --
Thomas I. Unterberg.................................... 444,436(11) 9.3
Gregg M. Azcuy......................................... 47,173(12) *
Louis J. Altieri....................................... 6,500(13) *
Robert J. Leibman...................................... 12,500(14) *
Frank Pinto, Jr........................................ -- --
(iii) All Directors and current executive officers as a
group (10 persons)................................... 1,092,005(7)(8)(9)(10) 21.5
(11)(12)(13)
(14)(15)
</TABLE>
- ---------------
* Less than one percent.
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have sole
voting and investment power with respect to all shares.
16
<PAGE> 20
(2) Applicable percentage of ownership is based on 4,333,171 shares of Common
Stock outstanding on June 26, 1996, plus the exercise or conversion of
applicable securities for each holder.
(3) Marbeth J. Shay, a former Director and the Vice Chairman of the Board of
Directors of the Company, and Joseph L. Shay, Ph.D., former President and
Chief Executive Officer, are husband and wife. Includes 576,037 shares of
Common Stock held by Ms. Shay and 591,037 shares of Common Stock held by
Dr. Shay. Also includes 23,009 and 23,008 shares of Common Stock subject to
options held by Ms. Shay and Dr. Shay, respectively, all of which are
exercisable. In September 1995, Ms. Shay and Dr. Shay executed a proxy
granting to the Secretary of the Company the right to vote in accordance
with the vote of a majority of the shares of Common Stock of the Company
entitled to vote (excluding shares held by Ms. Shay and Dr. Shay), 50% of
the aggregate number of shares of Common Stock owned by Ms. Shay and Dr.
Shay, at any time action is to be taken by proxy.
(4) Includes 765,820 and 274,668 shares of Common Stock issuable upon the
conversion of shares of Series B Preferred Stock and Series C Preferred
Stock, respectively.
(5) Includes 177,028 and 266,668 shares of Common Stock issuable upon the
conversion of shares of Series B Preferred Stock and Series C Preferred
Stock, respectively.
(6) Includes 177,028 and 133,336 shares of Common Stock issuable upon the
conversion of shares of Series B Preferred Stock and Series C Preferred
Stock, respectively.
(7) Includes the shares owned by Edison. Mr. Koven, a Director of the Company,
is a general partner of Edison Partners, L.P., which is the sole general
partner of Edison, and, as such, shares with the other general partners of
Edison Partners, L.P. the power to vote or direct the vote of and to
dispose or direct the disposition of the shares owned by Edison. Mr. Koven
expressly disclaims beneficial ownership of the shares owned by Edison,
except as to his proportionate partnership interest therein.
(8) Includes 16,666 shares of Common Stock subject to options which are
exercisable at June 26, 1996 or which will become exercisable within 60
days of such date.
(9) Includes 10,000 shares of Common Stock subject to options which are
exercisable as of June 26, 1996 or which will become exercisable within 60
days of such date.
(10) Includes 224,136 shares of Common Stock subject to warrants which are
exercisable at June 26, 1996 or which will become exercisable within 60
days of such date. Also includes 14,573 shares of Common Stock received in
July 1996 in lieu of deferred compensation for the second quarter of 1996.
(11) Includes: 88,514 and 133,336 shares of Common Stock issuable upon the
conversion of shares of Series B Preferred Stock and Series C Preferred
Stock, respectively; 91,592 and 32,848 shares of Common Stock issuable upon
the conversion of shares of Series B Preferred Stock and Series C Preferred
Stock, respectively, held by Unterberg Harris Private Equity Partners,
L.P.; 327 and 116 shares of Common Stock issuable upon the conversion of
shares of Series B Preferred Stock and Series C Preferred Stock,
respectively, held by Unterberg Harris Private Equity Partners, C.V.;
17,703 and 13,332 shares of Common Stock issuable upon the conversion of
shares of Series B Preferred Stock and Series C Preferred Stock,
respectively, held by Unterberg Harris LLC; and 66,668 shares of Common
Stock issuable upon the conversion of shares of Series C Preferred Stock
held by Bella and Israel Unterberg Foundation 2. Does not include the
following shares as to which Mr. Unterberg disclaims beneficial ownership:
674,228 and 241,820 shares of Common Stock issuable upon the conversion of
shares of Series B Preferred Stock and Series C Preferred Stock,
respectively, held by Unterberg Harris Private Equity Partners, L.P.;
163,247 and 58,552 shares of Common Stock issuable upon the conversion of
shares of Series B Preferred Stock and Series C Preferred Stock,
respectively, held by Unterberg Harris Private Equity Partners, C.V.;
70,811 and 53,336 shares of Common Stock issuable upon the conversion of
shares of Series B Preferred Stock and Series C Preferred Stock,
respectively, held by Unterberg Harris LLC; and 20,000 shares of Common
Stock issuable upon the conversion of shares of Series C Preferred Stock
held by Unterberg Harris 401(K) Profit Sharing Plan Dated 10/26/90 FBO:
Robert Matluck, of which Mr. Unterberg is a trustee.
(12) Includes 47,173 shares of Common Stock subject to options which are
exercisable at June 26, 1996 or which will become exercisable within 60
days of such date.
17
<PAGE> 21
(13) Includes 6,500 shares of Common Stock subject to options which are
exercisable at June 26, 1996 or which will become exercisable within 60
days of such date.
(14) Includes 12,500 shares of Common Stock subject to options which are
exercisable at June 26, 1996 or which will become exercisable within 60
days of such date.
(15) Includes 1,750 shares of Common Stock subject to options which are
exercisable as of June 26, 1996 or which will become exercisable within 60
days of such date and which are held by an executive officer not
individually listed herein. Does not include shares of Common Stock which
the Secretary of the Company is entitled to vote as a result of the proxy
granted by Marbeth J. Shay and Joseph L. Shay. See Note 3 above.
SERIES B PREFERRED STOCK
There are, as of June 26, 1996, ten holders of record of the Company's
Series B Preferred Stock. The following table sets forth certain information, as
of June 26, 1996, regarding the beneficial ownership of the Company's Series B
Preferred Stock by (i) each person who is known to the Company to own
beneficially more than 5% of the total number of shares of Series B Preferred
Stock outstanding as of such date, (ii) each of the Company's Directors (which
includes all nominees) and Named Executives, and (iii) all Directors and current
executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER(1) OF BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
(i) Certain Beneficial Owners:
Unterberg Harris
Private Equity Partners, L.P.
Swiss Bank Tower
10 East 50th Street
New York, NY 10022................................... 692,160 43.3
E&M RP Trust
c/o Edmund Shea
655 Brea Canyon Road
Walnut, CA 71789-3010................................ 160,000 10.0
Tiedemann McCabe Global Telecom L.P.
c/o Jay McCabe
Tiedemann Bottress
535 Madison Ave.
New York, NY 10022................................... 160,000 10.0
Unterberg Harris
Private Equity Partners, C.V.
c/o Administrator N.V.
NV FIDES
P.O. Box 4905, Curacao, NV........................... 147,840 9.2
John Rosenthal
c/o Burnham Securities
1325 Avenue of the Americas
New York, NY 10019................................... 120,000 7.5
Unterberg Harris LLC
Swiss Bank Tower
10 East 50th Street
New York, NY 10022................................... 80,000 5.0
George Karfunkel
c/o American Stock Transfer Co.
40 Wall Street, 46th Fl.
New York, NY 10005................................... 80,000 5.0
(ii) Directors (which includes all nominees)
and Named Executives:
Gustav H. Koven, III................................... -- --
James K. Dutton........................................ -- --
</TABLE>
18
<PAGE> 22
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER(1) OF BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
Gale R. Aguilar........................................ -- --
Michael E. Faherty..................................... -- --
Frank R. Triolo........................................ -- --
Donald E. Fowler....................................... -- --
Thomas I. Unterberg.................................... 179,077(3) 11.2
Gregg M. Azcuy......................................... -- --
Louis J. Altieri....................................... -- --
Robert J. Leibman...................................... -- --
Frank Pinto, Jr........................................ -- --
(iii) All Directors and current executive officers as a
group (10 persons)................................... 179,077(3) 11.2
</TABLE>
- ---------------
(1) Except as set forth in the footnotes to this table and subject to applicable
community property law, the persons named in the table have sole voting and
investment power with respect to all shares.
(2) Applicable percentage of ownership is based on 1,600,000 shares of Series B
Preferred Stock outstanding on June 26, 1996.
(3) Includes: 82,782 shares held by Unterberg Harris Private Equity Partners,
L.P.; 295 shares held by Unterberg Harris Private Equity Partners, C.V.; and
16,000 shares held by Unterberg Harris LLC. Does not include the following
shares as to which Mr. Unterberg disclaims beneficial ownership: 609,378
shares held by Unterberg Harris Private Equity Partners, L.P.; 147,545
shares held by Unterberg Harris Private Equity Partners, C.V.; and 64,000
shares held by Unterberg Harris LLC.
SERIES C PREFERRED STOCK
There are, as of June 26, 1996, 35 holders of record of the Company's
Series C Preferred Stock. The following table sets forth certain information, as
of June 26, 1996, regarding the beneficial ownership of the Company's Series C
Preferred Stock by (i) each person who is known to the Company to own
beneficially more than 5% of the total number of shares of Series C Preferred
Stock outstanding as of such date, (ii) each of the Company's Directors (which
includes all nominees) and Named Executives, and (iii) all Directors and current
executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER(1) OF BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
(i) Certain Beneficial Owners:
Unterberg Harris
Private Equity Partners, L.P.
Swiss Bank Tower
10 East 50th Street
New York, NY 10022................................... 68,667 13.7
E&M RP Trust
c/o Edmund Shea
655 Brea Canyon Road
Walnut, CA 71789-3010................................ 66,667 13.3
Genesis Capital Mgmt.
120 Broadway
Suite 7001
New York, NY 10271................................... 33,334 6.7
Tiedemann McCabe Global Telecom L.P.
c/o Jay McCabe
Tiedemann Bottress
535 Madison Ave.
New York, NY 10022................................... 33,334 6.7
</TABLE>
19
<PAGE> 23
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER(1) OF BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
S. Marcus Finkle
117 AABC, Suite 311
Aspen, CO 81611...................................... 25,000 5.0
(ii) Directors (which includes all nominees)
and Named Executives:
Gustav H. Koven, III................................... -- --
James K. Dutton........................................ -- --
Gale R. Aguilar........................................ -- --
Michael E. Faherty..................................... -- --
Frank R. Triolo........................................ -- --
Donald E. Fowler....................................... -- --
Thomas I. Unterberg.................................... 61,575(3) 12.3
Gregg M. Azcuy......................................... -- --
Louis J. Altieri....................................... -- --
Robert J. Leibman...................................... -- --
Frank Pinto, Jr........................................ -- --
(iii) All Directors and current executive officers as a
group (10 persons)................................... 61,575(3) 12.3
</TABLE>
- ---------------
(1) Except as set forth in the footnotes to this table and subject to applicable
community property law, the persons named in the table have sole voting and
investment power with respect to all shares.
(2) Applicable percentage of ownership is based on 500,000 shares of Series C
Preferred Stock outstanding on June 26, 1996.
(3) Includes: 8,212 shares held by Unterberg Harris Private Equity Partners,
L.P.; 29 shares held by Unterberg Harris Private Equity Partners, C.V.;
3,333 shares held by Unterberg Harris LLC; and 16,667 shares held by Bella
and Israel Unterberg Foundation 2. Does not include the following shares as
to which Mr. Unterberg disclaims beneficial ownership: 60,455 shares held by
Unterberg Harris Private Equity Partners, L.P.; 14,638 shares held by
Unterberg Harris Private Equity Partners, C.V.; 13,334 shares held by
Unterberg Harris LLC; and 5,000 shares held by Unterberg Harris 401(K)
Profit Sharing Plan Dated 10/26/90 FBO: Robert Matluck, of which Mr.
Unterberg is a trustee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions involving Ms. Shay, a member of the Compensation Committee (as
then constituted), are reported in "Executive Compensation -- Compensation
Committee Interlocks and Insider Participation" and "Executive
Compensation -- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements."
Transactions involving Messrs. Leibman and Pinto, each a former officer of
the Company and a Named Executive, are reported in "Executive
Compensation -- Employment Contracts, Termination of Employment and
Change-in-Control Agreements."
Edison is entitled to certain rights with respect to the registration of
its shares. See "Executive Compensation -- Compensation Committee Interlocks and
Insider Participation."
Thomas I. Unterberg is Managing Director of Unterberg Harris, an investment
banking firm which serves as the Company's financial advisor. In May 1995,
Unterberg Harris acted as placement agent in connection with the private
placement of 1,600,000 shares of Series B Preferred Stock of the Company. Such
shares convert into approximately 1,770,272 shares of Common Stock. As
compensation for its services, the Company paid to Unterberg Harris $100,000. In
May 1996, Unterberg Harris acted as placement agent in connection with the
private placement of 500,000 shares of Series C Preferred Stock of the Company.
Such
20
<PAGE> 24
shares convert into approximately 2,000,000 shares of Common Stock. As
compensation for its services, the Company paid to Unterberg Harris $150,000.
The Company has executed indemnification agreements with each of its
Directors and executive officers pursuant to which the Company has agreed to
indemnify such parties to the full extent permitted by law, subject to certain
exceptions, if such party becomes subject to an action because such party is a
Director, officer, employee, agent or fiduciary of the Company.
PROPOSAL TO APPROVE 1996 NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN
The Board of Directors has adopted, and is submitting to Stockholders for
approval, the 1996 Non-Employee Stock Option Plan (the "Non-Employee Plan"). The
Non-Employee Plan was adopted by the Board of Directors on February 23, 1996.
The purpose of the Non-Employee Plan is to provide an incentive to encourage
investment in the Common Stock of the Company by its Directors. Currently there
are 150,000 shares of Common Stock reserved for issuance upon exercise of
options granted under the Non-Employee Plan. Shares optioned under the
Non-Employee Plan may be either authorized but unissued shares or previously
issued shares reacquired by the Company. Shares of Common Stock covered by an
unexercised portion of any terminated option may again be subject to options
granted under the Non-Employee Plan. Under the terms of the Plan, Messrs.
Faherty and Azcuy are ineligible to receive options under such Plan. The
Non-Employee Director Plan is administered by the Compensation and Option
Committee of the Board of Directors.
Under the terms of the Non-Employee Plan, each non-employee Director who
first becomes a member of the Board after the approval of the Non-Employee Plan
by the Stockholders of the Company, shall be automatically granted, on the date
such person becomes a member of the Board, an option to purchase 30,000 shares
of the Common Stock. In addition, each non-employee Director who is a member of
the Board on the first trading day of each year shall be automatically granted
on such date, without further action by the Board, an option to purchase 5,000
shares of the Common Stock.
The exercise price per share of the Common Stock sold under the
Non-Employee Plan will be equal to the "fair market value" of a share of Common
Stock on the applicable grant date (the "Exercise Date"). The fair market value
will be deemed to be (i) the average of the high and low prices of the Common
Stock on the principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities exchange; or
(ii) the last reported sale price of the Common Stock on the Nasdaq National
Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National Market.
The Non-Employee Plan is intended to comply with certain requirements of
Rule 16b-3 under the Exchange Act, in particular with respect to "disinterested
administration" of the Non-Employee Plan by non-participating members of the
Board of Directors. As a result, acquisitions of shares of Common Stock pursuant
to the Non-Employee Plan complying with the requirements of Rule 16b-3 will not
be subject to matching and "short-swing profit recapture" under Section 16(b) of
the Exchange Act. Messrs. Aguilar, Dutton, Triolo, Fowler and Unterberg, each a
non-employee Director who is eligible to participate in the Non-Employee Plan,
have been appointed to the Compensation and Option Committee which will
administer the Non-Employee Plan.
The term of the Non-Employee Plan will extend through February 23, 2006,
unless terminated earlier by the Board of Directors. The Board of Directors
generally has the right to amend or terminate the Non-Employee Plan without the
consent of participants or stockholders, subject to certain exceptions. The
numbers of shares of Common Stock which can be purchased pursuant to options
under the Non-Employee Plan are subject to adjustment in the event of certain
recapitalizations of the Company. Participants' rights pursuant to the
Non-Employee Plan are not transferable. Generally, the Company's Board of
Directors, without the consent of Stockholders, can terminate or amend the
Non-Employee Plan, except that no such action can
21
<PAGE> 25
adversely affect options previously granted and, without Stockholder approval,
the Board may not: (i) increase the total amount of Common Stock allocated to
the Non-Employee Plan (except for permitted capital adjustments); (ii) change
the class of eligible Directors; or (iii) extend the term of the Non-Employee
Plan.
Options to be issued under the Non-Employee Plan will be designated as
non-qualified stock options ("NQSOs") which receive no special tax treatment,
but are taxed pursuant to Section 83 of Internal Revenue Code of 1986, as
amended (the "Code"). Under the provisions of that Section, if an option is
granted in connection with the performance of services and has a "readily
ascertainable fair market value" at the time of the grant, the optionee will be
deemed to have received compensation income in the year of grant in an amount
equal to the excess of the fair market value of the option at the time of grant
over the amount, if any, paid by the optionee for the option. However, a NQSO
generally has a "readily ascertainable fair market value" only when the option
is actively traded on an established market and when certain stringent Internal
Revenue Code requirements are met.
If the option does not have a readily ascertainable fair market value at
the time of the grant, the option is not included as compensation income at that
time. Rather, the optionee realizes compensation income only when the option is
exercised, and the optionee has become substantially vested in the shares
transferred. The shares are considered to be substantially vested when they are
either transferable or not subject to a substantial risk of forfeiture. The
amount of income realized is equal to the excess of the fair market value of the
shares at the time the shares become substantially vested over the sum of the
exercise price plus the amount, if any, paid by the optionee for the option. If
a NQSO is exercised through payment of the exercise price by the delivery of
Common Stock, to the extent that the number of shares received by the optionee
exceeds the number of shares surrendered, ordinary income will be realized by
the optionee at that time only in the amount of the fair market value of such
excess shares, and the tax basis of such excess shares will be such fair market
value.
Once a NQSO is subject to tax as compensation income, it is treated as an
investment option or investment shares and becomes subject to the investment
property rules. No gain or loss arises from the exercise of an option that was
taxed at the time of grant. When the optionee disposes of the shares acquired
pursuant to a NQSO, whether taxed at the time of grant or exercise, or some
other terms, the optionee will recognize capital gain or loss equal to the
difference between the amount received for the shares and the optionee's basis
in the shares.
Generally, the optionee's basis in the shares will be the exercise price
plus the optionee's basis in the option. The optionee's basis in the option is
equal to the sum of the compensation income realized at the time of grant or
exercise, whichever is applicable, and the amount, if any, paid by the optionee
for the option. In the compensatory option context, optionees normally pay
nothing for the grant of the option so the basis in the option will usually be
the amount of compensation income realized at the time of grant or exercise.
Thus, the optionee's basis in the shares will generally be equal to the exercise
price of the option plus the amount of compensation income realized by the
optionee plus the amount, if any, paid by the optionee for the option. The
capital gain or loss will be short-term if the shares are disposed of within one
year after the option is exercised, and long-term if the shares are disposed of
more than one year after the option is exercised.
If a NQSO is taxed at the time of grant and expires or lapses without being
exercised, the lapse is deemed to be a sale or exchange of the option on the day
the option expires and the amount of income realized is zero. The optionee
recognizes a capital loss in the amount of the optionee's basis (compensation
income realized at the time of the grant plus the amount, if any, paid by the
optionee for the option) in the option at the time of the lapse. The loss is
short-term or long-term, depending on the optionee's holding period in the
option. If a NQSO is not taxed at the time of grant and expires without being
exercised, the optionee will have no tax consequences unless the optionee paid
for the option. In such case, the optionee would recognize a loss in the amount
of the price paid by the optionee for the option.
The Company is generally entitled to a deductible compensation expense in
an amount equivalent to the amount included as compensation income to the
optionee. This deduction is allowed in the Company's taxable year in which the
income is included as compensation to the optionee. The Company is only entitled
to this deduction if the Company deducts and withholds upon the amount included
in an employee's compensation.
22
<PAGE> 26
The preceding discussion is based upon federal tax laws and regulations in
effect on the date of this Proxy Statement, which are subject to change, and
upon an interpretation of the relevant sections of the Internal Revenue Code,
their legislative histories and the income tax regulations which interpret
similar provisions of the Internal Revenue Code. Furthermore, the foregoing is
only a general discussion of the federal income tax aspects of the Non-Employee
Plan and does not purport to be a complete description of all federal income tax
aspects of the Non-Employee Plan. Optionees may also be subject to state and
local taxes in connection with the grant or exercise of options granted under
the Non-Employee Plan and the sale or other disposition of shares acquired upon
exercise of the options. Each optionee receiving a grant of options should
consult with his or her personal tax advisor regarding federal, state and local
tax consequences of participating in the Non-Employee Plan.
As of June 26, 1996, the Company had granted no options under the
Non-Employee Plan. As of June 26, 1996, the market value of the Common Stock
underlying the Non-Employee Plan was $2 7/8 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
NON-EMPLOYEE PLAN.
PROPOSAL TO APPROVE 1996 STOCK PLAN
The Board of Directors has adopted, and is submitting to Stockholders for
approval, the 1996 Stock Plan (the "Stock Plan"). The Stock Plan was adopted by
the Board of Directors on June 20, 1996. A total of 600,000 shares are reserved
for issuance upon the exercise of options and/or stock purchase rights granted
under the Stock Plan. Those eligible to receive stock option grants or stock
purchase rights under the Stock Plan include employees, non-employee directors
and consultants. The Stock Plan is administered by the Compensation and Option
Committee, which is comprised solely of outside directors.
The Compensation and Option Committee determines the nature of the options
to be granted, the persons who are to receive options (each a "Grantee"), the
number of shares to be subject to each option, the exercise price of the options
and the vesting schedule of the options. The Stock Plan provides for the
granting of options intended to qualify as incentive stock options ("ISOs") as
defined in Section 422 of the Code and NQSOs to key employees of the Company as
well as NQSOs to non-employee Directors and consultants who perform services for
the Company or its subsidiaries. The exercise price of all ISOs granted under
the Stock Plan may not be less than the fair market value of the shares at the
time the option is granted. In addition, no ISO may be granted to an employee
who owns more than 10% of the total combined voting power of all classes of
stock of the Company unless the exercise price as to that employee is at least
110% of the fair market value of the stock at the time of the grant. The
exercise price of NQSOs granted under the Stock Plan may not be less than 85% of
the fair market value of the shares on the date of grant. No NQSO may be granted
to a person who owns more than 10% of the total combined voting power of all
classes of stock of the Company unless the exercise price to that person is at
least 110% of the fair market value of the stock at the time of the grant. The
exercise price must be paid in full at the time an option is exercised, and at
the Compensation and Option Committee's discretion, all or part of the exercise
price may be paid with previously owned shares or other approved method of
payment. No employee may be granted ISOs for shares having an aggregate fair
market value greater than $100,000 in any calendar year. Options may be for a
period of not more than ten years from the date of grant, provided, however that
the term of an ISO granted to an employee who owns more that 10% of the total
combined voting power of all classes of stock of the Company may not exceed five
years. An option is exercisable as determined by the Compensation and Option
Committee. The Stock Plan will terminate on June 20, 2006 and no option may be
granted thereafter. If a Grantee's employment terminates on account of
disability or death, the Grantee or his estate, as the case may be, may exercise
any outstanding option to the extent exercisable on the date of such disability
or death, as the case may be, for one year following the termination. If
termination is for any other reason, the Grantee may exercise any outstanding
option to the extent exercisable on the date of termination for 90 days
following such termination. Options are not assignable or otherwise transferable
except by will or the laws of descent and distribution and shall be exercisable
during the Grantee's lifetime only by the Grantee.
The Stock Plan also permits the awarding of stock purchase rights at not
less than 50% of the fair market value of the shares as of the date offered. The
Stock Plan requires the execution of a restricted stock purchase
23
<PAGE> 27
agreement in a form determined by the Compensation and Option Committee. Once a
stock purchase right is exercised, the purchaser will have the rights of a
Stockholder and will be a Stockholder when the purchase is entered on the
Company's records.
The Stock Plan provides that, in the event of a reorganization,
recapitalization, stock split, stock dividend, combination of or
reclassification of shares, or any other change in the corporate structure or
shares of the Company, the Board of Directors shall make adjustments with
respect to the shares that may be issued under the Stock Plan or that are
covered by outstanding options, or in the option price per share.
In the event of the proposed dissolution or liquidation of the Company,
unexercised options will terminate immediately prior to the consummation of such
proposed action. In the event of a merger of the Company with or into another
corporation, unexercised options will be assumed or an equivalent option will be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation does not
agree to assume the option or to substitute an equivalent option, the Board
shall, in lieu of such assumption or substitution, provide for the Grantee to
have the right to exercise the option to the full extent of all shares
underlying such option regardless of vesting provisions prior to the
consummation of the transaction.
The Stock Plan may be amended or discontinued at any time by the Board of
Directors without Stockholder approval, but no amendment may be made which would
impair the rights of any Grantee under any option previously granted, without
the consent of such Grantee. Any such amendment or termination of the Stock Plan
shall not affect options already granted unless mutually agreed otherwise
between the Grantee and the Board.
FEDERAL INCOME TAX ASPECTS
(A) ISOS
Some options to be issued under the Stock Plan will be designated as ISOs
and are intended to qualify under Section 422 of the Code. Under the provisions
of that Section, the optionee will not be deemed to have received any income at
the time an ISO is granted or exercised. However, the excess, if any, of the
fair market value of the shares on the date of exercise over the exercise price
will generally be treated as an adjustment in computing alternative minimum
taxable income for a non-corporate optionee and may subject such optionee to the
alternative minimum tax in the year of exercise.
If the optionee disposes of ISO shares later than two years after the date
of grant and one year after the exercise of the ISO, and certain other
requirements are met, the gain or loss, if any (i.e., the difference between the
amount received for the shares and the exercise price), will be long-term
capital gain or loss.
If the optionee disposes of the shares acquired on exercise of an ISO
within two years after the date of grant or within one year after the exercise
of the ISO, the disposition will constitute a "disqualifying disposition," and
the optionee will have income in the year of the disqualifying disposition equal
to the excess of the amount received for the shares over the exercise price. Of
that income, the portion equal to the excess of the fair market value of the
shares at the time the ISO was exercised over the exercise price will be
compensation income, and the balance, if any, will be either short-term capital
gain, if the shares are disposed of within one year after the ISO is exercised,
or long-term capital gain, if the shares are disposed of more than one year
after the ISO is exercised.
If the optionee disposes of the shares in a disqualifying disposition at a
price that is below the fair market value of the shares at the time the ISO was
exercised and such disposition is a sale or exchange to an unrelated party, the
amount includible as compensation income to the optionee will be limited to the
excess of the amount received on the sale or exchange over the exercise price.
24
<PAGE> 28
If an ISO is exercised through the payment of the exercise price by the
delivery of Common Stock, to the extent that the number of shares received
exceeds the number of shares surrendered, such excess shares will possibly be
considered as ISO stock with a zero basis.
The Company is not entitled to a deduction as a result of the grant or
exercise of an ISO. If the optionee has compensation income as a result of a
disqualifying disposition, the Company will generally have a corresponding
deductible compensation expense in an equivalent amount in the taxable year of
the Company in which the disqualifying disposition occurs.
(B) NQSOS
Some options to be issued under the Stock Plan will be designated as NQSOs
which receive no special tax treatment, but are taxed pursuant to Section 83 of
the Code. Under the provisions of that Section, if an option is granted to an
employee in connection with the performance of services and has a "readily
ascertainable fair market value" at the time of the grant, the employee will be
deemed to have received compensation income in the year of grant in an amount
equal to the excess of the fair market value of the option at the time of grant
over the amount, if any, paid by the optionee for the option. However, a NQSO
generally has "readily ascertainable fair market value" only when the option is
actively traded on an established market and when certain stringent Code
requirements are met.
If the option does not have a readily ascertainable fair market value at
the time of the grant, the option is not included as compensation income at that
time. Rather, the optionee realizes compensation income only when the option is
exercised, and the optionee has become substantially vested in the shares
transferred. The shares are considered to be substantially vested when they are
either transferable or not subject to a substantial risk of forfeiture. The
amount of income realized is equal to the excess of the fair market value of the
shares at the time the shares become substantially vested over the sum of the
exercise price plus the amount, if any, paid by the optionee for the option.
If a NQSO is exercised through payment of the exercise price by the
delivery of Common Stock, to the extent that the number of shares received by
the optionee exceeds the number of shares surrendered, ordinary income will be
realized by the optionee at that time only in the amount of the fair market
value of such excess shares, and the tax basis of such excess shares will be
such fair market value.
Once a NQSO is subject to tax as compensation income, it is treated as an
investment option or investment shares and becomes subject to the investment
property rules. No gain or loss arises from the exercise of an option that was
taxed at the time of grant. When the optionee disposes of the shares acquired
pursuant to a NQSO, whether taxed at the time of grant or exercise, or some
other terms, the optionee will recognize capital gain or loss equal to the
difference between the amount received for the shares and the optionee's basis
in the shares.
Generally, the optionee's basis in the shares will be the exercise price
plus the optionee's basis in the option. The optionee's basis in the option is
equal to the sum of the compensation income realized at the time of grant or
exercise, whichever is applicable, and the amount, if any, paid by the optionee
for the option. In the compensatory option context, optionees normally pay
nothing for the grant of the option so the basis in the option will usually be
the amount of compensation income realized at the time of grant or exercise.
Thus, the optionee's basis in the shares will generally be equal to the exercise
price of the option plus the amount of compensation income realized by the
optionee plus the amount, if any, paid by the optionee for the option. The
capital gain or loss will be short-term if the shares are disposed of within one
year after the option is exercised, and long-term if the shares are disposed of
more than one year after the option is exercised.
If a NQSO is taxed at the time of grant and expires or lapses without being
exercised, it is treated in the same manner as the lapse of an investment
option. The lapse is deemed to be a sale or exchange of the option on the day
the option expires and the amount of income realized is zero. The optionee
recognizes a capital loss in the amount of the optionee's basis (compensation
income realized at the time of the grant plus the amount, if any, paid by the
optionee for the option) in the option at the time of the lapse. The loss is
short-term or long-term, depending on the optionee's holding period in the
option.
25
<PAGE> 29
If a NQSO is not taxed at the time of grant and expires without being
exercised, the optionee will have no tax consequences unless the optionee paid
for the option. In such case, the optionee would recognize a loss in the amount
of the price paid by the optionee for the option.
The Company is generally entitled to a deductible compensation expense in
an amount equivalent to the amount included as compensation income to the
optionee. This deduction is allowed in the Company's taxable year in which the
income is included as compensation to the optionee. The Company is only entitled
to this deduction if the Company deducts and withholds upon the amount included
in an employee's compensation.
The preceding discussion is based upon federal tax laws and regulations in
effect on the date of this Proxy Statement, which are subject to change, and
upon an interpretation of the relevant sections of the Code, their legislative
histories and the income tax regulations which interpret similar provisions of
the Code. Furthermore, the foregoing is only a general discussion of the federal
income tax aspects of the Stock Plan and does not purport to be a complete
description of all federal income tax aspects of the Stock Plan. Optionees may
also be subject to state and local taxes in connection with the grant or
exercise of options granted under the Stock Plan and the sale or other
disposition of shares acquired upon exercise of the options. Each employee
receiving a grant of options should consult with his or her personal tax advisor
regarding federal, state and local tax consequences of participating in the
Stock Plan.
As of June 26, 1996, the Company had granted no options under the Stock
Plan. As of June 26, 1996, the market value of the Common Stock underlying the
Stock Plan was $2 7/8 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE STOCK
PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has, subject to Stockholder approval,
retained Ernst & Young LLP as independent auditors of the Company for the year
ending December 31, 1996. Ernst & Young LLP also served as independent auditors
of the Company for 1995. Neither the firm nor any of its members has any direct
or indirect financial interest in or any connection with the Company in any
capacity other than as independent auditors.
The Board of Directors recommends a vote FOR the ratification of the
appointment of Ernst & Young LLP as the independent auditors of the Company for
the year ending December 31, 1996.
One or more representatives of Ernst & Young LLP is expected to attend the
Meeting and have an opportunity to make a statement and/or respond to
appropriate questions from Stockholders.
STOCKHOLDERS' PROPOSALS
Stockholders who wish to submit proposals for inclusion in the Company's
proxy statement and form of proxy relating to the 1997 Annual Meeting of
Stockholders must advise the Secretary of the Company of such proposals in
writing by March 25, 1997.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Meeting other than the matters referred to above and does not
intend to bring any other matters before the Meeting. However, if other matters
should come before the Meeting, it is intended that holders of the proxies will
vote thereon in their discretion.
GENERAL
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by the
Company.
26
<PAGE> 30
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by Directors, officers and other employees of
the Company who will not be specially compensated for these services. The
Company will also request that brokers, nominees, custodians and other
fiduciaries forward soliciting materials to the beneficial owners of shares held
of record by such brokers, nominees, custodians and other fiduciaries. The
Company will reimburse such persons for their reasonable expenses in connection
therewith.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of Directors and officers of the Company is
based upon information received from the individual Directors and officers.
ECCS, INC. WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995, INCLUDING FINANCIAL STATEMENTS AND
SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF ITS STOCKHOLDERS OF
RECORD ON JUNE 26, 1996, AND TO EACH BENEFICIAL STOCKHOLDER ON THAT DATE UPON
WRITTEN REQUEST MADE TO THE SECRETARY OF THE COMPANY. A REASONABLE FEE WILL BE
CHARGED FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
David J. Sorin,
Secretary
Tinton Falls, New Jersey
July 22, 1996
27
<PAGE> 31
Appendix 1
ECCS, INC.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the
1996 Non-Employee Directors Stock Option Plan (the "Plan"), is intended to
promote the interests of ECCS, Inc. (the "Company") by providing an inducement
to obtain and retain the services of qualified persons who are not employees or
officers of the Company to serve as members of its Board of Directors (the
"Board"), each such person hereinafter referred to as a "Non-Employee Director."
2. Available Shares. The total number of shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock") for which options may
be granted under the Plan shall not exceed 150,000 shares, subject to adjustment
in accordance with Section 10 of the Plan. Shares subject to the Plan are
authorized but unissued shares, or shares that were once issued and subsequently
reacquired by the Company. If any options granted under the Plan are surrendered
before exercise or lapse without exercise, in whole or in part, the shares
reserved therefor shall continue to be available under the Plan.
3. Administration. The Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer the Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe the Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of the Plan, as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
under it.
4. Automatic Grant of Options. Subject to the availability of shares
under the Plan:
(a) each Non-Employee Director who first becomes a member of
the Board after the approval of the Plan by the Stockholders of the Company,
shall be automatically granted, on the date such person becomes a member of the
Board, an option to purchase 30,000 shares of the Common Stock; and
(b) each Non-Employee Director who is a member of the Board on
the first trading day of each year, commencing 1996, shall be automatically
granted on such date, without further action by the Board, an option to purchase
5,000 shares of the Common Stock.
The term "Grant Date" as used hereinafter shall mean, in the case of a
grant under Section 4(a), the date the optionee becomes a member of the Board,
or, in the case of a grant under Section 4(b), the first trading day of the
applicable year.
<PAGE> 32
The options to be granted under this Section 4 shall be the only
options ever to be granted at any such time to such member under the Plan.
5. Option Price. The purchase price of the stock covered by an option
granted pursuant to the Plan shall be 100% of the fair market value of such
shares on the Grant Date. The option price will be subject to adjustment in
accordance with the provisions of Section 10 of the Plan. For purposes of the
Plan, "fair market value" shall be determined as of the last business day for
which the prices or quotes discussed in this sentence are available prior to the
date such option is granted and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then traded
on a national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market.
6. Period of Option. Unless sooner terminated in accordance with the
provisions of Section 8 of the Plan, an option granted hereunder shall expire on
the date which is ten (10) years after the Grant Date.
7. Vesting of Shares and Non-Transferability of Options. Options
granted under the Plan shall not be exercisable until they become vested.
(a) Options granted under Section 4(a) of the Plan shall vest in the
optionee and thus become exercisable in accordance with the following schedule:
<TABLE>
<CAPTION>
Option Shares Vested Date of Vesting
-------------------- ---------------
<S> <C>
10,000 Grant Date
5,000 One year from Grant Date
5,000 Two years from Grant Date
5,000 Three years from Grant Date
5,000 Four years from Grant Date
</TABLE>
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in the Plan.
(b) Options granted under Section 4(b) of the Plan shall vest in the
optionee and thus become exercisable in accordance with the following schedule,
provided that the optionee has continuously served as a member of the Board
through such vesting date, and subject also to Subsection (c) of this Section 7:
-2-
<PAGE> 33
<TABLE>
<CAPTION>
Option Shares Vested Date of Vesting
-------------------- ---------------
<S> <C>
1,250 One year from Grant Date
1,250 Two years from Grant Date
1,250 Three years from Grant Date
1,250 Four years from Grant Date
</TABLE>
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in the Plan.
(c) With respect to options granted under Section 4(b),
notwithstanding Subsection (b) of this Section 7, if an optionee attends less
than 80% of the Board meetings (whether regular or special) held in any fiscal
year (a "Default Year'), then either (i) the optionee shall forfeit his exercise
rights with respect to the option installment which vested on the preceding
annual vesting date, in proportion to the percentage of Board meetings actually
attended by such optionee during the Default Year; or (ii) in the event that the
optionee does not own a sufficient number of exercisable options to satisfy the
forfeiture obligation described above, the optionee shall forfeit his right to
receive the next succeeding annual installment of the option, in proportion to
the percentage of Board meetings which the optionee actually attended in the
Default Year. By way of illustration, if an optionee attends only 50% of the
actual meetings of the Board of Directors (whether regular or special) held in
any fiscal year, then the optionee shall forfeit the right to exercise 50% of
the option installment which became exercisable on the preceding annual vesting
date. If, however, the optionee had already exercised 75% of the preceding
option installment, and did not own any additional unexercised options available
to satisfy the forfeiture obligation, the optionee would forfeit the remaining
25% of the prior installment, and would also forfeit the right to receive or
exercise 25% of the next succeeding annual option installment. Attendance at
Board meetings may be in person or via teleconference, or any manner consistent
with the Amended Bylaws of the Company or other policy of the Company relating
to attendance at Board meetings.
(d) Non-transferability. Any option granted pursuant to the
Plan shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
8. Termination of Option Rights.
(a) In the event that an optionee ceases to be a member of the
Board by reason of his or her death or permanent disability, any option granted
to such optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options
-3-
<PAGE> 34
shall be exercisable by the optionee (or by the optionee's personal
representative, heir or legatee, in the event of death) at any time prior to the
scheduled expiration date of the option.
(b) In the event any optionee: (i) ceases to be a member of
the Board of Directors at the request of the Company; (ii) is removed without
cause; or (iii) otherwise does not stand for nomination or re-election as a
director of the Company at the request of the Company, then any unexercised
options, to the extent not vested at the date of the applicable event, shall
immediately terminate and become void, and to the extent any such options are
vested at such date, they shall continue to be exercisable for a period of one
year from the date of the applicable event; provided, however, that no portion
of any option, vested or unvested, may be exercised if the optionee is removed
from the Board of Directors for any one of the following reasons: (i)
disloyalty, gross negligence, dishonesty or breach of fiduciary duty to the
Company; (ii) the commission of an act of embezzlement, fraud or deliberate
disregard of the rules or policies of the Company which results in loss, damage
or injury to the Company, whether directly or indirectly; (iii) the unauthorized
disclosure of any trade secret or confidential information of the Company; (iv)
the commission of an act which constitutes unfair competition with the Company
or which induces any customer of the Company to breach a contract with the
Company; or (v) engages in any conduct or activity on behalf of any organization
or entity which is a competitor of the Company (unless such conduct or activity
is approved by a majority of the members of the Board of Directors).
9. Exercise of Option. Subject to the terms and conditions of the Plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
company by mail or in person addressed to ECCS, Inc., One Sheila Drive, Tinton
Falls, New Jersey 07724, Attention: President, or at its then principal
executive offices, stating the number of shares with respect to which the option
is being exercised, accompanied by payment in full for such shares. Payment may
be (a) in United States dollars in cash or by check, or (b) consistent with
applicable law, through the delivery of an assignment to the Company of a
sufficient amount of the proceeds from the sale of the Common Stock acquired
upon exercise of the option and an authorization to the broker or selling agent
to pay that amount to the Company, which sale shall be at the participant's
direction at the time of exercise. There shall be no such exercise at any one
time as to fewer than one hundred (100) shares or all of the remaining shares
then purchasable by the person or persons exercising the option, if fewer than
one hundred (100) shares. The Company's transfer agent shall, on behalf of the
Company, prepare a certificate or certificates representing such shares acquired
pursuant to exercise of the option, shall register the optionee as the owner of
such shares on the books of the Company and shall cause the fully executed
certificate(s) representing such shares to be delivered to the optionee as soon
as practicable after payment of the option price in full. The holder of an
option shall not have any rights of a stockholder with respect to the shares
covered by the option, except to the extent that one or more certificates for
such shares shall be delivered to him or her upon the due exercise of the
option.
10. Adjustments Upon Changes in Capitalization and Other Events. Upon
the occurrence of any of the following events, an optionee's rights with respect
to options granted to him or her hereunder shall be adjusted as hereinafter
provided:
-4-
<PAGE> 35
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Recapitalization Adjustments. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise, each option granted
under the Plan which is outstanding but unvested as of the effective date of
such event shall become exercisable in full twenty (20) days prior to the
effective date of such event. In the event of a reorganization,
recapitalization, merger, consolidation, or any other change in the corporate
structure or shares of the Company, to the extent permitted by Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, adjustments shall be made in
the number and kind of shares authorized by the Plan and in the number of and
kind of shares covered by, and the option price of, outstanding options under
the Plan, in each case, as necessary to maintain the proportionate interest of
the optionee and preserve, without exceeding, the value of such option.
Notwithstanding the foregoing, no such adjustments shall be made which would,
within the meaning of any applicable provisions of the Internal Revenue Code of
1986, as amended, constitute a modification, extension or renewal of any option
or a grant of additional benefits to the holder of an option.
(c) Issuance of Securities. 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 subject to options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
(d) Adjustments. Upon the happening of any of the foregoing
events, the class and aggregate number of shares set forth in Section 2 of the
Plan that are subject to options which previously have been or subsequently may
be granted under the Plan shall also be appropriately adjusted to reflect such
events. The Board shall determine the specific adjustments to be made under this
Section 10 and its determination shall be conclusive.
11. Restrictions on Issuances of Shares. Notwithstanding the provisions
of Sections 4 and 9 of the Plan, the Company shall have no obligation to deliver
any certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(a) The issuance of shares with respect to which the option
has been exercised is, at the time of the issue of such shares, registered under
applicable Federal and state securities laws as now in force or hereafter
amended; or
(b) Counsel for the Company shall have given an opinion that
the issuance of such shares is exempt from registration under Federal and state
securities laws as now in force or hereafter amended; and that the Company has
complied with all applicable laws and regulations
-5-
<PAGE> 36
with respect thereto, including without limitation, all regulations required by
any stock exchange upon which the Company's outstanding Common Stock is then
listed.
12. Legend on Certificates. The certificate representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933, as amended, or any state securities laws.
13. Representation of Optionee. If requested by the Company, the
optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with Federal
and state securities laws, including without limitation, representations and
warranties to the effect that a purchase of shares under the option is made for
investment and not with a view to their distribution (as that term is used in
the Securities Act of 1933, as amended).
14. Option Agreement. Each option granted under the provisions of the
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with the Plan as may be determined by the officer
executing it.
15. Termination and Amendment of Plan. The Plan shall terminate on the
earlier to occur of February 23, 2006 or at such time as all shares reserved for
issuance hereunder (including any amendments hereto) shall have been issued. The
Board may at any time terminate the Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and voting on such matter
at a meeting, (a) increase the maximum number of shares for which options may be
granted under the Plan (except by adjustment pursuant to Section 10), (b)
materially modify the requirements as to eligibility to participate in the Plan,
(c) materially increase benefits accruing to option holders under the Plan, or
(d) amend the Plan in any manner which would cause Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, to become inapplicable to the Plan;
and provided further that the provisions of the Plan specified in Rule
16b-3(c)(2)(ii)(A) (or any successor or amended provision thereto) under the
Securities Act of 1934, as amended (including without limitation, provisions as
to eligibility, amount, price and timing of awards) may not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder. Termination or any modification or amendment of the Plan shall not,
without consent of a participant, affect his or her rights under an option
previously granted to him or her.
16. Withholding of Income Taxes. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, as
amended, may require the optionee to pay withholding taxes in respect of amounts
considered to be compensation includible in the optionee's gross income.
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17. Compliance with Regulations. It is the Company's intent that the
Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of
1934, as amended, and any applicable Securities and Exchange commission
interpretations thereof. If any provision of the Plan is deemed not to be in
compliance with Rule 16b-3, such provision of the Plan shall be null and void.
18. Governing Law. The validity and construction of the Plan and the
instruments evidencing options shall be governed by the laws of the State of New
Jersey, without giving effect to the principles of conflicts of law thereof.
19. Acceleration and Vesting of Option for Business Combinations. Upon
any merger, consolidation, sale of all (or substantially all) of the assets of
the Company, or a business combination involving the sale or transfer of all (or
substantially all) of the capital stock or assets of the Company in which the
Company is not the surviving entity, or, if it is the surviving entity, does not
survive as an operating going concern in substantially the same line of
business, then the options granted under the Plan shall, at the discretion of
the Board of Directors of the Company, become fully vested and immediately
exercisable by the optionee immediately prior to the consummation of any of the
foregoing events.
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Appendix 2
ECCS, INC.
1996 STOCK PLAN
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, non-Employee
members of the Board and Consultants of the Company and its Subsidiaries and to
promote the success of the Company's business. Options granted under the Plan
may be incentive stock options (as defined under Section 422 of the Code) or
non-statutory 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. Certain 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) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means ECCS, Inc., a New Jersey corporation.
(g) "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.
(h) "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 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) transfers between
locations of the Company or between the Company, its Subsidiaries or its
successor.
<PAGE> 39
(i) "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.
(j) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(k) "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 National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") System, 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 system or exchange
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 or;
(ii) If the Common Stock is quoted on Nasdaq (but not
on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its
Fair Market Value shall be the mean between the high and low asked
prices for the Common Stock 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.
(l) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(m) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the
Plan.
(o) "Optioned Stock" means the Common Stock subject to an
Option.
(p) "Optionee" means an Employee or Consultant who receives an
Option.
(q) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1996 Stock Plan.
(s) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of stock purchase rights under Section 11 below.
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(t) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(u) "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 600,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an option 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) Administration With Respect to Directors and
Officers. With respect to grants of Options or stock purchase rights to
Employees who are also officers or directors of the Company, the Plan
shall be administered by (A) the Board if the Board may administer the
Plan in compliance with Rule 16b-3 promulgated under the Exchange Act
or any successor thereto ("Rule 16b-3") with respect to a plan intended
to qualify thereunder as a discretionary plan, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall
be constituted in such a manner as to permit the Plan to comply with
Rule 16b-3 with respect to a plan intended to qualify thereunder as a
discretionary plan. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board.
From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Rule 16b-3 with respect to a plan intended to qualify thereunder as a
discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by
Rule 16b-3, the Plan may be administered by different bodies with
respect to directors, non-director officers and Employees who are
neither directors nor officers.
(iii) Administration With Respect to Consultants and
Other Employees. With respect to grants of Options or stock purchase
rights to Employees who are neither directors nor officers of the
Company or to Consultants, the Plan shall be administered by
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(A) the Board, if the Board may administer the Plan in compliance with
Rule 16b-3, or (B) a Committee designated by the Board, which Committee
shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option
plans, if any, of New Jersey corporate law and applicable securities
laws and of the Code (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the 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, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and
Employees 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 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 may be settled in cash under subsection 9(f)
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);
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(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.
(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options 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 may, if he is otherwise
eligible, be granted an additional Option or Options.
(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.
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 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 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 Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of
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the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the 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 grant.
(B) granted to any 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 a person who, at the time of
the 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 the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(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, (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 irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) by
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<PAGE> 44
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 Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
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.
(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 ninety (90)
days (or such other period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) 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.
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<PAGE> 45
(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 total and
permanent disability (as defined in Section 22(e)(3) of the Code), 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. 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) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) 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. The Option 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. The terms of the
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
11. Stock Purchase Rights.
(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 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 (which price shall not be less than 50% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer,
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which shall in no event exceed thirty (30) days from the date upon which the
Administrator made the determination to grant the stock purchase right. 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 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 such rate as the Committee
may determine.
(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. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the stock purchase right is
exercised, the purchaser shall have the 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
will 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 obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or stock purchase right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option, or the Shares to be issued in connection with the stock purchase right,
if any, 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 (the "Tax Date").
All elections by an Optionee to have Shares withheld for this
purpose shall be made in writing in a form acceptable to the Administrator and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Right as to which the election is made;
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(c) all elections shall be subject to the consent or
disapproval of the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election
must comply with the applicable provisions of Rule 16b-3 and shall be subject to
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
In the event the election to have Shares withheld is made by
an Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or stock purchase
right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, 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; provided, however, that 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.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger or consolidation of the Company with or into
another corporation or the sale of all or substantially all of the Company's
assets (hereinafter, a "merger"), the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event that such successor
corporation does not agree to assume the Option or to substitute an equivalent
option, the Board shall, in lieu of such assumption or substitution, provide for
the Optionee to have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option
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fully exercisable in lieu of assumption or substitution in the event of a
merger, the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of at least fifteen (15) days from the date of such
notice, and the Option will terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger, the Option or right confers the right to purchase, for
each Share of stock subject to the Option immediately prior to the merger, the
consideration (whether stock, cash, or other securities or property) received in
the merger by holders of Common Stock for each Share held on the effective date
of the transaction (and if holders were offered a choice of 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
was not solely common stock of the successor corporation or its Parent, the
Board may, with the consent of the successor corporation and the participant,
provide for the consideration to be received upon the exercise of the Option,
for each Share of stock subject to the Option, 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. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, 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 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 discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option 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
-11-
<PAGE> 49
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, the Company may
require the person exercising such Option 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.
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 state and federal law.
20. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is limited
to key employees whose duties in connection with the Company assure their access
to equivalent information.
-12-
<PAGE> 50
ECCS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints Michael E. Faherty and Gregg
M. Azcuy, and each of them, his or her true and lawful agent and proxy with full
power of substitution in each, to represent and to vote on behalf of the
undersigned all of the shares of (i) 6% Cumulative Convertible Preferred Stock,
Series B, and (ii) 6% Cumulative Convertible Preferred Stock, Series C, of ECCS,
Inc. (the "Company") which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the offices of the Company,
One Sheila Drive, Tinton Falls, New Jersey at 9:00 A.M., local time, on
Thursday, August 22, 1996 and at any adjournment or adjournments thereof, upon
the following proposal more fully described in the Notice of Annual Meeting of
Stockholders and Proxy Statement for the Meeting (receipt of which is hereby
acknowledged).
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR proposals 1, 2 and 3.
1. ELECTION OF DIRECTOR. Nominee: Thomas I. Unterberg
/ / VOTE WITHHELD from nominee.
2. APPROVAL OF PROPOSAL TO ADOPT THE 1996 NON-EMPLOYEE DIRECTORS STOCK
OPTION PLAN.
/ / FOR / / AGAINST / / ABSTAIN
3. APPROVAL OF PROPOSAL TO ADOPT THE 1996 STOCK PLAN.
/ / FOR / / AGAINST / / ABSTAIN
(continued and to be signed on reverse side)
<PAGE> 51
Dated:
-----------------------------
-----------------------------------
Signature of Stockholder
-----------------------------------
Signature of Stockholder if held
jointly
I will / / will not / /
attend the meeting
THIS PROXY MUST BE SIGNED EXACTLY
AS THE NAME APPEARS HEREON. WHEN
SHARES ARE HELD BY JOINT TENANTS,
BOTH SHOULD SIGN. IF THE SIGNER IS
A CORPORATION, PLEASE SIGN FULL
CORPORATE NAME BY DULY AUTHORIZED
OFFICER, GIVING FULL TITLE AS SUCH.
IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
<PAGE> 52
ECCS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints Michael E. Faherty and
Gregg M. Azcuy, and each of them, his or her true and lawful agent and proxy
with full power of substitution in each, to represent and to vote on behalf of
the undersigned all of the shares of Common Stock of ECCS, Inc. (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of the Company to be held at the offices of the Company, One Sheila Drive,
Tinton Falls, New Jersey at 9:00 A.M., local time, on Thursday, August 22, 1996
and at any adjournment or adjournments thereof, upon the following proposals
more fully described in the Notice of Annual Meeting of Stockholders and Proxy
Statement for the Meeting (receipt of which is hereby acknowledged).
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR proposals 1, 2, 3 and 4.
1. ELECTION OF DIRECTORS.
Nominees: Michael E. Faherty, Gregg M. Azcuy, Gale R. Aguilar, James K.
Dutton, Donald E. Fowler and Frank R. Triolo.
(Mark one only)
VOTE FOR all the nominees listed above; except vote withheld from the following
nominees (if any).
- ------------------------------------------------------------------
VOTE WITHHELD from all nominees.
2. APPROVAL OF PROPOSAL TO ADOPT THE 1996 NON-EMPLOYEE DIRECTORS STOCK OPTION
PLAN.
FOR AGAINST ABSTAIN
3. APPROVAL OF PROPOSAL TO ADOPT THE 1996 STOCK PLAN.
FOR AGAINST ABSTAIN
4. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1996.
FOR AGAINST ABSTAIN
(continued and to be signed on reverse side)
<PAGE> 53
5. In his discretion, the proxy is authorized to vote upon other matters as may
properly come before the Meeting.
Dated::__________________________ THIS PROXY MUST BE SIGNED
EXACTLY AS THE NAME APPEARS
________________________________ HEREON. WHEN SHARES ARE HELD
Signature of Stockholder BY JOINT TENANTS, BOTH SHOULD
SIGN. IF THE SIGNER IS A
________________________________ CORPORATION, PLEASE SIGN FULL
Signature of Stockholder if held jointly CORPORATE NAME BY DULY
AUTHORIZED OFFICER, GIVING FULL
TITLE AS SUCH. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
I WILL WILL NOT attend the PERSON.
Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
