SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant | |
Check the appropriate box:
| | Preliminary Proxy Statement | | Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ECCS, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which 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:
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| | Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
| | Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
ECCS, INC.
ONE SHEILA DRIVE
TINTON FALLS, NEW JERSEY 07724
May 4, 1999
To Our Shareholders:
You are most cordially invited to attend the 1999 Annual Meeting of
Shareholders of ECCS, Inc. at 9:00 A.M., local time, on Thursday, June 24, 1999,
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 ensure
the presence of a quorum. Whether or not you plan to attend the meeting, we hope
that you will have your shares 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 shares 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>
ECCS, INC.
One Sheila Drive
Tinton Falls, New Jersey 07724
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 24, 1999
The Annual Meeting of Shareholders (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, June 24, 1999, at 9:00
A.M., local time, for the following purposes:
(1) To elect seven directors to serve until the next Annual Meeting of
Shareholders and until their respective successors shall have been duly
elected and qualified;
(2) To ratify the appointment of Ernst & Young LLP as independent auditors for
the year ending December 31, 1999; and
(3) To transact such other business as may properly come before the Meeting or
any adjournment or adjournments thereof.
Holders of Common Stock of record at the close of business on April 27,
1999 are entitled to notice of and to vote at the Meeting, or any adjournment or
adjournments thereof. A complete list of such shareholders will be subject to
the inspection of any shareholder for reasonable periods during the Meeting. The
Meeting may be adjourned from time to time without notice other than by
announcement at the Meeting.
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 SHAREHOLDER 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 ENSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
David J. Sorin
Secretary
Tinton Falls, New Jersey
May 4, 1999
THE COMPANY'S 1998 ANNUAL REPORT ACCOMPANIES THE PROXY STATEMENT.
<PAGE>
ECCS, INC.
One Sheila Drive
Tinton Falls, New Jersey 07724
--------------------------------------------
P R O X Y S T A T E M E N T
--------------------------------------------
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 Shareholders of the Company to be held on Thursday, June
24, 1999 (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 shares of common stock, $.01 par
value ("Common Stock"), as of the close of business on April 27, 1999 will be
entitled to notice of and to vote at the Meeting and any adjournment or
adjournments thereof. As of that date, there were 11,028,084 shares of Common
Stock issued and outstanding and entitled to vote. Each share of Common Stock is
entitled to one vote on any matter presented at the Meeting.
If proxies in the accompanying form are properly executed and returned,
the shares of Common Stock represented thereby will be voted in the manner
specified therein. If not otherwise specified, the shares of Common Stock
represented by the proxies will be voted (i) FOR the election of seven nominees
named below as Directors, (ii) FOR the ratification of the appointment of Ernst
& Young LLP as independent auditors for the year ending December 31, 1999, and
(iii) 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. Any shareholder 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 by written ballot at the
Meeting. The mere presence at the Meeting of the person appointing a proxy does
not, however, revoke the appointment.
This Proxy Statement, together with the related form of proxy, is being
mailed to the shareholders of the Company on or about May 4, 1999. The Annual
Report to Shareholders of the Company for the year ended December 31, 1998,
including financial statements (the "Annual Report"), is being mailed together
with this Proxy Statement to all shareholders of record as of April 27, 1999. 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 April 27, 1999.
The presence, in person or by proxy, of holders of the shares of Common
Stock having a majority of the votes entitled to be cast at the Meeting shall
constitute a quorum. The affirmative vote by the holders of a plurality of the
shares of Common Stock 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 other than the election of Directors may be taken upon the
affirmative
<PAGE>
vote of shareholders possessing a majority of the shares of Common 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.
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 Shareholders and until their successors shall have
been elected and qualified.
It is the intention of the persons named in the enclosed form of proxy to
vote the shares of Common 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 members of the Board of Directors and nominees for election to
the Board are as follows:
Served as a Positions with
Name Age Director Since the Company
---- --- -------------- --------------
Michael E. Faherty........ 64 1994 Chairman of the Board
and Director
Gregg M. Azcuy............ 39 1996 President and Chief
Executive Officer and
Director
Gale R. Aguilar........... 66 1995 Director
James K. Dutton........... 66 1994 Director
Donald E. Fowler.......... 61 1996 Director
Frank R. Triolo........... 65 1996 Director
Thomas I. Unterberg....... 68 1996 Director
-2-
<PAGE>
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. Since February
1977, Mr. Faherty has been the principal of MICO, a general business consulting
firm. 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. 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 BancTec, Inc. and Frontier
Corporation, each a publicly held company.
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. The lawsuits purport to be class actions brought
on behalf of all ALC shareholders against ALC and its directors. Among other
things, the complaints sought to enjoin the merger 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, Inc.,
an Open-Systems provider of storage solutions and, prior to that, from 1982,
held various managerial and sales positions within Systems Industries.
MR. AGUILAR has been a Director of the Company since March 1995. Mr.
Aguilar currently is President and a director of Mitem Corporation, a software
development company based in Menlo Park, California. Prior to that, from 1989 to
1992, Mr. Aguilar was Executive Vice President of SF2, a company which pioneered
RAID technology. From 1982 to 1988, Mr. Aguilar served as Senior Vice President
of Marketing and Corporate Development for Prime
-3-
<PAGE>
Computer. For 27 years, he held various executive positions in sales, marketing
and development with IBM Corporation.
MR. DUTTON has been a Director of the Company since August 1994. He is a
retired business executive. He is currently a director of Caere Corporation and
Network Equipment Technologies, Inc., each a public company.
MR. FOWLER has been a Director of the Company since June 1996. He
recently retired as President, Chief Executive Officer and a Director of eT
Communications. Prior to that, from 1986 to January 1996, Mr. Fowler served as
Senior Vice President at Tandem Computers, and previously held executive
positions at Bechtel Group and IBM Corporation. He currently serves as Chairman
of the President's Cabinet at California Polytechnic State University. Mr.
Fowler also serves as a director of TelCom Semiconductor, Inc., a publicly held
company.
MR. TRIOLO has been a Director of the Company since June 1996. From
September 1995 to January 1997, Mr. Triolo was chairman of Knowledge Discovery
1, a software and services company. Prior to that, from June 1994 to June 1995,
Mr. Triolo was the chairman and chief executive officer of Datacache, a computer
hardware and software company. Prior to that, from 1992 to April 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.
Currently, he is a consultant to technology companies in sales and marketing.
MR. UNTERBERG has been a Director of the Company since June 1996. Mr.
Unterberg is Managing Director of C.E. Unterberg, Towbin ("Unterberg Towbin"),
an investment banking firm which serves as the Company's financial advisor.
Unterberg Harris, the predecessor firm to Unterberg Towbin, was the sole
underwriter in the Company's follow-on public offering in August 1997 (the "1997
Offering"). In addition, Unterberg Harris acted as placement agent in the
Company's private offerings of preferred stock in 1995 and 1996. Prior to that,
from 1987 to 1989, Mr. Unterberg was head of Technology Investment Banking at
Lehman Brothers. Mr. Unterberg is also presently the chairman and president of
C.E. Unterberg Inc. 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 Directors of several public companies, including, the AES
Corporation, Electronics for Imaging, Inc. and Systems and Computer Technology
Corporation. For a further discussion on Mr. Unterberg's relationship with the
Company, see "Certain Relationships And Related Transactions."
All Directors hold office until the next Annual Meeting of Shareholders
and until their successors are duly elected and qualified. There are no family
relationships among any of the Directors and executive officers of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR THE BOARD OF DIRECTORS.
-4-
<PAGE>
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. Each of the Compensation and Option Committee and the
Audit Committee currently consists of Gale R. Aguilar, James K. Dutton, Michael
E. Faherty, Frank R. Triolo, Donald E. Fowler and Thomas I. Unterberg. The
Compensation and Option Committee held three meetings in 1998. The Audit
Committee held one meeting in 1998. There were 12 meetings of the Board of
Directors in 1998. 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, if applicable.
Compensation of Directors
- -------------------------
The Company paid each Director $1,000 for the first Board meeting, whether
in-person or telephonic, held in each month that such Board member attended.
Pursuant to these arrangements, Messrs. Aguilar, Dutton, Faherty, Triolo, Fowler
and Unterberg, each, a current Director and nominee, received $12,000
respectively, in 1998. The Company also reimbursed each outside Director for his
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. Non-employee
Directors are also eligible to receive options pursuant to the Company's 1996
Non-Employee Directors Plan (the "Non-Employee Plan") as compensation for
serving on the Company's Board of Directors.
On February 23, 1996, the Board of Directors adopted, and on August 22,
1996 the shareholders of the Company approved, the Non-Employee Plan. On January
2, 1998, the Company granted to each non-employee Director options to purchase
5,000 shares of Common Stock under the Non-Employee Plan at an exercise price of
$6.313 per share.
Under the terms of the Non-Employee Plan, each non-employee Director who
first becomes a member of the Board shall be automatically granted, on the date
such person becomes a member of the Board, an option to purchase 30,000 shares
of 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 Common Stock.
As Chairman of the Board of Directors, Mr. Faherty receives a base salary
of $24,000 per year in addition to amounts payable as regular compensation for
all members of the Board of Directors.
-5-
<PAGE>
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the
Company:
Capacities in In Current
Name Age Which Served Position Since
---- --- -------------- --------------
Gregg M. Azcuy.............. 39 President and Chief 1996
Executive Officer
Louis J. Altieri(1)......... 39 Vice President, Finance 1995
and Administration
David J. Boyle(2)........... 35 Vice President, Sales 1996
and Marketing
Priyan Guneratne(3)......... 43 Vice President, Operations 1998
and Hardware Development
Rick Rice(4)................ 38 Vice President, Advanced 1998
Solutions and Software
Development
(1) 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 September 1991 until September 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.
(2) MR. BOYLE joined the Company in 1996 as Vice President, Sales and
Marketing. Prior to joining the Company, from April 1995, Mr. Boyle served
as Vice President, Sales of IPL Systems and from December 1991 to April
1995, he served as District Manager of EMC Corp. Both companies are
engaged in the data storage business.
(3) 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 and subsequently
was given additional responsibilities related to hardware development in
1998 and at that time became Vice President, Operations and Hardware
Development. 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.
(4) MR. RICE joined the Company in May 1995 as Director of Professional
Services. In August 1996, Mr. Rice was promoted to Vice President
Professional Services with responsibility for pre-sales technical support
and post-sales consulting and integration and subsequently in 1998 was
given additional responsibility related to advanced solutions and at that
time became Vice President, Advanced Solutions and Software
-6-
<PAGE>
Development. Mr. Rice is also responsible for strategic planning and
development of software products. Before joining ECCS, Mr. Rice served as
President and Founder of Sytrix Technologies, Inc., a technical services
firm specializing in operating system technologies. Prior to Sytrix, Mr.
Rice held various positions in applied research, systems software
engineering and technical staff management for such companies as Planning
Research Corporation, Digital Equipment and the National Security Agency.
None of the Company's executive officers is related to any other executive
officer or to any Director of the Company. Executive officers of the Company are
elected annually by the Board of Directors and serve until their successors are
duly elected and qualified.
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, executive 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).
The Company believes that during the fiscal year ended December 31, 1998,
its executive officers, Directors and holders of more than 10% of the Company's
Common Stock complied with all Section 16(a) filing requirements. In making this
statement, the Company has relied upon the written representations of its
Directors, executive officers and holders of more than 10% of its Common Stock,
and its review of the reports submitted to the Company in 1998.
-7-
<PAGE>
EXECUTIVE COMPENSATION
Summary of Compensation in 1998, 1997 and 1996
- ----------------------------------------------
The following Summary Compensation Table sets forth information concerning
compensation during the years ended December 31, 1998, 1997 and 1996 for
services in all capacities awarded to, earned by or paid to the Company's Chief
Executive Officer and each other executive officer of the Company whose
aggregate cash compensation exceeded $100,000 (four individuals) (collectively,
the "Named Executives").
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
------------------------------------------ ------------------------------
Awards
------------------------------
Other
Annual Restricted Securities
Name and Principal Salary Bonus Compensation Stock Award(s) Underlying
Position Year ($) ($) ($)(2) ($) Options (#)
(a) (b) (c) (d) (e) (f) (g)
- ------------------------------------ ---- ----------- ------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gregg M. Azcuy, .................... 1998 $199,230 -- -- -- 516,309(3)
President and 1997 $175,000 $ 97,200 -- -- 300,000(4)
Chief Executive Officer(1) 1996 $168,942 $ 30,500(5) -- $ 38,250(6) 116,309
Louis J. Altieri, .................. 1998 $134,692 $ -- -- -- 121,000(7)
Vice President, Finance and 1997 $125,077 43,200 -- -- 50,000(4)
Administration 1996 $115,000 -- -- -- 35,000
David J. Boyle, .................... 1998 $119,692 -- $ 50,155(8) -- 150,000(9)
Vice President, Sales and 1997 $110,240 $ 42,800 $ 59,489(8) -- 20,000(4)
Marketing 1996 $ 73,157 -- $ 11,214(10) -- 70,000
Priyan Guneratne, .................. 1998 $124,692 -- -- -- 118,000(11)
Vice President, Operations 1997 $115,000 $ 43,200 -- -- 70,000(4)
and Hardware Development 1996 $103,097 -- -- -- 20,000
Rick Rice, ......................... 1998 $124,692 $ 10,000 -- -- 150,000(13)
Vice President, Advanced 1997 -- -- -- -- --
Solutions and Software 1996 -- -- -- -- --
Development (12)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Azcuy became President and Chief Executive Officer of the Company on
June 20, 1996.
-8-
<PAGE>
(2) The costs of certain benefits are not included because they did not exceed
the lesser of $50,000 or 10% of the total annual salary and bonus as
reported above.
(3) Represents options that the Company canceled, reissued and repriced in
October 1998 at an exercise price of $1.25 per share. Such options were
initially granted as follows: (i) 75,000 options on October 6, 1994 at an
exercise price of $2.44 per share; (ii) 76,309 options on June 20, 1996 at
an exercise price of $2.875 per share; (iii) 25,000 options on October 26,
1996 at an exercise price of $3.00 per share; (iv) 40,000 options on
December 30, 1996 at an exercise price of $4.50 per share; and (v) 300,000
options on February 18, 1998 at $4.00 per share, such options being
originally granted in October 1997 at an exercise price of $8.00 per
share.
(4) Represents options that the Company canceled, reissued and repriced in
February 1998. Such options were initially granted in October 1997 at an
exercise price of $8.00 per share. In February 1998, the Company reissued
such options at an exercise price of $4.00 per share.
(5) Such amount was deferred and received as 25,000 shares of restricted
Common Stock in lieu of 1996 cash bonus (see column (f)).
(6) The aggregate number of shares of restricted Common Stock held at December
31, 1998 by Mr. Azcuy is 25,000. The value of such shares at December 31,
1998 (net of any consideration paid) is $11,689, based on a closing market
price at year end of $1.6875 per share.
(7) Represents options that the Company canceled, reissued and repriced in
October 1998 at an exercise price of $1.25 per share. Such options were
initially granted as follows: (i) 6,000 options on October 6, 1994 at an
exercise price of $2.44 per share; (ii) 20,000 options on February 1, 1995
at an exercise price of $2.125 per share; (iii) 10,000 options on October
26, 1995 at an exercise price of $3.00 per share; (iv) 20,000 options on
June 20, 1996 at an exercise price of $2.875 per share; (v) 15,000 options
on December 30, 1996 at an exercise price of $4.50 per share; and (vi)
50,000 options on February 8, 1998 at $4.00 per share, such options being
originally granted in October 1997 at an exercise price of $8.00.
(8) Represents commissions earned during corresponding year.
(9) Represents options that the Company granted on October 21, 1998 of 60,000
shares at an exercise price of $1.25 per share in addition to 90,000
options that the Company canceled, reissued and repriced in October 1998
at an exercise price of $1.25 per share. Such options were initially
granted as follows: (i) 70,000 options on July 6, 1996 at an exercise
price of $3.375 per share; and (ii) 20,000 options on February 18, 1998 at
$4.00 per share, such options being originally granted in October 1997 at
an exercise price of $8.00 per share.
(10) Includes $9,910 for the reimbursement of moving expenses during 1996.
(11) Represents options that the Company canceled, reissued and repriced in
October 1998 at an exercise price of $1.25 per share. Such options were
initially granted as follows: (i) 18,000 options on October 6, 1994 at an
exercise price of $2.44 per share; (ii) 10,000 options on October 26, 1995
at an exercise price of $3.00 per share; (iii) 10,000 options on June 20,
1996 at an exercise price of $2.875 per share; (iv) 10,000 options on
December 30, 1996 at an exercise price of $4.50 per share; (v) 10,000
options on June 26, 1997 at an exercise price of $5.00 per share; and (vi)
60,000 options on February 18, 1998 at an exercise price of $4.00 per
share, such options being originally granted in October 1997 at an
exercise price of $8.00 per share.
(12) Mr. Rice became Vice President, Software Development and Advanced
Solutions, of the Company on October 21, 1998.
-9-
<PAGE>
(13) Represents options that the Company granted on October 21, 1998 of 30,000
shares at an exercise price of $1.25 per share in addition to 120,000
options that the Company canceled, reissued and repriced at an exercise
price of $1.25 per share. Such options were initially granted as follows:
(i) 40,000 options on May 4, 1995 at an exercise price of $2.00 per share;
(ii) 10,000 options on October 16, 1995 at $3.00 per share; (iii) 20,000
options on June 20, 1996 at $2.875 per share; (iv) 10,000 options on
December 30, 1996 at $4.50 per share; (v) 8,000 options on February 18,
1998 at $4.00 per share; and (vi) 32,000 options on February 18, 1998 at
$4.00 per share.
Option Grants in 1998
- ---------------------
The following table sets forth information concerning individual grants of
stock options during 1998 to each of the Named Executives. The Company has never
granted any stock appreciation rights.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
OPTION GRANTS IN 1998
- -------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------
Individual Grants
------------------------------------------------------------ Potential Realizable Value
Of Total At Assumed Annual
Options Rates of Stock Price
Number of Securities Granted To Exercise Appreciation for Option
Underlying Options Employees Or Base Term (2)
Granted (1) In Fiscal Price Expiration --------------------------
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
- --------------------------- -------------------- ---------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gregg M. Azcuy............. 516,309(3) 28.8% 1.25(3) 10/21/09 405,668 1,028,042
Louis J. Altieri........... 121,000(3) 6.7% 1.25(3) 10/21/09 95,120 241,054
David J. Boyle............. 90,000(3) 5.0% 1.25(3) 10/21/09 70,751 179,296
90,000(3) 3.3% 2.0938 12/16/08 79,005 200,214
Priyan Guneratne........... 118,000(3) 6.5% 1.25(3) 10/21/09 92,762 235,077
Rick Rice.................. 120,000(3) 6.7% 1.25 10/21/08 94,335 239,077
30,000(4) 1.7 2.0938 12/16/08 39,503 100,107
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An aggregate of 1,804,109 of options were granted pursuant to and in
accordance with the Company's employee stock option plans. The options
terminate on the expiration date, subject to earlier termination on the
optionee's death, disability or termination of employment with the
Company. Options are not
-10-
<PAGE>
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 1996 Plan, the Board of Directors may, in its discretion,
accelerate the exercise dates of outstanding options.
(2) Based on a grant date fair market value equal to the grant date exercise
price per share of the applicable option for each of the Named Executives
and assumes no adjustments to the grant date exercise price.
(3) In October 1998, the Company canceled and reissued such options at an
exercise price of $1.25 per share. All of such options are exercisable to
the extent of one-half on each of the first anniversary and second
anniversary of the date of grant.
(4) Such options were granted pursuant to the Company's 1996 Plan and are
exercisable to the extent of 25% of the options granted becoming
exercisable on each of the first, second, third and fourth anniversary of
the date of grant.
Aggregated Option Exercises in 1998 and Year-End Option Values
- --------------------------------------------------------------
The following table sets forth information concerning each exercise of
options during 1998 by each of the Named Executives and the year-end number and
value of unexercised in-the-money options or warrants held by each of the Named
Executives.
- --------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------
Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options At Options At
Fiscal Fiscal
Shares Year-End Year-End
Acquired Value (#) ($)(1)(2)
On Realized Exercisable/ Exercisable/
Name Exercise(#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------
Gregg M. Azcuy...... -- -- 104,018/550,982 $40,820/239,492(3)
Louis J. Altieri.... -- -- 21,750/128,250 $ 4,078/54,297(4)
David J. Boyle...... -- -- 0/150,000 $ 0/39,375(5)
Priyan Guneratne.... -- -- 24,000/126,000 $ 3,094/52,656(6)
Rick Rice........... -- -- 0/150,000 $ 0/52,500(7)
- -------------------------------------------------------------------------------
(1) Based on a year-end fair market value of the underlying securities equal
to $1.6875 per share.
(2) Includes only options which were "in-the-money" as of December 31, 1998.
-11-
<PAGE>
(3) In October 1998, the Company canceled and reissued such options at an
exercise price of $1.25 per share. The value of such reissued shares based
on the year-end fair market value is $225,885.
(4) In October 1998, the Company canceled and reissued such options at an
exercise price of $1.25 per share. The value of such reissued shares based
on the year-end fair market value is $52,938.
(5) Does not include 60,000 options granted in December 1998 that were not
"in-the-money" as of December 31, 1998. In October 1998, the Company
canceled and reissued such options at an exercise price of $1.25 per
share. The value of such reissued shares based on the year-end fair market
value is $39,375.
(6) Does not include 10,000 options granted in February 1995 that were not
"in-the-money" as of December 31, 1998. In October 1998, the Company
canceled and reissued such options at an exercise price of $1.25 per
share. The value of such reissued shares based on the year-end fair market
value is $51,625.
(7) Does not include 30,000 options granted in December 1998 that were not
"in-the-money" as of December 31, 1998. In October 1998, the Company
canceled and reissued such options at an exercise price of $1.25 per
share. The value of such reissued shares based on the year-end fair market
value is $52,500.
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.
In October 1997, the Compensation and Option Committee of the Company
approved a proposal to extend, for a period terminating on February 1, 1999, to
Gregg M. Azcuy, Louis J. Altieri, David J. Boyle, Priyan Guneratne and Rick
Rice, each a Named Executive, and Mark Ish, former Vice President, Research and
Development of the Company, and Rick Rice, Vice President Software Development
and Advanced Solutions of the Company, (collectively, the "Senior Staff")
certain change of control severance and bonus payments pursuant to certain
Senior Staff Change In Control Severance And Incentive Compensation Agreements
(the "Change In Control Agreements"). Specifically, the Company 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. If the
consideration paid for the change in control is more than $6.00 per share, net
of incentive compensation paid or to be paid to the Senior Staff, then such
bonus shall range from four (4) months to six (6) months severance. If the
consideration paid for the change in control is less than $6.00 per share, net
of incentive compensation paid or to be paid to the Senior Staff, then such
bonus shall range from one (1) month to two (2) months severance. The maximum
severance and bonus payments which could be payable to each of Messrs. Azcuy,
Altieri, Boyle, Guneratne and Rice 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 $994,000. On
February 18, 1999, the Board authorized the extension of the Change In Control
Agreements for each of Messrs. Azcuy, Altieri, Boyle, Guneratne and Rice for an
additional one-year period, with the per share trigger price amended to be
$1.25.
-12-
<PAGE>
Under each of the Company's 1989 Stock Option Plan, as amended (the "1989
Plan") and the 1996 Plan, in the event of a reorganization of the Company, as
defined in each of the 1989 Plan and the 1996 Plan, the Board of Directors may,
in its discretion, accelerate the exercise dates of outstanding options.
Executive Loan Policy
- ---------------------
In October 1997, the Compensation and Option Committee approved the
Company's Executive Loan Policy. Pursuant to such policy, the Company may make
loans to officers of the Company (the "Executive Loans") provided the Company
will benefit by entering into an Executive Loan and that such loan only subjects
the Company to minimal financial risk. The officer requesting an Executive Loan
must pledge ample collateral as security for such loan and must be in good
standing with the Company throughout the Executive Loan approval process. The
Company's Chief Executive Officer and its Compensation and Option Committee must
approve each Executive Loan.
-13-
<PAGE>
Option Repricings in 1998
- -------------------------
The following table sets forth repricing of options held by any executive
officer of the Company during the last ten (10) completed fiscal years. See
"Compensation Committee Report on Executive Compensation."
<TABLE>
<CAPTION>
10-YEAR OPTION REPRICINGS
- ------------------------------------------------------------------------------------------
Number Market
of Price Of Length Of
Securities Stock At Exercise Original
Underlying Time Of Price At Option Term
Options Repricing Time Of New Remaining At
Repriced Or Repricing Exercise Date Of
Name and Position Date or Amended Amendment Or Amendment Price Repricing Or
(#) ($) (#) ($) Amendment
(a) (b) (c) (d) (e) (f) (g)
- ----------------- ------- ---------- --------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gregg M. Azcuy, 2/18/98 300,000 $4.00 $8.00 $4.00 9 yrs. 8 mos.
President and
Chief Executive
Officer
10/21/98 300,000 $1.25 $4.00 $1.25 9 yrs. 4 mos.
10/21/98 75,000 $1.25 $2.440 $1.25 6 yrs.
10/21/98 25,000 $1.25 $3.00 $1.25 8 yrs.
10/21/98 76,309 $1.25 $2.875 $1.25 7 yrs. 8 mos.
10/21/98 40,000 $1.25 $4.50 $1.25 8 yrs. 2 mos.
Louis J. 2/18/98 50,000 $4.00 $8.00 $4.00 9 yrs. 8 mos.
Altieri, Vice
President,
Finance and
Administration
10/21/98 50,000 $1.25 $4.00 $1.25 9 yrs. 4 mos.
10/21/98 6,000 $1.25 $2.44 $1.25 6 yrs.
10/21/98 20,000 $1.25 $2.125 $1.25 6 yrs. 4 mos.
10/21/98 10,000 $1.25 $3.00 $1.25 7 yrs.
10/21/98 20,000 $1.25 $28.75 $1.25 7 yrs. 8 mos.
10/21/98 15,000 $1.25 $4.50 $1.25 8 yrs. 2 mos.
-14-
<PAGE>
10-YEAR OPTION REPRICINGS (Continued)
- ------------------------------------------------------------------------------------------
Number Market
of Price Of Length Of
Securities Stock At Exercise Original
Underlying Time Of Price At Option Term
Options Repricing Time Of New Remaining At
Repriced Or Repricing Exercise Date Of
Name and Position Date or Amended Amendment Or Amendment Price Repricing Or
(#) ($) (#) ($) Amendment
(a) (b) (c) (d) (e) (f) (g)
- ----------------- ------- ---------- --------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Boyle, 2/18/98 20,000 $4.00 $8.00 $4.00 9 yrs. 8 mos.
Vice President,
Sales and
Marketing
10/21/98 20,000 $4.00 $4.00 $1.25 9 yrs. 4 mos.
10/21/98 70,000 $1.25 $3.375 $1.25 7 yrs. 9 mos.
Priyan Guneratne, 2/18/98 60,000 $4.00 $8.00 $4.00 9 yrs. 8 mos.
Vice President,
Operations and
Hardware
Development
10/21/98 60,000 $1.25 $4.00 $1.25 9 yrs. 4 mos.
10/21/98 18,000 $1.25 $2.44 $1.25 6 yrs.
10/2198 10,000 $1.25 $3.00 $1.25 7 yrs.
10/21/98 10,000 $1.25 $2.875 $1.25 7 yrs. 8 mos.
10/21/98 10,000 $1.25 $4.50 $1.25 8 yrs. 2 mos.
10/21/98 10,000 $1.25 $5.00 $1.25 8 yrs. 8 mos.
Rick Rice, Vice 2/18/98 40,000 $1.25 $8.00 $4.00 9 yrs. 8 mos.
President,
Advanced Solutions
and Software
Development
10/21/98 40,000 $1.25 $4.00 $1.25 9 yrs. 8 mos.
10/21/98 40,000 $1.25 $2.00 $1.25 9 yrs. 4 mos.
10/21/98 10,000 $1.25 $3.00 $1.25 7 yrs.
10/21/98 20,000 $1.25 $2.875 $1.25 7 yrs. 8 mos.
10/21/98 10,000 $1.25 $4.50 $1.25 8 yrs. 2 mos.
</TABLE>
-15-
<PAGE>
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Compensation and Option Committee currently is comprised of Gale R.
Aguilar, James K. Dutton, Michael E. Faherty, Frank R. Triolo, Donald E. Fowler
(Chairperson of the Compensation and Option Committee) and Thomas I. Unterberg.
For a discussion of certain transactions involving Mr. Unterberg, see "Certain
Relationships And Related Transactions."
There are no "interlocks", as defined by the SEC, with respect to any
Director who for any part of 1998 served as a member of the Compensation and
Option Committee.
In 1998, the Company granted to each of the members of the Compensation
and Option Committee options to purchase Common Stock of the Company. See
"Election of Directors -- Compensation of Directors."
-16-
<PAGE>
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. The stock performance shown on the graph below is not indicative of
future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)(3)
[Insert Graph]
<TABLE>
<CAPTION>
Among the Company, the Nasdaq Composite Index
and the Dow Jones Computer Industry Group Index
(Capitalization Weighted)
6/14/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Nasdaq Composite Index $ 100.00 $ 111.54 $ 107.98 $ 151.12 $ 185.38 $ 225.49 $ 314.85
Dow Jones Computer Industry $ 100.00 $ 98.90 $ 80.04 $ 171.46 $ 241.82 $ 341.16 $ 436.29
Group Index (Capitalization
weighted)
ECCS, Inc. $ 100.00 $ 75.00 $ 16.15 $ 29.17 $ 72.94 $ 108.33 $ 28.13
</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) Cumulative total return assumes reinvestment of dividends.
(3) Year ending December 31.
-17-
<PAGE>
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 maximize 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, Executive Loans and
various other benefits, including medical insurance and a 401(k) Plan which are
generally available to all employees of the Company.
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 which are tied to Company
profitability and revenue levels. The amount of bonus is based, in part, 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 financial results of the Company.
The stock option program is designed to relate executives' and employees'
long-term interests to shareholders' long-term interests. In general, stock
option awards are granted on a periodic 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.
On October 21, 1998 the Board of Directors, acting in lieu of the
Compensation Committee, unanimously voted in favor of offering to all employees,
including executive officers of the Company, who were previously granted stock
options an opportunity to exchange such options for new stock options to
purchase shares of Common Stock of the Company at an exercise price equal to
$1.25 per share (the "New Options"). The New Options are exercisable to the
extent of one-half on each of the first and second anniversary of the date of
grant. The Company offered the New Options in order to pursue its commitment to
retain key officers and employees, particularly in light of the highly
competitive labor market for technical personnel.
-18-
<PAGE>
The Company may make Executive Loans to its officers provided a
demonstrated benefit to the Company exists for making such loans and the
financial risk to the Company is minimal. The officer requesting an Executive
Loan must be in good standing with the Company and must pledge sufficient
collateral as security for such loan. In general, the approval and amount of
such Executive Loans are based on the requesting officer's individual
performance and his or her level of responsibility within the Company.
Based on a review of available information, the Compensation and Option
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.
Compensation, Option and Stock
Purchase Plan Committee Members
(as constituted at year end)
Gale R. Aguilar
James K. Dutton
Michael E. Faherty
Frank R. Triolo
Donald E. Fowler
Thomas I. Unterberg (Chairperson)
-19-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are, as of March 31, 1999, approximately 157 holders of record. The
following table sets forth certain information, as of March 31, 1999, regarding
the beneficial ownership of the Company's Common Stock by (i) each person who is
known by the Company to be the beneficial owner of 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.
Amount and Nature
Name and Address of Beneficial Percent
of Beneficial Owner (1) Ownership(1) of Class(2)
- ----------------------- ------------ -----------
(i) Certain Beneficial Owners:
Unterberg Harris
Private Equity Partners, L.P.
Swiss Bank Tower
10 East 50th Street
New York, NY 10022 ........................ 1,040,626 9.4%
E&M RP Trust
c/o Edmund Shea
655 Brea Canyon Road
Walnut, CA 71789-3010 ..................... 638,727 5.8%
(ii) Directors (which includes all nominees)
and Named Executives:
Gale R. Aguilar ............................ 33,750(3) *
James K. Dutton ............................ 33,750(3) *
Michael E. Faherty ......................... 374,274(4) 3.3%
Donald E. Fowler ........................... 27,084(5) *
Frank R. Triolo ............................ 27,084(5) *
Thomas I. Unterberg ........................ 1,677,044(6) 15.2%
Gregg M. Azcuy ............................. 165,551(7) 1.5%
Louis J. Altieri ........................... 30,906(8) *
David J. Boyle ............................. 2,833 *
Priyan Guneratne ........................... 30,990(9) *
Rick Rice .................................. 1,752 *
(iii) All Directors and current
executive officers as a group
(11 persons).......................... 2,405,018(10) 20.6%
-20-
<PAGE>
- ----------
* 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 sole investment power with respect to all shares of Common
Stock shown as beneficially owned by such shareholder.
(2) Applicable percentage of ownership is based on 11,028,084 shares of Common
Stock outstanding on March 31, 1999, plus any presently exercisable stock
options or warrants held by each such holder and options or warrants which
will become exercisable within 60 days after March 31, 1999.
(3) Represents 33,750 shares of Common Stock subject to options which are
exercisable at March 31, 1999 or which will become exercisable within 60
days of such date.
(4) Includes 321,348 shares of Common Stock subject to warrants or options
which are exercisable at March 31, 1999 or which will become exercisable
within 60 days of such date.
(5) Represents 27,084 shares of Common Stock subject to options which are
exercisable at March 31, 1999 or which will become exercisable within 60
days of such date.
(6) Includes: 27,084 shares of Common Stock subject to options which are
exercisable at March 31, 1999 or which will become exercisable within 60
days of such date; 1,040,626 shares of Common Stock held by Unterberg
Harris Private Equity Partners, L.P.; 222,270 shares of Common Stock held
by Unterberg Harris Private Equity Partners, C.V.; 155,198 shares of
Common Stock held by C.E. Unterberg, Towbin LLC; and 10,000 shares of
Common Stock held by C.E. Unterberg, Towbin 401(k) Profit Sharing Plan
Dated 10/26/90 FBO: Robert Matluck, of which Mr. Unterberg is a trustee.
(7) Includes 138,691 shares of Common Stock subject to options which are
exercisable at March 31, 1999 or which will become exercisable within 60
days of such date.
(8) Includes 21,750 shares of Common Stock subject to options which are
exercisable at March 31, 1999 or which will become exercisable within 60
days of such date.
(9) Includes 24,000 shares of Common Stock subject to options which are
exercisable at March 31, 1999 or which will become exercisable within 60
days of such date.
(10) See Notes 3 through 9.
-21-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Unterberg Towbin, an investment banking firm, serves as the Company's
financial advisor. Thomas I. Unterberg is Managing Director of Unterberg Towbin.
Mr. Unterberg is also a member of the Board of Directors of the Company.
Unterberg Harris, the predecessor firm to Unterberg Towbin, was the sole
underwriter in the 1997 Offering. As compensation for its services in the 1997
Offering, Unterberg Harris received underwriting discounts and commissions of
$0.31 per share on 2,875,000 shares of the Company's Common Stock. In addition,
the Company paid Unterberg Harris a $50,000 non-accountable expense allowance in
connection with the 1997 Offering. Unterberg Harris was also the managing
underwriter in the Company's initial public offering in 1993 and acted as
placement agent in connection with the Company's private placement of preferred
stock in 1995 and 1996. For a discussion of Mr. Unterberg's beneficial ownership
of the Company's Common Stock, see "Security Ownership Of Certain Beneficial
Owners And Management."
On June 6, 1997, the Company entered into a loan transaction with Gregg M.
Azcuy, its President and Chief Executive Officer (the "Borrower") pursuant to a
$250,000 promissory note in favor of the Company. Interest on the outstanding
principal balance of such promissory note is payable monthly at the prime
lending rate. The promissory note is payable over a five-year period beginning
on May 31, 1999. In connection with such promissory note, the Borrower granted
the Company a security interest in the Borrower's interests in the Company's
1997 Executive Compensation Plan and any and all future executive compensation
bonuses or similar compensation to be received by the Borrower. The Borrower
also pledged to the Company all of his right, title and interest to 25,000
restricted shares of the Company's Common Stock and options to purchase 131,000
shares of the Company's Common Stock as security for the promissory note. The
Borrower's largest aggregate amount of indebtedness under such promissory note
at any time during 1998 was $265,622. As of March 31, 1999, the Borrower owed
$221,808 of principal and interest under such promissory note.
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.
The Company has entered into certain Change In Control Agreements with each of
its executive officers. For a discussion of the terms of such agreements, see
"Executive Compensation -- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements."
-22-
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has, subject to shareholder
approval, retained Ernst & Young LLP as independent auditors of the Company for
the year ending December 31, 1999. Ernst & Young LLP also served as independent
auditors of the Company for 1998. Neither the accounting 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, 1999.
One or more representatives of Ernst & Young LLP is expected to attend the
Meeting and to have an opportunity to make a statement and/or respond to
appropriate questions from shareholders.
SHAREHOLDERS' PROPOSALS
Shareholders who wish to submit proposals for inclusion in the Company's
proxy statement and form of proxy relating to the 2000 Annual Meeting of
Shareholders must advise the Secretary of the Company of such proposals in
writing by December 24, 1999.
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 directly by
the Company.
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.
-23-
<PAGE>
ECCS, INC. WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998, INCLUDING FINANCIAL STATEMENTS AND
SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF ITS SHAREHOLDERS OF
RECORD ON APRIL 27, 1999, AND TO EACH BENEFICIAL SHAREHOLDER ON THAT DATE UPON
WRITTEN REQUEST MADE TO LOUIS J. ALTIERI, VICE PRESIDENT, FINANCE AND
ADMINISTRATION, ECCS, INC., ONE SHEILA DRIVE, BLDG. 6A, TINTON FALLS, NEW JERSEY
07724, TELEPHONE NUMBER (732) 747-6995. 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
May 4, 1999
<PAGE>
ECCS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF SHAREHOLDERS
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 Shareholders
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, June 24, 1999
and at any adjournment or adjournments thereof, upon the following proposals
more fully described in the Notice of Annual Meeting of Shareholders 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 shareholder. If no direction is made, this proxy will
be voted FOR proposals 1 and 2.
(Continued and to be signed on reverse side)
<PAGE>
<TABLE>
<CAPTION>
VOTE FOR all the
nominees listed at right;
except as marked to VOTE WITHHELD
the contrary below from all nominees
<S> <C> <C> <C> <C>
1. ELECTION OF | | | | Nominees: Michael E. Faherty
DIRECTORS Gregg M. Azcuy
Gale R. Aguilar
James K. Dutton
Donald E. Fowler
Frank R. Triolo
Thomas I. Unterberg
</TABLE>
To withhold authority for any individual nominee, write that nominee's name in
the space provided below.
- -----------------------------------------------------------------------
2. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1999.
FOR | | AGAINST | | ABSTAIN | |
3. 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 by joint
- ---------------------------------- tenants, both should sign. If the
Signature of Shareholder signer is a corporation, please
sign full corporate name by duly
- ---------------------------------- authorized officer, giving full
Signature of Shareholder if held jointly title as such. If the signer is a
partnership,
please sign in partnership name by
authorized person.
I will | | will not | | attend the Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
