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:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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 5, 2000
To Our Shareholders:
You are most cordially invited to attend the 2000 Annual Meeting of
Shareholders of ECCS, Inc. at 9:00 A.M., local time, on Thursday, June 22, 2000,
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 22, 2000
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 22, 2000, 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 amend the Certificate of Incorporation of the Company to increase
the Company's authorized shares of Common Stock from 20,000,000 to
50,000,000;
(3) To amend the Company's 1996 Non-Employee Directors Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
upon the exercise of options granted under such plan from 150,000 to
500,000 shares;
(4) To ratify the appointment of Ernst & Young LLP as independent auditors
for the year ending December 31, 2000; and
(5) 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 28,
2000 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 5, 2000
THE COMPANY'S 1999 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
22, 2000 (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 Friday, April 28, 2000
will be entitled to notice of and to vote at the Meeting and any adjournment or
adjournments thereof. As of that date, there were 11,509,768 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 a proposal to amend the Certificate of Incorporation of the
Company to increase the Company's authorized shares of Common Stock from
20,000,000 to 50,000,000, (iii) FOR a proposal to amend the 1996 Non-Employee
Directors Stock Option Plan (the "Non-Employee Plan"), to increase the maximum
number of shares of Common Stock available for issuance under the Non-Employee
Plan from 150,000 to 500,000 shares and to reserve an additional 350,000 shares
of Common Stock of the Company for issuance upon the exercise of stock options
granted under the Non-Employee Plan, (iv) FOR the ratification of the
appointment of Ernst & Young LLP as independent auditors for the year ending
December 31, 2000, 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. 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 Friday, May 5, 2000. The
Annual Report to Shareholders of the Company for the year ended December 31,
1999, including financial statements (the "Annual Report"), is being mailed
together with this Proxy Statement to all shareholders of record as of April 28,
2000. 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 28, 2000.
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 vote of shareholders possessing a
<PAGE>
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:
<TABLE>
<CAPTION>
SERVED AS A POSITIONS WITH
NAME AGE DIRECTOR SINCE THE COMPANY
---- --- -------------- --------------
<S> <C> <C> <C>
Michael E. Faherty.................. 65 1994 Chairman of the Board and
Director
Gregg M. Azcuy...................... 40 1996 President and Chief Executive
Officer and Director
Gale R. Aguilar..................... 67 1995 Director
James K. Dutton..................... 67 1994 Director
Donald E. Fowler.................... 62 1996 Director
Frank R. Triolo..................... 66 1996 Director
Thomas I. Unterberg................. 69 1996 Director
</TABLE>
The principal occupations and business experience, for at least the past
five years, of each Director and nominee is as follows:
-2-
<PAGE>
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 the Company's
Chief Executive Officer. 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.
In August 1995, ALC Communications Corporation 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 President, Chief Executive Officer and a Director of the
Company since June 1996. He joined us 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. 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. 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 Computer. Prior to that, 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 Network Equipment
Technologies, Inc., a publicly held company.
Mr. Fowler has been a Director of the Company since June 1996. He is
Chairman of four early stage companies: IBT Financial, 24x7.com, Frontline
Solutions and High Speed Surfing, Inc. Mr. Fowler also serves on two other
private company boards. 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. and ADAL Laboratories, both publicly held Companies.
-3-
<PAGE>
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 Chairman, Managing Director and member of the Executive Committee
of C.E. 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 our follow-on public offering in August 1997
and was the lead manager in the Company's initial public offering in 1993. In
addition, Unterberg Harris 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 as a director of AES Corporation,
Electronics for Imaging, Inc. and Systems and Computer Technology Corporation,
each a publicly held company.
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.
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 8 meetings in 1999. The Audit Committee
held one meeting in 1999. There were 12 meetings of the Board of Directors in
1999. 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 non-employee 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 1999. 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.
-4-
<PAGE>
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
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
3, 2000, 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
$12.625 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 non-employee members of the Board of Directors.
-5-
<PAGE>
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>
Gregg M. Azcuy.................... 40 President and Chief Executive 1996
Officer
Louis J. Altieri(1)............... 40 Vice President, Finance and 1995
Administration
Priyan Guneratne(2)............... 44 Vice President, Engineering and 1999
Operations
</TABLE>
- --------------
(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. 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. In December 1999, Mr. Guneratne was appointed Vice President,
Engineering and Operations. 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.
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, 1999,
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 1999.
-6-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION IN 1999, 1998 AND 1997
The following Summary Compensation Table sets forth information concerning
compensation during the years ended December 31, 1999, 1998 and 1997 for
services in all capacities awarded to, earned by or paid to the Company's Chief
Executive Officer and each: (i) current executive officer of the Company, or
(ii) former executive officer of the Company who served in such capacity during
a period of time in 1999 whose aggregate cash compensation exceeded $100,000
(four individuals) (collectively, the "Named Executives").
<TABLE>
- ---------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Annual Compensation Long-Term
Compensation
---------------------------------------------------------------
Awards
---------------------------
Other Restricted
Annual Stock Securities
Name and Principal Salary Bonus Compensation Award(s) Underlying
Position Year ($) ($) ($)(1) ($) Options (#)
(a) (b) (c) (d) (e) (f) (g)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gregg M. Azcuy, ......... 1999 $220,000 $154,223 -- -- 200,000(2)
President and 1998 $199,230 -- -- -- 516,309(3)
Chief Executive Officer 1997 $175,000 $97,200 -- -- 300,000(4)
Louis J. Altieri,........ 1999 $149,692 $96,073 -- -- 100,000(5)
Vice President, Finance 1998 $134,692 -- -- -- 121,000(6)
and Administration 1997 $125,077 $43,200 -- -- 50,000(4)
David J. Boyle, (7) ..... 1999 $ 77,675 -- $49,746(8) -- --
Vice President, Sales 1998 $119,692 -- $50,155(8) -- 150,000(9)
and Marketing 1997 $110,240 $42,800 $59,489(8) -- 20,000(4)
Priyan Guneratne,........ 1999 $149,642 $86,689 -- -- 118,000(10)
Vice President, 1998 $124,692 -- -- -- 118,000(11)
Engineering and 1997 $115,000 $43,200 -- -- 70,000(4)
Operations
Rick Rice, (12).......... 1999 $163,595 $10,000 -- -- --
Vice President, 1998 $124,692 $10,000 -- -- 150,000(13)
Advanced Solutions and 1997 -- -- -- -- --
Software Development
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) Represents options that the Company granted on December 17, 1999 at an
exercise price of $10.75 per share.
-7-
<PAGE>
(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 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.
(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) Represents options that the Company granted on December 17, 1999 options
at an exercise price of $10.75 per share.
(6) 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 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.
(7) Mr. Boyle resigned as an officer of the Company on June 21, 1999.
(8) Represents commissions earned during corresponding year.
(9) Represents options that the Company granted on October 21, 1998 for
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) Represents options that the Company granted on June 24, 1999 and
December 17, 1999 at an exercise price of $3.44 and $10.75 per share,
respectively.
(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 resigned as an officer of the Company on September 24, 1999.
(13) Represents options that the Company granted on October 21, 1998 for
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 an
exercise price of $3.00 per share; (iii) 20,000 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) 8,000
options on February 18, 1998 at an exercise price of $4.00 per share;
and (vi) 32,000 options on February 18, 1998 at an exercise price of
$4.00 per share.
-8-
<PAGE>
OPTION GRANTS IN 1999
The following table sets forth information concerning individual grants
of stock options during 1999 to each of the Named Executives. The Company has
never granted any stock appreciation rights.
<TABLE>
- ---------------------------------------------------------------------------------------------------------
OPTION GRANTS IN 1999
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Individual Grants
---------------------------------------------------------------------------------
Potential Realizable
Value At Assumed
Annual
Percent Rates Of Stock Price
Of Total Appreciation For
Number Of Options Option
Securities Granted To Exercise Term(2)
Underlying Employees Or Base
Options Granted(1) In Fiscal Price Expiration ------------------------
Name (#) Year ($/Sh) Date 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gregg M. Azcuy........ 28,342(3) 4% 10.75(3) 12/17/09 191,609 485,576
171,658(4) 25% 10.75(4) 12/17/09 1,160,514 2,940,970
- ------------------------------------------------------------------------------------------------------------
David J. Boyle........ -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Louis J. Altieri...... 30,173(3) 4% 10.75(3) 12/17/09 203,988 516,946
69,827(4) 10% 10.75(4) 12/17/09 472,074 1,196,328
- ------------------------------------------------------------------------------------------------------------
Priyan Guneratne...... 18,000(3) 3% 3.44(3) 6/24/09 38,941 98,685
24,592(3) 4% 10.75(3) 12/17/09 166,257 421,328
75,408(4) 11% 10.75(4) 12/17/09 509,805 1,291,945
- ------------------------------------------------------------------------------------------------------------
Rick Rice............. -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An aggregate of 693,000 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 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 Company's 1996 Stock
Option Plan (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) Such options were granted pursuant to the Company's 1996 Plan and are
exercisable to the extent of 25% of the options granted on each of the
first, second, third and fourth anniversary of the date of grant.
(4) Such options were granted outside of any of the Company's stock option
plans and are exercisable to the extent of 25% of the options granted
on each of the first, second, third and fourth anniversary of the date
of grant.
-9-
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
options during 1999 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.
<TABLE>
- ------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN 1999
AND YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options At Options At
Fiscal Fiscal
Shares Year-End Year-End
Acquired Value (#) ($)(1)
On Realized Exercisable/ Exercisable/
Name Exercise(#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gregg M. Azcuy............. 152,444 395,470 264,405/458,154 3,006,044 / 3,311,502
- ------------------------------------------------------------------------------------------------------------
Louis J. Altieri........... 21,750 51,656 67,750/160,500 769,183 / 861,063
- ------------------------------------------------------------------------------------------------------------
David J. Boyle............. -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Priyan Guneratne........... 10,000 17,500 81,000/177,000 915,875 / 1,009,705
- ------------------------------------------------------------------------------------------------------------
Rick Rice.................. -- -- -- --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on a fiscal year-end fair market value of the underlying securities
equal to $12.625 per share.
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 January 1, 2000, the Compensation and Option Committee of the Company
approved a proposal to extend, for a period terminating on February 28, 2001, to
Gregg M. Azcuy, Louis J. Altieri, and Priyan Guneratne, each a Named Executive
(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) twelve (12) 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 $10.00 per share, net of incentive compensation paid or to be paid to
the Senior Staff, then such bonus shall be three (3) months severance. If the
-10-
<PAGE>
consideration paid for the change in control is less than $10.00 per share, net
of incentive compensation paid or to be paid to the Senior Staff, then such
bonus shall be one (1) month severance. The maximum severance and bonus payments
which could be payable to each of Messrs. Azcuy, Altieri and Guneratne 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 $775,000.
Under the 1996 Plan, 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.
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.
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 1999 served as a member of the Compensation and
Option Committee.
In 1999, 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."
-11-
<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 Nasdaq Computer Manufacturers Index 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 the five year period
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)
Among the Company, the Nasdaq Composite Index
and the Nasdaq Computer Manufacturers Index
[Performance Graph inserted here]
- --------------------------------------------------------------------------------
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- --------------------------------------------------------------------------------
Nasdaq Composite Index $151.12 $185.38 $225.49 $314.85 $584.33
- --------------------------------------------------------------------------------
Nasdaq Computer $176.08 $235.70 $285.03 $618.12 $1,316.49
Manufacturers Index(4)
- --------------------------------------------------------------------------------
ECCS, Inc. $ 26.16 $ 72.92 $108.33 $ 28.13 $210.42
- --------------------------------------------------------------------------------
(1) Graph assumes $100 invested on June 14, 1993 in the Company's Common
Stock, the Nasdaq Composite Index and the Nasdaq Computer Manufacturers
Index.
(2) Cumulative total return assumes reinvestment of dividends.
(3) Year ending December 31.
(4) The Company previously compared its total shareholder return to the Dow
Jones Computer Industry Group Index. Such index is no longer available.
-12-
<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.
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.
-13-
<PAGE>
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)
-14-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are, as of March 31, 2000, approximately 134 holders of record. The
following table sets forth certain information, as of March 31, 2000, 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 9.04%
E&M RP Trust
c/o Edmund Shea
655 Brea Canyon Road
Walnut, CA 71789-3010....................... 638,727 5.55%
(ii) Directors (which includes all nominees
and Named Executives:
Gale R. Aguilar.............................. 37,500(3) *
James K. Dutton.............................. 37,500(3) *
Michael E. Faherty........................... 389,274(4) 3.29%
Donald E. Fowler............................. 37,500(3) *
Frank R. Triolo.............................. 37,500(3) *
Thomas I. Unterberg.......................... 1,676,650(5) 14.52%
Gregg M. Azcuy............................... 265,725(6) 2.26%
Louis J. Altieri............................. 68,309(7) *
David J. Boyle............................... -- *
Priyan Guneratne............................. 81,000(8) *
Rick Rice.................................... -- *
(iii) All Directors and current executive
officers as a group (11 persons)...... 2,630,958(9) 21.15%
- ----------------
* Less than one percent.
-15-
<PAGE>
(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 11,508,018 shares of
Common Stock outstanding on March 31, 2000, 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, 2000.
(3) Represents 37,500 shares of Common Stock subject to options which are
exercisable at March 31, 2000 or which will become exercisable within 60
days of such date.
(4) Includes 331,348 shares of Common Stock subject to warrants or options
which are exercisable at March 31, 2000 or which will become exercisable
within 60 days of such date.
(5) Includes: 37,500 shares of Common Stock subject to options which are
exercisable at March 31, 2000 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.
(6) Includes 264,404 shares of Common Stock subject to options which are
exercisable at March 31, 2000 or which will become exercisable within 60
days of such date.
(7) Includes 67,750 shares of Common Stock subject to options which are
exercisable at March 31, 2000 or which will become exercisable within 60
days of such date.
(8) Includes 81,000 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.
(9) See Notes 3 through 8.
-16-
<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. On
November 2, 1999 the Company received payment from the Borrower in the amount of
$227,000 representing full payment of the balance on such certain 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."
AMENDMENT TO CERTIFICATE OF INCORPORATION
Shareholders are being asked to consider and vote upon a proposal to amend
the Certificate of Incorporation of the Company to increase the number of
authorized shares from twenty million (20,000,000) shares to fifty million
(50,000,000) shares, all of which shares shall be Common Stock, to: (i) provide
the Company with flexibility to undertake future financings or negotiate
potential future acquisitions approved by the Board of Directors of the Company;
(ii) reserve additional shares of Common Stock for issuance upon the exercise of
stock options granted under the Company's Non-Employee Plan and; and (iii)
increase the number of shares of capital stock available for issuance by the
Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE CERTIFICATE OF INCORPORATION OF THE COMPANY.
-17-
<PAGE>
PROPOSED AMENDMENT TO 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, Mr. Azcuy is
ineligible to receive options under such Plan. The Non-Employee Director Plan is
administered by the Compensation, Option and Stock Purchase Plan 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 shareholders 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 is 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. Faherty, Aguilar, Dutton, Triolo, Fowler and
Unterberg, each a non-employee Director who is eligible to participate in the
Non-Employee Plan, are members of the Compensation, Option and Stock Purchase
Plan Committee which administers the Non-Employee Plan.
The term of the Non-Employee Plan will extend through December 31, 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 shareholders, 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 shareholders, can terminate or amend the
Non-Employee Plan, except that no such action can adversely affect options
previously granted and, without shareholder 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.
-18-
<PAGE>
Options to be issued under the Non-Employee 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 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.
-19-
<PAGE>
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 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.
PREVIOUSLY GRANTED OPTIONS UNDER THE NON-EMPLOYEE PLAN
As of December 31, 1999, the Company had granted options to purchase an
aggregate of 120,000 shares of Common Stock under the Non-Employee Plan at
exercise prices ranging from $1.69 to $6.50 per share to each of its
non-employee Directors. The weighted average exercise price of such options is
$4.24. As of December 31, 1999, all such options to purchase shares were vested
and no options to purchase shares had been exercised under the Non-Employee
Plan. The following table sets forth the options granted to (i) the Named
Executives; (ii) all current executive officers as a group; (iii) all current
Directors who are not executive officers as group; (iv) each nominee for
election as a Director; (v) each associate of any such Directors, executive
officers or nominees; or (vi) each other person who received or is to receive 5%
of such options or rights; and (viii) all employees, including all current
officers who are not executive officers, as a group.
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS GRANTED AVERAGE EXERCISE
NAME THROUGH DECEMBER 31, 1999 PRICE
- ---- ------------------------- ----------------
<S> <C> <C>
Gregg M. Azcuy................................. -- --
Louis J. Altieri............................... -- --
David Boyle.................................... -- --
Priyan Guneratne............................... -- --
Rick Rice...................................... -- --
Michael E. Faherty............................. 45,000 $4.31
Gale R. Aguilar................................ 15,000 $4.19
James K. Dutton................................ 15,000 $4.19
Donald E. Fowler............................... 15,000 $4.19
Frank R. Triolo................................ 15,000 $4.19
Thomas I. Unterberg............................ 15,000 $4.19
All current executive officers as a group
(3 persons).............................. -- --
All current directors who are not executive
officers as a group (6 persons)............ 120,000 $4.23
All employees, including all current officers
who are not executive officers, as a group. -- --
</TABLE>
As of December 31, 1999, the fair market value of the Common Stock
underlying the Non-Employee Plan was $12.625 per share. The options currently
granted under the Non-Employee Plan expire between January 2007 and January
2009.
-20-
<PAGE>
PROPOSED AMENDMENT
Shareholders are being asked to consider and vote upon a proposed amendment
(the "Amendment") to the non-employee to increase the maximum number of shares
of Common Stock available for issuance under the Non-Employee Plan from 150,000
to 500,000 shares and to reserve an additional 350,000 shares of Common Stock of
the Company for issuance upon the exercise of stock options granted under the
Non-Employee Plan.
The Board of Directors believes that the Amendment provides an important
inducement to encourage investment in the Common Stock of the Company by its
Directors. The Board of Directors believes that providing non-employee Directors
with an opportunity to invest in the Company rewards them appropriately for
their efforts on behalf of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT.
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, 2000. Ernst & Young LLP also served as independent auditors
of the Company for 1999. 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, 2000.
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 2001 Annual Meeting of
Shareholders must advise the Secretary of the Company of such proposals in
writing by December 31, 2000.
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.
-21-
<PAGE>
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, 1999, INCLUDING FINANCIAL STATEMENTS AND
SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF ITS SHAREHOLDERS OF
RECORD ON APRIL 28, 2000, 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 5, 2000
<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 22, 2000
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, 2, 3, AND 4.
(Continued and to be signed on reverse side)
<PAGE>
(Continued From Other Side)
VOTE FOR all the
nominees listed at right;
except as marked to the VOTE WITHHELD
contrary below from all nominees
1. ELECTION OF
DIRECTORS [ ] [ ]
Nominees: Michael E. Faherty
Gregg M. Azcuy
Gale R. Aguilar
James K. Dutton
Donald E. Fowler
Frank R. Triolo
Thomas I. Unterberg
To withhold authority for any individual nominee, write that nominee's name in
the space provided below.
- ------------------------------------------------------------------
2. APPROVAL OF PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION OF THE
COMPANY TO INCREASE THE COMPANY'S AUTHORIZED SHARES OF COMMON STOCK FROM
20,000,000 TO 50,000,000.
FOR |_| AGAINST |_| ABSTAIN |_|
3. APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S 1996 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED
FOR ISSUANCE UPON THE EXERCISE OF OPTIONS GRANTED UNDER SUCH PLAN FROM 150,000
TO 500,000 SHARES.
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, 2000.
FOR |_| AGAINST |_| ABSTAIN |_|
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
- ---------------------------------------- by joint tenants, both should
Signature of Shareholder sign. If the signer is a
corporation, please sign full
- ---------------------------------------- corporate name by duly
Signature of Shareholder if held jointly authorized officer, giving full
title as such. If 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.
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 500,000 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>
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:
Option Shares Vested Date of Vesting
-------------------- ---------------
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
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>
Option Shares Vested Date of Vesting
-------------------- ---------------
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
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 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.
-3-
<PAGE>
(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:
(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
-4-
<PAGE>
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 with respect thereto,
including without limitation, all regulations required by any stock exchange
upon which the Company's outstanding Common Stock is then listed.
-5-
<PAGE>
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 December 31, 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.
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
-6-
<PAGE>
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.
-7-
