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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[] Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[] Definitive Proxy Statement
[] Definitive Additional Materials
[] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
JAVA CENTRALE, INC.
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(Name of Registrant as Specified in its Charter)
(NOT APPLICABLE)
------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies: ______
2) Aggregate number of securities to which transaction applies: _________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):____________
4) Proposed maximum aggregate value of transaction:______________________
5) Total fee paid: ______________________________________________________
[] Fee paid previously with preliminary materials.
[] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously paid: _____________________________________________
(2) Form, Schedule, or Registration Statement No.: ___________________
(3) Filing Party: ______________________________________________________
(4) Date Filed: _______________________________________________________
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PRELIMINARY COPIES
JAVA CENTRALE, INC.
1610 ARDEN WAY, SUITE 145
SACRAMENTO, CALIFORNIA 95815
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 31, 1997
TO THE SHAREHOLDERS OF JAVA CENTRALE, INC.:
The 1997 Annual Meeting of Shareholders of Java Centrale, Inc. (the
Company") will be held at the Hilton Hotel, 2200 Harvard Street, Sacramento,
California, at 8:00 A.M. on October 31, 1997, for the following purposes:
1. ELECTION OF DIRECTORS. To elect a Board of four Directors, to serve for
the ensuing year.
2. INCREASE IN THE AUTHORIZED SHARES OF COMMON STOCK. To amend Article III of
the Articles of Incorporation to increase the authorized number of shares
of Common Stock from the current 25,000,000 to 50,000,000.
3. AMENDMENT OF THE ARTICLES OF INCORPORATION REGARDING PREFERRED STOCK. To
amend Articles III and IV of the Company's Articles of Incorporation in
order to provide for a new class of 25,000,000 shares of Preferred Stock
and authorize the Board of Directors to issue such shares at its
discretion.
4. ONE-FOR-TEN REVERSE STOCK SPLIT. To approve a one-for-ten reverse split of
the Company's outstanding shares of Common Stock.
5. REINCORPORATION IN DELAWARE. To approve a change in the Company's state of
incorporation from California to Delaware, including a change in the
Company's name to Paradise Bakery & Cafe, Inc.
6. APPROVAL OF INDEPENDENT AUDITORS. To ratify the appointment of Grant
Thornton, LLP as independent certified accountants to audit the Company's
financial statements for the fiscal year ending March 31, 1998.
7. OTHER BUSINESS. To consider and act upon such other business as may
properly come before the meeting or any adjournment thereof.
Only holders of Common Stock of record as of the close of business on
October 1, 1997 will be entitled to vote at the meeting or any adjournment
thereof.
By Order of the Board of Directors
Bradley B. Landin, Corporate Secretary
October __, 1997
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YOU ARE URGED TO VOTE IN FAVOR OF MANAGEMENT'S PROPOSALS BY SIGNING AND
RETURNING THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON. THE ENCLOSED PROXY IS SOLICITED BY THE COMPANY'S
BOARD OF DIRECTORS. ANY SHAREHOLDER GIVING A PROXY MAY REVOKE IT PRIOR TO THE
TIME IT IS VOTED BY NOTIFYING THE SECRETARY OF THE COMPANY IN WRITING OF SUCH
REVOCATION, BY FILING A DULY-EXECUTED PROXY BEARING A LATER DATE, OR BY
ATTENDING THE ANNUAL MEETING IN PERSON AND VOTING BY BALLOT.
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JAVA CENTRALE, INC.
1610 ARDEN WAY, SUITE 145
SACRAMENTO, CALIFORNIA 95815
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 31, 1997
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
Proxies for use at the 1997 Annual Meeting of Shareholders (the "Annual
Meeting") of Java Centrale, Inc. (the "Company") to be held on Friday, October
31 1997 at 8:00 A.M., at the Hilton Hotel, 2200 Harvard Street, Sacramento,
California, and at any and all adjournments thereof.
It is anticipated that this Proxy Statement and the accompanying Notice and
form of Proxy will be mailed to shareholders eligible to receive notice of and
vote at the Annual Meeting on or about October 13, 1997.
REVOCABILITY OF PROXIES
A form of proxy for voting your shares at the Annual Meeting is enclosed.
Any shareholder who executes and delivers such proxy has the right to, and may,
revoke it at any time before it is exercised, by filing with the Secretary of
the Company an instrument revoking it or a duly executed Proxy bearing a later
date. In addition, if the person executing a proxy is present at the Annual
Meeting, and elects to vote in person, the powers of the proxy holders will be
superseded as to those Proposals on which the shareholder actually votes at the
Annual Meeting.
PERSONS MAKING THE SOLICITATION
THIS SOLICITATION OF PROXIES IS BEING MADE BY THE COMPANY'S BOARD OF
DIRECTORS. The expenses of preparing, assembling, printing, and mailing this
Proxy Statement and the materials used in the solicitation of proxies for the
Annual Meeting will be borne by the Company. It is contemplated that proxies
will be solicited principally through the use of the mails, but officers,
directors, and employees of the Company may solicit proxies personally or by
telephone, without receiving special compensation therefor. The Company will
reimburse banks, brokerage houses and other custodians, nominees, and
fiduciaries for their reasonable expenses in forwarding these proxy materials to
shareholders whose stock in the Company is held of record by such entities. In
addition, the Company may use the services of individuals or companies it does
not regularly employ in connection with this solicitation of proxies if
management determines it to be advisable.
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VOTING SECURITIES
There were issued and outstanding 22,005,044 shares of the Company's
common stock (the "Common Stock") as of the close of business on October 1,
1997, which date has been fixed as the record date for the purpose of
determining shareholders entitled to notice of, and to vote at, the Annual
Meeting (the "Record Date").
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given. Regarding the election of directors, shareholders may vote
in favor of all nominees, or withhold their votes as to all nominees, or
withhold their votes as to specific nominees, by following the instructions
on the enclosed proxy card. With respect to the proposed amendments to the
Company's Articles of Incorporation, the proposal to effect a reverse split
of the Company's Common Stock, the proposal to change the Company's state of
incorporation from California to Delaware, and the appointment of Grant
Thornton, LLP to serve as the Company's independent auditors for the 1998
fiscal year (Proposals 2 through 6), shareholders may vote in favor of or
against the proposal, or may abstain from voting, by specifying their choice
as indicated on the enclosed proxy card. If no specific instructions are
given with respect to any matter to be voted on, the shares represented by a
signed proxy will be voted FOR the election of the Board's nominees, FOR each
of the proposed amendments of the Company's Articles of Incorporation, FOR
the proposed reverse stock split, FOR the proposed change in the Company's
state of incorporation from California to Delaware (including the name
change), and FOR the appointment of Grant Thornton, LLP as independent
auditors.
Directors will be elected by a plurality of the votes cast by the holders
of the Company's Common Stock, voting in person or by proxy at the Annual
Meeting; ratification of the appointment of Grant Thornton, LLP as independent
auditors will require the affirmative vote of the holders of a majority of the
shares of Common Stock of the Company voting on such appointment in person or by
proxy at the Annual Meeting. Thus abstentions, although they will be counted in
determining whether a quorum is present for the vote on both matters, will have
no direct effect on the outcome of either of those votes. Similarly, broker
non-votes are also counted towards a quorum but are not counted for any purpose
in determining whether a matter has been approved, and will have no direct
effect on the outcome of the votes for election of directors or the appointment
of Grant Thornton, LLP. All of the other matters to be considered at the Annual
Meeting, however, including each of the proposed amendments to the Company's
Articles of Incorporation, the proposal to effect a reverse split of the
Company's Common Stock, and the proposal to change the Company's state of
incorporation from California to Delaware (Proposals 2 through 5), will require
the affirmative vote of a majority of the outstanding shares entitled to vote,
whether or not such shares are actually represented in person or by proxy at the
Annual Meeting. Consequently, abstentions and broker non-votes will have the
same effect as a vote against those proposals.
On any matter submitted to the vote of the shareholders other than the
election of directors, each holder of Common Stock will be entitled to one vote,
in person or by proxy, for each share of Common Stock held of record on the
Company's books as of the Record Date. In connection with the election of
directors, shares may be voted cumulatively, but only for persons whose names
have been placed in nomination prior to the voting for election of directors and
only if a shareholder
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present at the Annual Meeting gives notice at the Annual Meeting, prior to
such voting, of his or her intention to vote cumulatively. (NOTICE OF
INTENTION TO VOTE CUMULATIVELY MAY NOT BE GIVEN BY SIMPLY MARKING AND
RETURNING A PROXY.) If any Company shareholder gives such notice, then all
shareholders eligible to vote will be entitled to cumulate their votes in
voting for election of directors. Cumulative voting allows a shareholder to
cast a number of votes equal to the number of shares held in his or her name
as of the Record Date, multiplied by the number of directors to be elected.
All of these votes may be cast for any one nominee, or they may be
distributed among as many nominees as the shareholder sees fit. The nominees
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected.
If one of the Company's shareholders gives notice of intention to vote
cumulatively, the persons holding the proxies solicited by the Board of
Directors will exercise their cumulative voting rights, at their discretion,
to vote the shares they hold in such a way as to ensure the election of as
many of the Board's nominees as they deem possible. This discretion and
authority of the proxyholders may be withheld by checking the box on the
proxy card marked "withhold from all nominees." Such an instruction,
however, will also deny the proxyholders the authority to vote for any or all
of the nominees of the Board of Directors, even if cumulative voting is not
called for at the Annual Meeting, although it will not prevent the
proxyholders from voting, at their discretion, for any other person whose
name may be properly placed in nomination at the Annual Meeting.
A shareholder may choose to withhold from the proxyholders the authority to
vote for any of the individual candidates nominated by the Board of Directors,
by marking the appropriate box on the proxy card and striking out the names of
the disfavored candidates as they appear on the proxy card. In that event the
proxyholders will not cast any of the shareholder's votes for candidates whose
names have been crossed out, whether or not cumulative voting is called for at
the Annual Meeting, but they will retain the authority to vote for the
candidates nominated by the Board of Directors whose names have not been struck
out, and for any other candidates who may be properly nominated at the Annual
Meeting. If a shareholder wishes to specify the manner in which his or her
votes are allocated in the event of cumulative voting, he or she must appear
and vote in person at the Annual Meeting. Ballots will be available at the
Annual Meeting for persons desiring to vote in person.
All votes will be tabulated by Grant Thornton LLP, the Company's tabulating
agent. Representatives of Grant Thornton LLP will be in attendance at the
Annual Meeting in order to receive any votes cast at that time.
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 1, 1997, the number and
percentage of shares of the Company's outstanding Common Stock beneficially
owned, directly or indirectly, by (a) any person (or "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who
or which is known to the Company to be the beneficial owner of more than five
percent (5%) of the Company's Common Stock, based in part on information filed
by such persons with the Securities and Exchange Commission, (b) each of the
Company's directors and the executive officers identified in the chart below,
(c) the Company's directors and executive officers
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as a group, and (d) each nominee for election as a director. The Company
has no other outstanding class of stock. The shares listed as "beneficially
owned" are determined under Securities and Exchange Commission rules, and do
not necessarily indicate ownership for any other purpose. In general,
beneficial ownership includes shares over which the individuals listed below
have sole or shared voting or investment power and shares which such persons
have the right to acquire within 60 days of October 1, 1997. Unless
otherwise indicated, the persons listed have sole voting and investment power
of the shares beneficially owned. Management is not aware of any
arrangements which may, at a subsequent date, result in a change of control
of the Company.
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES OWNED(1) CLASS
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Baycor Ventures, Inc.
1550, 3800 Howard Hughes Avenue,
Las Vegas, NV 89109 1,748,766 (2) 7.95%
Thomas A Craig
Vice President
1610 Arden Way, Suite 145
Sacramento, CA 95814 156,027(3) *
Bradley B Landin
Director , Vice President, and
Secretary
1610 Arden Way, Suite 145
Sacramento, CA 95814 140,000(4) *
Gary C. Nelson
Director and President
1610 Arden Way, Suite 145
Sacramento, CA 95814 798,000(5) 3.63%
Phillip E. Pearce
Nominee for Director
6624 Glenleaf Court
Sacramento, CA 28270 -0- (6) *
Jeffrey W. Dudley
Chief Financial Officer
1610 Arden Way, Suite 145
Sacramento, CA 95814 -0- *
Richard D. Shannon
Chairman of the Board
2000, 335-8th Avenue, S.W.
Calgary, Alberta,
Canada T2P 1C9 1,755,766(7) 7.98%
All Directors and Officers as a Group
(five persons) 2,849,793 12.95%
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* Indicates less than one percent.
(1) All shares are owned directly by the individual(s) indicated, unless
otherwise indicated.
(2) Does not include 125,000 shares held by Baycor Ventures, Inc. ("Baycor")
but subject to currently exercisable options in favor of Messrs. Nelson,
Craig and Landin.
(3) Includes 21,000 shares available to Mr. Craig upon the exercise of a
currently exercisable option issued by Baycor on outstanding Company shares
presently owned by Baycor.
(4) Includes 15,000 shares available to Mr. Landin upon the exercise of a
currently exercisable option issued by Baycor to Mr. Landin on outstanding
Company shares presently owned by Baycor.
(5) Includes 89,000 shares available to Mr. Nelson upon the exercise of a
currently exercisable option issued by Baycor to Mr. Nelson on outstanding
Company shares presently owned by Baycor.
(6) Mr. Pearce is a nominee for Director at this Annual Meeting. See "Proposal
No. 1: Election of Directors," below.
(7) Includes shares owned by Baycor, a corporation of which Mr. Shannon is an
officer, Director, and 50% stockholder. Does not include 125,000 shares
held by Baycor but subject to currently exercisable options in favor of
Messrs. Nelson, Craig and Landin.
CURRENT AND PROPOSED EQUITY OFFERINGS
In August of 1997, the Company retained E. C. Capital Ltd. ("ECC"), a
New York based investment banking firm, to raise equity capital in a
two-stage private offering (the "ECC Offering"). In both stages, the Company
would issue to investors Units consisting of 250,000 shares of Company Common
Stock, 250,000 "A" Warrants, and 250,000 "B" Warrants. The "A" Warrants have
a term of two years from the date of issuance and may be exercised to
purchase shares of Company Common Stock at a per share exercise price of
$0.16, while the "B" Warrants have a three-year term and may be exercised to
purchase shares of Company Common Stock at a price per share of $0.20. The
offering price for each full Unit, in both stages of the ECC Offering, is
$25,000. ECC undertook to place 25 Units in the first stage of the ECC
Offering, and 35 Units in the second and final stage.
Under the terms of the Warrants, and as described in the offering
documents, none of the Warrants will be issued unless, on or prior to October
31, 1997, the Board of Directors and shareholders of the Company have approved
three significant changes in the Company's current capital structure and
organization: a one-for-ten reverse split of the Company's outstanding shares of
Common Stock (the "Reverse Stock Split"); an increase in the authorized number
of
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shares of Common Stock (on a post-Reverse Stock Split basis) to 50,000,000
shares; and a change in the Company's state of incorporation from California
to Delaware, including a change in the Company's name from Java Centrale,
Inc. to Paradise Bakery & Cafe, Inc. These three proposals are being placed
before the shareholders at the 1997 Annual Meeting, and are described in this
Proxy Statement in Proposals 2, 4, and 5. Unless all three Proposals are
approved by the shareholders at the Annual Meeting the "A" and "B" Warrants
will not be issued and ECC will not pursue the second stage of the ECC
Offering.
In the first stage of the ECC Offering, ECC undertook to sell up to 25
Units. This stage is now partially complete, and as of the date of this
Proxy Statement 21 Units, including an aggregate of 5,250,000 shares of
Common Stock and (provisionally) Warrants to purchase an additional
10,500,000 shares, have been sold for a total amount (after payment of
expenses, including placement agent fees) of $448,350. In the event that
Proposals 2, 4, and 5 are approved by the shareholders, the remainder of the
Units being offered in this first stage of the ECC Offering are sold, and all
of the proposed Warrants are accordingly issued and subsequently exercised in
accordance with their terms, the Company would receive (again, net of
expenses) approximately $2,137,000 upon exercise of the Warrants sold and to
be sold in this first stage of the ECC Offering. Thus if Proposals 2, 4, and
5 are approved and all the Warrants are issued and exercised, the Company
will have sold an aggregate of 18,750,000 (pre-Reverse Stock Split) shares of
Common Stock, directly and through the exercise of the Warrants, in exchange
for net proceeds of approximately $2,671,000.
If the shareholders approve Proposals 2, 4, and 5 herein, and the
second stage of the ECC Offering takes place, ECC will attempt to place an
additional 35 Units, each Unit including the same numbers of shares of Common
Stock and "A" and "B" Warrants as were sold in the first stage. Although the
Company has no reason to believe ECC will not be successful in conducting the
second stage of the ECC Offering, there can be no assurance that ECC will be
able to locate investors to fully subscribe the second stage. If, however,
ECC does successfully place all 35 Units in the second stage of the ECC
Offering, an aggregate of 8,750,000 (pre-Reverse Stock Split) shares of
Common Stock, and Warrants to purchase an additional 17,500,000 shares, will
be sold for a total amount (after payment of expenses, including placement
agent fees) of approximately $750,400. In the event that all the Warrants
offered in the second stage are subsequently exercised in accordance with
their terms, the Company would receive (again, net of expenses) approximately
$2,992,000 upon exercise of the Warrants sold in the second stage. Thus in
the aggregate the Company would be selling 26,250,000 (pre-Reverse Stock
Split) shares of Common Stock, directly and through the exercise of the
Warrants, in exchange for net proceeds of approximately $3,529,000.
None of the securities sold in the ECC Offering are registered with the
Securities and Exchange Commission. The Company has agreed to file, during
November of 1997, and maintain effective for two years, a registration
statement covering the shares sold in the ECC Offering and the shares
underlying the Warrants. The Company also agreed that, for every month that
the registration statement is not effective beginning with March, 1998, it
would issue the investors free of cost an additional number of shares equal
to 10% of the number of shares they had purchased originally in the ECC
Offering. The investors (and also Company officers and directors) agreed not
to sell their shares or warrants without the prior written consent of ECC for
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one year. Until the Company files its registration statement, an investor may
not sell any shares acquired in the ECC Offering unless the investor also sells
all of the Warrants which the investor acquired therein.
In connection with the ECC Offering, the Company has agreed to pay ECC a
10% commission on all sales of Units and a 3% non-accountable expense
reimbursement. In addition, if Proposals 2, 4, and 5 herein are approved by
the shareholders, the Company must issue to ECC 2,500,000 "A" Warrants and
2,500,000 "B" Warrants as partial compensation for its efforts in completing
the first stage of the ECC Offering, and an equal number of Warrants in
connection with the second stage, for a total of 10,000,000 Warrants in all.
The Company has also agreed to retain ECC as an advisor for the next three
years at a fee of $3,000 per month, and to pay ECC a 5% warrant solicitation
fee for any of the investor warrants which are exercised (that fee has been
included in the calculations of net proceeds set forth in the preceding
paragraphs). The Company also agreed not to raise debt or equity financing
during this three-year period other than with consent of ECC, to allow an ECC
designee, upon request, to observe all meetings of the Company's Board of
Directors. Finally, all of the Company's officers and directors have
executed lock-up agreements with ECC whereby they have agreed not to
transfer, assign, sell, or otherwise dispose of any of their Company shares,
except with the consent of ECC, until at least one year after the effective
date of the registration statement referred to above.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
NOMINEES
The Company's directors are elected annually, to serve until the next
Annual Meeting of shareholders and until their respective successors have
been elected. Mr. Shannon and Mr. Nelson have served as directors since the
Company's inception in March of 1992; Mr. Landin served as a director of the
Company from its inception until March of 1996, and returned to the Board as
a director in August of 1997 in order to fill a vacancy created by the
resignation of then-current director Mr. Kevin R. Baker. Mr. Pearce was
nominated by the Board for election as a director at the Annual Meeting
following the resignation of Lyle P. Edwards, a former director. Neither Mr.
Baker nor Mr. Edwards resigned as a result of a dispute with the Company or
the other members of its Board. Mr. Pearce has not previously served the
Company as an officer or director.
The Company's Bylaws provide that the number of directors of the Company
may not be less than four nor more than seven until changed by an amendment
to the Bylaws adopted by the Company's shareholders, with the exact number of
directors within that range to be set by vote of the Board. At present, the
Company's Bylaws provide for a Board consisting of four directors, and
consequently proxies may be voted for four directors.
The persons named below will be nominated for election as directors at the
Annual Meeting to serve until the 1998 Annual Meeting of Shareholders and until
their successors are duly elected. Unless otherwise instructed, proxyholders
will vote the proxies received by them for the election of the nominees below
(or as many thereof as possible under the rules of cumulative voting). In the
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event that any of the nominees should be unable to serve as a director, it is
intended that the proxy will be voted for the election of such substitute
nominee, if any, as shall be designated by the Board of Directors. The Board
has no reason to believe that any of the nominees named below will be unable
to serve if elected. Additional nominations for director may only be made by
complying with the nomination procedures which are described under the
heading "Shareholder Proposals and Nominations" at the end of this Proxy
Statement.
The following table sets forth the names of, and certain information
concerning, the persons to be nominated by the Board of Directors for election
as directors of the Company.
NAME AGE POSITIONS WITH COMPANY
---- --- ----------------------
Richard D. Shannon. . . . 51 Director, Chairman of the Board
Gary C. Nelson. . . . . . 54 Director, President and Chief Executive
Officer
Bradley B. Landin . . . . 46 Director, Vice President /Operations and
Secretary
Phillip E. Pearce . . . . 68 Nominee for Director
Richard D. Shannon became Chairman of the Board in January 1994. He
currently devotes approximately 75% of his time to his duties with the Company.
In February 1990, Mr. Shannon, together with Kevin R. Baker, also a Director of
the Company, founded Baycor Capital Inc. ("Baycor Capital"), a private merchant
bank based in Calgary, Canada. Baycor Capital owns 100% of the issued and
outstanding shares of Baycor Ventures, the largest single shareholder of the
Company. Mr. Shannon is also the President of Baycor Ventures. Mr. Shannon is a
director of a number of privately held companies in Canada.
Gary C. Nelson, a founding shareholder of the Company, has been President
and Chief Executive Officer of the Company since its incorporation in March
1992. From September 1990 through October 1991 Mr. Nelson was both Senior Vice
President and President, International Division, and a founding shareholder of
CNY International, a company which was formed to acquire and operate the retail
businesses of American Confectionery Corporation. From March 1990 until August
1990, Mr. Nelson was Senior Vice President of American Confectionery
Corporation, a company which both owned and franchised over two hundred candy
and yogurt outlets. From February 1983 until February 1990, Mr. Nelson was a
founding shareholder and served as President and Chief Executive Officer of
publicly traded J. Higby's, Inc. and its privately held predecessor, Gamma
Industries, whose business was franchising J. Higby's Yogurt and Treat Shoppes
in the United States and internationally.
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Bradley B. Landin, a founding shareholder, has been Vice President
Operations of the Company since its incorporation in March 1992. He served as a
member of the Board of Directors from its incorporation until his resignation
in March of 1996. In August of 1997, he was reappointed to the Board to fill a
vacancy created by the resignation of one of the then-current directors. From
September 1990 until February 1992, Mr. Landin was Vice President, International
Division, of CNY International. From March 1990 through August 1990, Mr. Landin
was Vice President, International Development, of American Confectionery
Corporation, which both owned and franchised over two hundred candy and yogurt
outlets. From September 1986 until February 1990, Mr. Landin held various
positions with publicly traded J. Higby's Inc., where he was responsible for
franchised and company-owned operations, product development, store planning and
turn-key construction and equipment programs.
Phillip E. Pearce, a nominee for election as a director at this Annual
Meeting, has not previously been an officer, director, or employee of the
Company. Since 1984, Mr. Pearce has been an independent investment banker and
consultant, working through his company Phil Pearce & Associates of Charlotte,
North Carolina. Prior to that, Mr. Pearce was a Senior Vice President of E.F.
Hutton Company from 1969 to 1987, and a director of E. F. Hutton from 1969
until 1982. He was the Chairman of the Board of Governors of the National
Association of Securities Dealers, Inc. from 1968 to 1969, and a member of the
Board of Governors of the New York Stock Exchange from 1970 to 1971, and has
been a member of the Advisory Council to the United States Securities and
Exchange Commission on the Institutional Study of the Stock Markets. Mr.
Pearce is also a director of three publicly-traded corporations,: Xybernaut
Corporation, Starbase Corporation, and Rx Medical Services Corporation, and has
been nominated by management for election to the Board of Directors of United
Digital Network, Inc. Mr. Pearce is a graduate of the University of South
Carolina and graduated from the Wharton School of Investment Banking at the
University of Pennsylvania.
The term of office of each director of the Company is one year. None of the
directors were selected pursuant to any arrangement or understanding other than
with the directors and officers of the Company acting within their capacities as
such. There are no family relationships between any of the directors and
executive officers of the Company. Except as disclosed above, no director or
officer of the Company, and no nominee for director, serves as a director of any
company which has a class of securities registered under, or which is subject to
the periodic reporting requirements of, the Securities Exchange Act of 1934, as
amended, or of any company registered as an investment company under the
Investment Company Act of 1940, as amended.
Directors of the Company are elected at each annual meeting of the
shareholders of the Company and hold office until the next annual meeting;
provided, however, that if any annual meeting is not held or the directors
are not elected at any annual meeting, they may be elected at any special
shareholders' meeting held for that purpose. Each director, including a
director elected to fill a vacancy or elected at a special shareholders'
meeting, holds office until the expiration of the term for which elected and
until a successor has been elected and qualified. Directors of the Company
do not currently receive any compensation for serving as Directors.
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VOTE REQUIRED FOR THE ELECTION OF DIRECTORS
The affirmative vote of a majority of the shares of Common Stock present
and voting at the Annual Meeting is required to elect each of the nominees for
director. Each share of Common Stock which is represented, in person or by
proxy, at the Annual Meeting will be accorded one vote on each nominee for
director, unless one or more shareholders express an intention to exercise the
right of cumulative voting, in which case all shares will be accorded the
cumulative voting rights described under the caption "Voting Securities," above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES
FOR DIRECTOR DESCRIBED ABOVE.
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PROPOSAL NO. 2: AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES FROM
25,000,000 TO 50,000,000 SHARES
Article III of the Company's Articles of Incorporation currently authorizes
the Company to issue up to 25,000,000 shares of Common Stock. (If Proposal No.
4, below, is approved by the shareholders this number would be reduced to
2,500,000 shares.) The Board of Directors has adopted, subject to shareholder
approval, a resolution to amend Article III to increase the number of authorized
shares of Common Stock to 50,000,000 shares (after taking into account the
reverse stock split discussed in Proposal No. 4, below).
The additional Common Stock to be authorized by adoption of the proposed
amendment would have rights identical to those associated with the Company's
currently authorized and outstanding Common Stock unless there is a
subsequent determination by the Board that the proposed amendment is not in
the best interests of the Company and its shareholders. Although the Board
believes as of the date of this Proxy Statement that the proposed amendment
is advisable, the proposed amendment may be abandoned by the Board at any
time before, during or after the Annual Meeting and prior to filing the
proposed amendment to the Articles of Incorporation as set forth in Exhibit A
to this Proxy Statement.
PURPOSE OF THE PROPOSED AMENDMENT
As of October 1, 1997, the Company had a total of 22,005,044 issued and
outstanding shares of Common Stock, out of the 25,000,000 shares currently
authorized for issuance under Article. III. In addition to the shares of
Common Stock then actually outstanding, the Board has reserved 1,994,200
shares of Common Stock which may be issued upon exercise of warrants
currently held by nine (9) warrantholders. As a result, the Company has at
the present time only 726 authorized but unissued and uncommitted shares of
Common Stock available for issuance. (Under the Company's 1993 Stock Option
Plan, up to 1,250,000 shares could potentially be issued upon the grant and
exercise of options, but no such options are currently outstanding and the
Board of Directors will not grant any options in the future unless at the
time of grant there are shares available for issuance upon the exercised of
such options.)
Although at present the Board of Directors has no plans (except as
described above under "Current and Proposed Equity Offerings") to approve
future issuances of additional shares of Common Stock, it desires to have
such shares available to provide additional flexibility to use its capital
stock for business and financial purposes in the future. The additional
shares may be used, without further shareholder approval, for various
purposes including, without limitation, issuing additional dividends in the
form of stock splits, raising capital, providing equity incentives to
employees, officers, or directors, establishing strategic relationships with
other companies, and expanding the Company's business or product lines
through the acquisition of other businesses or products.
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<PAGE>
The additional shares of Common Stock that would become available for
issuance if this proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further shareholder approval,
the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board. Although this proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), shareholders should nevertheless be aware that
approval of this proposal could facilitate future efforts by the Company to
deter or prevent changes in control of the Company, including transactions in
which the shareholders might otherwise receive a premium for their shares over
then current market prices.
The Company's audited consolidated financial statements, management's
discussion and analysis of financial condition and results of operations, and
certain supplementary financial information are incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1997 and Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997.
Finally, as discussed above under the caption "Current and Proposed Equity
Offerings" the Company has recently concluded a private offering of Common
Stock and Common Stock Purchase Warrants (the "Units"). An increase in the
authorized number of shares of Common Stock of the Company is necessary in
order to permit the issuance and exercise of the currently outstanding
warrants sold as part of the Units, and is a precondition to ECC's obligation
to undertake the second of the private offerings described above. Indeed,
unless the authorized shares of Common Stock are increased there would simply
not be enough shares available for either the exercise of those warrants
(assuming they could be issued) or the second of the proposed offerings (even
if ECC was willing to undertake it). The Company's Board believes that the
potential additional equity capital which could be obtained through the
exercise of the warrants issued in the first of the two ECC offerings and the
successful completion of the proposed second offering described above
represents the Company's best current opportunity to develop its business
plan and the Company's full potential. After a lengthy, careful, and
thorough review of all the alternatives available to the Company, the Board
has come to the conclusion that the recent and proposed financings are the
best and most immediate means of raising the additional equity capital the
Company needs.
EFFECTS OF THE PROPOSED AMENDMENT
Adoption of the proposed amendment and issuance of the Common Stock would
not affect the rights of the holders of currently outstanding Common Stock of
the Company, except for the dilutive effects resulting from increasing the
number of shares of the Company's Common Stock outstanding (when and if such
additional shares are actually issued), including the shares which may be issued
upon exercise of the warrants which will be issued pursuant to the Company's
recent private offering, as described above (see "Current and Proposed Equity
Offerings"). If the amendment is adopted, it will become effective either (a)
upon the filing of a Certificate of Amendment of the Company's Articles of
Incorporation with the Secretary of State of the State of California if Proposal
No. 5 (Reincorporation in Delaware) is not also
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approved by the shareholders, or (b) pursuant to the terms of the Agreement of
Merger attached hereto as Exhibit E if Proposal No. 5 is so approved.
POTENTIAL EFFECT OF CERTAIN RELATED PROPOSALS
The outcome of the shareholder vote on Proposals 4 and 5 could have a
material effect on the consequences of the vote on this Proposal No. 2. For
more information about those Proposals, see "Proposal No. 4: Approval of a
One-For-Ten Reverse Split of the Company's Outstanding Shares of Common
Stock" and "Proposal No. 5: Approval of a Change in the Company's State of
Incorporation From California to Delaware," below.
Proposal No. 4 would authorize a one-for-ten reverse split of the
outstanding shares of the Company's Common Stock. If both Proposal No. 4 and
this Proposal No. 2 are approved, the 22,005,044 shares of the Company's
Common Stock which were issued and outstanding as of the Record Date will be
converted into an aggregate of 2,200,504 shares, but the total authorized
number of shares of Common Stock will be increased to 50,000,000 (post-split)
shares, as discussed above, leaving 47,799,496 shares available for future
issuance. If, however, Proposal No. 4 is not approved by the shareholders
but this Proposal No. 2 is, the number of outstanding shares will still be
reduced to 2,200,504 but the total number of shares authorized and available
for issuance will also be reduced to 2,500,000 shares, leaving only 299,496
shares available for issuance in the future (of which shares 199,420 are
already reserved for issuance upon the exercise of certain outstanding
warrants).
Proposal No. 5 would authorize a change in the Company's state of
incorporation from California to Delaware. The success or failure of Proposal
No. 5 will not affect the outcome of the vote on this Proposal No. 2, except to
the extent that the Company will become a Delaware corporation if Proposal No. 5
is approved. In other words, whether or not the Company is reincorporated in
Delaware the number of shares of Common Stock it will have authorized in its
Articles or Certificate of Incorporation will be determined by the outcome of
the shareholder votes on Proposals 2 and 4.
VOTE REQUIRED FOR APPROVAL
Approval of the proposed increase in the Company's authorized shares of
Common Stock requires the affirmative vote of the holders of a majority of
the outstanding shares of the Common Stock of the Company. For purposes of
this vote, abstentions and broker non-votes will have the effect of a "no"
vote in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 2
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PROPOSAL NO. 3 : AMENDMENT OF THE ARTICLES OF INCORPORATION
TO AUTHORIZE THE ISSUANCE OF 25,000,000 SHARES
OF UNDESIGNATED PREFERRED STOCK
Article III of the Company's Articles of Incorporation currently authorizes
the Company to issue up to 25,000,000 shares of Common Stock and 25,000,000
shares of Preferred Stock. Article IV requires that any such Preferred Stock
issuable in a single series, and imposes a number of restrictions on the
dividends, liquidation preferences, voting rights, redemption rights, and
conversion rights applicable to any Preferred Stock which may be issued by the
Company. As of the date of this Proxy Statement, the Company has outstanding
23,005,044 shares of Common Stock and no shares of Preferred Stock.
In September of 1997 the Board of Directors unanimously adopted a
resolution to amend Article III of the Company's Articles of Incorporation to
authorize the Company to issue up to 25,000,000 shares of Preferred Stock, and
to delete the current Article IV in its entirety. As so amended, Article III
would authorize the Board to cause shares of Preferred Stock to be issued in one
or more series and with such preferences, limitations, and relative rights, at
such times, and for such consideration, as the Board may determine, without
shareholder approval. The full text of the current and proposed new versions of
Article III, and the entire text of the current Article IV, are attached to this
Proxy Statement as Exhibit B.
PURPOSES OF THE PROPOSED AMENDMENT
Current Articles III and IV of the Company's Articles of Incorporation were
adopted in May of 1994 as part of the process which led to the Company's initial
public offering. At that time, the Company's Articles of Incorporation were
amended and restated in order to, among other things, eliminate the Company's
then outstanding Series A Preferred Stock, effect a two and one-half for one
split of the Company's Common Stock, and reclassify the Company's then
outstanding Series B Common Stock. Because of the conditions which existed when
those amendments were adopted, a number of features were incorporated into
Articles III and IV which are confusing and no longer necessary, and, in the
Board's opinion, may actually be harmful to the Company's ability to secure
future financing on a reasonable basis.
Many corporations, including many publicly traded corporations, have
provisions in their Articles of Incorporation which are similar to those which
have been proposed by the Board as described herein. The Company's Board of
Directors believes that the Company may in the future need to raise capital
through the issuance of Preferred Stock. If that need should arise, potential
investors may desire to purchase Preferred Stock under terms and conditions
which are incompatible with the provisions of the current Articles III and IV.
Accordingly, the Board believes that the proposed amendment, which would
authorize the Board to create and issue one or more series of Preferred Stock on
terms and containing conditions to be set by the Board at its discretion will
provide the Company with the greatest flexibility in negotiating, structuring
and securing additional investment.
In addition to allowing the Company to pursue financing alternatives that
might exist if the Company did not have such restricted authority to issue
Preferred Stock, the Board could use
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the Preferred Stock for other purposes, including public and private
offerings of preferred shares for cash, payment of stock dividends to the
Company's shareholders, and the acquisition of the stock or assets of another
company. The Board has no present intention of taking any of these actions,
but the ability to do so could be of significant value to the Company in the
future.
Although it has no present intention of doing so, the Board of Directors
could issue a series of shares of Preferred Stock that could, depending on
the terms of such series, discourage an acquisition or make it more difficult
for an acquirer to obtain control of the Company by means of merger, tender
offer, proxy contest or other means. For example, Preferred Stock could be
used to create voting or other rights which would be impediments to those
persons seeking to gain control of the Company. Such shares could be
privately placed with purchasers favorable to the Board of Directors opposing
such action. In addition, the Board of Directors could authorize holders of
a series of Preferred Stock to vote either separately as a class or with
holders of the Common Stock on any merger, sale, or exchange of assets by the
Company or any other extraordinary corporate transaction. Finally, the
existence of the additional authorized shares of Preferred Stock could have
the effect of discouraging unsolicited takeover attempts.
TERMS OF THE PREFERRED STOCK
In designating the preferences, limitations, and relative rights of any
series of Preferred Stock, the Board of Directors will, if this Proposal is
approved by the shareholders, have the authority to provide that the shares of
any such series may:
(1) have special, confidential, or limited voting rights or no voting
rights;
(2) be redeemable or convertible: (a) at the option of the Company, by
the shareholder or another person on the occurrence of a designated event;
(b) for cash, indebtedness, securities, or other property; or (c) in a
designated amount or in an amount determined in accordance with a
designated formula or by reference to extrinsic data or events;
(3) entitle the holders to distributions calculated in any manner,
including dividends that may be cumulative, noncumulative, or partially
cumulative; and
(4) have a preference over any other classes or series of shares with
respect to distributions, including dividends and distributions upon the
dissolution of the Company, all as the Board of Directors may deem
advisable and as are not inconsistent with the California General
Corporation Law or the Company's Articles of Incorporation.
For example, in the event that Company secures an institutional investment,
an institutional investor could require: (a) a liquidation preference ensuring
the return of the preferred investment ahead of any payments to the holders of
the Common Stock in the event of the liquidation, merger or sale of
substantially all of the assets of the Company and (b) the right to convert each
share of Preferred Stock into one or more shares of Common Stock based upon an
agreed conversion ratio. The exact terms of the Preferred Stock will be
negotiated with the investor and will vary depending on the particular needs and
concerns for that investor.
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POTENTIAL EFFECT OF CERTAIN RELATED PROPOSALS
The outcome of the shareholder vote on Proposal No. 5 could have a material
effect on the consequences of the vote on this Proposal No. 3.
If both this Proposal No. 3 and Proposal No. 5 are approved, the
capitalization of the Delaware Company with respect to its Preferred stock
will be identical to that proposed in this Proposal No. 3. Accordingly, the
Delaware Company will have 25,000,000 shares of authorized Preferred Stock,
which the Board will be authorized to issue in one or more series and with
such preferences, limitations, and relative rights, at such times, and for
such consideration, as the Board may from time to time determine, without
shareholder approval. If, however, Proposal No. 5 is approved but this
Proposal No. 3 is not, the relevant parts of the Delaware Company's
Certificate of Incorporation will be the same, with respect to the Delaware
Company's ability to issue shares of Preferred Stock, as the Company's
Articles of Incorporation are now, to the extent that such a structure does
not conflict with Delaware law. Conversely, if this Proposal No. 3 is
approved but Proposal No. 5 is not, the Company will remain as a California
corporation, but Articles III and IV of its Articles of Incorporation will be
amended as described above.
VOTE REQUIRED FOR APPROVAL
Approval of the proposed amendment to the Company's Articles of
Incorporation requires the affirmative vote of the holders of a majority of
the outstanding shares of the Common Stock of the Company. For purposes of
the vote, abstentions and broker non-votes will have the effect of a "no"
vote in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 3.
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PROPOSAL NO. 4: APPROVAL OF A ONE-FOR-TEN REVERSE SPLIT OF
THE COMPANY'S OUTSTANDING SHARES OF
COMMON STOCK
In September of 1997 the Board of Directors unanimously adopted a
resolution to authorize, upon the approval of the Company's shareholders, a one-
for-ten reverse split of the Company's outstanding shares of Common Stock (the
"Reverse Stock Split"). The effect of the Reverse Stock Split, if it is so
approved, is described below.
If approved by the Company's shareholders, the Reverse Stock Split would be
effected by an amendment of the Company's Articles of Incorporation, unless
there is a subsequent determination by the Board that the Reverse Stock Split is
not in the best interests of the Company and its shareholders. Although the
Board believes as of the date of this Proxy Statement that the Reverse Stock
Split is advisable, the Reverse Stock Split may be abandoned by the Board at any
time before, during or after the Annual Meeting and prior to filing the proposed
amendment to the Company's Certificate of Incorporation.
PURPOSES OF THE PROPOSED REVERSE STOCK SPLIT
The Board of Directors believes that the proposed Reverse Stock Split may
have several positive effects on the Company and on the market for its Common
Stock and other securities.
REDUCTION IN THE NUMBER OF OUTSTANDING SHARES. The principal purpose of the
Reverse Stock Split is to reduce the number of shares of Company's Common
Stock outstanding. The Board believes that the total number of shares
currently outstanding is disproportionately large relative to the Company's
present market capitalization. The Board of Directors believes that a
decrease in the number of authorized and outstanding shares of Company's
Common Stock, without any material alteration of the proportionate economic
interest in the Company held by individual shareholders, may increase the
trading price of the outstanding shares to a price more appropriate for a
NASDAQ quoted security, although no assurance can be given that the market
price of the Company's Common Stock will rise in proportion to the reduction
in the number of outstanding shares resulting from the Reverse Stock Split.
RECENT PRIVATE OFFERING AND POTENTIAL FUTURE OFFERING. As discussed above,
under the caption "Current and Proposed Equity Offerings," the Company has
recently conducted a private offering of Common Stock and Common Stock Purchase
Warrants (the "Units"). Each full Unit sold in that offering included 250,000
shares of Common Stock and, at least potentially, 500,000 Common Stock Purchase
Warrants. A total of 21 Units have been sold in the offering to date, producing
aggregate proceeds to the Company (after deducting the costs and expenses of the
offering, including the Placement Agent fees) of approximately $448,000 in
exchange for the issuance of a total of 5,250,000 new (pre-Reverse Split)
shares of Common Stock. The Warrant portion of the Units, however, is dependent
on the shareholders' approval of this Proposal No. 4 (the Reverse Stock Split),
Proposal No. 2, above (an increase in the authorized number of shares, after
giving effect to the Reverse Stock Split, to 50,000,000), and Proposal No. 5,
below (a change in the Company's state of incorporation from California to
Delaware). Unless all of these
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Proposals are approved by the shareholders, the Warrants will not be issued. If
the Proposals are approved, however, and all of the Warrants are exercised in
accordance with their terms, the Company would receive a total of $2,250,000 in
payment of the exercise price for the Warrants, and the shares of Common Stock
initially issued to the investors would be converted into 1,250,000 post-Reverse
Split shares.
The Placement Agent for the Units offering was E. C. Capital, Ltd.
("ECC"). Under the terms of a letter of intent between the Company and ECC,
if the three Proposals described above are approved ECC and the Company will
undertake a second private offering of Units, in amounts and on terms
substantially the same as those of the just-completed offering described
above. If all of the Units to be offered in this second offering were sold,
and all of the Warrants which are part of the Units were exercised, the
Company would receive a total of approximately $3,743,000, after deducting
the costs and expenses (including Placement Agent fees) of the second
offering, in exchange for the issuance of a total of 2,625,000 new (post
Reverse Split) shares of Common Stock. If, however, the three Proposals
described above are not approved by the shareholders, under the terms of the
letter of intent the second offering would not take place.
POTENTIAL EFFECT ON THE PRICE OF THE COMPANY'S COMMON STOCK. The Board
of Directors believes that the current per share price of the Company's
Common Stock may limit the effective marketability of the Company's Common
Stock because of the reluctance of many brokerage firms and institutional
investors to recommend lower-priced stocks to their clients or to hold them
in their own portfolios. Certain policies and practices of the securities
industry may tend to discourage individual brokers within those firms from
dealing in lower-priced stocks. Some of those policies and practices involve
time-consuming procedures that make the handling of lower-priced stocks
economically unattractive. The brokerage commission on a sale of
lower-priced stock may also represent a higher percentage of the sale price
than the brokerage commission on a higher-priced issue. Any reduction in
brokerage commissions resulting from the Reverse Stock Split may be offset,
however, in whole or in part, by increased brokerage commissions required to
be paid by shareholders selling "odd lots" created by the Reverse Stock Split.
The Board believes that the decrease in the number of shares of Common
Stock outstanding as a consequence of the proposed Reverse Stock Split and
the resulting anticipated increased price level will encourage greater
interest in the Company's Common Stock by the financial community and the
investing public, and that such increased interest could promote greater
liquidity for the holders of the Company's Common Stock. It is possible,
however, that liquidity could be affected adversely by the reduced number of
shares outstanding after the Reverse Stock Split. Although any increase in
the market price of the Company's Common Stock resulting from the Reverse
Stock Split may be proportionately less than the decrease in the number of
shares outstanding, the proposed Reverse Stock Split could result in a market
price for the shares that would be high enough to overcome the reluctance,
policies and practices of brokerage houses and investors referred to above
and to diminish the adverse impact of correspondingly high trading
commissions on the market for the shares.
There can be no assurances, however, that the foregoing effects will occur
or that the market price of the Company's Common Stock immediately after
implementation of the proposed Reverse Stock Split will be maintained for any
period of time, or that such market price
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will approximate five times the market price before the proposed Reverse Stock
Split.
RECENT CHANGES IN NASD RULES RELATIVE TO SMALL-CAP STOCKS The Company's
Common Stock is currently listed for trading on the National Association of
Securities Dealers (the "NASD") SmallCap Market List. The NASD has recently
obtained the approval of the Securities and Exchange Commission for a change
in its rules regarding the continuing listing requirements applicable to
securities, such as the Company's Common Stock, that are quoted on the
SmallCap List. The new rules (which will go into effect during early 1998),
require, among other things, that the minimum bid price for any stock quoted
on that market is $1.00. If the minimum bid price for a listed company's
stock should drop below $1.00 for a specified number of consecutive trading
days, it would become eligible for delisting from the SmallCap Market List.
The Company does not meet the new NASD rules in this respect. For the entire
period between January 31, and September 15, 1997, for instance, the daily
low bid price per share for the Company's Common Stock ranged from a low of
$0.19 to a high of $0.59, never equaling or exceeding $1.00.
EFFECT OF THE REVERSE STOCK SPLIT
If the Reverse Stock Split is approved by the holders of Company's Common
Stock at the Annual Meeting, and unless there is a subsequent determination
by the Board of Directors that the Reverse Stock Split is not in the best
interests of the Company and its shareholders, an amendment to Article III of
the Company's Articles of Incorporation would be filed with the Secretary of
State of the State of California on any date (the "Reverse Split Date")
selected by the Board on or prior to the Company's next annual meeting of
shareholders. The Reverse Stock Split would become effective on the date of
such filing. Without any further action on the part of the Company or the
holders of the Company's Common Stock, the shares of Company's Common Stock
held by shareholders of record as of the Reverse Split Date would be
converted into the right to receive an amount of whole shares of new
(post-Reverse Split) Common Stock equal to the number of their shares divided
by ten, and the number of currently authorized shares of Common Stock would
be reduced from 25,000,000 to 2,500,000. (Of course, if Proposal No. 2,
above, is also approved, the number of authorized post-Reverse Split shares
will in fact be increased to 50,000,000.) No fractional shares would be
issued, and no such fractional share interest would entitle the holder
thereof to vote or to any rights of a shareholder of the Company. In lieu of
any such fractional shares, a certificate or certificates evidencing the
aggregate of all fractional shares otherwise issuable (rounded, if necessary,
to the next higher whole share) will be issued to the Company's transfer
agent, American Stock Transfer & Trust Company (the "Exchange Agent"), or its
nominee, as agent for the accounts of all holders of shares of Company's
Common Stock otherwise entitled to have a fraction of a share issued to them
in connection with the Reverse Stock Split. Sales of fractional interests
will be effected by the Exchange Agent as soon as practicable on the basis of
prevailing market prices of the Company's Common Stock on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") Small
Cap List at the time of sale. After the Reverse Split Date, the Exchange
Agent will pay to such shareholders their pro rata share of the net proceeds
derived from the sale of their fractional interests upon surrender of their
stock certificates. The interest in the Company of any holder of fewer than
ten shares of Company's Common Stock prior to the Reverse Split Date would
thereby be terminated.
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Approval of the Reverse Stock Split would not affect any continuing
shareholder's percentage ownership interest in the Company or proportional
voting power, except for minor differences resulting from the payment in cash of
fractional shares. The shares of Company's Common Stock which would be issued
upon approval of the Reverse Stock Split would be fully paid and nonassessable.
The voting rights and other privileges of the continuing holders of Company's
Common Stock would not be affected substantially by adoption of the Reverse
Stock Split or subsequent implementation thereof.
The Company's Common Stock is quoted on the NASDAQ SmallCap List. The
number of holders of the Company's Common Stock on the Record Date was
approximately 2,500. The Company does not currently anticipate that the
Reverse Stock Split would result in a reduction in the number of holders
large enough to jeopardize continued listing of the Company's Common Stock on
the NASDAQ SmallCap List.
As of the Record Date, the number of issued and outstanding shares of
Company's Common Stock was 22,005,044. As a result of the Reverse Stock Split,
the aggregate number of shares of Company Common Stock that would be issued and
outstanding would be 2,200,504, and 100,73 shares would be authorized and
unissued (after the reservation of an additional 199,423 shares of Company's
Common Stock for issuance upon exercise of certain outstanding stock purchase
warrants).
If the Reverse Stock Split is approved, the exercise prices of the various
stock purchase warrants which are now outstanding will be proportionately
increased, so that, in order to exercise any given percentage of the shares
available under any of such warrants, the warrant holder will be required to pay
the same aggregate exercise price.
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The following table illustrates the principal effects of the proposed
Reverse Stock Split, as of the Record Date (assuming that no options are
outstanding under the Company's 1993 Stock Option Plan).
PRIOR TO IMMEDIATELY
NUMBER OF SHARES OF REVERSE AFTER REVERSE
COMPANY COMMON STOCK STOCK SPLIT STOCK SPLIT
-------------------- ----------- ------------
Authorized 25,000,000 2,500,000(1)
Outstanding 22,005,044 2,200,504(1)
Reserved for issuance upon exercise
of currently outstanding Warrants(2)(3) 1,994,230 199,423
Available for future issuance by
action of the Board (after giving
effect to the reservations above)(3) 1,000,726 100,073
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(1) If Proposal No. 2 is also approved by the shareholders, the number of
authorized post-Reverse Split shares will be increased to 50,000,000. The
number of shares outstanding will not be affected by the approval or
rejection of Proposal No. 2. See "Proposal No. 2," above.
(2) Includes warrants to purchase shares of Common Stock, at exercise prices
now ranging from $0.29 to $9.90 per share, issued in connection with prior
Company financings between May 1994 and July 1997. If the Reverse Stock
Split is approved, the exercise prices for these warrants will be increased
to from $2.90 to $99.00 per share.
(3) The foregoing table does not reflect the 15,500,000 warrants provisionally
granted to investors, and ECC, in September 1997 in connection with the
Company's recent private Units offering. The issuance of these warrants
is subject to shareholder approval of Proposals 2, 4, and 5, as discussed
above (see "Current and Proposed Equity Offerings"). If all three of the
Proposals are approved, and the Reverse Stock Split is carried into effect,
those warrants could be exercised to purchase 1,500,000 post-Reverse Split
shares, at exercise prices of $1.60 and $2.00 per share, respectively.
EXCHANGE OF STOCK CERTIFICATES
If the Reverse Stock Split is consummated, as soon as practicable after
the Reverse Split Date the Company will send a letter of transmittal to each
shareholder of record on the Reverse Split Date for use in transmitting
certificates representing shares of Company's Common Stock ("Old
Certificates") to the Exchange Agent. The letter of transmittal will contain
instructions for
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the surrender of Old Certificates to the Exchange Agent in exchange for
certificates representing the appropriate number of whole shares of new
Company's Common Stock. No new certificates will be issued to a shareholder
until such shareholder has surrendered all Old Certificates together with a
properly completed and executed letter of transmittal to the Exchange Agent.
Upon proper completion and execution of the letter of transmittal and
return thereof to the Exchange Agent, together with all Old Certificates,
shareholders will receive a new certificate or certificates representing the
number of whole shares of new Company's Common Stock into which their shares
of Company's Common Stock represented by the Old Certificates have been
converted as a result of the Reverse Stock Split. Until surrendered,
outstanding Old Certificates held by shareholders will be deemed for all
purposes to represent the number of whole shares of Company's Common Stock to
which such shareholders are entitled as a result of the Reverse Stock Split.
Shareholders should not send their Old Certificates to the Exchange Agent
until they have received the letter of transmittal. Shares not presented for
surrender as soon as practicable after the letter of transmittal is sent
shall be exchanged at the first time they are presented for transfer.
No service charges will be payable by holders of shares of Company's Common
Stock in connection with the exchange of certificates, all expenses of which
will be borne by the Company.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated Federal income tax
consequences of the Reverse Stock Split to shareholders of the Company. This
summary is based on the Federal income tax laws now in effect and as currently
interpreted. It does not take into account possible changes in such laws or
interpretations, including amendments to applicable statutes, regulations and
proposed regulations or changes in judicial or administrative rulings, some of
which may have retroactive effect. This summary is provided for general
information only and does not purport to address all aspects of the possible
Federal income tax consequences of the Reverse Stock Split and is not intended
as tax advice to any person. In particular, and without limiting the foregoing,
this summary does not consider the Federal income tax consequences to
shareholders of the Company in light of their individual investment
circumstances or to holders subject to special treatment under the Federal
income tax laws (for example, life insurance companies, regulated investment
companies and foreign taxpayers). The summary does not discuss any consequence
of the Reverse Stock Split under any state, local or foreign tax laws.
No ruling from the Internal Revenue Service or opinion of counsel will be
obtained regarding the Federal income tax consequences to the shareholders of
the Company as a result of the Reverse Stock Split. ACCORDINGLY, EACH
SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER TAX ADVISER REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REVERSE STOCK SPLIT TO SUCH
SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
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The Company believes that the Reverse Stock Split would be a tax-free
recapitalization to the Company and its shareholders. If the Reverse Stock Split
qualifies as a recapitalization described in Section 368(a)(1)(E) of the
Internal Revenue Code of 1986, as amended (the "Code"), then: (i) no gain or
loss will be recognized by holders of the Company's Common Stock who exchange
their shares of Common Stock for new, post-Reverse Split shares, except that
holders of pre-Reverse Split Common Stock who receive cash proceeds from the
sale of fractional shares of Common Stock will recognize gain or loss equal to
the difference, if any, between such proceeds and the basis of their Common
Stock allocated to their fractional share interests, and such gain or loss, if
any, will constitute capital gain or loss if their fractional share interests
are held as capital assets at the time of their sale, (ii) the tax basis of the
new, post-Reverse Split Common Stock received by holders of old, pre-Revere
Split, Common Stock will be the same as the tax basis of the old, pre-Revere
Split Common Stock exchanged therefor, less the tax basis allocated to
fractional share interests and (iii) the holding period of the new post-Reverse
Split Common Stock in the hands of the holders of such shares will include the
holding period of their old, pre-Reverse Split Common Stock exchanged therefor,
provided that such shares were held as a capital asset immediately prior to the
exchange.
POTENTIAL EFFECT OF CERTAIN RELATED PROPOSALS
The outcome of the shareholder vote on Proposals 2 and 5 could have a
material effect on the consequences of the vote on this Proposal No. 4. For
more information about those Proposals, see "Proposal No. 2: Amendment of the
Articles of Incorporation to Increase the Authorized Number of Common Shares
from 25,000,000 to 50,000,000 Shares" and "Proposal No. 5: Approval of a
Change in the Company's State of Incorporation From California to Delaware,"
below.
Proposal No. 2 would authorize an amendment to the Company's Articles of
Incorporation to increase its total authorized number of shares of Common Stock
(on a post-Reverse Stock Split basis) to 50,000,000. If both Proposal No. 2 and
this Proposal No. 4 are approved, the 22,005,044 shares of the Company's Common
Stock which were issued and outstanding as of the Record Date will still be
converted into an aggregate of only 2,200,504 shares, as discussed above, but
the total authorized number of shares of Common Stock will also be increased to
50,000,000 shares (on a post-Reverse Stock Split basis), leaving 47,799,496
shares available for future issuance. If, however, Proposal No. 2 is approved by
the shareholders but this Proposal No. 4 is not, the number of outstanding
shares will not be reduced but the total number of shares authorized and
available for issuance will be increased to 50,000,000 shares, leaving
26,994,956 shares available for issuance in the future. Finally, should
Proposal No. 2 not be approved while this Proposal No. 4 is, the 22,005,044
shares of the Company's Common Stock which were issued and outstanding as of
the Record Date will still be converted into an aggregate of only 2,200,504
shares, as discussed above, but the total authorized number of shares of
Common Stock will not be increased, so that the authorized number of shares
of Common Stock will be reduced to 2,500,000 and only 299,496 shares will be
available for future issuance (of which shares 199,423 are already reserved
for issuance pursuant to certain outstanding warrants).
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Proposal No. 5 would authorize a change in the Company's state of
incorporation from California to Delaware. The success or failure of
Proposal No. 5 will not affect the outcome of the vote on this Proposal No.
4, except to the extent that the Company will become a Delaware corporation
if Proposal No. 5 is approved. In other words, whether or not Proposal No. 5
is approved and the Company is in fact reincorporated in Delaware its
authorized number of shares of Common Stock will be determined by the outcome
of the shareholder votes on Proposals 2 and 4.
VOTE REQUIRED FOR APPROVAL
Approval of the proposed Reverse Stock Split requires the affirmative
vote of the holders of a majority of the outstanding shares of the Common
Stock of the Company. For purposes of the vote, abstentions and broker
non-votes will have the effect of "no" votes in determining whether this
matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 4.
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PROPOSAL NO. 5: APPROVAL OF A CHANGE IN THE COMPANY'S STATE
OF INCORPORATION FROM CALIFORNIA TO DELAWARE
The Company was originally incorporated in the State of California, and it
is still a California corporation. In September of 1997, however, the Board of
Directors unanimously adopted a resolution (subject to the shareholders'
approval) to change the Company's state of incorporation from California to
Delaware. Such a change would involve the merger of the Company into a wholly-
owned Delaware subsidiary corporation, to be created for that purpose, and is
commonly known as "Reincorporation." If the proposed Reincorporation takes
place as planned, the Delaware Company will have the name "Paradise Bakery &
Cafe, Inc."
REASONS FOR THE PROPOSED REINCORPORATION
The Board of Directors believes that a change in the Company's state of
incorporation would be in the best interests of the Company and its
shareholders for several reasons. In recent years, a number of major public
companies have obtained the approval of their shareholders to reincorporate
in Delaware. For the reasons explained below, the Company believes it is
beneficial and important that the Company likewise avail itself of Delaware law.
ATTRACTING AND RETAINING QUALIFIED DIRECTORS
The Board of Directors believes that Reincorporation will enhance the
Company's ability to attract and retain qualified members of the Company's Board
of Directors as well as encourage directors to continue to make independent
decisions in good faith on behalf of the Company. To date, the Company has not
experienced difficulty in retaining directors. The Company believes that the
more favorable corporate environment afforded by Delaware will enable it to
compete more effectively with other public companies, many of which are
incorporated in Delaware, to attract new directors and to retain its current
directors. Reincorporation in Delaware will allow the Company the increased
flexibility and predictability afforded by Delaware law. Concurrent with the
Reincorporation, the Company proposes to adopt or maintain certain measures
designed to make hostile takeovers of the Company more difficult. The Board
believes that adoption of these measures will enable the Board to consider fully
any proposed takeover attempt and to negotiate terms that maximize the benefit
to the Company and its shareholders.
SUPERIOR RULES OF CORPORATE GOVERNANCE
For many years, Delaware has followed a policy of encouraging
incorporation in that state. In furtherance of that policy, Delaware has
adopted comprehensive corporate laws which are revised regularly to meet
changing business circumstances. The Delaware legislature is particularly
sensitive to issues regarding corporate law and is especially responsive to
developments in modern corporate law. The Delaware courts have developed
considerable expertise in dealing with corporate issues as well as a
substantial body of case law construing Delaware's corporate law. As a
result of these factors, it is anticipated that Delaware law will provide
greater predictability in the Company's legal affairs than is presently
available under
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California law.
In 1986, Delaware amended its corporate law to allow corporations to limit
the personal monetary liability of directors for their conduct as directors
under certain circumstances. The directors have elected to adopt such a
provision in the Delaware certificate and bylaws. It should be noted that
Delaware law does not permit a Delaware corporation to limit or eliminate the
liability of its directors for intentional misconduct, bad faith conduct or any
transaction from which the director derives an improper personal benefit or for
violations of federal laws such as the federal securities laws. The Board
believes that Delaware incorporation will enhance the Company's ability to
recruit and retain directors in the future; however the shareholders should be
aware that such a provision inures to the benefit of the directors, and the
interest of the Board in recommending the Reincorporation may therefore be in
conflict with the interests of the shareholders. See "Indemnification and
Limitation of Liability" for a more complete discussion of these issues.
In 1987, California amended its corporate law in a manner similar to
Delaware to permit a California corporation to limit the personal monetary
liability of its directors for their conduct as directors under certain
circumstances. The Company has in the past adopted articles and bylaws, and
entered into indemnification agreements with its officers and directors, to
take advantage of these changes in California law. Nonetheless, the Board of
Directors believes that the protection from liability for directors is
somewhat greater under the Delaware law than under the California law and
therefore that the Company's objectives in adopting this type of provision
can be better achieved by Reincorporation in Delaware. The Board of
Directors has included such a provision in the proposed Delaware articles and
bylaws. Shareholders should be aware that, because such provision inures to
the benefit of the directors, there is a potential conflict in the Board's
support of such a provision. See "Indemnification and Limitation of
Liability" for a more complete discussion of these issues.
The interests of the Board of Directors of the Company, management, and
affiliated shareholders in voting on the Reincorporation proposal may not be the
same as those of unaffiliated shareholders. Delaware law does not afford
minority shareholders some of the rights and protections available under
California law. Reincorporation of the Company in Delaware may make it more
difficult for minority shareholders to elect directors and influence Company
policies. A discussion of the principal differences between California and
Delaware law as they affect shareholders is set forth below, under the heading
"Significant Changes Caused by Reincorporation".
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ANTI-TAKEOVER PROVISIONS
Portions of the Reincorporation proposal may have the effect of deterring
hostile takeover attempts. A hostile takeover attempt may have a positive or
a negative effect on the Company and its shareholders depending on the
circumstances surrounding a particular takeover attempt. Takeover attempts
that have not been negotiated or approved by the board of directors of a
corporation can seriously disrupt the business and management of a
corporation and generally present to the shareholders the risk of terms which
may be less than favorable to all of the shareholders than would be available
in a board-approved transaction. Board approved transactions may be
carefully planned and undertaken at an opportune time in order to obtain
maximum value for the corporation and all of its shareholders with due
consideration to matters such as the recognition or postponement of gain or
loss for tax purposes, the management and business of the acquiring
corporation and maximum strategic deployment of corporate assets.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board believes that the
potential disadvantages of unapproved takeover attempts sufficiently great such
that prudent steps to reduce the likelihood of such takeover attempts are in
the best interests of the Company and its shareholders. Accordingly, the
Reincorporation plan includes certain proposals that may have the effect of
discouraging or deterring hostile takeover attempts.
Notwithstanding the belief of the Board as to the benefits to
shareholders of the changes, shareholders should recognize that one of the
effects of such changes may be to discourage a future attempt to acquire
control of the Company which is not presented to and approved by the Board of
Directors, but which a substantial number and perhaps even a majority of the
Company's shareholders might believe to be in their best interests or in
which shareholders might receive a substantial premium for their shares over
the current market prices. As a result, shareholders who might desire to
participate in such a transaction may not have an opportunity to do so.
The Delaware certificate and bylaws will contain provisions eliminating
cumulative voting and the action by written consent of shareholders, advance
notice requirement for shareholder proposals, supermajority requirements for
amendment of certain provisions in the Delaware certificate and bylaws and
requiring a vacancy on the board resulting from an increase in the number of
directors to be filled by the majority vote of the directors.
In considering the proposals, shareholders should be aware that the
overall effect of certain of the proposed changes is to make it more difficult
for holders of a majority of the outstanding shares of Common Stock to change
the composition of the Board of Directors and to remove existing performance
of the incumbent directors or otherwise desire to make changes.
The new provisions in the Company's charter documents could make a proxy
contest a less effective means of removing or replacing existing directors or
could make it more difficult to make a change in control of the Company which is
opposed by the Board of Directors. This strengthened authority of the Board of
Directors could enable the Board of Directors to resist
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change and otherwise thwart the desires of a majority of the shareholders.
Because this provision may have the effect of continuing the tenure of the
current Board of Directors, the Board has recognized that the individual
directors have a personal interest in this provision that may differ from those
of the shareholders. However, the Board believes that the primary purpose of
these provisions is to ensure that the Board will have sufficient time to
consider fully any proposed takeover attempt in light of the short and long-
term benefits and other opportunities available to the Company and, to the
extent the Board determines to proceed with the takeover, to effectively
negotiate terms that would maximize the benefits to the Company and its
shareholders.
The Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the provisions included in the
proposed charter documents outweigh the possible disadvantages. In
particular, the Board believes that the benefits associated with attracting
and retaining skilled and experienced outside directors and with enabling the
Board to fully consider and negotiate proposed takeover attempts, as well as
the greater sophistication, breadth and certainty of Delaware law, make the
Reincorporation proposed beneficial to the Company, its management and its
shareholders.
The proposal to include these antitakeover provisions in the proposed
Reincorporation does not reflect knowledge on the part of the Board of
Directors or management of any proposed takeover or other attempt to acquire
control of the Company. Management may in the future propose other measures
designed to discourage takeovers apart from those proposed in this Proxy
Statement, if warranted from time to time in the judgment of the Board of
Directors.
RECENT AND POTENTIAL PRIVATE OFFERINGS
As discussed above under the caption "Current and Proposed Equity
Offerings," the Company has recently concluded a private offering of Common
Stock and Common Stock Purchase Warrants (the "Units"). Each full Unit sold
in that offering included 250,000 shares of Common Stock and, at least
potentially, 500,000 Common Stock Purchase Warrants. A total of 21 Units
have been sold to date in the offering, producing aggregate proceeds to the
Company (after deducting the costs and expenses of the offering, including
the Placement Agent fees) of approximately $448,000, in exchange for the
issuance of a total of 5,250,000 new (pre-Reverse Split) shares of Common
Stock. The Warrant portion of the Units, however, is dependent on the
shareholders' approval of this Proposal No. 5 as well as Proposal No. 2,
above (an increase in the authorized number of shares, after giving effect to
the Proposed Stock Split, to 50,000,000) and Proposal No. 4 (the one-for-ten
Reverse Stock Split). Unless all of these three Proposals are approved by the
shareholders, the Warrants will not be issued. If the Proposals are
approved, however, all of the Units offered in the first stage of the ECC
Offering are sold, and all of the Warrants are issued and exercised in
accordance with their terms, the Company would receive a total of $2,250,000
in payment of the exercise price for the Warrants and the shares of Common
Stock to be issued upon exercise of the Warrants would be converted into
12,500,000 new (pre-Reverse Split) shares. Furthermore, as discussed above
under the caption "Current and Proposed Equity Offerings," ECC has indicated
that, if these three Proposals are approved, it will undertake to sell an
additional 35 substantially identical Units through a subsequent private
offering, potentially raising an additional $3,743,000 in cash (after
expenses) for the Company.
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SIGNIFICANT CHANGES CAUSED BY THE REINCORPORATION
In general, the Company's corporate affairs are governed at present by
the corporate law of California, the Company's state of incorporation, and by
the Company's Articles of Incorporation, (the "California Articles") and
Bylaws (the "California Bylaws"), which have been adopted pursuant to
California law. The California Articles and California Bylaws are available
for inspection during business hours at the principal executive offices of
the Company. In addition, copies may be obtained by writing to the Company
at Java Centrale, Inc., 1610 Arden Way, Suite 145, Sacramento California
95814, Attention: Corporate Secretary.
If the Reincorporation proposal is adopted, the Company will merge into,
and its business will be continued by, the Delaware Company. Following the
merger, issues of corporate governance and control would be controlled by
Delaware, rather than California law (however, see "Application of California
Law After Reincorporation," below). The California Articles and California
Bylaws, will, in effect, be replaced by the Certificate of Incorporation of
the Delaware Company (the "Delaware Certificate") and the bylaws of the
Delaware Company (the "Delaware Bylaws"), copies of which are attached as
Exhibits C and D to this Proxy Statement. Accordingly, the differences among
these documents and between Delaware and California law are relevant to each
shareholder's decision whether to approve the Reincorporation proposal.
CHANGE IN THE COMPANY'S NAME TO PARADISE BAKERY & CAFE, INC.
If the proposed Reincorporation takes place as planned, the Delaware
Company will no longer be called Java Centrale, Inc. Rather, it will have a
new corporate name: Paradise Bakery & Cafe, Inc. The reason for this change
is primarily that since its acquisition of the Paradise Bakery chain in
December 1995 the Company's focus and primary direction has gradually been
changing to emphasize the potential of its Paradise Bakery chain. For the
year ended March 31, 1997, Paradise Bakery, Inc. accounted for 70% of the
Company's overall sales, while for the quarter ended June 30, 1997, the
Paradise Bakery line accounted for 94% of overall sales. The Company's
management and Board of Directors have come to believe that in the future the
greater opportunities for growth and profitability will most likely be in
this area. Because of this belief, the Board has decided use the occasion of
the Reincorporation to demonstrate its confidence in the opportunities it
perceives for the Paradise Bakery system by changing the Company's name to
reflect its new emphasis.
CHANGES IN THE APPLICABLE CORPORATE LAW
A number of differences between California and Delaware law and among the
various charter documents are summarized in the chart below. Shareholders are
requested to read the following chart in conjunction with the discussion
following the chart and the Delaware Certificate and Delaware Bylaws which are
attached to this Proxy Statement as Exhibits C and D, respectively. For each
item summarized in the chart, there is a reference to a page of this Proxy
Statement on which a more detailed discussion appears.
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<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ----- -------- ----------
<S> <C> <C>
Limitation of Liability of Delaware law permits the California law contains
Directors and Officers (see limitation of liability of additional exemptions to the
page ___). directors and officers to the liability limitations of
Company except in connection directors and officers. See
with (i) breaches of the duty of "Indemnification and
loyalty; (ii) acts or omissions Limitation of Liability."
not in good faith or involving
intentional misconduct or
knowing violations of law,
(iii) the payment of unlawful
dividends or unlawful stock
repurchases or
redemptions; or
(iv) transactions in which a
director received an improper
personal benefit.
Indemnification of Directors Delaware law permits California law permits
and Officers (see page ___) somewhat broader indemnification under certain
indemnification and could circumstances, subject to
result in indemnification of certain limitations. See
directors and officers in "Indemnification and
circumstances where Limitation of Liability."
California law would not
permit indemnification. See
"Indemnification and
Limitation of Liability."
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<PAGE>
Cumulative Voting for Directors Cumulative voting is not Cumulative voting is not
(see page ___) available under Delaware law available under California law
because it is not provided in because it is not provided in
the Delaware Certificate. the California Certificate.
Number of Directors Determined by Board within Determined by Board within
(see page ___) range set in the California range set in the California
Bylaws. Changes in the Bylaws. Changes in the
authorized range must be authorized range must be
approved by the shareholders. approved by the shareholders.
Filling Board Vacancies Delaware law provides for the California law provides for the
Delaware Court of Chancery California Court of Chancery
to order an election to fill to order an election to fill
vacancies or newly created vacancies or newly created
directorships upon the directorships upon the
application of the holders of application of the holders of
10% of the outstanding shares 10% of the outstanding shares
having a right to vote for such having a right to vote for such
directors if, at the time of directors if, at the time of
filling such vacancies or filling such vacancies or
directorships, the directors directorships, the directors
then in office constitute less then in office constitute less
than a majority of the entire than a majority of the entire
board as constituted board as constituted
immediately prior to any immediately prior to any
increase. The Bylaws of increase. The Bylaws of
the Delaware Company the California Company
also permit vacancies also permit vacancies
on the Board to be on the Board to be
filled by the current filled by the current
Directors. Directors.
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Removal of Directors by Removal with or without Removal with or without
Shareholders cause by affirmative vote of a cause by affirmative vote of a
(see page ___) majority of the outstanding majority of the outstanding
shares. shares, provided those shares
voting against removal could
not elect such director under
cumulative voting.
Who May Call Special The Board, the Chairman of The Board, the Chairman of
Shareholder Meeting the Board or the Chief the Board, the President, or
(see page ___) Executive Officer. holders of 10% of the shares
entitled to vote at the special
meeting.
Tender Offer Statute (see page Restricts hostile two-step No comparable statute.
___) takeovers.
Amendment of Certificate (see Amendments to provisions Amendments require approval
page ___) relating to director by a majority of the voting
indemnification, management stock of the Company.
of the Delaware Company,
and amendment of the
Delaware Certificate require
approval by 66 2/3% of the
voting stock of the Delaware
Company.
Amendment of Bylaws (see By the Board or the holders of By the Board or the holders of a
page ___) 66 2/3% of the outstanding majority of the outstanding
voting shares. voting shares.
Loans to Officers and Board may authorize if Loans must be approved or
Directors (see page ___) expected to benefit the ratified by a majority of the
Company. outstanding shares.
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Class vote for Reorganizations Generally not required unless A reorganization transaction
(see page ___) a reorganization adversely must generally be approved by
affects a specific class of a majority vote of each class
shares. of shares outstanding.
Right of Shareholders to Permitted for any purpose Permitted for any purpose
Inspect Shareholder List (see reasonably related to such reasonably related to such
page ___) shareholder's interest as a shareholder's interest as a
shareholder. shareholder. Also, an absolute
right to 5% shareholders and
certain 1% shareholders.
Appraisal Rights (see Generally available if Available in certain
page ___) shareholders receive cash in circumstances if the holders of 5% of
exchange for the shares and in the class assert such
certain other circumstances. rights.
Dividends (see page ___) Paid from surplus (including Generally limited to the
paid-in and earned surplus or greater of (i) retained earnings
net profits). or (ii) an amount which would
leave the Company with assets
of 125% of liabilities and
current assets of 100% of
current liabilities.
Other Responsive legislature and
larger body of corporate case
law in Delaware provides
more predictable corporate
legal environment in Delaware.
</TABLE>
INDEMNIFICATION AND LIMITATION OF LIABILITY
LIMITATIONS ON DIRECTOR LIABILITY. Both California and Delaware permit a
corporation to limit the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of certain duties as a
director. The California and Delaware laws adopt a self-governance approach
by enabling a corporation to take advantage of these provisions only if an
amendment to the charter limiting such liability is approved by a majority of
the outstanding shares or such language is included in the original charter.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of
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monetary liability where such liability is based on: (a) intentional misconduct
or knowing and culpable violation of law;(b) acts or omissions that a director
believes to be contrary to the best interests of the corporation or its
shareholders, or that involve the absence of good faith on the part of the
director; (c) receipt of an improper personal benefit; (d) acts or omissions
that show reckless disregard for the director's duty to the corporation or its
shareholders, where the director in the ordinary course of performing a
director's duties should be aware of a risk of serious injury to the corporation
or its shareholders; (e) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
corporation and its shareholders; (f) interested transactions between the
corporation and a director in which a director has a material financial
interest; and (g) liability for improper distributions, loans or guarantees.
The Delaware Certificate also eliminates the liability of directors to
the fullest extent permissible under Delaware law, as such law exists
currently or as it may be amended in the future. Under Delaware law, such
provision may not eliminate or limit director monetary liability for (a)
breaches of the director's duty of loyalty to the corporation or its
shareholders; (b) acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law; (c) the payment of
unlawful dividends or unlawful stock repurchases or redemptions; or (d)
transactions in which the director received an improper personal benefit.
Such limitation of liability provision also may not limit director's
liability for violation of, or otherwise relieve the Delaware Company or its
directors from the necessity of complying with, federal or state securities
laws or affect the availability of non-monetary remedies such as injunctive
relief or rescission.
Shareholders should recognize that the proposed Reincorporation and
associated measures are designed to shield a director from suits by the
Delaware Company or its stockholders for monetary damages for negligence or
gross negligence by the director in failing to satisfy the director's duty of
care. As a result, an action for monetary damages against a director
predicated on a breach of the duty of care would be available only if the
Delaware Company or its shareholders were able to establish that the director
knowingly violated the law, derived an improper personal benefit, or approved
an illegal dividend or stock repurchase. Consequently, the effect of such
measures may be to limit or eliminate an effective remedy which might
otherwise be available to a shareholder who is dissatisfied with Board's
decisions. Although an aggrieved shareholder could sue to enjoin or rescind
an action taken or proposed by the Board of Directors, such remedies may not
be timely or adequate to prevent or redress injury in all cases.
The Company believes that directors are motivated to exercise due care in
managing the Company's affairs primarily by concern for the best interests of
the Company and its shareholders, rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the Reincorporation
proposal should sustain the Board's continued high standard of corporate
governance without any decrease in accountability by directors to the Company
and its shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The California and Delaware
Bylaws relating to indemnification similarly require that the California Company
and the Delaware Company,
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respectively, each indemnify its directors and its executive officers and
officers to the fullest extent permitted by the respective state laws,
provided that the Company may modify the extent of such indemnification by
individual contracts with its directors and executive officers, and,
provided, further, that the Company will not be required to indemnify any
director or executive officer in connection with a proceeding initiated by
such person, with certain exceptions. Such Bylaws permit the California
Company and the Delaware Company, respectively, to provide indemnification to
its other officers, employees and agents as set forth in the respective state
laws. Such indemnification is intended to provide the full flexibility
available under such laws. The Delaware Bylaws contain provisions similar to
the California Bylaws with respect to advances in that the Company is
required to advance expenses related to any proceeding contingent on such
persons' commitment to repay any advances unless it is ultimately determined
that such persons are entitles to be indemnified.
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine and (b) no indemnification
may be made under California law, without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending pending action which is settled
or otherwise disposed of without court approval. Delaware allows
indemnification of such expenses without court approval.
Indemnification is permitted by both California and Delaware law providing
the requisite standard of conduct is met, as determined by a majority vote of a
disinterested quorum of the directors, independent legal counsel (if a quorum of
independent directors is not obtainable), a majority vote of a quorum of the
shareholders (excluding shares owned by the indemnified party) or the court
handling the action.
California law requires indemnification when the individual has
successfully defended the action on the merits (as opposed to Delaware law which
requires indemnification relating to a successful defense on the merits or
otherwise).
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the shareholders, that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests
of the corporation. Without court approval, however, no indemnification may be
made in respect of any derivative action in which such person is adjudged
liable for negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires
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indemnification of expenses when the individual being indemnified has
successfully defended the action on the merits or otherwise.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute. The
California Articles include such a provision.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. Under
Delaware law, rights to indemnification and expenses are non-exclusive, in that
they need not be limited to those expressly provided by statute. California law
is similar in that it permits non-exclusive indemnification if authorized in the
Company's charter. The California Articles contain such an enabling provision.
Under Delaware law and the Delaware Bylaws, the Delaware Company is permitted to
indemnify its directors, officers, employees and other agents, within the limits
established by law and public policy, pursuant to an express contract, bylaw
provision, shareholder vote or otherwise, any or all of which could provide
indemnification rights broader than those currently available under the
California Bylaws or the California indemnification statutes. If the
Reincorporation is approved, the Company intends to enter into indemnification
agreements with its officers and directors.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and
officers of the California Company made prior to the proposed
Reincorporation. Nevertheless, in considering this Reincorporation proposal
the Board has recognized that the individual directors have a personal
interest in obtaining the application of Delaware law to such indemnity and
limitation of liability issues affecting them and the Company in the event
they arise from a potential future case, and that the application of Delaware
law, to the extent that any director or officer is actually indemnified in
circumstances where indemnification would not be available under California
law, would result in expense to the Company which the Company would not incur
if it were not reincorporated. The Board believes, however, that the overall
effect of Reincorporation will be to provide a corporate legal environment
that enhances the Company's ability to attract and retain high quality
outside directors and thus benefits the interests of the Company and its
shareholders.
There is no pending or, to the Company's knowledge, threatened litigation
to which any of its directors is a party in which the rights of the Company
or its shareholders would be affected if the Company currently were subject
to the provisions of Delaware law rather than California law.
California and Delaware corporate law, the bylaws of both the Company and
of the Delaware Company, as well as any indemnity agreements, may permit
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act") or the Exchange Act. The Board of Directors
has been advised that, in the opinion of the Securities and Exchange
Commission (the "Commission"), indemnification for liabilities arising under
the Securities Act is contrary to public policy and is therefore
unenforceable, absent a decision to the contrary by a court of appropriate
jurisdiction.
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CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as he chooses. Thus, a shareholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative. Under California law cumulative voting in the election
of directors is mandatory upon notice given by a shareholder at a shareholders'
meeting at which directors are to be elected. In order to cumulate votes a
shareholder must give notice at cumulatively. If any one shareholder gives such
a notice, all shareholders may cumulate their votes.
Cumulative voting is not available under Delaware law unless so provided in
the corporation's certificate of Incorporation. Since the Delaware Certificate
does not provide for cumulative voting, the holder or holders of a majority of
the shares entitled to vote in an election of directors will be able to elect
all the directors of the Delaware Company.
The elimination of cumulative voting could deter investors from acquiring a
minority block in the Company with a view toward obtaining a board seat and
influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company on a basis
which some shareholders might deem favorable.
OTHER MATTERS RELATING TO DIRECTORS
NUMBER OF DIRECTORS. California law allows the number of persons
constituting the board of directors of a corporation to be fixed by the bylaws
or the articles of incorporation, or permits the bylaws to provide that the
number of directors may vary within a specified range, the exact number to be
determined by the Board of Directors. California law further provides that, in
the case of a variable board, the maximum number of directors may not exceed two
times the minimum number minus one. The California Articles and Bylaws provide
for a board of directors that may vary between four and seven members,
inclusive, and the Board of Directors has fixed the exact number of directors at
four.
California law also requires that any change in a fixed number of directors
and any change in the range of a variable Board of Directors specified in the
articles and bylaws must be approved by a majority in interest of the
outstanding shares entitled to vote (or such greater proportion of the
outstanding shares as may be required by the articles of incorporation),
provided that a change reducing the minimum number of directors to less than
three cannot be adopted if votes cast against its adoption are equal to more
than 16 2/3% of the outstanding shares entitled to vote. The California Bylaws
require the approval of 65% of the Company shares entitled to vote to change the
range of the Company's variable Board of Directors
Delaware law permits a board of directors to change the authorized number
of directors by amendment to the bylaws unless the number of directors is fixed
in the certificate of
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incorporation or the manner of fixing the number of directors is set forth in
the certificate of incorporation, in which case the number of directors may be
changed only by amendment of the certificate of incorporation or consistent with
the manner specified in the certificate of incorporation, as the case may be.
The Board has no current plans to change the number of directors the
Company will have from the current number, which is four, so if the
Reincorporation is approved the Delaware Company will, at least initially, have
four directors just as the California Company does now.
REMOVAL OF DIRECTORS. Under California law, a director may be removed with
or without cause by the affirmative vote of a majority of the outstanding
shares, provided that the shares voted against removal would not be sufficient
to elect the director by cumulative voting. Under Delaware law, unless the board
is classified or cumulative voting is permitted, a director can be removed from
office during his term by shareholders with or without cause by the holders of a
majority of the shares then entitled to vote at an election of directors. The
Delaware Certificate provides that the Company's directors may be removed from
office at any time with or without cause by the affirmative vote of the holders
of a majority of the voting power of the then-outstanding shares of voting stock
of the Company entitled to vote in the election of directors (the "Voting
Stock"). The term "cause" with respect to the removal of directors is not
defined in the Delaware General Corporation Law and its meaning has not been
precisely delineated by the Delaware courts.
FILLING BOARD VACANCIES. Under California law, if, after the filling of any
vacancy by the directors of a corporation, the directors then in office who have
been elected by the corporation's shareholders constitute less than a majority
of the directors then in office, then: (i) any holder of more than 5% of the
corporation's Voting Stock may call a special meeting of shareholders, or (ii)
the superior court of the appropriate county may order a special meeting of the
shareholders to elect the entire board of directors of the corporation. Delaware
law provides that if, at the time of filling any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the entire board of directors as constituted immediately prior to any increase,
the Delaware Court of Chancery may, upon application of any shareholder or
shareholders holding at least 10% of the total number of shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships or
to replace the directors chosen by the directors then in office.
The proposed Delaware Certificate and Bylaws provide that vacancies shall,
unless the Board of Directors determines by resolution that any such vacancies
be filled by the shareholders or as otherwise provided by law, be filled only by
the affirmative vote of a majority of directors then in office, even if such
directors comprise less than a quorum of the Board of Directors.
CAPITALIZATION
Currently, the Company's capital stock consists of 25,000,000 authorized
shares of Common Stock, no par value, of which 22,005,044 shares were issued and
outstanding as of the
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Record Date, and 25,000,000 authorized shares of Preferred Stock, no par value,
of which no shares were outstanding as of the Record Date. In Proposal 2, the
shareholders of the Company are asked to increase the number of authorized
shares of Common Stock to 50,000,000, and in Proposal No. 3 the shareholders are
asked to approve an amendment to the provisions of the California Articles to
eliminate certain restrictions applicable to the Company's ability to issue
Preferred Stock.
Upon the effectiveness of the Reincorporation, the Delaware Company will
have the same number of outstanding shares of Common and Preferred Stock that
the Company had outstanding immediately prior to the Reincorporation. Thus, the
outcome of the shareholder vote on Proposals 2 and 3 will determine the
authorized number of shares of the Delaware Company's Common Stock and Preferred
Stock, and the extent to which the Board of Directors may determine the rights,
preferences, and privileges of any class or series of Preferred Stock.
Whatever the outcome of the votes on Proposals 2 and 3, the capitalization
of the Delaware Company will be identical to the capitalization of the Company
following implementation of those votes, with the addition of a per share par
value of $.001 for both the Common Stock and the Preferred Stock of the Delaware
Company, consistent with maintaining adequate capitalization for the current
needs of the Company. The Delaware Company's authorized but unissued shares of
Preferred Stock will be available for future issuance.
Under the Delaware Certificate, as under the California Articles, the Board
of Directors has the authority to determine or alter the rights, preferences,
privileges and restrictions to be granted to or imposed upon any wholly unissued
series of Preferred Stock, to fix the number of shares constituting any such
series, and to determine the designation thereof.
In addition, the Board may from time to time authorize the issuance of
Preferred Stock in connection with various corporate transactions, including
corporate partnering arrangements. If the Reincorporation is approved, it is not
the present intention of the Board of Directors to seek shareholder approval
prior to any issuance of Preferred Stock, except as required by law or
regulation. See "Anti-Takeover Measures."
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETING
Under California law, a special meeting of shareholders may be called by
the Board of Directors, the Chairman of the Board of Directors, the President or
the holders of shares entitled to cast not less than 10% of the votes at such
meeting and such persons as are authorized by the articles of incorporation or
bylaws. Under Delaware law, a special meeting of shareholders may be called by
the Board of Directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The Delaware Certificate and
Delaware Bylaws provide that such a meeting may be called by the Board of
Directors, the Chairman of the Board of Directors or the Chief Executive
Officer. Pursuant to the Delaware Certificate and Delaware Bylaws, if the
meeting is called by a person or persons other than the Board of Directors,
(i.e., by the Chairman or the Board of the Chief Executive Officer) the Board of
Directors shall determine the time and the place of such meeting which shall be
from 35 to 120
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days after the receipt of the request of the meeting.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
There is no specific statutory requirement under either California or
Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the date of the proxy statement
released in connection with the previous year's annual meeting.
Both the current California Bylaws and the Delaware Bylaws provide that in
order for director nominations to be properly brought before the meeting, the
shareholder must have delivered timely notice to the Secretary of the
corporation. The text of the relevant Bylaw provision is set forth in full at
the end of this Proxy Statement, under the caption "SHAREHOLDER NOMINATIONS."
These notice requirements help ensure that shareholders are aware of all
proposals to be voted on at the meeting and have the opportunity to consider
each proposal in advance of the meeting.
ANTI-TAKEOVER MEASURES
Delaware law has been widely viewed to permit a corporation greater
flexibility in governing its internal affairs and its relationships with
shareholders and other parties than do the laws of many other states, including
California. In particular, Delaware law permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. Such measures are either not currently permitted or are more narrowly
drawn under California law. Among these measures are the establishment of a
classified board of directors and the elimination of the right of shareholders
to call special shareholders' meetings, each of which is described above. In
addition, certain types of "poison pill" defenses (such as shareholder rights
plans) have been upheld by Delaware courts, while California courts have yet to
decide on the validity of such defenses, thus rendering their effectiveness in
California less certain.
As discussed herein, certain provisions of the Delaware Certificate and
Delaware Bylaws could be considered to be anti-takeover measures. The Company
does not have any present intention of adopting any further anti-takeover
measures, nor does the Board of Directors have knowledge that any attempt to
gain control of the Company is being contemplated. As discussed above, numerous
differences between California and Delaware law, effective without additional
action by the Delaware Company, could have a bearing on unapproved takeover
attempts
One such difference is the existence of a Delaware statute regulating
tender offers, which statute is intended to limit coercive takeovers of
companies incorporated in that state. California has no comparable statute. The
Delaware law provides that a corporation may not engage in any business
combination with any interested shareholder for a period of three years
following the date that such shareholder became an interested shareholder,
unless (i) prior to the date the
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shareholder became an interested shareholder the Board of Directors approved the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder, or (ii) upon consummation of the transaction
which resulted in the shareholder becoming an interested shareholder, the
interested shareholder owned at least 85% of the Voting Stock, or (iii) the
business combination is approved by the Board of Directors and authorized by 66
2/3% of the outstanding Voting Stock which is not owned by the interested
shareholder. An interested shareholder means any person that is the owner of 15%
or more of the outstanding Voting Stock, however, the statute provides for
certain exceptions to parties who otherwise would be designated interested
shareholders, including an exception for parties that held 15% or more of the
outstanding Voting Stock as of December 23, 1987. Any corporation may decide to
opt out of the statute in its original certificate of incorporation or, at any
time, by action of its shareholders. The Company has no present intention of
opting out of the statute.
There can be no assurance that the Board of Directors would not adopt any
antitakeover measures available under Delaware law (some of which may not
require shareholder approval). Moreover, the availability of such measures under
Delaware law, whether or not implemented, may have the effect of discouraging a
future takeover attempt which a majority of the Delaware Company's shareholders
may deem to be in their best interests or in which shareholders may receive a
premium for their shares over then current market prices As a result,
shareholders who might desire to participate in such transactions may not have
the opportunity to do so. Shareholders should recognize that, if adopted, the
effect of such measures, along with the possibility of discouraging takeover
attempts, may be to limit in certain respects the rights of shareholders of the
Delaware Company compared with the rights of shareholders of the Company. The
Board of Directors recognizes that hostile takeover attempts do not always have
the unfavorable consequences or effects described above and may frequently be
beneficial to the shareholders, providing all of the shareholders with
considerable value for their shares. However, the Board of Directors believes
that the potential disadvantages of unapproved takeover attempts (such as
disruption of the Company's business and the possibility of terms which may be
less than favorable to all of the shareholders than would be available in a
board-approved transaction) are sufficiently great such that prudent steps to
reduce the likelihood of such takeover attempts and to enable the Board to fully
consider the proposed takeover attempt and actively negotiate its terms are in
the best interests of the Company and its shareholders.
In addition to the various anti-takeover measures that would be available
to the Delaware Company after the Reincorporation due to the application of
Delaware law, the Delaware Company would retain the rights currently available
to the Company under California law to issue shares of its authorized but
unissued capital stock. Following the effectiveness of the proposed
Reincorporation, shares of authorized and unissued Common Stock and (if Proposal
No. 3 is approved by the shareholders) Preferred Stock of the Delaware Company
could (within the limits imposed by applicable law) be issued in one or more
transactions, or Preferred Stock could be issued with terms, provisions and
rights which would make more difficult and, therefore, less likely, a takeover
of the Delaware Company. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of existing
shares of Common Stock and Preferred Stock, and such additional shares could be
used to dilute the stock ownership of persons seeking to obtain control of the
Delaware Company.
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It should be noted that if Proposal No. 3 is approved by the shareholders
the voting rights to be accorded to any unissued series of Preferred Stock of
the Delaware Company ("Delaware Preferred Stock") remain to be fixed by the
Delaware Board. Accordingly, if the Delaware Board so authorizes, the holders of
Delaware Preferred Stock may be entitled to vote separately as a class in
connection with approval of certain extraordinary corporate transactions in
circumstances where Delaware law does not ordinarily require such a class vote,
or might be given a disproportionately large number of votes. Such Delaware
Preferred Stock could also be convertible into a large number of shares of
Common Stock of the Delaware Company under certain circumstances or have other
terms which might make acquisition of a controlling interest in the Delaware
Company more difficult or more costly, including the right to elect additional
directors to the Delaware Board. Potentially, the Delaware Preferred Stock could
be used to create voting impediments or to frustrate persons seeking to effect a
merger or otherwise to gain control of the Delaware Company. Also, the Delaware
Preferred Stock could be privately placed with purchasers who might side with
the management of the Delaware Company in opposing a hostile tender offer or
other attempt to obtain control.
The Board could, among other things, authorize the issuance of Preferred
Stock for the purpose of adopting a shareholder rights plan and/or in connection
with various corporate transactions, including corporate partnering
arrangements. However, future issuances of Delaware Preferred Stock as an
anti-takeover device might preclude shareholders from taking advantage of a
situation which might otherwise be favorable to their interests. In addition
(subject to the considerations referred to above as to applicable law), the
Delaware Board could authorize issuance of shares of Common Stock of the
Delaware Company ("Delaware Common Stock") or Delaware Preferred Stock to a
holder who might thereby obtain sufficient voting power to ensure that any
proposal to alter, amend, or repeal provisions of the Delaware Certificate
unfavorable to a suitor would not receive the necessary vote of 66 2/3% of the
Voting Stock required for certain of the proposed amendments (as described
below).
If the Reincorporation is approved it is not the present intention of the
Board of Directors to seek shareholder approval prior to any issuance of the
Delaware Preferred Stock or Delaware Common Stock, except as required by law or
regulation. Frequently, opportunities arise that require prompt action, and it
is the belief of the Board of Directors that the delay necessary for shareholder
approval of a specific issuance would be a detriment to the Delaware Company and
its shareholders. The Board of Directors does not intend to issue any Preferred
Stock except on terms which the Board of Directors deems to be in the best
interests of the Delaware Company and its then existing shareholders.
AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION
The California Articles may be amended by the approval of a majority of the
members of the Board of Directors and by a majority of the outstanding shares.
The Delaware Certificate provides that the provisions relating to (i)
indemnification of directors, (ii) management of the Delaware Company and (iii)
the number, term, election and removal of directors can only be amended by the
affirmative vote of the holders of at least 66 2/3% of the voting power of the
outstanding voting stock of the Delaware Company.
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AMENDMENT OF BYLAWS
The California Bylaws may be amended or repealed either by the Board of
Directors or by the holders of a majority in interest of the outstanding stock
of the Company. Upon the effectiveness of the proposed Reincorporation, the
Delaware Bylaws may be adopted, amended or repealed by the Delaware Board or by
the holders of at least 66 2/3% of the voting power of the outstanding capital
stock of the Delaware Company.
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES
California law provides that any loan or guaranty (other than loans to
permit the purchase of shares under certain stock purchase plans) for the
benefit of any officer or director, or any employee benefit plan authorizing
such loan or guaranty (except certain employee stock purchase plans), must be
approved by the shareholders of a California corporation.
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
CLASS VOTE FOR CERTAIN REORGANIZATIONS
With certain exceptions, California law requires that mergers,
reorganizations, certain sales of assets, and similar transactions be approved
by a majority vote of each class of shares outstanding. Delaware law generally
does not require class voting for such transactions, except in certain
situations involving an amendment to the certificate of incorporation which
adversely affects a specific class of shares.
California law also requires that holders of a California corporation's
Common Stock receive nonredeemable Common Stock in a merger of the corporation
with the holder (or an affiliate of the holder) of more than 50% but less than
90% of its Common Stock, unless all of the holders of its Common Stock consent
to the merger or the merger has been approved by the California Commissioner of
Corporations at a "fairness" hearing. This provision of California law may have
the effect of making a cash "freezeout" merger by a majority shareholder more
difficult to accomplish. A cash freezeout merger is a transaction whereby a
minority shareholder is forced to relinquish his share ownership in a
corporation in exchange for cash, subject in certain instances to dissenters
rights. Delaware law has no comparable provision.
INSPECTION OF SHAREHOLDER LISTS
California law provides for an absolute right of inspection of the
shareholder list for shareholders holding 5% or more of a corporation's
outstanding voting shares or shareholders holding 1% or more or' such shares who
have filed a Schedule 14B with the SEC. Delaware law provides no such absolute
right of shareholder inspection. However, both California and
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Delaware law permit any shareholder of record to inspect the shareholder list
for any purpose reasonably related to that person's interest as a shareholder.
APPRAISAL RIGHTS
Under both California law and Delaware law, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to receive
cash in the amount of the "fair value" (Delaware) or "fair market value"
(California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations on
such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the OTC margin stock list, generally do not
have appraisal rights unless the holders of at least 5% of the class of
outstanding shares assert the appraisal right. In any reorganization in which
one corporation or the shareholders of one corporation own more than 5/6 of the
voting power of the surviving or acquiring corporation, shareholders are denied
dissenters' rights under California law. For this reason, appraisal rights will
not be available to shareholders in connection with the Reincorporation
proposal.
Under Delaware law appraisal rights are not available to shareholders with
respect to a merger or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the NASD,
or are held of record by more than 2,000 holders, if the shareholders receive
shares of the surviving corporation or shares of any other corporation which are
similarly listed or dispersed, and the shareholders do not receive any other
property in exchange for their shares except cash for fractional shares.
Appraisal rights are also unavailable under Delaware law to shareholders of a
corporation surviving a merger if no vote of those shareholders is required to
approve the merger because, among other things, the number of shares to be
issued in the merger does not exceed 20% of the shares of the surviving
corporation outstanding immediately before the merger and certain other
conditions are met.
VOTING AND APPRAISAL RIGHTS IN CERTAIN TRANSACTIONS
Delaware law does not provide shareholders with voting or appraisal rights
when a corporation acquires another business through the issuance of its stock,
whether in exchange for assets or stock or in a merger with a subsidiary.
California law treats these kinds of acquisitions in the same manner as a merger
of the corporation directly with the business to be acquired and provides
appraisal rights in the circumstances described in the preceding section.
DIVIDENDS
Under California law, any dividends or other distributions to shareholders,
such as redemptions, are limited to the greater of (i) retained earnings or (ii)
an amount which would leave the corporation with assets (excluding certain
intangible assets) equal to at least 125% of
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its liabilities (excluding certain deferred items) and current assets equal to
at least 100% (or, in certain circumstances, 125%) of its current liabilities.
Delaware law allows the payment of dividends and redemption of stock out of
surplus (including paid-in and earned surplus) or out of net profits for the
current and immediately preceding fiscal years. The Company has never paid cash
dividends and has no present plans to do so.
APPLICATION OF CALIFORNIA LAW AFTER REINCORPORATION
California law provides that if (i) the average of certain property,
payroll and sales factors results in a finding that more than 50% of the
Delaware Company's business is conducted in California in a particular fiscal
year and (ii) more than 50% of the Delaware Company's outstanding voting
securities are held of record by persons having addresses in California, then
the Delaware Company would become subject to certain provisions of California
law regardless of its state of incorporation. As of the Record Date, less than
50% of the Company's outstanding voting securities were held of record by
persons having addresses in California, and consequently California law will not
initially apply to the Delaware Company if the Reincorporation is approved. The
Delaware Company will not be subject to California law with respect to corporate
governance matters as long as it continues to meet both of these tests. If the
Delaware Company were to become subject to the provisions of California law
referred to above, and such provisions were enforced by California courts in a
particular case, many of the Delaware laws described in this Proxy Statement
would not apply to the Delaware Company. Instead, the Delaware Company could be
governed by certain California laws, including those regarding liability of
directors for breaches of the duty of care, indemnification of directors,
dissenters' rights of appraisal, and removal of directors, as well as certain
other provisions discussed above, to the exclusion of Delaware law. The effects
of applying both Delaware and California laws to a Delaware corporation whose
principal operations are based in California have not yet been determined.
HOW THE REINCORPORATION WOULD BE CARRIED OUT
If this Proposal is approved by the shareholders, the proposed
Reincorporation would be accomplished by merging the Company into a to-be-formed
Delaware corporation which will be a wholly-owned subsidiary of the Company (the
"Delaware Company"), pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") which will be entered into as soon as practicable after the Annual
Meeting and the formation of the Delaware Company. A copy of the proposed Merger
Agreement is attached as Exhibit E to this Proxy Statement. Upon the effective
date of the merger, the Delaware Company's name, unlike that of the California
Company, will be Paradise Bakery & Cafe, Inc. The Reincorporation will not
result in any change in the Company's business, assets or liabilities, will not
cause its corporate headquarters to be moved, and will not result in any
relocation of management or other employees.
On the effective date of the proposed Reincorporation, each outstanding
share of Common Stock of the Company will automatically convert into one share
of Common Stock of the Delaware Company, and shareholders of the Company will
automatically become shareholders of the Delaware Company. On the effective date
of the Reincorporation, the number of outstanding shares of Common Stock of the
Delaware Company will be equal to the number
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of shares of Common Stock of the Company outstanding immediately prior to the
effective date of the Reincorporation. In addition, each then-outstanding
warrant or other right to acquire shares of stock of the Company will be
converted into an warrant or other right to acquire an equal number of shares of
the stock of the Delaware Company, under the same terms and conditions as the
original warrants or rights. The Company's Stock Option will be adopted and
continued by the Delaware Company following the Reincorporation. Shareholders
should recognize that approval of the proposed Reincorporation will constitute
approval of the adoption and assumption of those plans by the Delaware Company.
If the proposed Reincorporation is consummated, as soon as practicable
thereafter the Company will send a letter of transmittal to each shareholder
then of record for use in transmitting certificates representing shares of the
California Company's Common Stock ("Old Certificates") to the Exchange Agent.
The letter of transmittal will contain instructions for the surrender of Old
Certificates to the Exchange Agent in exchange for certificates representing the
appropriate number of whole shares of the Delaware Company's Common Stock "New
Certificates"). No New Certificates will be issued to a shareholder until such
shareholder has surrendered all Old Certificates together with a properly
completed and executed letter of transmittal to the Exchange Agent.
Upon proper completion and execution of the letter of transmittal and
return thereof to the Exchange Agent, together with all Old Certificates,
shareholders will receive one or more New Certificates representing the number
of whole shares of the Delaware Company's Common Stock into which their shares
of the California Company's Common Stock (represented by the Old Certificates)
have been converted as a result of the Reincorporation. Until surrendered,
outstanding Old Certificates held by shareholders will be deemed for all
purposes to represent the number of shares of the Delaware Company's Common
Stock to which such shareholders are entitled as a result of the reincorporate.
Shareholders should not send their Old Certificates to the Exchange Agent until
they have received the letter of transmittal. Shares not presented for surrender
as soon as practicable after the letter of transmittal is sent shall be
exchanged at the first time they are presented.
No service charges will be payable by holders of shares of the California
Company Common Stock in connection with the exchange of certificates, all
expenses of which will be borne by the Company.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The Reincorporation provided for in the Merger Agreement is intended to be
a tax free reorganization under the Code. Assuming the Reincorporation qualifies
as a reorganization, no gain or loss will be recognized to the holders of
capital stock of the Company as a result of consummation of the Reincorporation,
and no gain or loss will be recognized by the Company or the Delaware Company.
Each former holder of capital stock of the Company will have the same basis in
the capital stock of the Delaware Company received by such holder pursuant to
the Reincorporation as such holder has in the capital stock of the Company held
by such holder at the time of consummation of the Reincorporation. Each
shareholder's holding period with
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<PAGE>
respect to the Delaware Company's capital stock will include the period during
which such holder held the corresponding Company capital stock, provided the
latter was held by such holder as a capital asset at the time of consummation of
the Reincorporation. The Company has not obtained a ruling from the Internal
Revenue Service or an opinion of legal or tax counsel with respect to the
consequences of the Reincorporation.
The foregoing is only a summary of certain federal income tax consequences.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY OF THE LAWS OF
ANY STATE OR OTHER JURISDICTION.
POTENTIAL EFFECT OF CERTAIN RELATED PROPOSALS
The outcome of the shareholder vote on Proposals 2, 3, and 4 could have a
material effect on the consequences of the vote on this Proposal No. 5. For more
information about those Proposals, see "Proposal No. 2: Amendment of the
Articles of Incorporation to Increase the Authorized Number of Common Shares
from 25,000,000 to 50,000,000," "Proposal No. 3: Amendment to the Articles of
Incorporation to Authorize the Issuance of 25,000,000 Shares of Undesignated
Preferred Stock," and "Proposal No. 4: Approval of a One-For-Ten Reverse Split
of the Company's Outstanding Shares of Common Stock" and "Proposal No. 5:
Approval of a Change in the Company's State of Incorporation From California to
Delaware," above.
Proposal No. 2 would approve an increase in the number of authorized shares
of the Company's Common Stock from 25,000,000 to 50,000,000 shares. Proposal No.
3 would authorize the creation of a new class of undesignated Preferred Stock,
with the rights, preferences, and limitations of the classes or series of such
Preferred Stock to be determined in its discretion by the Board of Directors.
Proposal No. 4 would authorize a one-for-ten reverse split of the outstanding
shares of the Company's Common Stock
The success or failure of Proposals 2, 3, and 4 will not affect the outcome
of the vote on this Proposal No. 5, except to the extent that the Certificate of
Incorporation of the Delaware Company will reflect the outcome of the
shareholders' vote on those Proposals. The Company will become a Delaware
corporation if Proposal No. 5 is approved, regardless of the outcome of the vote
on Proposals 2, 3, and 4. In other words, if Proposal No. 5 is approved by the
shareholders and the Company is in fact reincorporated in Delaware, the number
of authorized shares of Common Stock the Delaware Company will have, the number
of outstanding shares it will have, and whether or not it will have 25,000,000
authorized shares of undesignated Preferred Stock, will all be determined by the
outcome of the shareholder votes on Proposals 2 , 3, and 4.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the outstanding
shares of the Company's Common Stock of the Company is required for approval
of the Reincorporation. For purposes of the vote, abstentions and broker
non-votes will have the effect of a "no" vote in determining whether this
matter has been approved.
If approved by the shareholders, it is anticipated that the
Reincorporation would
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<PAGE>
be completed as soon hereafter as practicable. The Reincorporation may be
abandoned or the Merger Agreement may be amended (with certain exceptions),
either before or after shareholder approval has been obtained, if in the opinion
of the Board of Directors, circumstances arise that make such action advisable;
provided that any amendment that would effect a material change from the charter
provisions discussed in this Proxy Statement would require further approval by
the holders of a majority of the outstanding shares of the Company's Common
Stock.
BOARD RECOMMENDATION
The foregoing discussion has been an attempt to summarize the more
important differences in the corporation laws of Delaware and California and
does not purport to be an exhaustive discussion of all of the differences. Such
differences can be determined in full by reference to the California
Corporations Code and to the Delaware General Corporation Law. In addition, both
California and Delaware law provide that some of the statutory provisions as
they affect various rights of holders of shares may be modified by provisions in
the charter or bylaws of the corporation.
A vote FOR the Reincorporation proposal will constitute approval of the
Reincorporation, the name change, the Delaware Certificate, the Delaware Bylaws,
assumption of the indemnification agreements, the adoption and assumption by the
Delaware Company of each of the Company's stock option and employee benefit
plans, and all other aspects of this Proposal No. 5.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 5.
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<PAGE>
PROPOSAL NO. 6 -- APPROVAL OF INDEPENDENT AUDITORS
The Board of Directors has appointed Grant Thornton, LLP as the Company's
independent accountants to audit the consolidated financial statements of the
Company and its subsidiaries for the Company's fiscal year ending March 31,
1998. Grant Thornton, LLP served as the Company's auditors for the fiscal year
ended March 31, 1997, and during the course of that fiscal year they were also
engaged by the Company to provide certain tax and consulting services.
The affirmative vote of a majority of the shares of Common Stock present
and voting at the Annual Meeting is required to approve the appointment. If the
appointment is not approved, the Company's Board of Directors will select other
independent auditors.
Representatives of Grant Thornton, LLP will be present at the Annual
Meeting to respond to appropriate questions from the shareholders and will be
given the opportunity to make a statement should they desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 6
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<PAGE>
OTHER INFORMATION
PERFORMANCE GRAPH
Set forth below is a performance graph comparing the yearly cumulative
total shareholder returns on the Company's Common Stock with the yearly
cumulative total shareholder return on (a) stocks included in the S&P 500
composite index and (b) an index of peer group
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG JAVA CENTRALE, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE S&P INDEX*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS JAVA CENTRALE, INC. NASDAQ STOCK MARKET (U.S.) S & P RESTAURANTS
<S> <C> <C> <C>
5/10/94 $100 $100 $100
3/95 50 113 110
3/96 38 153 151
3/97 10 170 147
</TABLE>
- ------------------------
* $100 invested on 5/10/94 in stock or on 4/30/94 index including reinvestment
of dividends. Fiscal year ending March 31.
BEGIN: 05/10/94
FYE: 03/31/97
JAVA CENTRALE INC JAVC END: 03/31/97
<TABLE>
<CAPTION>
BEGIN CUM
TYPE NO. OF DIV DIV DIV ENDING TOTAL
OF CLOSE SHARES $ PER $.$$ SHARES NO. OF SHRHLDR
DATE* LINE PRICE** *** SHARE** PAID REINVD SHARES RETURN
- ------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05/10/94........... Begin 4.250 23.529 23.529 100
03/31/95........... 2.125 23.529 23.529 50
03/31/96........... YE 1.625 23.529 23.529 38
03/31/97........... YE 0.438 23.529 23.529 10
</TABLE>
- ------------------------
* Fiscal yearend and ex-dividend dates.
** All Closing Prices and Dividends are adjusted for stock splits.
*** "Begin No. of Shares" based on $100 investment.
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<PAGE>
$100 INVESTED ON 05/10/94 IN STOCK OR ON 04/30/94 IN INDEX INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING MARCH 31 1996.
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<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Including resolutions adopted by unanimous written consent, taken without a
formal meeting, the Board of Directors of the Company held 19 meetings in fiscal
1997 (between April 1, 1996 and March 31, 1997) and has held six regular
meetings to date in fiscal 1998 (commencing on April 1, 1997). All directors
attended 75% or more of the aggregate number of the Board of Directors and
committee meetings on which each director served.
The Board of Directors of the Company has only one committee, the Stock
Option Committee. The only member of the Stock Option Committee as of the date
of this Proxy Statement is Richard D. Shannon, the Company's Chairman of the
Board. The function of the Stock Option Committee is to coordinate with the full
Board the grant of stock options to individual Company employees, officers, and
directors. The Stock Option Committee met six times during 1995 and twice in
1996.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board of Directors serves the functions of a Compensation Committee for
the Company's executive officers. Option awards are also determined by the
Board's Stock Option Committee.
The following is a report submitted by the Board of Directors, addressing
the compensation policies of the Company.
EXECUTIVE COMPENSATION POLICY. The goal of the Board is to ensure that an
appropriate relationship exists between executive compensation and the Company's
overall performance, while at the same time retaining key employees of the
Company and motivating them to perform at a superior level for the benefit of
the shareholders. To achieve this goal, the Company integrates annual base
compensation with bonuses based on the Company's performance and the performance
and initiative of its individual executive officers. The Company attempts to
establish base salaries that are generally within the range of salaries paid to
people holding comparably responsible positions at other peer group companies in
California, taking into account the individual's past performance and potential
future contributions. Bonus compensation is based primarily on the performance
of the Company. Measurement of Company performance is based primarily on that of
peer group companies and Company goals, including primarily its return on
equity. The compensation of executive officers of the Company's subsidiaries is
similarly based on the performance of such subsidiaries and their officers.
Except as limited by the Company's Stock Option Plan, stock options are granted
from time to time to employees, officers and directors of the Company on the
basis of the recipient's potential for contribution to the Company's future
growth and profitability.
The Board of Directors believes that linking executive compensation to
corporate performance results in a better alignment of compensation with the
Company's goals and shareholder interests. As performance goals are met or
exceeded, resulting in increased shareholder value, the Company's executives are
commensurately rewarded.
Richard D. Shannon
Chairman of the Board
Gary C. Nelson
Bradley B. Landin
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<PAGE>
The following table sets forth certain information regarding the executive
officers of the Company named below. Information about officers who are also
directors of the Company can be found above under the caption "Proposal No. 1:
Election of Directors - Nominees."
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
Richard D. Shannon. . . 51 Director, Chairman of the Board
Gary C. Nelson. . . . . 53 Director, President and Chief Executive Officer
Bradley B. Landin . . . 45 Director, Vice President - Operations, and
Secretary
Thomas A. Craig . . . . 63 Vice President -- Marketing and Real Estate
Jeffrey W. Dudley . . . 40 Vice President and Chief Financial Officer
Thomas A Craig, a founding shareholder, has been Vice-President--Marketing
and Real Estate of the Company since its incorporation in March 1992. Mr. Craig
has 29 years of experience in advertising, design, marketing and real estate.
From November 1987 until the incorporation of the Company in March 1992, he was
associated with Century 21, a real estate brokerage firm in Carmichael,
California specializing in the sale and leasing of new and existing commercial
properties. From May 1962 through July 1987 Mr. Craig served as president of two
advertising and marketing firms located in Sacramento, California. Mr. Craig is
a graduate of the Hollywood Center of Art and Design in Hollywood, California.
Jeffrey W. Dudley, MS, C.P.A., became the Company's Vice President and
Chief Financial Officer on October 1, 1997. Prior to joining the Company, Mr.
Dudley was the Chief Financial Officer of Greenhorn Creek Associates, LP, a
California limited partnership engaged in residential real estate and golf
course development, from January to October of 1997. From July through December
of 1996, Mr. Dudley acted as an independent consultant, reporting to the
Controller, for A. Teichert & Sons, Inc., a California-based construction
company, where he was responsible for financial reporting and management of the
budgeting process, among other duties. In May and June of 1996, Mr. Dudley was a
consultant for HiTec Sports USA, Inc., a California-based distributor of outdoor
footwear. From November of 1994 through April of 1996, Mr. Dudley was the Chief
Financial Officer for Jason & Son, Inc., a manufacturer and distributor of snack
foods. Mr. Dudley was with KPMG Peat Marwick from January of 1991 through
November of 1994, first as an assistant accountant and beginning in January of
1993 as a Supervising Senior Accountant. Mr. Dudley is a member of the American
Institute of Certified Public Accountants and the California Society of
Certified Public Accountants. He received a Master of Science degree in
Accountancy from California State University, Sacramento, in 1991.
Officers of the Company are appointed by its Board of Directors, and serve
at the pleasure of the Board. The Company is not aware of any family
relationships among its Directors and/or executive officers.
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<PAGE>
The term of office of every officer of the Company is normally one year,
but every Company officer serves at the pleasure of the Board of Directors.
There are no understandings or arrangements between any of such officers and any
other person pursuant to which they were or are to be selected as officers of
the Company.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to, as well as any other compensation paid to or earned by, the Company's Chief
Executive Officer and the four most highly compensated executive officers other
than the Chief Executive Officer during each of the fiscal years ended March 31,
1995 1996 and 1997. The Company's President and Chief Executive Officer, Mr.
Gary C. Nelson, was the only officer of the Company whose total annual salary
and bonus exceeded $100,000 during the 1995 and 1997 fiscal years. Mr. Nelson,
Steven J. Orlando, the Company's former Chief Financial Officer,, and Richard D.
Shannon, the Company's Chairman, were the only officers of the Company whose
total annual salary and bonus exceeded $100,000 during the 1996 fiscal year.
Mr. Orlando resigned from the Company effective as of September 30, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------------------
NAME OF OTHER SECURITIES ALL
INDIVIDUAL AND ANNUAL RESTRICTED UNDERLYING OTHER
PRINCIPAL FISCAL COMPEN- STOCK OPTIONS/ COMPEN-
POSITION YEAR SALARY BONUS SATION AWARDS SARS(#) SATION
- ------------------- ----- ------- ------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary C. Nelson 1997 $121,634 $-0- $--0- None -0- -0-
President 1996 $158,065 $35,000 $ -0- None 167,000 -0-
(Chief 1995 $147,538 $-0- $ -0- None -0- -0-
Executive
Officer)
Steven J. Orlando 1997 $89,900 $-0- $ -0- None -0- -0-
Chief Financial 1996 $97,050 $35,000 $ -0- None 175,000 -0-
Officer 1995 $78,431 $-0- $ -0- None -0- -0-
Richard Shannon 1997 $99,603 $-0- $ -0- None -0- -0-
Chairman of 1996 $94,328 $35,000 $ -0- None 174,250 -0-
the Board 1995 $75,000 $-0- $ -0- None -0- -0-
</TABLE>
COMPENSATION PURSUANT TO PLANS
THE JAVA CENTRALE, INC. 1993 STOCK OPTION PLAN
GENERAL INFORMATION ABOUT THE PLAN. The Board of Directors of the Company
adopted the Java Centrale, Inc. Stock Option Plan (the "Option Plan") in 1993,
and it was subsequently
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<PAGE>
amended by the Company's Board of Directors and shareholders in September of
1995. Under the terms of the Option Plan as it currently exists, options to
purchase up to 1,250,000 Common Shares may be granted to officers, key employees
and non-employee directors of the Company. Such options, once granted, are not
generally transferable.
The purpose of the Option Plan is to provide incentives to key employees
and directors of the Company to continue and increase their efforts to improve
operating results, to remain in the employ or service of the Company, and to
have a greater financial interest in the Company through ownership of its Common
Stock.
Under the Option Plan, the Board, or a committee appointed by the Board, is
authorized to grant options which are intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code (the "Code") to employees
(including employee-directors) of the Company, and to grant options not intended
to qualify as incentive stock options ("nonstatutory stock options") to
employees and non-employee directors of the Company, and to determine the
participants, the number of options to be granted and other terms and provisions
of each option. The only member of the Stock Option Committee as of the date of
this Proxy Statement is Richard D. Shannon. The Board has delegated to the
Committee all of its administrative functions under the Option Plan.
TERMS AND EXERCISE OF OPTIONS. The exercise price of any stock option
granted under the Stock Option Plan may not be less than 100% of the fair market
value of the Common Shares of the Company at the time of the grant. In the case
of incentive stock options granted to holders of more than ten percent of the
voting power of the Company, the exercise price may not be less than 110% of the
fair market value of the Common Stock, nor may any such option be exercisable by
its terms more than five years after the date the option is granted. The closing
sale price of the Company's Common Stock, as reported on the NASDAQ Small Cap
List as of September 12 1997, was $0.57 per share.
Under the terms of the Option Plan, no incentive stock option may be
granted to an optionee if the fair market value at the date of grant of shares
with respect to which such options would first become exercisable in any
calendar year, when added to the fair market value at the date of grant of any
other shares with respect to which an incentive option granted to such optionee
under the Option Plan (or any other incentive stock option plan maintained by
the Company or any of its subsidiaries) first becomes exercisable in such
calendar year, would exceed $100,000. Options granted under the Option Plan
become exercisable in whole or in part from time to time as determined by the
Board of the committee; provided, however, that in no event may any option
become exercisable earlier than the date six months following the date on which
the option is granted. Options granted under the Option Plan may have a maximum
term of ten years from the date of grant. The option price must be paid in full
on the date of exercise, and is payable in cash or in Common Shares of the
Company having a fair market value on the date the option is exercised equal to
the option price.
OUTSTANDING OPTIONS UNDER THE OPTION PLAN. As of March 31, 1997, the
Company had outstanding options to purchase an aggregate of 1,042,500 shares of
Common Stock pursuant to the Plan, at a uniform exercise price of $0.75 per
share, to officers and employees of the
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<PAGE>
Company in accordance with the Option Plan. Effective as of August 1, 1997, all
management and employee options issued pursuant to the Option Plan had been
cancelled and surrendered to the Company, leaving the full 1,250,000 shares
available for future grants at the discretion of the Board of Directors. (If
Proposal No. 4 is approved by the Company's shareholders, the number of options
which may be granted under the Option Plan will be reduced to 125,000.) No
options issued under the Option Plan have ever been exercised.
FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of the federal
income tax consequences associated with the granting and exercise of options
under the Plan, and the sale of the underlying shares. This summary is based on
existing federal income tax laws and regulations, and does not discuss the
provisions of the income tax laws of any State or foreign country. This summary
is applicable only as of the date of this Proxy Statement, and readers should be
aware that federal tax laws and regulations are subject to change at any time.
It is not intended to be, or offered as, a complete description of the tax
consequences which may be associated with any individual grant or exercise of an
option, or as tax, investment, or legal advice.
Options which do not qualify as incentive stock options are considered to
be "nonstatutory," and will not qualify for the special tax treatment available
to incentive stock options, as discussed below. Optionees who receive
nonstatutory stock options will not recognize any taxable income at the time the
options are granted or when they become vested; however they will normally
recognize ordinary income for federal tax purposes at the time an option is
exercised. The amount of the income recognized will be measured by the excess,
if any, of the fair market value of the Common Stock as of the exercise date
over the exercise price.
The Code provides favorable federal income tax treatment for options which
qualify as incentive stock options. As is the case with nonstatutory stock
options, the optionee will not recognize any income at the time an incentive
stock option is granted, but in addition the optionee will generally not
recognize income for federal tax purposes when the options are exercised, either
- -- it is only when the underlying shares are sold that the optionee will
normally recognize such income. If a sale of the Common Stock obtained through
the exercise of an incentive stock option takes place at least two years after
the option was granted, and one year after the incentive stock option was
exercised, the difference between the exercise price and the sales price will
normally be treated as long-term capital gain (or loss) for federal income tax
purposes in the tax year in which the sale of the shares takes place. If,
however, Common Stock acquired upon exercise of an incentive stock option are
sold or otherwise disposed of less than two years after the option was granted,
or one year after it was exercised, then the sale or other disposition will be
treated as a "disqualifying disposition" for federal tax purposes, and the
optionee will generally recognize ordinary income in the tax year in which such
disposition occurs.
The Federal income tax consequences of payment of the exercise price of an
option with shares of outstanding Company stock ("Payment Shares") are identical
to those described above for payment by means of cash, except as follows. The
holding period for that number of newly issued option shares which is equal to
the number of Payment Shares being used to purchase them (the "Exchange Shares")
is the same as the holding period of the Payment Shares. In the
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<PAGE>
case of an incentive stock option, the tax basis of the Exchange shares is the
tax basis of the Exchange Shares, while the tax basis of any additional option
shares being issued in exchange for the Exchange Shares is zero. In the case of
a nonstatutory stock option, the tax basis of the Exchange Shares is the tax
basis of the Payment Shares, while the tax basis of any additional option shares
being issued is their fair market value as of the date of exercise.
TAX BENEFITS TO THE COMPANY. The Company will be entitled to a deduction
for federal tax purposes in the amount and at the time that any optionee
recognizes ordinary income with respect to the exercise of an nonstatutory stock
option, or with respect to a disqualifying disposition of shares acquired upon
exercise of an incentive stock option. The Company will not be allowed a tax
deduction in connection with exercises of incentive stock options in which there
has not been a disqualifying disposition.
OUTSTANDING OPTIONS HELD BY CERTAIN EXECUTIVE OFFICERS. As of October 1,
1997, the Record Date for the Annual Meeting, there were no options outstanding
under the Plan, and no such options were held by any of the named executive
officers of the Company. The Company has never granted stock appreciation rights
to its directors or executive officers. No options were granted to any director
or executive officer of the Company during the fiscal year ended March 31, 1997,
or between that date and the date of this Proxy Statement. No officer or
director of the Company has ever exercised an option granted by the Company,
although in October of 1995 Baycor Ventures, Inc., a company of which Mr.
Shannon is a Director and 50% shareholder, exercised options (not granted under
the Option Plan) to purchase 300,000 shares of the Company's Common Stock at a
purchase price of $0.40 per share, realizing an aggregate value of approximately
$742,500.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Richard D. Shannon,
the Company's Chairman of the Board; Gary C. Nelson, President and Chief
Executive Officer; Bradley B. Landin, Senior Vice President -- Operations;
Thomas A. Craig, Vice President -- Marketing and Real Estate; and Steven J.
Orlando, formerly its Chief Financial Officer and Corporate Secretary (Mr.
Orlando resigned from his positions with the Company in September of 1997).
Mr. Shannon's employment agreement was originally entered into in February
of 1994, but was amended in January and again in May of 1996. As so amended, Mr.
Shannon's agreement runs through January 31, 1999. Pursuant to his employment
agreement, Mr. Shannon will act as Chairman of the Company, will serve on the
Board of Directors and will be entitled to receive, among other things, (a) a
base annual salary of $96,172 (subject to a potential increase to $137,388 upon
the earlier to occur of (i) one quarter of Company profitability or (ii)
significant improvement in the working capital condition of the Company, as
approved by the Compensation Committee, (b) beginning in February of 1997, an
annual increase in base salary in an amount equal to the amount of the then
current salary plus the greater of (i) 7% of the base salary in effect for the
previous 12 month period and (ii) the percentage increase in the Consumer Price
Index for the prior 12-month period as reported by the United States Department
of Labor (the "Department of Labor"), (c) an annual bonus, in an amount to be
determined by the Board of
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<PAGE>
Directors, under such incentive compensation plan as shall be adopted by the
Board of Directors of the Company, and (d) such options to purchase Common Stock
of the Company as may be granted pursuant to the terms of the Stock Option Plan.
The employment agreement between the Company and Mr. Shannon does not require
him to spend more than 80% of his time on Company business.
Mr. Nelson's employment agreement was originally entered into in February
of 1994, but was amended in January and again in May of 1996. As so amended, Mr.
Nelson's employment agreement runs through January 31, 1999. Pursuant to his
employment agreement, Mr. Nelson will act as President and Chief Executive
Officer of the Company, will serve on the Board of Directors, and will be
entitled to receive, among other things, (a) a base salary of $116,207 (subject
to a potential increase to $166,010 upon the earlier to occur of (i) one quarter
of Company profitability or (ii) significant improvement in the working capital
condition of the Company, as approved by the Compensation Committee if certain
Company performance standards are met), (b) beginning in February of 1997, a
base salary in an amount equal to the amount of the then current base salary
plus the greater of (i) 7% of the base salary in effect for the previous 12
month period and (ii) the percentage increase in the Consumer Price Index for
the prior 12-month period as reported by the Department of Labor, (c) an annual
bonus in an amount to be determined by the Board of Directors of the Company
under such incentive compensation plan as shall be adopted by the Board of
Directors of the Company, and (d) such options to purchase Common shares of the
Company as may be granted pursuant to the terms of the Stock Option Plan.
Mr. Landin's employment agreement was originally entered into in February
of 1994, but was amended in January and May of 1996. As so amended, Mr. Landin's
employment agreement runs through January 31, 1999. Pursuant to his employment
agreement, Mr. Landin will act as Senior Vice President Operations of the
Company and will be entitled to receive among other things, (a) a base salary of
$73,274 (subject to a potential increase to $91,592 upon the earlier to occur of
(i) one quarter of Company profitability or (ii) significant improvement in the
working capital condition of the Company, as approved by the Compensation
Committee), (b) beginning in February 1997, a base salary in an amount equal to
the amount of the then current base salary plus the greater of (i) 7% of the
base salary in effect for the previous 12 month period and (ii) the percentage
increase in the Consumer Price Index for the prior 12-month period as reported
by the Department of Labor, (c) during each year thereof, an annual bonus in an
amount to be determined by the Board of Directors of the Company under such
incentive compensation plan as shall be adopted by the Board of Directors of the
Company, and (d) such options to purchase Common Shares of the Company as may be
granted pursuant to the terms of the Stock Option Plan.
Mr. Craig's employment agreement was originally entered into in February of
1994, but was amended in May of 1996. As so amended, Mr. Craig's employment
agreement runs through February 1997. Pursuant to his employment agreement, Mr.
Craig will act as Vice President -- Marketing and Real Estate of the Company,
and will be entitled to receive, among other things, (a) during the first year
thereof, a base salary of $73,274 (subject to a potential increase to $91,592
upon the earlier to occur of (i) one quarter of Company profitability or (ii)
significant improvement in the working capital condition of the Company, as
approved by the
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Compensation Committee), (b) beginning in February 1997, a base salary in an
amount equal to the amount of the then current base salary plus the greater of
(i) 7% of the base salary in effect for the previous 12 month period and (ii)
the percentage increase in the Consumer Price Index for the prior 12-month
period as reported by the Department of Labor, (c) an annual bonus in an amount
to be determined by the Board of Directors of the Company under such incentive
compensation plan as shall be adopted by the Board of Directors of the Company,
and (d) such options to purchase Common Stock of the Company as may be granted
pursuant to the terms of the Stock Option Plan.
Mr. Orlando's employment agreement was originally entered into in July of
1994, but was amended in January and again in May of 1996. As so amended, Mr.
Orlando's employment agreement runs through January 31, 1999. Pursuant to his
employment, he acted as Vice President -- Chief Financial Officer of the
Company, and was entitled to receive, among other things, (a) during the first
year thereof, a base salary of $81,900 (subject to a potential increase to
$117,000 upon the earlier to occur of (i) one quarter of Company profitability
or (ii) significant improvement in the working capital condition of the Company,
as approved by the Compensation Committee if certain Company performance
standards are met), (b) beginning in February of 1997, a base salary in an
amount equal to the amount of the then current base salary plus the greater of
(i) 7% of the base salary in effect for the previous 12 month period and (ii)
the percentage increase in the Consumer Price Index for the prior 12-month
period as reported by the Department of Labor, (c) an annual bonus in an amount
to be determined by the Board of Directors of the Company under such incentive
compensation plan as shall be adopted by the Board of Directors of the Company,
and (d) such options to purchase Common Stock of the Company as may be granted
pursuant to the terms of the Stock Option Plan. Effective September 30, 1997,
Mr. Orlando formally resigned as the Company's Vice President, Chief Financial
Officer, and Secretary. He has agreed to continue with the Company as a
consultant during the transition period until the new Chief Financial Officer,
Mr. Dudley, has fully settled in, and thereafter on specific projects, as may
be requested from time to time by the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Company does not maintain a Compensation Committee, as such. All
decisions relating to the compensation of its executive officers are made by the
Company's Board of Directors, which currently includes Richard D. Shannon, the
Company's Chairman of the Board, Gary C. Nelson, its President and Chief
Executive Officer, and Bradley B. Landin, its Vice President - Operations, and
Secretary, all of whom, are Company employees. Mr. Shannon serves as a Director
and executive officer of Baycor Capital, a private merchant bank based in
Calgary, Canada, which is the parent corporation of Baycor Ventures, the largest
individual shareholder of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership on Form 3 and
changes of ownership on Form 4 or Form 5 with the Securities and Exchange
Commission (the "SEC"). They are also required by
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SEC rules to furnish the Company with copies of all Section 16(a) forms that
they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for them, the Company believes that during 1996, and to date during
1997, all of its officers, directors, and ten percent stockholders complied with
all Section 16(a) filing requirements applicable to them.
CERTAIN TRANSACTIONS
Baycor Ventures, Inc. ("Baycor"), the Company's largest single shareholder,
has entered into a series of transactions with the Company since it was
incorporated in March of 1992.
Any future transactions between the Company and its officers, directors,
principal stockholders or other affiliates will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties on an
arms-length basis and will be approved by a majority of the Company's
disinterested directors. Any loans to officers, directors, principal
stockholders or affiliates of any of them will be made for bona fide business
purposes, will be on terms no less favorable than could be obtained from
unaffiliated third parties, and will be approved by a majority of the Company's
disinterested directors.
In September 1995, the Company advanced to Baycor a loan in the amount of
$185,000. The loan has a two year term at a rate of prime plus 2% in interest
and is all due and payable at the end of two years.
In May 1995, the Company advanced to Bradley Landin, while he was Vice
President Operations and Director, a loan in the amount of $59,000. The loan has
a term of five years at a rate of prime plus 1% in interest with monthly
principal and interest payments of $1,200.
In July 1996, Baycor, Gary Nelson, President and Chief Executive Officer,
and Steven J. Orlando, Chief Financial Officer, agreed to loan the Company
$175,000 from time to time as needed until April 1997, when the line of credit
will be due and payable. The lenders will receive a general lien on Java
Centrale assets. The loan will be at an interest rate of prime plus 2% per
annum.
ESCROW AGREEMENT
Pursuant to an Amended and Restated Security Escrow Agreement (the "Escrow
Agreement"), by an between each of Baycor, Gary C. Nelson, Thomas A. Craig,
Bradley B. Landin, Richard D. Shannon, Richard M.H. Thompson & Associates, Inc.
and the Manry Company (such entities and persons being hereinafter collectively
referred to as the "Security Holders"), the Company, and American Stock Transfer
& Trust Company, as escrow agent (the "Escrow Agent"), Baycor Ventures, Inc.,
Gary C. Nelson, director and officer of the Company, Bradley B. Landin, former
director and officer of the Company and Thomas A. Craig, an officer of the
Company, placed an aggregate of 855,300 of their currently outstanding Common
Shares in escrow (the "Escrowed Shares") in connection with the Company's public
offering of its
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Common Stock in May of 1994.
The Escrow Agreement provides that the Escrowed Shares shall be released to
the Security Holders and no longer governed by the terms and provisions of the
Escrow Agreement as follows:
(a) If the Company achieves, during the four fiscal years of the
Company ending March 31, 1995, March 31, 1996, March 31, 1997 and March
1998, respectively, an average annual net earnings per common share on a
fully diluted basis, calculated in accordance with GAAP, of at least $.40
per common share, all (100%) of the Escrowed Shares will be released to the
Security Holders and no longer subject to the Escrow Agreement; and
(b) Any Escrowed Shares which have not been previously released to
the Security Holders in accordance with the provisions of the Escrow
Agreement will then be released, and no longer subject to the Escrow
Agreement.
If any Security Holder exercises warrants or options to acquire additional
Common Stock of the Company (the "Additional Shares"), one-third (33 1/3%) of
such Additional Shares must immediately be delivered to the Escrow Agent, and
will be held and released pursuant to the Escrow Agreement as if they were
original Escrowed Shares.
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SHAREHOLDER NOMINATIONS
Section 15 of Article III of the Company's Bylaws sets forth the following
procedures for shareholder nominations to the Board of Directors:
Nominations for election of members of the Board may be made by the Board
or by any holder of any outstanding class of capital stock of the
Corporation entitled to vote for the election of Directors. Notice of
intention to make any nominations (other than for persons named in the
Notice of any meeting called for the election of Directors) are required to
be made in writing and to be delivered or mailed to the President of the
corporation by the later of: (i) the close of business 21 days prior to any
meeting of shareholders called for the election of Directors or (ii) 10
days after the date of mailing of notice of the meeting to shareholders.
Such notification must contain the following information, to the extent
known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee;
(c) the number of shares of capital stock of the Corporation owned by each
proposed nominee; (d) the name and residence address of the notifying
shareholder; (e) the number of shares of capital stock of the Corporation
owned by the notifying shareholder; and (f) whether the proposed nominee
has ever been convicted of or pleaded nolo contendere to any criminal
offense involving dishonesty or breach of trust, filed a petition in
bankruptcy, or been adjudged bankrupt. The notification shall be signed by
the nominating shareholder and by each nominee, and shall be accompanied by
a written consent to be named as a nominee for election as a Director from
each proposed nominee, confirming the accuracy of all of the
above-described information contained in the notice. Nominations not made
in accordance with these procedures shall be disregarded by the chairperson
of the meeting, and upon his instructions, the inspectors of election shall
disregard all votes cast for each such nominee. The foregoing requirements
do not apply to the nomination of a person to replace a proposed nominee
who has become unable to serve as a Director between the last day for
giving notice in accordance with this paragraph and the date of election of
Directors if the procedure called for in this paragraph was followed with
respect to the nomination of the nominee who has become unable to serve.
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OTHER MATTERS
Management does not know of any matters to be presented at the Annual
Meeting other than those set forth above. However, if other matters come before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented by the proxy in accordance with the
judgment of the person or persons authorized to vote the proxy, and
discretionary authority to do so is included in the proxy.
The deadline for shareholders to submit proposals to be considered for
inclusion in the Proxy Statement for the Company's 1998 Annual Meeting of
Shareholders is July 2, 1998.
Bradley B. Landin
Corporate Secretary
Dated: October __, 1997
The Company's Annual Report to Shareholders for the fiscal year ended March
31, 1997 is being mailed concurrently with this Proxy Statement to all
shareholders of record as of October 1, 1997.
Item 2 of the Company's Form 10-Q, for the fiscal quarter ended June 30,
1997 is incorporated herein by reference.
Items 6, 7, 8 and 9 of the Company's Form 10-K for the fiscal year ended
March 31, 1997 are incorporated herein by this reference.
A COPY OF THE COMPANY'S MOST RECENT ANNUAL REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENCED MARCH 31, 1997 AND
FORM 10-Q FOR THE FISCAL QUARTER ENDED JUNE 30, 1997 WILL BE PROVIDED TO
SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, JAVA
CENTRALE, INC., 1610 ARDEN WAY, SUITE 145, SACRAMENTO, CA 95819.
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EXHIBIT A
1. Following is the text of the CURRENT Article III of the Company's
Articles of Incorporation, which would be amended if Proposal No. 2 is approved
by the shareholders.
III
The Corporation is authorized to issue two classes of shares, which
shall be known as Common Stock and Preferred Stock. The Corporation is
authorized to issue twenty-five million (25,000,000) shares of Common Stock
and twenty-five million (25,000,000) shares of Preferred Stock. On
amendment of this Article, each outstanding share of Preferred Stock,
Series A, shall be reclassified and changed into .01245 shares of Common
Stock. The Series designation of the Preferred Stock, Series B, shall be
removed so that such stock is referred to as "Preferred Stock," and each
share of Common Stock (including without limitation the above reclassified
Preferred Stock, Series A) shall be split up and converted into two and
one-half ((2 1/2)) shares of Common Stock.
2. Following is the text of the PROPOSED Article III of the Company's
Articles of Incorporation, as it would be amended if only Proposal No. 2 is
approved by the shareholders.
III
The Corporation is authorized to issue two classes of shares, which
shall be known as Common Stock and Preferred Stock. The Corporation is
authorized to issue fifty million (50,000,000) shares of Common Stock and
twenty-five million (25,000,000) shares of Preferred Stock. On amendment of
this Article, each outstanding share of Preferred Stock, Series A, shall be
reclassified and changed into .01245 shares of Common Stock. The Series
designation of the Preferred Stock, Series B, shall be removed so that such
stock is referred to as "Preferred Stock," and each share of Common Stock
(including without limitation the above reclassified Preferred Stock,
Series A) shall be split up and converted into two and one-half ((2 1/2))
shares of Common Stock.
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EXHIBIT B
1. Following is the text of the CURRENT Article III of the Company's
Articles of Incorporation, which would be amended if Proposal No. 3 is approved
by the shareholders.
III
The Corporation is authorized to issue two classes of shares, which
shall be known as Common Stock and Preferred Stock. The Corporation is
authorized to issue twenty-five million (25,000,000) shares of Common Stock
and twenty-five million (25,000,000) shares of Preferred Stock. On
amendment of this Article, each outstanding share of Preferred Stock,
Series A, shall be reclassified and changed into .01245 shares of Common
Stock. The Series designation of the Preferred Stock, Series B, shall be
removed so that such stock is referred to as "Preferred Stock," and each
share of Common Stock (including without limitation the above reclassified
Preferred Stock, Series A) shall be split up and converted into two and
one-half ((2 1/2)) shares of Common Stock.
2. Following is the text of the PROPOSED Article III of the Company's
Articles of Incorporation, as it would be amended if only Proposal No. 3 is
approved by the shareholders.
III
(a) The corporation is authorized to issue two classes of stock,
which shall be designated respectively "Common Stock" and "Preferred
Stock."
(b) The number of shares of Common Stock which the corporation
is authorized to issue is 25,000,000.
(c) The number of shares of Preferred Stock which the
corporation is authorized to issue is 25,000,000. The Preferred Stock may
be issued in one or more series. The Board of Directors is authorized to
fix the number of any such series of Preferred Stock and to determine the
designation of any such series. The Board of Directors is further
authorized to determine or alter the rights, preferences, privileges, and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease (but not
below the number of shares of such series then outstanding) the number of
shares of any such series subsequent to the issuance of shares of that
series.
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3. Following is the text of the CURRENT Article IV of the Company's
Articles of Incorporation, which would be deleted in its entirety if Proposal
No. 3 is approved by the shareholders.
IV
The relative rights, preferences, privileges and restrictions granted
or imposed on the respective classes of shares or on their holders are as
follows:
1. DIVIDENDS
(a) The holders of Preferred Stock shall be entitled to receive
dividends and any other distribution (as defined below) when and as
declared by the Board of Directors of the Corporation out of the assets of
the Corporation that are legally available therefor, at the rate of $0.01
per share per annum and no more, prior to the payment of any distributions
to holders of Common Stock. Dividends shall accrue from the date of
issuance of the shares of Preferred Stock and shall be deemed to accrue
from day-to-day whether or not earned or declared. Dividends on the
Preferred Stock shall be payable semi-annually on September 30 and March 31
of each year commencing September 30, 1993. Such dividends shall be
cumulative so that if for any dividend period dividends on the outstanding
Preferred Stock at the rate herein specified are not paid or declared and
set apart therefor, the deficiency shall be fully paid and declared and set
apart for payment, without interest, before any distribution, by dividend
or otherwise, shall be paid on, declared, or set apart from the Common
Stock.
(b) For the purposes of this Section 1 herein, unless the
context requires otherwise, "distribution" shall mean the transfer of cash
or property without consideration, whether by way of dividend or otherwise,
payable other than in Common Stock, or the purchase or redemption of shares
of the Corporation for cash or property.
(c) No dividends shall be declared or declared and paid on or
set aside for the Common Stock or any shares ranking junior to the
Preferred Stock in any fiscal year unless and until the cumulative dividend
on all Preferred Stock outstanding in respect of such fiscal year, in
addition to all accrued but unpaid dividends on Preferred Stock, shall have
been declared and paid or set aside for payment.
2. LIQUIDATION PREFERENCES. In the event of any liquidation,
dissolution or winding-up of the Corporation, either voluntarily or
involuntarily, the holders of Preferred Stock shall receive an amount equal
to twenty cents ($.20) per share and all accrued and unpaid dividends, and
no more, before any amount shall be aid to the holders of Common Stock. In
the event that the assets of the Corporation are insufficient to permit
full payment to the holders of the Preferred Stock as herein provided, then
such assets shall be distributed among the outstanding shares of Preferred
Stock. Subject to such preferential rights, the holders of the Common Stock
shall receive, ratably, all remaining assets of the Corporation. A merger
of the Corporation with or into any other corporation or a sale of all or
substantially all of the assets of the Corporation, shall not be deemed a
liquidation, dissolution or winding-up of the Corporation within the
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meaning of this paragraph.
3. VOTING RIGHTS
(a) Except as otherwise provided by law, the holders of Common
Stock shall have one vote for each share of Common Stock on all matters
submitted to a vote of the holders of shares of Common Stock. Except as
otherwise provided in these Amended and Restated Articles of Incorporation
or by law, the holders of Common Stock shall have exclusive voting rights
and powers including the exclusive right to receive notice of shareholder
meetings. The holders of shares of Preferred Stock shall have no voting
rights except in the event of a default as defined below. In the event of a
default, the holders of Preferred Stock shall as a class be entitled, an
aggregate number of votes equal to one hundred percent (100%) of the votes
to which issued shares of Common Stock as a class are entitled as of the
date of the default, and shall be entitled to receive notice of and to
attend all shareholder meetings.
(b) For the purposes of this Section 3, "default" shall mean
failure by the Corporation to pay dividends if the Corporation is legally
entitled to make such payment.
(c) While the Corporation is in default as defined herein, no
dividend or distribution shall be declared, paid on, or set apart for the
Common Stock.
(d) Such Preferred Stock voting rights shall continue until all
dividends accrued on the Preferred Stock shall have been paid or set apart
for payment, at which time the entire voting power shall revert to the
shareholders of Common Stock and continue in them until a subsequent
default occurs.
4. REDEMPTION
(a) REDEMPTION BY THE CORPORATION. On or before March 31, 1995,
if there is: (i) a change of control (as defined below) of the Corporation;
or (ii) a public offering (as defined below) of shares of Common Stock, the
Corporation may from time to time redeem all or any of the outstanding
shares of Preferred Stock, pro rata, by paying in cash 115% of contributed
capital per share plus all accrued and unpaid dividends on each redeemed
share to and including the date of redemption, the sum of which shall be
the redemption price. After March 31, 1995, the Corporation may from time
to time redeem all or any of the outstanding Preferred Stock by paying in
cash 110% of contributed capital per share, plus all accrued and unpaid
dividends on each redeemed share to and including the date of redemption,
the sum of which shall be the redemption price. At least 60 days before the
date of redemption, written redemption notice shall be given to each holder
of Preferred Stock by first class mail, postage prepaid, at the
shareholder's address as shown on the Corporation's records, stating: (i)
whether all or fewer than all of the outstanding shares of the Preferred
Stock are to be redeemed; (ii) the date fixed for redemption; (iii) the
redemption price; (iv) the place for payment of the redemption price; and
(v) the then-current conversion rate (as determined in Section 5(a))
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and the date of termination of the right to convert. If fewer than all of the
outstanding Preferred Stock shares are to be redeemed, the redemption shall
be on a pro rata basis, as designated by the Board of Directors. No shares
may be redeemed, however, unless all accrued dividends of all periods to
and including the current period on all outstanding shares of Preferred
Stock shall have been paid, except that dividends for the current period
shall not be paid for the shares being redeemed. On or before the date
fixed for redemption, each holder of shares to be redeemed (unless
conversion rights as provided in Article IV, Section 5(a) have previously
been exercised as to those shares) shall surrender the certificates
representing these shares to the Corporation at the place designated for
payment in the redemption notice and shall then be entitled to receive
payment of the redemption price. If fewer than all the shares represented
by any of the surrendered certificates are redeemed, new certificates
representing the unredeemed shares shall be issued. If the redemption
notice is given in the manner provided in this Article IV, Section 4(a),
and if on the redemption date the redemption price is available for
payment, whether or not the certificates covering these shares are
surrendered, all rights with respect to the redeemable shares shall
terminate except the right of the holders to receive the redemption price
without interest on the surrender of the certificates.
(b) For the purposes of Section 4(a):
(i) "Change of Control" means the sale or other event or
series of events which results in the majority, determined at the time of
the sale, event or completion of the series of events, of the shares of
Common Stock outstanding being held by one or more persons any of whom are
not holders of shares of Common Stock or their affiliates at the date
hereof; and
(ii) "Public Offering" means an offer by the Corporation to
sell shares of Common Stock of the Corporation to the public pursuant to a
prospectus, registration statement or other similar disclosure document in
accordance with applicable securities laws and regulations.
(c) REDEMPTION BY SHAREHOLDER. At any time after March 31, 1995,
any holder of any of the outstanding shares of Preferred Stock may from
time to time require the Corporation to redeem all or any of his or her
said shares for cash at 110% of contributed capital per share plus all
accrued and unpaid dividends on each redeemed share to and including the
date of redemption, the sum of which is called the redemption price. A
holder wishing to so require the Corporation to redeem such shares shall
give the Corporation written notice by first-class mail, postage prepaid,
stating: (i) the holder's desire to redeem his or her shares of Preferred
Stock; (ii) the number of shares of Preferred Stock to be redeemed; and,
(iii) the name and address for payment of the redemption price. The
Corporation shall redeem the shares within sixty (60) days of receipt of
the notice to the extent it is legally entitled to do so.
Each holder of shares to be redeemed shall surrender the certificates
representing the shares to be redeemed to the Corporation and shall then be
entitled to receive payment of the redemption price. If fewer than all the
shares represented by any of the surrendered
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certificates are redeemed, new certificates representing the unredeemed shares
shall be issued. If the redemption notice is given in the manner provided
in this Article IV, Section 4(c), and if on the redemption date the
redemption price is available for payment, whether or not the certificates
covering these shares are surrendered, all rights with respect to the
redeemable shares shall terminate except the right of the holders to
receive the redemption price without interest on the surrender of the
certificates.
If the Corporation receives notice requiring the Corporation to redeem
shares of Preferred Stock in excess of the number of shares which the
Corporation is legally entitled to redeem, the redemption shall be on a pro
rata basis, as designated by the Board of Directors.
The Corporation shall give written notice to the holders of shares of
Preferred Stock:
(a) of the number of shares to be redeemed, and
(b) the date fixed for redemption
if it receives notice requiring it to redeem any of the Preferred Stock,
within sixty (60) days of receipt of such Notice.
Notwithstanding this requirement to give notice, the Corporation will not
be liable to shareholders for the Corporation's inadvertent failure to give
notice and failure to give notice for whatever reason will not affect the
validity of any redemption under this Article IV, Section 4(c).
5. CONVERSION RIGHTS OF PREFERRED STOCK
(a) The shares of Preferred Stock shall be convertible at the
option of the respective holders of the shares on or before the earlier of:
(i) the 15th day before the date, if any, fixed for the redemption of
Preferred Stock in a notice of redemption as provided in Article IV,
Section 4(a) of these articles; and (ii) March 31, 1995. On amendment of
this Article, all holders of Preferred Stock who, within the time period
specified above, endorse the certificates representing shares being
converted and deliver them, together with a written notice of their
intention to convert, to the Corporation at its principal office, shall be
entitled to receive 0.04 shares of Common Stock for each share of Preferred
Stock being converted. If the number of outstanding shares of Common Stock
has been increased or reduced (except with respect to the issue of shares
of Common Stock issued upon the exercise of options to acquire shares of
Common Stock outstanding on the date hereof) since the first issuance of
the Preferred Stock because of a split, share dividend, merger,
consolidation, or other capital change or reorganization affecting the
number of outstanding shares, the rate of conversion shall be
proportionately adjusted, to preserve fairly and equitably as far as
reasonably possible the original conversion rights of the Preferred Stock
shares being converted. The Corporation shall forthwith do all things
necessary to give effect to this adjustment.
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(b) Shares converted under this Article IV, Section 5 shall not
be reissued. The Corporation shall at all times reserve and keep available
a sufficient number of its authorized but unissued shares of Common Stock,
and shall further obtain and keep in force any permits required, to enable
it to issue and deliver all shares of Common Stock required to cover the
conversion rights granted under this Article IV, Section 5.
(c) No fractional shares shall be issued on conversion, but the
Corporation shall pay cash for any fractional shares of Common Stock to
which shareholders may be entitled, at the fair value of Common Stock
shares at the time of conversion. The fair value of these shares shall be
determined by the Board of Directors.
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EXHIBIT C
CERTIFICATE OF INCORPORATION
OF
PARADISE BAKERY & CAFE, INC.
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I
The name of this corporation is Paradise Bakery & Cafe, Inc.
II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent, and the name of
the registered agent of the corporation in the State of Delaware at such address
is Incorporating Services, Ltd.
III
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV
A. The corporation is authorized to issue two classes of stock, which
shall be designated respectively "Common Stock" and "Preferred Stock".
B. The number of shares of Common Stock which the corporation is
authorized to issue is Fifty Million (50,000,000), each having a par value of
one-tenth of one cent ($.001).
C. The number of shares of Preferred Stock which the corporation is
authorized to issue is Twenty Five Million (25,000,000) ), each having a par
value of one-tenth of one cent ($.001). The Preferred Stock may be issued in one
or more series. The Board of Directors is authorized, by filing a certificate
pursuant to the Delaware General Corporation Law (a "Preferred Stock
Designation"), to fix the number of any such series of Preferred Stock, and to
<PAGE>
determine the designation of any such series, in accordance with the
requirements of the Delaware General Corporation Law. The Board of Directors is
further authorized to determine or alter the rights, preferences, privileges,
and restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series, to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any such series
subsequent to the issuance of shares of that series.
V
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
(1) The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be set forth
in the bylaws and may be changed from time to time by amendment to the bylaws as
provided therein and herein.
(2) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, directors
shall be elected at each annual meeting of stockholders for a term of one year.
Each director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(3) Subject to the rights of the holders of any series of Preferred
Stock, the Board of Directors or any individual director may be removed from
office at any time with or without cause by the affirmative vote of the holders
of a majority of the voting power of all the then-outstanding shares of voting
stock of the corporation, entitled to vote at an election of directors.
(4) Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes, and any newly created
directorships resulting from any increase in the number of directors, shall,
except as otherwise provided by law, be filled only by the affirmative vote of a
majority of the directors then in office, even though less than a quorum of the
Board of Directors, and not by the stockholders, unless the Board of Directors
determines by resolution that any such vacancies or newly created directorships
shall be filled by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
<PAGE>
B.
(1) The Bylaws may be altered or amended, or new Bylaws may be
adopted, by the affirmative vote of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
voting stock of the corporation. The Board of Directors shall also have the
power to adopt, amend, or repeal Bylaws.
(2) The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
(3) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption).
(4) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation, or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any
<PAGE>
affirmative vote of the holders of any particular class or series of the Voting
Stock required by law, this Certificate of Incorporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal Articles V, VI and VII.
VIII
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
IN WITNESS WHEREOF, this Certificate has been subscribed this ____ day of
__________, 1997 by the undersigned who affirms that the statements made herein
are true and correct.
<PAGE>
EXHIBIT D
BYLAWS
OF
PARADISE BAKERY & CAFE, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
ARTICLE I.....................................................................1
Section 1. Registered Office.............................................1
Section 2. Other Offices.................................................1
ARTICLE II....................................................................1
Section 1. Corporate Seal................................................1
ARTICLE III...................................................................1
Section 1. Place Of Meetings.............................................1
Section 2. Annual Meeting................................................1
Section 3. Special Meetings..............................................2
Section 4. Notice Of Meetings............................................3
Section 5. Quorum........................................................3
Section 6. Adjournment And Notice Of Adjourned Meetings..................4
Section 7. Voting Rights.................................................4
Section 8. Joint Owners Of Stock.........................................4
Section 9. List Of Stockholders..........................................4
Section 10. Action Without Meeting.......................................5
Section 11. Organization.................................................5
ARTICLE IV....................................................................6
Section 1. Number And Term Of Office.....................................6
Section 2. Powers........................................................6
Section 3. Classes Of Directors..........................................6
Section 4. Vacancies.....................................................6
Section 5. Resignation...................................................7
Section 6. Removal.......................................................7
Section 7. Meetings......................................................7
Section 8. Quorum And Voting.............................................8
Section 9. Action Without Meeting........................................8
Section 10. Fees And Compensation........................................8
Section 11. Committees...................................................9
Section 12. Organization................................................10
ARTICLE V....................................................................10
Section 1. Officers Designated..........................................11
Section 2. Tenure And Duties Of Officers................................10
Section 3. Delegation Of Authority......................................12
Section 4. Resignations.................................................12
Section 5. Removal......................................................12
ARTICLE VI...................................................................12
Section 1. Execution Of Corporate Instruments...........................12
Section 2. Voting Of Securities Owned By The Corporation................13
ARTICLE VII..................................................................13
Section 1. Form And Execution Of Certificates...........................13
Section 2. Lost Certificates............................................14
Section 3. Transfers....................................................14
Section 4. Fixing Record Dates..........................................14
Section 5. Registered Stockholders......................................15
ARTICLE VIII.................................................................15
Section 1. Execution Of Other Securities................................15
ARTICLE IX...................................................................15
Section 1. Declaration Of Dividends.....................................16
Section 2. Dividend Reserve.............................................16
ARTICLE X....................................................................16
Section 1. Fiscal Year..................................................16
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
ARTICLE XI...................................................................16
Section 1. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents.....................................16
ARTICLE XII..................................................................19
Section 1. Notices......................................................19
ARTICLE XIII.................................................................21
Section 1. Amendments...................................................21
ARTICLE XIV..................................................................21
Section 1. Loans To Officers............................................21
ARTICLE XV...................................................................21
Section 1. Confidentialilty of Corporate Records........................23
Section 2. Non-Disclosure Statement.....................................23
<PAGE>
BYLAWS
OF
PARADISE BAKERY & CAFE, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware, as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 1. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 1. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Article I Section 2 hereof.
Section 2. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
<PAGE>
(b) Nominations for election of members of the Board of Directors may be
made by the Board of Directors or by any holder of any outstanding class of
capital stock of the corporation entitled to vote for the election of
Directors. Notice of intention to make any nominations (other than for persons
named in the Notice of any meeting called for the election of Directors) are
required to be made in writing and to be by the later of: (i) the close of
business 21 days prior to any meeting of shareholders called for the election of
Directors or (ii) 10 days after the date of mailing of notice of the meeting to
shareholders. Such notification must contain the following information, to the
extent known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
number of shares of capital stock of the corporation owned by each proposed
nominee; (d) the name and residence address of the notifying shareholder; (e)
the number of shares of capital stock of the corporation owned by the notifying
shareholder; (f) whether the proposed nominee has ever been convicted of or
pleaded nolo contendere to any criminal offense involving dishonesty or breach
of trust, filed a petition in bankruptcy, or been adjudged bankrupt; and (g) any
other information relating to such nominee that is required to be disclosed in
solicitation proxies for the election of directors or is otherwise required to
be provided by the stockholder pursuant to Section 14A of the Securities
Exchange Act of 1934, as amended. The notification shall be signed by the
nominating shareholder and by each nominee, and shall be accompanied by a
written consent to be named as a nominee for election as a Director from each
proposed nominee, and shall confirm the accuracy of all of the above-described
information contained in the notice. Nominations not made in accordance with
these procedures shall be disregarded by the chairperson of the meeting, and
upon his instructions, the inspectors of election shall disregard all votes cast
for each such nominee. The foregoing requirements do not apply to the
nomination of a person to replace a proposed nominee who has become unable to
serve as a Director between the last day for giving notice in accordance with
this paragraph and the date of election of Directors if the procedure called for
in this paragraph was followed with respect to the nomination of the nominee who
has become unable to serve.
Section 3. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)
the Chief Executive Officer, or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption).
(b) If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of
2
<PAGE>
Article III Section 4 and Article XII Section 1 of these Bylaws. If the notice
is not given within sixty (60) days after the receipt of the request, the person
or persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
Section 4. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
such stockholder's attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
Section 5. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote cast,
excluding abstentions, at any meeting at which a quorum is present shall be
valid and binding upon the corporation; provided, however, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the Certificate
of Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the votes cast,
including abstentions, by the holders of shares of such class or classes or
series shall be the act of such class or classes or series.
3
<PAGE>
Section 6. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 7. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Article III
Section 9 of these Bylaws, shall be entitled to vote at any meeting of
stockholders. Every person entitled to vote shall have the right to do so
either in person or by an agent or agents authorized by a proxy granted in
accordance with Delaware law. An agent so appointed need not be a stockholder.
No proxy shall be voted after three (3) years from its date of creation unless
the proxy provides for a longer period.
Section 8. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, such shareholder's act binds all; (b) if more than one (1)
votes, the act of the majority so voting binds all; (c) if more than one (1)
votes, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or may apply to the Delaware
Court of Chancery for relief as provided in the General Corporation Law of
Delaware, Section 217(b). If the instrument filed with the Secretary shows that
any such tenancy is held in unequal interests, a majority or even-split for the
purpose of subsection (c) shall be a majority or even-split in interest.
Section 9. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
4
<PAGE>
Section 10. ACTION WITHOUT MEETING.
(a) Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent, in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and delivered to the
corporation by delivery to its principal place of business or to any officer or
agent of the corporation having custody of the book in which proceedings of the
meetings of stockholders are recorded.
(b) Every written consent shall bear the date signature of each
stockholder who signs the consent and no action may be taken by written consent
unless the number of consents necessary to take such action have been delivered
to the corporation within sixty (60) days of the earliest dated consent.
(c) Prompt notice of the taking of corporate action by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing to the action and who would otherwise have been entitled to notice of a
meeting at which the action had been taken, assuming the record date for the
meeting was the date that a sufficient number of consents were delivered to the
corporation to make the action effective.
Section 11. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
The Board of Directors of the corporation shall be entitled to make such
rules or regulations for the conduct of meetings of stockholders as it shall
deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or
5
<PAGE>
comments by participants and regulation of the opening and closing of the polls
for balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 1. NUMBER AND TERM OF OFFICE. The authorized number of directors
shall be not less than four (4) nor more than seven (7), unless and until
changed by an amendment to this Article IV Section 1 of these Bylaws adopted by
a vote of at least sixty-six and two-thirds percent (66 2/3%) of the
stockholders. The exact number of directors within said range shall be fixed by
an amendment to this Article IV Section 1 adopted by the Board of Directors; and
unless and until so amended, the exact number of directors is hereby fixed at
four (4). A reduction in the authorized number of directors shall not remove
any director prior to the expiration of such director's term of office.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at
an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws.
Section 2. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 3. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of stockholders
for a term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 4. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director.
6
<PAGE>
Section 5. RESIGNATION. Any director may resign at any time by delivering
such director's written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by the
Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the Board
of Directors. When one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place shall
be vacated and until such Director's successor shall have been duly elected and
qualified.
Section 6. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time with or without cause by the affirmative vote of
the holders of a majority of the voting power of all the then-outstanding shares
of voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock").
Section 7. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall
be held immediately before or after the annual meeting of stockholders and at
the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Article I Section 2 hereof.
Unless otherwise restricted by the Certificate of Incorporation, regular
meetings of the Board of Directors may also be held at any place within or
without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, electronic mail, telegraph or telex, during normal business hours, at
least twenty-four (24) hours before the date
7
<PAGE>
and time of the meeting, or sent in writing to each director by first class
mail, charges prepaid, at least three (3) days before the date of the meeting.
Notice of any meeting may be waived in writing at any time before or after the
meeting and will be waived by any director by attendance thereat, except when
the director attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting of
the Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
Section 8. QUORUM AND VOTING.
(a) QUORUM. Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Article XI Section 1 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time in accordance with the Certificate
of Incorporation, a quorum of the Board of Directors shall consist of a majority
of the exact number of directors fixed from time to time by the Board of
Directors in accordance with the Certificate of Incorporation; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) VOTING. At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
Section 9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 10. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
8
<PAGE>
Section 11. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors.
The Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the corporation provided, however, that no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, from time to time appoint such
other committees as may be permitted by law. Such other committees appointed by
the Board of Directors shall consist of one (1) or more members of the Board of
Directors and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall such committee have the powers denied to the Executive Committee in
these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Article IV Section 11 may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of such member's
death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Article
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IV Section 11 shall be held at such times and places as are determined by the
Board of Directors, or by any such committee, and when notice thereof has been
given to each member of such committee, no further notice of such regular
meetings need be given thereafter. Special meetings of any such committee may
be held at any place which has been determined from time to time by such
committee, and may be called by any director who is a member of such committee,
upon written notice to the members of such committee of the time and place of
such special meeting given in the manner provided for the giving of written
notice to members of the Board of Directors of the time and place of special
meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
Section 12. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in the Secretary's absence, an Assistant Secretary directed to
do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 1. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by the
Board of Directors.
Section 2. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the Board
of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the
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Board of Directors. If the office of any officer becomes vacant for any reason,
the vacancy may be filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Article V Section 2.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings of
the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform
the duties of the President in the absence or disability of the President or
whenever the office of President is vacant. The Vice Presidents shall perform
other duties commonly incident to their office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
corporation in such form and as often as required by the Board of Directors or
the President. The Chief Financial Officer, subject to the order of the Board
of Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the
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Treasurer or any Assistant Treasurer, or the Controller or any Assistant
Controller to assume and perform the duties of the Chief Financial Officer in
the absence or disability of the Chief Financial Officer, and each Treasurer
and Assistant Treasurer and each Controller and Assistant Controller shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
Section 3. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
Section 4. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
Section 5. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
Section 1. EXECUTION OF CORPORATE INSTRUMENTS.
(a) DETERMINATION OF SIGNATORY. The Board of Directors may, in its
discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
(b) REQUIRED SIGNATORIES. Unless otherwise specifically determined by the
Board of Directors or otherwise required by law, promissory notes, deeds of
trust, mortgages and other evidences of indebtedness of the corporation, and
other corporate instruments or documents requiring the corporate seal, and
certificates of shares of stock owned by the corporation, shall be executed,
signed or endorsed by the Chairman of the Board of Directors, or the President
or any Vice President, and by the Secretary or Treasurer or any Assistant
Secretary or Assistant Treasurer. All other instruments and documents requiring
the corporate signature, but not
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requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
(c) CHECKS; DRAFTS. All checks and drafts drawn on banks or other
depositaries on funds to the credit of the corporation or in special accounts of
the corporation shall be signed by such person or persons as the Board of
Directors shall authorize so to do.
(d) AUTHORITY TO BIND CORPORATION. Unless authorized or ratified by the
Board of Directors or within the agency power of an officer, no officer, agent
or employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
Section 2. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 1. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class
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of stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Except as otherwise expressly provided by
law, the rights and obligations of the holders of certificates representing
stock of the same class and series shall be identical.
Section 2. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 3. TRANSFERS.
(a) TRANSFERS ON BOOKS. Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in
person or by attorney duly authorized, and upon the surrender of a properly
endorsed certificate or certificates for a like number of shares.
(b) TRANSFER RESTRICTIONS. The corporation shall have power to
enter into and perform any agreement with any number of stockholders of any
one or more classes of stock of the corporation to restrict the transfer of
shares of stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the General Corporation Law of
Delaware.
Section 4. FIXING RECORD DATES.
(a) NOTICE OF MEETING. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix, in
advance, a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting. If no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) DIVIDENDS; DISTRIBUTIONS. In order that the corporation may
determine the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix,
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in advance, a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted, and which record date
shall be not more than sixty (60) days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 5.
REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of
shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 1. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered Article VII Section 1), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 1. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) Directors and Officers. The corporation shall indemnify its directors
and officers to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and officers;
and, provided, further, that the corporation shall not be required to indemnify
any director or officer in connection with any proceeding (or part thereof)
initiated by such person unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the Board of Directors
of the corporation, (iii) such indemnification is provided by the corporation,
in its sole discretion, pursuant to the powers vested in the corporation under
the Delaware General Corporation Law or (iv) such indemnification is required to
be made under subsection (c).
(b) EXPENSES.
The corporation shall advance to any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding,
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whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer, of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
prior to the final disposition of the proceeding, promptly following request
therefor, all expenses incurred by any director or officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Bylaw or otherwise.
(ii) Notwithstanding the foregoing, unless otherwise determined
pursuant to paragraph (d) of this Bylaw, no advance shall be made by the
corporation to an officer of the corporation (except by reason of the fact that
such officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (A) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (B) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(c) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Article XI shall be deemed to be contractual rights and be effective
to the same extent and as if provided for in a contract between the corporation
and the director or officer. Any right to indemnification or advances granted
by this Article XI to a director or officer shall be enforceable by or on behalf
of the person holding such right in any court of competent jurisdiction if (i)
the claim for indemnification or advances is denied, in whole or in part, or
(ii) no disposition of such claim is made within ninety (90) days of request
therefor. The claimant in such enforcement action, if successful in whole or in
part, shall be entitled to be paid also the expense of prosecuting such claim.
In connection with any claim for indemnification, the corporation shall be
entitled to raise as a defense to any such action that the claimant has not met
the standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such officer is or was a director of
the corporation) for advances, the corporation shall be entitled to raise a
conclusive defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such
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applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct. In
any suit brought by a director or officer to enforce a right to indemnification
or to an advancement of expenses hereunder, the burden of proving that the
director or officer is not entitled to be indemnified, or to such advancement of
expenses, under this Article XI or otherwise shall be on the corporation.
(d) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Article XI shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(e) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Article XI shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(f) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Article XI.
(g) AMENDMENTS. Any repeal or modification of this Article XI shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(h) SAVING CLAUSE. If this Article XI or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Article XI that shall
not have been invalidated, or by any other applicable law.
(i) CERTAIN DEFINITIONS. For the purposes of this Article XI, the
following definitions shall apply:
(A) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(B) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of
any nature or kind incurred in connection
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with any proceeding.
(C) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article XI with respect to the resulting or surviving corporation as
such individual would have with respect to such constituent corporation if its
separate existence had continued.
(D) References to a "director," "officer," "employee," or "agent" of
the corporation shall include, without limitation, situations where such person
is serving at the request of the corporation as, respectively, a director,
officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(E) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner he reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
Section 1. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to such stockholder's address last known post office address as
shown by the stock record of the corporation or its transfer agent or by such
other method as to which the stockholder consents.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such
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director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and
all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method of
giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice
is required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person
20
<PAGE>
shall not be required. Any action or meeting which shall be taken or held
without notice to such person shall have the same force and effect as if such
notice had been duly given. If any such person shall deliver to the corporation
a written notice setting forth such person's then current address, the
requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Delaware General Corporation Law,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
Section 1. AMENDMENTS. Subject Article IV Section 1 and to paragraph (g)
of Article XI Section 1 of the Bylaws, the Bylaws may be altered or amended or
new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of all of the then-outstanding shares of
the Voting Stock. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
Section 1. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
ARTICLE XV
CONFIDENTIALITY OF CORPORATE RECORDS
Section 1. CONFIDENTIALITY OF CORPORATE RECORDS. The Corporation's
financial statements (to the extent not publicly available) accounting books and
records, and minutes of proceedings (including written consents) of its
shareholders and Board of Directors (including Committees thereof) [hereinafter
the "Corporate Records"] contain confidential information and trade secrets of
the Corporation. The corporation's business could be harmed significantly if
the contents of the Corporate Records were known to competitors. Therefore, the
Corporation shall have a
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general policy of maintaining the confidentiality of the Corporate Records
which, by their acceptance of their share certificate, all shareholders are
deemed to have accepted.
Section 2. NON-DISCLOSURE STATEMENT. The corporation acknowledges that
its shareholders have rights to inspect the corporate Records ("Inspection
Right") by virtue of being shareholders (including, ;without limitation, those
rights granted by the Delaware General Corporation Law). These Inspection
Rights, however, are limited to purposes reasonably related to a shareholder's
interests as a shareholder of the corporation. In order to assure that such
limitation on the Inspection Rights is adhered to, the corporation may require
that a shareholder (and any agent or attorney of such shareholder) execute a
non-disclosure statement prior to permitting such person to utilize the
Inspection Rights with respect to the Corporate Records. Such non-disclosure
statement may provide that absent the prior written consent of an officer of the
corporation such inspecting person not disclose to a third party those portions
of the Corporate Records to which such inspecting person does not lawfully
obtain access other than through exercise of the Inspection Rights without a
duty of non-discolor. Such non-disclosure statement would further provide that
an officer of the corporation would be required to consent to a written request
for permission to disclose a portion of the Corporate Records if the disclosure
of the designated portion of the Corporate Records to the named third party was
for a purpose reasonably related to the shareholder's interest as a shareholder
of the corporation and the named third party had delivered to such officer a
non-disclosure statement whereby such third party similarly agreed not to
disclose such Corporate Records without the prior written consent of an officer
of the Corporation.
All share certificates of the Corporation shall bear a legend referring to the
requirements imposed by this Article XV.
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<PAGE>
EXHIBIT E
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made as of _____________, 1997 by and between JAVA CENTRALE,
INC., a California corporation ("Java"), and PARADISE BAKERY & CAFE, INC., a
Delaware corporation ("Paradise"). Java and Paradise are sometimes referred to
as the "Constituent Corporations."
The authorized capital stock of Java consists of twenty five million
(25,000,000) shares of Common Stock, 23,005,004 of which are issued and
outstanding and twenty five million (25,000,000) shares of Preferred Stock, none
of which are issued and outstanding. The authorized capital stock of Java
Delaware consists of fifty million (50,000,000) shares of Common Stock, $.001
par value _____ of which are issued and outstanding, and twenty five million
(25,000,000) shares of Preferred Stock, $.001 par value, none of which are
issued and outstanding.
The directors of the Constituent Corporations deem it advisable and to the
advantage of said corporations that Java California merge into Java Delaware
upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that Java shall merge
into Paradise on the following terms, conditions and other provisions:
1. TERMS AND CONDITIONS.
(a) MERGER. Java shall be merged with and into Paradise (the "Merger"),
and Java Delaware shall be the surviving corporation (the "Surviving
Corporation") effective upon the date when this Merger Agreement is filed with
the Secretary of State of Delaware (the "Effective Date").
(b) SUCCESSION. On the Effective Date, Paradise shall continue its
corporate existence under the laws of the State of Delaware, and the separate
existence and corporate organization of Java, except insofar as it may be
continued by operation of law, shall be terminated and cease.
(c) TRANSFER OF ASSETS AND LIABILITIES. On the Effective Date, the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and all
and singular rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, of each of
the Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other
<PAGE>
interest, shall be thereafter the property of the Surviving Corporation as they
were of the Constituent Corporations, and the title to any real estate vested by
deed or otherwise in either of the Constituent Corporations shall not revert or
be in any way impaired by reason of the Merger; provided, however, that the
liabilities of the Constituent Corporations and of their shareholders, directors
and officers shall not be affected and all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and any claim existing or action or proceeding pending by or against
either of the Constituent Corporations may be prosecuted to judgment as if the
Merger had not taken place except as they may be modified with the consent of
such creditors and all debts, liabilities and duties of or upon each of the
Constituent Corporations shall attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it.
(d) COMMON STOCK OF JAVA AND PARADISE. On the Effective Date, by virtue
of the Merger and without any further action on the part of the Constituent
Corporations or their shareholders, (i) each ten (10) shares of Common Stock of
Java issued and outstanding immediately prior thereto shall be changed and
converted into one (1) fully paid and nonassessable share of Common Stock of
Paradise; and (ii) each share of Common Stock of Java Delaware issued and
outstanding immediately prior thereto shall be canceled and returned to the
status of authorized but unissued shares.
(e) FRACTIONAL SHARES. No certificates or scrip representing fractional
shares in Paradise will be issued, and no such fractional interest will entitle
the holder thereof to vote or to any rights as a shareholder of Paradise. In
lieu of such fractional shares of Paradise Common Stock, a certificate or
certificates evidencing the aggregate of all fractional shares otherwise
issuable (rounded, if necessary, to the next higher whole share) shall be issued
to American Stock Transfer and Trust Company (the "Exchange Agent") as agent for
the account of all holders of Java Common Stock otherwise entitled to receive
fractional shares. Sales of fractional interests of Paradise Common Stock shall
be effected by the Exchange Agent as soon as practicable on the basis of
prevailing market prices of the Paradise Common Stock on the NASDAQ SmallCap
Issuer's Market at the time of sale. As such sales are completed, the Exchange
Agent will pay to such stockholders their pro rata share of the net proceeds
derived from the sale of their fractional interests in the Paradise Common
Stock.
(f) STOCK CERTIFICATES. At and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock of Java shall be deemed for all purposes to evidence ownership of
and to represent the whole shares of Paradise into which the shares of Java
represented by such certificates have been converted as herein provided and
shall be so registered on the books and records of the Surviving Corporation or
its transfer agents. The registered owner of any such outstanding stock
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to the Surviving Corporation
or its transfer agent, have and be entitled to exercise any voting and other
rights with respect to and to receive any dividend and other distributions upon
the whole shares of Paradise evidenced by such outstanding certificate as above
provided.
(g) WARRANTS OF JAVA. On the Effective Date, all of Java's warrants to
purchase shares of Common Stock shall become warrants to purchase shares of
Common Stock of Paradise, with
2
<PAGE>
no changes in terms and conditions, except as is necessary pursuant to the terms
of such warrants to adjust the number of shares and/or price of such shares
issuable upon exercise of the warrants to reflect a ten for one reverse stock
split occurring as a result of this Agreement. As of the Effective Date,
Paradise hereby assumes the outstanding and unexercised portions of such
warrants and the obligations of Java with respect thereto. Java represents that
the adjustment to the warrants as a result of the merger will not create any
fractional shares.
(h) EMPLOYEE BENEFIT PLANS. On the Effective Date, the Surviving
Corporation shall assume all obligations of Java under any and all employee
benefit plans in effect as of the Effective Date with respect to which employee
rights or accrued benefits are outstanding as of such time. On the Effective
Date, the Surviving Corporation shall adopt and continue in effect all such
employee benefit plans upon the same terms and conditions as were in effect
immediately prior to the Merger.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS.
(a) CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Paradise in effect on the Effective Date shall
continue to be the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
(b) DIRECTORS. The directors of Java immediately preceding the Effective
Date shall become the directors of the Surviving Corporation on and after the
Effective Date to serve until the expiration of their terms and until their
successors are elected and qualified.
(c) OFFICERS. The officers of Java immediately preceding the Effective
Date shall become the officers of the Surviving Corporation on and after the
Effective Date to serve at the pleasure of its Board of Directors.
3. MISCELLANEOUS.
(a) FURTHER ASSURANCES. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of Java such deeds and other instruments, and there
shall be taken or caused to be taken by it such further and other action, as
shall be appropriate or necessary in order to vest or perfect in or to conform
of record or otherwise, in the Surviving Corporation the title to and possession
of all the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Java and otherwise to carry out the purposes of this
Merger Agreement, and the officers and directors of the Surviving Corporation
are fully authorized in the name and on behalf of Java or otherwise to take any
and all such action and to execute and deliver any and all such deeds and other
instruments.
(b) AMENDMENT. At any time before or after approval by the shareholders
of Java, this Merger Agreement may be amended in any manner (except that, after
the approval of the Merger Agreement by the shareholders of Java, the principal
terms may not be amended without
3
<PAGE>
the further approval of the shareholders of Java) as may be determined in the
judgment of the respective Board of Directors of Paradise and Java to be
necessary, desirable, or expedient in order to clarify the intention of the
parties hereto or to effect or facilitate the purpose and intent of this Merger
Agreement.
(c) CONDITIONS TO MERGER. The obligation of the Constituent Corporations
to effect the transactions contemplated hereby is subject to satisfaction of the
following conditions (any or all of which may be waived by either of the
Constituent Corporations in its sole discretion to the extent permitted by law):
(i) the Merger shall have been approved by the shareholders of Java
in accordance with applicable provisions of the General Corporation Law of the
State of California; and
(ii) Java, as sole stockholder of Paradise, shall have approved the
Merger in accordance with the General Corporation Law of the State of Delaware;
and
(iii) any and all consents, permits, authorizations, approvals, and
orders deemed in the sole discretion of Java to be material to consummation of
the Merger shall have been obtained.
(d) ABANDONMENT OR DEFERRAL. At any time before the Effective Date, this
Merger Agreement may be terminated and the Merger may be abandoned by the Board
of Directors of either Java or Paradise or both, notwithstanding the approval of
this Merger Agreement by the shareholders of Java or Paradise or the prior
filing of this Merger Agreement with the Secretary of State of the State of
Delaware, or the consummation of the Merger may be deferred for a reasonable
period of time if, in the opinion of the Boards of Directors of Java and
Paradise, such action would be in the best interests of such corporations. In
the event of termination of this Merger Agreement, this Merger Agreement shall
become void and of no effect and there shall be no liability on the part of
either Constituent Corporation or its Board of Directors or shareholders with
respect thereto, except that Java shall pay all expenses incurred in connection
with the Merger or in respect of this Merger Agreement or relating thereto.
(e) COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
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<PAGE>
IN WITNESS WHEREOF, this Merger Agreement, having first been fully approved
by the Board of Directors of Java and Paradise, is hereby executed on behalf of
each said corporation and attested by their respective officers thereunto duly
authorized as of the date first written above.
JAVA CENTRALE, INC. PARADISE BAKERY & CAFE, INC.
a California Corporation a Delaware Corporation
By: By:
---------------------------- ----------------------------
Its: Its:
--------------------------- ---------------------------
5
<PAGE>
JAVA CENTRALE, INC.
ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 31, 1997
The undersigned appoint(s) Richard D. Shannon and Gary C. Nelson, and each
of them individually, as proxies for the undersigned, with full power of
substitution and revocation, to represent and to vote, as designated below, all
shares of Common Stock of Java Centrale, Inc. (the "Company") that the
undersigned would be entitled to vote if personally present, at the Annual
Meeting of Shareholders of the Company to be held at the Hilton Hotel, 2200
Harvard Street, Sacramento, California on October 31, 1997 at 8:00 A.M., local
time, upon the following items as set forth in the Notice of Annual Meeting and
Proxy Statement, and according to their discretion upon all other matters that
may be properly presented for action at the Annual Meeting, or at any
adjournment thereof. The undersigned may revoke this Proxy at any time prior to
its exercise.
IF ANY SHAREHOLDER GIVES PROPER NOTICE AT THE ANNUAL MEETING OF HIS
INTENTION TO CUMULATE HIS VOTES IN THE ELECTION OF DIRECTORS, THE PROXYHOLDERS
WILL HAVE THE FULL DISCRETION AND AUTHORITY TO VOTE CUMULATIVELY AND TO ALLOCATE
VOTES AMONG ANY OR ALL OF THE NOMINEES OF THE BOARD OF DIRECTORS IN SUCH ORDER
AS THEY MAY DETERMINE UNLESS THE SHAREHOLDER HAS OTHERWISE INDICATED BY MARKING
THE BOXES ON THE OTHER SIDE OF THIS CARD. SEE THE "VOTING SECURITIES" SECTION
OFTHE PROXY STATEMENT FOR MORE INFORMATION.
The Board of Directors of the Company recommends a vote FOR each of the
Proposals listed on this card.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
SEE
REVERSE SIDE
<PAGE>
/X/ Please
mark
your vote
as in this
example
(continued from other side)
FOR ALL WITHHOLD FROM
NOMINEES ALL NOMINEES
1. / /1 / /2
Proposal to elect the following nominees to serve as directors, each to hold
office until the 1997 Annual Meeting of Shareholders or until his successor has
been duly elected and qualified.
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through his name in the list.
NOMINEES: RICHARD D. SHANNON, GARY C. NELSON, BRADLEY B. LANDIN, AND PHILLIP E.
PEARCE
FOR AGAINST ABSTAIN
2. Proposal to increase the number of / /3 / /4 / /5
authorized shares of Common Stock to
50,000,000 shares.
3. Proposal to provide for a new class
of 25,000,000 shares of Preferred Stock. / /6 / /7 / /8
4. Proposal to effect a one-for-ten / /9 / /10 / /11
reverse split of the Company's
outstanding Common Stock.
5. Proposal to change the Company's / /12 / /13 / /14
state of incorporation from California
to Delaware.
6. Proposal to approve the appointment / /15 / /16 / /17
of Grant Thornton, LLP as independent
auditors to audit the Company's financial
statements for the fiscal year ended 1997.
I/we ______ do _____ do not expect to attend this meeting
TO ASSURE A QUORUM, YOU ARE URGED TO DATE, COMPLETE, AND SIGN THIS PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE
IF MAILED IN THE UNITED STATES.
This Proxy, when property executed and returned to the Company, will be voted in
the manner directed in this card. In the event that no such decision is given
hereon and this Proxy is not subsequently revoked or suspended, the proxyholders
named below intend to vote FOR the
SIGNATURE(S):
--------------------------------
<PAGE>
election of each of the nominees for director listed below and FOR each of the
other proposals listed above.
DATE:
------------------
Note: Please sign exactly as your name(s) appear(s). When signing as attorney,
executor, administrator, trustee, officer, partner, or guardian, please give
full title. If more than one trustee, all should sign. WHETHER OR NOT YOU INTEND
TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND RETURN THIS
PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.
