SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.)
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|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
TTR TECHNOLOGIES, INC.
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(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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<PAGE>
TTR TECHNOLOGIES, INC.
Notice of Annual Meeting of Stockholders
------------------------
NOTICE IS HEREBY GIVEN that the 2000 annual meeting (the "Annual Meeting")
of stockholders of TTR TECHNOLOGIES, INC. (the "Company") will be held in New
York City, New York, at 10 A.M., on July 11, 2000, at the offices of Swidler
Berlin Shereff Friedman, LLP 405 Lexington Avenue (the Chrysler Building), New
York, New York, 10174, Conference Room ______, for the following purposes:
(i) for the election of directors of the Company to hold office until the
next annual meeting of the stockholders and until their respective successors
shall have been duly chosen and qualified,
(ii) to amend the Certificate of Incorporation of the Company to increase
the number of shares of common stock, par value $.001 per share (the "Common
Stock"), that the Company is authorized to issue from time to time,
(iii) to adopt the Company's 2000 Equity Incentive Plan and to reserve
1,500,000 shares of Common Stock reserved for issuance upon exercise of awards
granted under such plan,
(iv) to ratify the selection of Brightman Almagor & Co, a member of
Deloitte Touche Tohmatsu, as independent public accountants of the Company for
the year ending December 31, 2000, and
(v) to transact such other business as may properly come before the
meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on May 30, 2000, as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Annual Meeting or any adjournment thereof.
If you do not expect to be personally present at the meeting but wish your
stock to be voted for the business to be transacted thereat, the Board of
Directors requests that you complete, sign and date the enclosed proxy and
promptly return it by mail in the enclosed postage paid envelope provided.
By Order of the Board of Directors
M.D. Tokayer
Chairman of the Board
June ___, 2000
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN
THE ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE>
2
TTR TECHNOLOGIES, INC.
------------------------
PROXY STATEMENT
For the Annual Meeting of Stockholders
to be held on July 11, 2000
------------------------
Introduction
This Proxy Statement is sent to shareholders of TTR Technologies, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the 2000 annual
meeting (the "Annual Meeting") of Stockholders of the Company to be held at the
offices of Swidler Berlin Shereff Friedman, LLP, 405 Lexington Avenue (the
Chrysler Building), New York, New York, 10174, Conference Room _____, on
Tuesday, July 11, 2000, at 10:00 a.m., and any adjournment(s) thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
Solicitation of proxies may be made in person or by mail, telephone, or telecopy
by directors, officers, and employees of the Company. The Company may also
engage the services of others to solicit proxies in person or by telephone or
telecopy. In addition, the Company may also request banking institutions,
brokerage firms, custodians, nominees, and fiduciaries to forward solicitation
material to the beneficial owners of common stock of the Company held of record
by such persons, and the Company will reimburse such persons for the costs
related to such services. The Company will pay the cost of the solicitation of
proxies. This Proxy Statement is first being mailed to stockholders on or about
June 12, 2000.
Annual Report
Enclosed is the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, including audited financial statements, as well as the
Company's Quarterly Report for the quarter ended March 31, 2000. Such Annual
Report on Form 10-K and Quarterly Report on Form 10Q do not form any part of the
material for the solicitation of proxies.
Revocation of Proxy
Any stockholder returning the accompanying proxy may revoke such proxy at
any time prior to its exercise by filing with the Secretary of the Company a
duly executed proxy bearing a later date or a written instrument revoking the
proxy or by personally appearing at the scheduled meeting.
Voting Rights
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3
All voting rights are vested exclusively in the holders of the Common
Stock. Only holders of Common Stock of record at the close of business on May
30, 2000, will be entitled to receive notice of and to vote at the meeting. As
of May 30, 2000 the Company had outstanding a total of 16,321,439 shares of
Common Stock. Each holder of Common Stock is entitled to one vote for each share
held.
STOCKHOLDER PROPOSALS
Under the rules of the Securities Exchange Commission (the "SEC"),
proposals of stockholders intended to be presented at the 2001 Annual Meeting of
Stockholders must be made in accordance with the By-laws of the Company and
received by the Company, at its principal executive offices, for inclusion in
the Company's proxy statement for that meeting, no later than February 1, 2001.
The Company's Board of Directors will review any stockholder proposals that are
filed as required and will determine whether such proposals meet applicable
criteria for inclusion in its 2000 proxy statement.
Stock Ownership of Management and Certain
Beneficial Holders
The following table sets forth certain information, as of May 30, 2000,
concerning the ownership of the Common Stock by (a) each person who, to the best
of the Company's knowledge, beneficially owned on that date more than 5% of the
outstanding Common Stock, (b) each of the Company's directors and Named
Executive Officers (as defined below) and (c) all current directors and
executive officers of the Company as a group. Unless otherwise indicated, the
address of each such person is c/o TTR Technologies Ltd., 2 Hanagar Street, Kfar
Saba, Israel.
Name and Address of Shares of Common Stock Percent of Class(1)
Beneficial Owner Beneficially Owned(1)
Macrovision Corporation(2) 1,880,937 11.52
Wall & Broad Equities, Inc.(3) 1,300,000(4) 7.89
Dimensional Partners Ltd.(5) 1,260,000(6) 7.71
Machtec Limited(7) 1,202,000 7.36
Marc D. Tokayer 766,547(8) 4.69
Baruch Sollish 195,000(9) 1.19
Emanuel Kronitz 194,5007(10) 1.17
Michael Fine(11) 0 *
Michael Braunold(11) 0 *
All directors and executive
officers as a group (3 persons) 820,769
* Indicates less than 1%.
<PAGE>
4
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities. In
accordance with SEC rules, shares which may be acquired upon exercise of stock
options which are currently exercisable or which become exercisable within 60
days after the date of the information in the table are deemed to be
beneficially owned by the optionee. Except as indicated by footnote, and subject
to community property laws where applicable, to our knowledge, the persons or
entities named in the table above are believed to have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
(2) The address of such person is 1341 Orleans Drive, Sunnyvale, California
94089
(3) The address of such person is 4424 16th Ave., Brooklyn, New York, 11204
(4) Includes 503,202 shares issuable upon exercise of warrants. As required by
SEC rules, the number of shares shown as beneficially owned includes shares
which could be purchased within 60 days after the date of this prospectus.
However, the terms of the warrants held by this beneficial owner specify that
the stockholder can not exercise its warrants to the extent that such exercise
would result in such owner and its affiliates beneficially owning more than
4.99% of our then outstanding common stock. Thus, although some of the shares
listed in the table might not be subject to purchase by the beneficial owner
during that 60 day period, they are nevertheless included in this table. The
actual number of shares of common stock issuable upon the exercise of the
warrants is subject to adjustment and could be materially less or more than the
number estimated in the table. This variation is due to factors that cannot be
predicated by us at this time. The most significant of these factors is the
future market price of our common stock.
(5) The address of such person is Corporate Center, West Bay Road, P.O. Box
31106 SMB, Grand Cayman, Cayman Islands.
(6) Includes 360,000 shares issuable upon exercise of Class A Warrants and
180,000 shares issuable upon the exercise of Class B Warrants, which warrants
are to be issued upon the exercise of the Class A Warrants.
(7) The address of such person is 11 The Shrubberies, George Lane , South
Woodford, London.
(8) Includes 324,274 shares held by The Tokayer Family Trust. Mr. Tokayer's wife
is the trustee and Mr. Tokayer's children are the income beneficiaries of the
Trust. Mr. Tokayer disclaims beneficial ownership of all such shares. Also
includes 173,000 shares issuable upon the exercise of fully vested employee
stock options issued from the Company 1996 Employee Stock Option Plan. Does not
include 249,500 shares issuable upon exercise of options held by Gershon
Tokayer, Mr. Tokayer's brother, as to which shares Mr. Tokayer disclaims
beneficial ownership.
(9) Includes 120,000 shares issuable upon exercise of fully vested options.
(10) Represents shares issuable upon exercise of fully vested options.
(11) Each of Messrs. Fine and Braunold have were granted in May 2000 from the
1998 Non-Executive Directors Option Plan options to purchase up to 5,000 shares
of our common stock, at an exercise price per share equal to $4. The options
vest over a 2 year period. As of the date of this proxy statement, none of these
options are exercisable.
MANAGEMENT
In addition to the information respecting our director nominees set forth
under the caption "Proposal No.1--Election of Directors", below is certain
information relating to Emanuel Kronitz, our Chief Operating Officer:
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5
EMANUEL KRONITZ, Age 49, has been the Chief Operating Officer of TTR since
June 1, 1999. From January through May 1999 he served as CEO of Smart Vending
Solutions Inc., a Delaware corporation, which developed a novel vending machine
based on free access technology. From November 1997 through January 1999, he was
president of Orgad Creations Ltd., an Israeli company engaged in the
electroforming of gold jewelry. From January 1996 through November 1997, he was
a Senior Investment Manager at Leumi & Co, Investment Bankers Ltd., an Israeli
investment bank, where he was in charge of an investment portfolio of
approximately 30 high-tech and industrial companies. Between January 1994 and
December 1995, he was a Vice President of Business Development at the Elul
Group, an Israeli high tech marketing and investment company, where he was
primarily responsible for identifying and negotiating new business ventures. He
received an LLB from Bar Ilan University, Tel Aviv in 1983 and an MBA from York
University in Toronto in 1988.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned by the Company's
Chairman of the Board of Directors, CEO and President, and the other two most
highly compensated executive officers of the Company whose total annual salaries
and bonuses exceeded $100,000 for the year ended December 31, 1999 (the "Named
Executive Officers"):
Summary Compensation Table:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards
------
Restricted Securitie
--------------------
Name and Principal Stock Underlying
Position Year Salary Bonus Other Awards Options(#)
-------- ---- ------ ----- ----- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Marc D. Tokayer 1999 108,075 -- 27,676(1) -- --
Chairman, CEO and 1998 $ 64,430 $ 12,019 $ 14,423(1) -- --
President 1997 $ 73,850 $ 7,647 $ 26,307(1) -- --
Emanuel Kronitz(2) 1999 $ 35,915 -- $ 7,158(1) 304,500
Chief Operating 1998 -- -- -- --
Officer 1997 -- -- --
Baruch Sollish 1999 $110,522 -- $ 21,886(1) -- 130,000
Vice-President-
Research & 1998 $ 91,678 $ 42,105 $ 13,927(1) -- --
Development 1997 $ 99,931 $ 50,000(3) $ 24,875(1) -- --
</TABLE>
----------
(1) Includes contributions to insurance premiums, car allowance and car
expenses.
(2) Mr. Kronitz's employment with us commenced on June 1, 1999.
(3) In consideration of Dr. Sollish's waiver of incentive bonus payments
due to him under his employment agreement based on the Company's revenues
of certain products, Dr. Sollish received in 1997 a one-time bonus payment
of $50,000.
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6
Options Granted During Year Ended December 31, 1999
Option Grants in 1999
The following table sets forth certain information concerning the
individual option grants during the year ended December 31, 1998, to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
Market Potential
Percentage Price of Realizable
Number of of Total Common Value At
Securities Options Stock on Appreciation Assumed Annual
Underlying Granted to Exercise Date of for Rates of
Options Employees Price Grant Expiration Option Term Stock Price
Name Granted (#) in 1999 ($/Share) ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C>
Marc Tokayer 0 -- -- -- -- -- --
Emanuel Kronitz 235,000 31.7% $ .01 $ 2.906 2009 $1,110,038 $1,768,943
Emanuel Kronitz 69,500 9.4% $ .01 $ 2.56 2009 $ 289,118 $ 460,784
Baruch Sollish 20,000 2.7% $ .01 $ 2.56 2009 $ 83,999 $ 132,600
Baruch Sollish 60,000 8.1% $ 2.56 N/A 2009 $ 96,598 $ 244,799
</TABLE>
Aggregated Option and Warrant Exercises in 1999 and Year End Option Values
<TABLE>
<CAPTION>
Number of
Shares Number of Un-exercised Value of Unexercised
Acquired on Value Options at December 31, 1999 In-the-money Options
Name Exercise Realized(#) ($) at December 31, 1999(1)
(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Emanuel Kronitz -- -- 108,666/195,834(2) $650,909/$1,173,045
Baruch Sollish -- -- 20,000/60,000 $119,800/$206,400
</TABLE>
(1) Based upon the difference between the exercise price of such options and the
closing price of the common stock ($6.00) on December 31, 1999, as reported on
the OTC Electronic Bulletin Board.
(2) On January 12, 2000, the terms of options to purchase an aggregate of
235,000 shares were amended to provide that options to purchase 150,000 shares
became immediately vested and exercisable.
Stock Option Plans
1996 Incentive and Non-Qualified Stock Option Plan. We have adopted our
1996 Incentive and Non-Qualified Stock Option Plan. The 1996 Option Plan
provides for the grant to qualified employees (including officers and directors)
of options to purchase shares of our common stock. A total of 1,500,000 shares
of our common stock have been reserved for issuance upon exercise of stock
options granted under the 1996 Option Plan.
The 1996 Option Plan is administered by the Board of Directors. The Board
has discretion to select the optionee and to establish the terms and conditions
of each option, subject to the provisions of the 1996 Option Plan. Options
granted under the 1996 Option Plan may be non- qualified stock options or
incentive stock options (an option which qualifies under Section 422 of the U.S.
Internal Revenue Code) but in any case the exercise price of incentive stock
options granted may not be less than
<PAGE>
7
100% of the fair market value of the common stock as of the date of grant (110%
of the fair market value if the grant is an incentive stock option to an
employee who owns more than 10% of the outstanding common stock). Options may
not be exercised more than 10 years after the grant (five years if the grant is
an incentive stock option to any employee who owns more than 10% of the
outstanding common stock). The Board may, in its discretion (i) accelerate the
date or dates on which all or any particular option or options granted under the
1996 Option Plan may be exercised, or (ii) extend the dates during which all, or
any particular, option or options granted under the 1996 Option Plan may be
exercised, provided, that no such extension will be permitted if it would cause
the 1996 Option Plan to fail to comply with Section 422 of the Code or with Rule
16b-3 of the Securities Exchange Act of 1934, as amended. Except as otherwise
determined by the Board at the date of the grant of the option, and subject to
the provisions of the 1996 Option Plan, an optionee may exercise an option at
any time within one year (or within such lesser period as may be specified in
the applicable option agreement) following termination of the optionee's
employment or other relationship with us if such termination was due to the
death or disability (as defined) of the optionee but in no event later than the
expiration date of the option. Except as otherwise determined by the Board at
the date of the grant of an option, if the termination of the optionee's
employment or other relationship is for any other reason the option will expire
immediately upon such termination. Options granted under the 1996 Option Plan
are not transferable and may be exercised only by the respective grantees during
their lifetimes or by their heirs, executors or administrators in the event of
death. Under the 1996 Option Plan, shares subject to canceled or terminated
options are reserved for subsequently granted options. The number of options
outstanding and the exercise price thereof are subject to adjustment in the case
of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends.
As of May 30, 2000, options to purchase 1,169,500 shares of our common
stock were outstanding under the 1996 Option Plan. The are currently available
for issuance options to acquire an additional 341,500 shares of our common
stock. However, upon (and subject to) the adoption of the proposed 2000
Incentive Stock Option Plan (Proposal No. 3), we intend to discontinue the use
of the 1996 Option Plan and to utilize the proposed 2000 plan for any option
awards we may make to our personnel.
Non-Executive Directors Stock Option Plan. We adopted our 1998
Non-Executive Director Stock Option Plan in July 1998 to provide an incentive
for attracting and retaining on our board the service of qualified individuals
who are not otherwise employed by us or any subsidiary.
The Directors Plan is administered by the Board of Directors. We have
reserved 25,000 shares of our common stock under the Directors Plan for issuance
upon the exercise of stock options. Options are exercisable upon the date of
grant and expire five years from the date of grant. Upon termination of a
person's services as a director, the options expire within two months of such
termination. The exercise price of the option will be the fair market value of
our common stock on the date of the grant of the option. The number of options
and prices at which they are exercisable are subject to adjustment in the case
of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends. No options may be granted under the Directors Plan after July
2008.
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8
As of May 30, 2000, options to purchase 10,000 shares of our common stock
were outstanding under the Directors Plan. There are currently available for
issuance under the 1998 Non- Executive Director Stock Option Plan options to
acquire an additional 15,000 shares of our common stock.
Employment Agreements
Our Israeli subsidiary signed an employment agreement in August 1994, with
Marc Tokayer, pursuant to which Mr. Tokayer is employed as its General Manager
for a term which is automatically renewable from year to year unless either
party gives notice of termination at least 90 days prior to the current
expiration date. Mr. Tokayer is also our Chief Executive Officer and President.
Mr. Tokayer currently receives an annual salary of $120,000, subject to increase
and the grant of a performance bonus in the Board's discretion. If Mr. Tokayer
is terminated other than for engaging in willful misconduct or acts of bad faith
or conviction of a felony, he will be entitled to continue to receive his salary
and benefits for an additional 12 months, subject to certain limitations.
We signed an employment agreement with Emanuel Kronitz as of June 1, 1999,
pursuant to which Mr. Kronitz is employed as our Chief Operating Officer. The
agreement is for a term of one year and is automatically renewable for
additional one year terms, unless terminated by either party upon 90 days prior
notice. Mr. Kronitz is paid a monthly salary of $5,000 plus benefits.
Our Israeli subsidiary entered into an employment agreement with Dr.
Baruch Sollish in December 1994, which was amended in July 1998. Pursuant to the
agreement Dr. Sollish is employed as Director of Product Research and
Development of our Israeli subsidiary. The agreement is renewable for terms of
three years, subject to termination by either party on not less than 60 days
notice prior to the end of any term. The current term expires on December 1,
2001. Dr. Sollish currently receives an annual base salary of $120,000 subject
to increase and the grant of a performance bonus in the board's discretion.
Each of the executives with an agreement has agreed to certain customary
confidentiality and non-compete provisions that prohibit him from competing with
us for one year, or soliciting our employees for one year, following the
termination of his employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of November 24, 1999, we entered into an agreement with Macrovision
Corporation to jointly design, develop and market a copy protection product
designed to thwart the illegal copying of audio content on CDs, DVDs and other
optical media. The new product will be based primarily upon our MusicGuard
technology as well as related Macrovision technology. We granted to Macrovision
an exclusive world-wide royalty bearing license to market the copy protection
technology which we are jointly developing. The license to Macrovision relates
to all technologies and products designed to prevent the illicit duplication of
audio programs (including the audio portion of music videos, movies and other
video or audio content) distributed on optical media (not limited to CDs and
DVDs) and technologies for Internet digital rights management for audio
applications.
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9
We are entitled to thirty percent (30%) of the net revenues collected by
Macrovision or its affiliates from any products or components incorporating the
proposed music protection technology. Under certain conditions, our share of the
net revenues may be readjusted to twenty-five percent (25%) of net revenues. We
agreed to reimburse Macrovision for up to $1 million of its costs incurred in
the twelve months ending December 31, 2000 in co-developing and commercially
launching the new product.
As part of the agreement, we granted to Macrovision an exclusive
world-wide license to modify and market DiscGuard, our software anti-piracy
product. Part of the DiscGuard technology license is royalty free. The
encryption portion is royalty bearing. Macrovision has its own proprietary
software anti-piracy product known as SafeDisc. For five years we are entitled
to 5% of Macrovision's net revenues, if any, collected by Macrovision from the
licensing of SafeDisc to customers located in the Peoples Republic of China.
Other than for these revenues we do not anticipate that we will receive any
significant revenues as a result of our license of DiscGuard to Macrovision.
Under the terms of the agreement, we also granted to Macrovision first
refusal rights until December 31, 2009 with respect to any music protection
technology we develop which is not included in the license to Macrovision and
any Internet digital rights management technologies we develop which are
applicable to music, music video, video, software or data publishing products or
markets. These rights include rights of ownership if we decide to sell the
technology or worldwide exclusive marketing or distribution rights if we decide
to license the technology. Our obligation is to negotiate a sale or license to
Macrovision in good faith should we receive a bona fide offer from a third party
to purchase or license the technology and should Macrovision notify us of its
interest in acquiring the technology.
On January 12, 2000 pursuant to a stock purchase agreement we sold to
Macrovision $4 million worth of our common stock, and granted to Macrovision
rights of first refusal to purchase equity securities (including securities
convertible or exchangeable into common stock) we propose to sell to third
parties if the amount of the securities to be sold would constitute a majority
of our outstanding common stock. Subject to some exceptions, we further granted
to Macrovision a right to purchase its pro rata share (based on Macrovision's
then current ownership of common stock) of any equity securities we offer in
private transactions above a certain amount. Macrovision waived its right of
first refusal with respect to our private placement in February 2000, of
1,800,000 shares of Common Stock and 900,000 Class A Warrants for an aggregate
purchase price of $10 million.
In February 2000, we issued to Dimensional Partners Ltd., 720,000 shares
of our common stock and Class A Warrants to purchase an additional 360,000
shares at an exercise price per share of $8.84 and undertook to issue, at the
time of the exercise of the Class A Warrants, Class B Warrants to purchase an
additional 180,000 shares of our common stock at an exercise price per share of
$21.22. The issuance to Dimensional was part of a private placement of 1,800,000
shares of our common stock and 900,000 Class A Warrants for an aggregate
purchase price of $10,000,000 that we completed in February 2000. The Class A
Warrants are exercisable for a period of five years at an exercise price of
$8.84 per share and upon exercise, we will issue Class B Warrants for an
additional 495,000 shares. The Class B Warrants are exercisable for a period of
three years from the date of issuance at an exercise price of $21.22. Under
certain circumstances the Class A and Class B Warrants may be redeemed.
<PAGE>
10
In May 1999, we issued to Wall & Equities, Inc., a consultant, warrants to
purchase up to 1,300,000 shares of our common stock at an exercise price per
share of $0.01. To date, 796,798 of these warrants have been exercised.
In July 1999, we issued to Machtec Ltd., a consultant, warrants to
purchase up to 1,000,000 shares of our common stock at an exercise price per
share of $0.01. These warrants became exercisable in November 1999. In March
2000, Machtec exercised these warrants in their entirety.
In January 2000, we issued to Mr. Tokayer, options under the 1996 Stock
Option Plan to purchase 347,000 shares of our common stock at an exercise price
per share of $4.00, of which options to purchase 173,000 shares were vested upon
issuance and options to purchase 174,000 shares will vest over 12 months.
In February 1999, we issued to Dr. Sollish options to purchase 50,000
shares of our common stock. All of the options vested at the time they were
issued. In November 1999, we issued to Dr. Sollish options to purchase 80,000
shares of our common stock under the 1996 Stock Option Plan, with 20,000 of
these options being vested upon issuance with an exercise price of $.01 per
share and 60,000 of these options vesting over a 3 year period with an exercise
price per share of $2.56. In January 2000, we issued to Dr. Sollish additional
options to purchase 70,000 shares of our common stock under our 1996 Stock
Option Plan, of which 30,000 options were fully vested upon grant at an exercise
price of $4 per share, 20,000 options were fully vested upon grant at an
exercise price of $.01 per share and the remaining 20,000 options with an
exercise price of $.01 per share will vest upon the commercial launch of the
audio content protection product being jointly developed by us and Macrovision.
In June 1999, we granted options to purchase 235,000 shares of our common
stock under the 1996 Stock Option Plan to Emanuel Kronitz, our Chief Operating
Officer, which options were to vest, subject to Mr. Kronitz's continued
employment with us, in 36 equal monthly installments and have an exercise price
of $.01 per share. On January 12, 2000, at the direction of the board, the
options were amended to provide that 150,000 of Mr. Kronitz's options became
vested and the balance of 85,000 options will vest in one lump sum on November
12, 2000. In November, 1999, we issued to Mr. Kronitz fully vested options to
purchase an additional 69,500 under the 1996 Stock Option Plan at an exercise
price of $.01 per share.
In May 2000, we issued to each of Messrs. Fine and Braunold, our
non-employee directors, from the 1998 Non-Executive Directors Option Plan,
options to purchase up to 5,000 shares of our common stock, at an exercise price
per share equal to $4. The options vest, in each case, over a 2 year period.
Marc D. Tokayer, Chairman of the Board, The Tokayer Family Trust, Baruch
Sollish, director, and four other stockholders with an aggregate of 1,137,430
shares of our common stock, entered into a voting arrangement dated August 10,
1996, whereby they agreed to vote their respective shares to elect directors and
in support of positions favored by a majority of the shares held among them.
This arrangement was terminated in July 1999.
In November 1999, we issued to Gershon Tokayer, our sales manager and the
brother of Marc D. Tokayer, the Chairman of the Board, options to purchase
249,500
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11
shares of our common stock under the 1996 Stock Option Plan, of which options to
purchase 209,500 shares were immediately vested upon issuance at an exercise
price of $.01 per share and 40,000 options were to vest over a 3 year period at
an exercise price of $2.56 per share.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires officers and directors of the Company and persons who
own more than ten percent of the Common Stock , to file initial statements of
beneficial ownership (Form 3), and statements of changes in beneficial ownership
(Forms 4 or 5), of Common Stock with the SEC. Officers, directors and greater
than ten-percent stockholders are required by SEC regulation to furnish the
Company with copies of all such forms they file.
The Company believes that during the 1999 fiscal year all filing
requirements applicable to its officers, directors and greater than 10%
stockholders were complied with except as follows: (i) each of Marc D. Tokayer
and Baruch Sollish failed to timely file a Form 3 in connection with their
appointment as executive officers and directors or with respect to options
awarded to them, (ii) Emanuel Kronitz failed to file a Form 3 in connection with
his appointment as an officer or the option award made to him (iii) the Tokayer
Family Trust failed to file a Form 3 to report its their shareholdings in the
Company, (iv) each of Marc D. Tokayer, Baruch Sollish and the Tokayer Family
Trust have failed to file a Form 4 to reflect the voting agreement among them
and (v) Marc Tokayer and the Tokayer Family Trust have failed to file Form 4s
relating to their waiver with respect to and the Company's cancellation of
750,000 shares of common stock placed in escrow
Quorum; Voting
The holders of a majority of the issued and outstanding Common stock,
present in person or by proxy, will constitute a quorum for the transaction of
business at the Annual Meeting or any adjournment thereof. Abstentions and
broker non-votes are counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Assuming a quorum is present,
the affirmative vote of a plurality of the shares present in person or by proxy
and voting on a matter is required for approval of Proposal No. 1 (Election of
Directors); the affirmative vote of a majority of the shares present in person
or by proxy and voting on a matter is required for approval of Proposal No.3
(Adoption of 2000 Incentive Stock Option Plan) and Proposal No. 4 (Ratification
of Independent Public Accountants); and the affirmative vote of a majority of
the shares issued and outstanding is required for approval of Proposal No. 2
(Amendment of Certificate of Incorporation). Abstentions will have no effect on
Proposal No. 1 and will be counted as votes against each of Proposals No. 2, 3,
and 4. Broker non-votes will have no effect on Proposals 1, 3 and 4 and will be
counted as votes against Proposal No. 2.
PROPOSAL NO. 1 - - Election of Directors
The Board of Directors of the Company currently consists of four (4)
members. The four persons named below have been nominated by the Board of
Directors for
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12
election to hold office until the next annual meeting and until their successors
are elected and have been qualified.
It is the intention of the persons named in the accompanying proxy to vote
FOR the election of the four persons named in the table below as directors of
the Company, unless authority to do so is withheld. Proxies cannot be voted for
a greater number of persons than the nominees named. If events not now known or
anticipated make any of the nominees unwilling or unable to serve, the proxies
will be voted (in the discretion of the holders of such proxies) for other
nominees not named herein in lieu of those unwilling or unable to serve. The
Board of Directors is not aware of any circumstances likely to cause any nominee
to become unavailable for election.
The following table sets forth the name, age and position of each Director
nominee:
Name Age Position
---- --- --------
M.D. Tokayer 43 Chairman of the Board, CEO, President, Treasurer
and Director
Baruch Sollish, Ph.D. 52 Vice President - Research and Development,
Chief Technology Officer and Director
Michael Fine 49 Director
Michael Braunold 40 Director
Marc. D. Tokayer, has been Chairman of the Board of Directors, President,
and Treasurer of the Company since he founded the Company in July 1994 and has
been Chief Executive Officer of the Company since January 1999. He has served as
President and Chairman of the Board of Directors of the Company's Israeli
subsidiary since its inception in December 1994.
Baruch Sollish, Ph.D, has been a Director of the Company since December
1994 and has served as Vice President--Research and Development and Secretary of
the Company since September 1996. From June 1987 through December 1994, Dr.
Sollish founded and managed Peletronics Ltd., an Israel software company,
engaged primarily in the field of smart cards and software design for personnel
administration, municipal tax authorities and billing procedures at bank
clearance centers. Dr. Sollish holds six United States patents in the fields of
electro optics, ultrasound and electronics and has published and lectured
extensively. Dr. Sollish received a Ph.D. in Electrical Engineering from
Columbia University in 1973.
Michael Fine has been a director since May 10, 2000. Since November 1992,
Mr. Fine has been president of Fine Sound Productions, an independent music
production firm. From April 1997 through May 1999, Mr. Fine worked at Deutsche
Grammophon GmbH, where he served as Vice President, Artists and Repertoire, and
was in charge of the music and recording program of one of the world's oldest
record labels, the company having been founded in 1898. From September 1989
through April 1997, he was Vice-President of KOCH International LP and General
Manager of KOCH International Classics. Koch International LP is a multi
national music and media technology company and one of the world's largest
independent distributors of recorded music. Mr. Fine is a Grammy Award winning
producer.
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13
Michael Braunold has been a director since May 10, 2000. Since March 2000,
Mr. Braunold has been the Chief Executive Officer and Director of PLT Solutions,
Inc., a company engaged in providing solutions for rapid data telecommunication
utilizing electrical power-lines. Since March 1998, Mr. Braunold also has been
Chief Executive Officer and Chairman of the Board of SPO Medical Equipment Ltd.,
an Israeli company that specializes in medical technology related to pulse
oximetry techniques. Prior to this assignment, Mr. Braunold was Senior Director
of Business Development at Scitex Corporation Ltd., a multinational corporation
specializing in visual information communication. In such capacity, Mr. Braunold
played a strategic role in managing a team of professionals assigned to M&A
activities. During his 12-year tenure at Scitex, he held various positions
within the worldwide organization including a period in the US as Vice President
of a Scitex US subsidiary company specializing in medical imaging. Mr. Braunold
originates from the UK where he obtained a B.Sc. in Management Sciences and a
Master of Business Administration from Imperial College Business School, London.
Certain Information Regarding the Board of Directors
No family relationships exist among the officers or directors of the
Company. All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected by
the Board of Directors and serve at the discretion of the Board. The Board has
not authorized any audit, compensation or other committee. The Company
anticipates that Board will authorize and staff such committees following the
Annual Meeting.
Board members do not receive any cash compensation for serving on the
Board. Non-employee directors are entitled to receive stock options under the
1998 Non-Executive Directors Stock Option Plan. As of June 1, 2000, each of
Messrs. Fine and Braunold have been issued options to purchase up to 5,000
shares of our common stock at an exercise price per share of $4. See "Stock
Option Plans".
During the course of 1999, the Board held 4 meetings. Each incumbent
director attended at least 75% of the meetings.
RECOMMENDATATION AND VOTE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF ALL OF
THE NOMINEES TO THE BOARD OF DIRECTORS.
PROPOSAL NO. 2 -- Amend the Certificate of Incorporation to
Increase the number of Common Stock that the Company is
Authorized to Issue
At the Annual Meeting, the stockholders will be asked to approve an
amendment (in the form attached hereto as Exhibit A) to the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
that the Company is authorized to issue from time to time from 25,000,000 shares
to 50,000,000 shares and to authorize the issuance of a class of 10,000,000
shares, par value $.001, to be designated "Preferred Stock". The dividend,
voting, conversion and liquidation rights of any series of the Preferred Stock
shall be determined by the Board of Directors. As of May 30, 2000, the number of
shares of Common Stock outstanding is 16,321,439. The newly authorized shares of
Common Stock will not have any preemptive rights
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14
An increase in the number of shares of Common Stock that the Company shall
be authorized to issue from time to time will afford the Company the necessary
assurance of adequate reserves of Common Stock.
RECOMMENDATION AND VOTE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
PROPOSAL NO. 3 -- Adopt the 2000 Equity Incentive Plan
At the Annual Meeting, the stockholders will be asked to approve our
proposed 2000 Equity Incentive Plan (the "2000 Incentive Plan") in the form
attached hereto as Exhibit B. The 2000 Incentive Plan was approved by the Board
of Directors on May 30, 2000. A total of 1,500,000 shares of Common Stock have
been reserved for issuance under the 2000 Incentive Plan.
The Board of Directors believes that equity based awards are an important
incentive for attracting, retaining and motivating employees and officers
through the opportunity of equity participation in the Company. The Board of
Directors further believes that such awards have been a key element in the
Company's growth. The adoption of the 2000 Incentive Plan is intended to enable
the Company to continue to have an adequate number of shares of Common Stock
available for the grant of stock options to attract new employees, as well as
retain current employees.
Currently, the Company has in effect the 1996 Incentive Stock Option Plan,
with a total of 1,500,000 shares of Common Stock reserved for issuance
thereunder. As of May 30, 2000, options for 1,169,500 shares of Common Stock
have been issued under the 1996 Option Plan. Upn and (subject to) the adoption
of the proposed 2000 Incentive Plan, the Company intends to discontinue use of
the 1996 Option Plan.
Summary of the Terms of the 2000 Equity Incentive Plan
The 2000 Incentive Plan Administration
The 2000 Incentive Plan shall be administered by the Board of
Directors of the Company or, at the discretion of the Board, by a committee
composed of at least two members of the Board. Any such committee designated by
the Board, and the Board itself acting in its capacity as administrator of the
2000 Incentive Plan, is referred to herein as the "Committee." The Committee is
authorized, among other things, to construe, interpret and implement the
provisions of the 2000 Incentive Plan, to select the key employees to whom
awards will be granted, to determine the terms and conditions of such awards and
to make all other determinations deemed necessary or advisable for the
administration of the 2000 Incentive Plan.
Shares Available
The aggregate number of shares of Common Stock available for
issuance, subject to adjustment as described below, under the 2000 Incentive
Plan is 1,500,000. Such shares may be authorized and unissued shares or treasury
shares. The authorized and unissued shares under the 2000 Incentive Plan will
represent
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15
approximately 0.09% of the Company's outstanding Common Stock as of May 30,
2000. If any shares of Common Stock subject to an award are forfeited or an
award is settled in cash or otherwise terminates for any reason whatsoever
without an actual distribution of shares, the shares subject to such award will
again be available for awards. If any Performance Units awarded under the 2000
Incentive Plan are forfeited or canceled, the Performance Units will again be
available for awards. If the Committee determines that any stock dividend,
recapitalization, split, reorganization, merger, consolidation, combination,
repurchase, or other similar corporate transaction or event, affects the Common
Stock or the book value of the Company such that an adjustment is appropriate in
order to prevent dilution or enlargement of the rights of participants, then the
Committee shall adjust any or all of (i) the number and kind of shares of Common
Stock which may thereafter be issued in connection with awards, (ii) the number
and kind of shares of Common Stock issuable in respect of outstanding awards,
(iii) the aggregate number and kind of shares of Common Stock available, (iv)
the number of Performance Units which may thereafter be granted and the book
value of the Company with respect to outstanding Performance Units, and (v) the
exercise price, grant price, or purchase price relating to any award. If deemed
appropriate, the Committee may also provide for cash payments relating to
outstanding awards, provided, however, in each case that no adjustment shall be
made which would cause the plan to violate Section 422(b)(1) of the Internal
Revenue Code of 1986, as amended (the "Code") with respect to ISOs (defined
below) or would adversely affect the status of a Performance-Based Award
(defined below) as "performance based compensation" under Section 162(m) of the
Code. The Committee may also adjust performance conditions and other terms of
awards in response to unusual or nonrecurring events or to changes in applicable
laws, regulations, or accounting principles, except to the extent that such
adjustment would adversely affect the status of any outstanding
Performance-Based Awards as "performance-based compensation" under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Eligibility
Persons eligible to participate in the 2000 Incentive Plan include all key
employees and consultants of the Company and its subsidiaries, as determined by
the Committee. While the specific individuals to whom awards will be made in the
future cannot be determined at this time, it is anticipated that currently
approximately 4 key employees presently are eligible for participation in the
2000 Incentive Plan.
Awards
The 2000 Incentive Plan is designed to give the Committee the maximum
flexibility in providing incentive compensation to key employees and
consultants. The 2000 Incentive Plan provides for the grant of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted
stock, bonus stock, awards in lieu of cash obligations, other stock-based awards
and Performance Units. The 2000 Incentive Plan also permits cash payments either
as a separate award or as a supplement to a stock-based award, and for the
income and employment taxes imposed on a participant in respect of any award.
Stock Options and Stock Appreciation Rights
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16
The Committee is authorized to grant stock options, including both
incentive stock options ("ISOs"), which can result in potentially favorable tax
treatment to the participant, and nonqualified stock options. The Committee can
also grant stock appreciation rights ("SARs") entitling the participant to
receive the excess of the fair market value of a share of Common Stock on the
date of exercise over the grant price of the SAR. The exercise price per share
of Common Stock subject to an option and the grant price of an SAR is determined
by the Committee, provided that the exercise price of an ISO or SAR may not be
less than the fair market value (110% of the fair market value in the case of an
ISO granted to a 10% shareholder) of the Common Stock on the date of grant.
However, the 2000 Incentive Plan also allows the Committee to grant an option,
an SAR or other award allowing the purchase of Common Stock at an exercise price
or grant price less than fair market value when it is granted in substitution
for some other award or retroactively in tandem with an outstanding award. In
those cases, the exercise or grant price may be the fair market value at that
date, at the date of the earlier award or at that date reduced by the fair
market value of the award required to be surrendered as a condition to the
receipt of the substitute award. The terms of each option or SAR, the times at
which each option or SAR will be exercisable, and provisions requiring
forfeiture of unexercised options or SARs at or following termination of
employment will be fixed by the Committee. However, no ISO or SAR granted in
tandem will have a term exceeding ten years (or shorter period applicable under
Section 422 of the Code). Options may be exercised by payment of the exercise
price in cash or in Common Stock, outstanding awards or other property
(including notes or obligations to make payment on a deferred basis, or through
"cashless exercises") having a fair market value equal to the exercise price, as
the Committee may determine from time to time. The Committee also determines the
methods of exercise and settlement and certain other terms of the SARs.
Restricted Stock
The 2000 Incentive Plan also authorizes the Committee to grant restricted
stock. Restricted stock is an award of shares of Common Stock which may not be
disposed of by participants and which may be forfeited in the event of certain
terminations of employment or certain other events prior to the end of a
restriction period established by the Committee. Such an award entitles the
participant to all of the rights of a stockholder of the Company, including the
right to vote the shares and the right to receive any dividends thereon, unless
otherwise determined by the Committee.
Other Stock-based Awards, Bonus Stock and Awards in Lieu of Cash Obligations
In order to enable the Company to respond to business and economic
developments and trends in executive compensation practices, the 2000 Incentive
Plan authorizes the Committee to grant awards that are denominated or payable
in, or valued in whole or in part by reference to the value of, Common Stock.
The Committee will determine the terms and conditions of such awards, including
consideration to be paid to exercise awards in the nature of purchase rights,
the period during which awards will be outstanding and forfeiture conditions and
restrictions on awards. In addition, the Committee is authorized to grant shares
as a bonus, free of restrictions, or to grant shares or other awards in lieu of
Company obligations to pay cash or deliver other property under other plans or
compensatory arrangements, subject to such terms as the Committee may specify.
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17
Cash Payments
The Committee may grant the right to receive cash payments whether as a
separate award or as a supplement to any stock-based awards. Also, to encourage
participants to retain awards payable in stock by providing a source of cash
sufficient to pay the income and employment taxes imposed as a result of a
payment pursuant to, or the exercise or vesting of, any award, the 2000
Incentive Plan authorizes the Committee to grant a Tax Bonus in respect of any
award.
Performance Units
The Committee is also authorized to grant Performance Units. A Performance
Unit is a right to receive a payment in cash equal to the increase in the book
value of the Company if specified performance goals during a specified time
period are met. The Committee has the discretion to establish the performance
goals and the performance periods relating to each Performance Unit. A
performance goal is a goal expressed in terms of growth in book value, earnings
per share, return on equity or any other financial or other measurement selected
by the Committee, in its discretion, and may relate to the operations of the
Company as a whole or any subsidiary, division or department, and the
performance periods may be of such length as the Committee may select. Neither
the performance goals nor the performance periods need be identical for all
Performance Units awarded at any time or from time to time.
Performance-based Awards
The Committee may (but is not required to) grant awards pursuant to the
2000 Incentive Plan to a participant who, in the year of grant, may be among the
Company's Chief Executive Officer and the four other most highly compensated
executive officers ("Covered Employees"), which are intended to qualify as a
Performance-Based Award. If the Committee grants an award as a Performance-Based
Award, the right to receive payment of such award, other than stock options and
SARs granted at not less than fair market value on the date of grant, will be
conditional upon the achievement of performance goals established by the
Committee in writing at the time such Performance-Based Award is granted. Such
performance goals may vary from participant to participant and Performance-Based
Award to Performance-Based Award. The goals will be based upon (i) the
attainment of specific amounts of, or increases in, one or more of the
following, any of which may be measured either in absolute terms or as compared
to another company or companies: revenues, earnings, cash flow, net worth, book
value, stockholder's equity, financial return ratios, market performance or
total stockholder return, and/or (ii) the completion of certain business or
capital transactions. Before any Performance-Based Award is paid, the Committee
will certify in writing that the performance goals applicable to the
Performance-Based Award were in fact satisfied. The maximum amount which may be
granted as Performance-Based Awards to any participant in any calendar year
shall not exceed (i) stock-based awards for 100,000 shares of Common Stock
(whether payable in cash or stock), subject to adjustment as provided in the
2000 Incentive Plan, (ii) 100,000 Performance Units, (iii) a Tax Bonus payable
with respect to the stock-based awards and Performance Units and (iv) cash
payments (other than Tax Bonuses) of $1,000,000. The Committee has the
discretion to grant an award to a participant who may be a Covered Employee
which is not a Performance-Based Award.
Other Terms of Awards
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18
In the discretion of the Committee, awards may be settled in cash, Common
Stock, other awards or other property. The Committee may require or permit
participants to defer the distribution of all or part of an award in accordance
with such terms and conditions as the Committee may establish, including payment
of reasonable interest on any amounts deferred under the 2000 Incentive Plan.
Awards granted under the 2000 Incentive Plan may not be pledged or otherwise
encumbered. Generally, unless the Committee determines otherwise, awards are not
transferable except by will or by the laws of descent and distribution, or
(except in the case of an ISO) otherwise if permitted under Rule 16b-3 of the
Exchange Act and by the Committee. The 2000 Incentive Plan grants the Committee
broad discretion in the operation and administration of the 2000 Incentive Plan.
This discretion includes the authority to make adjustments in the terms and
conditions of, and the criteria included in performance conditions related to,
any awards in recognition of unusual or nonrecurring events affecting the
Company or in response to changes in applicable laws, regulations or accounting
principles. However, no such adjustment may adversely affect the status of any
outstanding award as a Performance-Based Award. The Committee can waive any
condition applicable to any award, and may adjust any performance condition
specified in connection with any award, if such adjustment is necessary, to take
account of a change in the Company's strategy, performance of comparable
companies or other circumstances. However no adjustment may adversely affect the
status of any outstanding award as a Performance-Based Award. Awards under the
2000 Incentive Plan generally will be granted for no consideration other than
services. The Committee may, however, grant awards alone, in addition to, in
tandem with, or in substitution for, any other award under the 2000 Incentive
Plan, other awards under other Company plans, or other rights to payment from
the Company. Awards granted in addition to or in tandem with other awards may be
granted either at the same time or at different times. If an award is granted in
substitution for another award, the participant must surrender such other award
in consideration for the grant of the new award.
Change of Control
In the event of a change of control of the Company, all awards granted
under the 2000 Incentive Plan (including Performance-Based Awards) that are
outstanding and not yet vested or exercisable or which are subject to
restrictions, will become immediately 100% vested in each participant or will be
free of any restrictions, and will be exercisable for the remaining duration of
the award. All awards that are exercisable as of the effective date of the
change of control will remain exercisable for the remaining duration of the
award. Under the 2000 Incentive Plan, a change of control occurs upon any of the
following events: (i) the acquisition, in one or more transactions, of
beneficial ownership by any person or group, (other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
subsidiary), of any securities of the Company such that, as a result of such
acquisition, such person or group, either (A) beneficially owns, directly or
indirectly, more than 50% of the Company's outstanding voting securities
entitled to vote on a regular basis for a majority of the members of the Board
or (B) otherwise has the ability to elect, directly or indirectly, a majority of
the members of the Board; (ii) a change in the composition of the Board such
that a majority of the members of the Board are not Continuing directors; or
(iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
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19
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company, in one or more transactions, of all or substantially
all the Company's assets. The foregoing events will not be deemed to be a change
of control if the transactions causing such change are approved in advance by
the affirmative vote of at least a majority of the Continuing directors.
Amendment and Termination
The 2000 Incentive Plan is of indefinite duration; continuing until all
shares and performance units reserved therefore have been issued or until
terminated by the Board. The Board may amend, alter, suspend, discontinue, or
terminate the 2000 Incentive Plan or the Committee's authority to grant awards
thereunder without further stockholder approval or the consent of the
participants, except stockholder approval must be obtained within one year after
the effectiveness of such action if required by law or regulation or under the
rules of the securities exchange on which the Common Stock is then quoted or
listed or as otherwise required by Rule 16b-3 under the Exchange Act.
Notwithstanding the foregoing, unless approved by the stockholders, no amendment
will: (i) change the class of persons eligible to receive awards; (ii)
materially increase the benefits accruing to participants under the 2000
Incentive Plan; or (iii) increase the number of shares of Common Stock subject
to the 2000 Incentive Plan.
Certain Federal Income Tax Consequences to the Company and the Participant
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to awards under the 2000 Incentive Plan. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
income and other tax consequences. A participant will not realize any income
upon the award of an option (including any other stock-based award in the nature
of a purchase right), an SAR or a Performance Unit, nor will the Company be
entitled to any tax deduction. When a participant who has been granted an option
which is not designated as an ISO exercises that option and receives Common
Stock which is either "transferable" or not subject to a "substantial risk of
forfeiture" under Section 83(c) of the Code, the participant will realize
compensation income subject, in the case of an employer, to withholding taxes.
The amount of that compensation income will equal the excess of the fair market
value of the Common Stock (without regard to any restrictions) on the date of
exercise of the option over its exercise price, and the Company will generally
be entitled to a tax deduction in the same amount and at the same time as the
compensation income is realized by the participant. The participant's tax basis
for the Common Stock so acquired will equal the sum of the compensation income
realized and the exercise price. Upon any subsequent sale or exchange of the
Common Stock, the gain or loss will generally be taxed as a capital gain or loss
and will be a long-term capital gain or loss if the Common Stock has been held
for more than one year after the date of exercise.
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20
If a participant exercises an option which is designated as an ISO and the
participant has been an employee of the Company or its subsidiaries throughout
the period from the date of grant of the ISO until three months prior to its
exercise, the participant will not realize any income upon the exercise of the
ISO (although alternative minimum tax liability may result), and the Company
will not be entitled to any tax deduction. If the participant sells or exchanges
any of the shares acquired upon the exercise of the ISO more than one year after
the transfer of the shares to the participant and more than two years after the
date of grant of the ISO, any gain or loss (based upon the difference between
the amount realized and the exercise price of the ISO) will be treated as
long-term capital gain or loss to the participant. If such sale, exchange or
other disposition takes place within two years of the grant of the ISO or within
one year of the transfer of shares to the participant, the sale, exchange or
other disposition will generally constitute a "disqualifying disposition" of
such shares. In such event, to the extent that the gain realized on the
disqualifying disposition does not exceed the difference between the fair market
value of the shares at the time of exercise of the ISO over the exercise price,
such amount will be treated as compensation income in the year of the
disqualifying disposition, and the Company will be entitled to a deduction in
the same amount and at the same time as the compensation income is realized by
the participant. The balance of the gain, if any, will be treated as capital
gain and will not result in any deduction by the Company.
With respect to other awards (including an SAR or a Performance Unit)
granted under the 2000 Incentive Plan that may be settled either in cash or in
Common Stock or other property that is either transferable or not subject to a
substantial risk of forfeiture under Section 83(c) of the Code, the participant
will realize compensation income (subject, in the case of our employer) to
withholding taxes) equal to the amount of cash or the fair market value of the
Common Stock or other property received. The Company will be entitled to a
deduction in the same amount and at the same time as the compensation income is
realized by the participant.
With respect to awards involving Common Stock or other property that
is both nontransferable and subject to a substantial risk of forfeiture, unless
an election is made under Section 83(b) of the Code, as described below, the
participant will realize compensation income equal to the fair market value of
the Common Stock or other property received at the first time the Common Stock
or other property is either transferable or not subject to a substantial risk of
forfeiture. The Company will be entitled to a deduction in the same amount and
at the same time as the compensation income is realized by the participant. Even
though Common Stock or other property may be nontransferable and subject to a
substantial risk of forfeiture, a participant may elect (within 30 days of
receipt of the Common Stock or other property) to include in gross income the
fair market value (determined without regard to such restrictions) of such
Common Stock or other property at the time received. In that event, the
participant will not realize any income at the time the Common Stock or other
property either becomes transferable or is not subject to a substantial risk of
forfeiture, but if the participant subsequently forfeits such Common Stock or
other property, the participant's loss would be limited only to the amount
actually paid for the Common Stock or other property. While such Common Stock or
other property remains nontransferable and subject to a substantial risk of
forfeiture, any dividends or other income will be taxable as additional
compensation income. Finally, special rules may apply with respect to
participants subject to Section 16(b) of the Exchange Act.
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21
The Committee may condition the payment, exercise or vesting of any award
on the payment of the withholding taxes and may provide that a portion of the
Common Stock or other property to be distributed will be withheld (or previously
acquired stock or other property surrendered by the participant) to satisfy such
withholding and other tax obligations. Finally, amounts paid pursuant to an
award which vests or becomes exercisable, or with respect to which restrictions
lapse, upon a Change in Control may constitute a "parachute payment" under
Section 280G of the Code. To the extent any such payment constitutes an "excess
parachute payment," the Company would not be entitled to deduct such payment and
the participant would be subject to a 20 percent excise tax (in addition to
regular income tax).
Section 162(m) Provisions
The 2000 Incentive Plan was designed to permit the deduction by the
Company of the compensation realized by certain officers in respect of long-term
incentive compensation granted under the 2000 Incentive Plan which is intended
by the Committee to qualify as "performance-based compensation" under Section
162(m) of the Code. Section 162(m) of the Code generally disallows a deduction
to the Company for compensation paid in any year in excess of $1 million to any
Covered Employee. Certain compensation, including compensation that meets the
specified requirements for "performance-based compensation," is not subject to
this deduction limit. Among the requirements for compensation to qualify as
"performance-based compensation" is that the material terms pursuant to which
the compensation is to be paid be disclosed to, and approved by, the
stockholders of the Company in a separate vote prior to the payment.
Accordingly, if the 2000 Incentive Plan is approved by the stockholders, then
the compensation payable pursuant to awards granted to officers who in the year
of grant may be Covered Employees and which are intended by the Committee to
qualify as "performance-based compensation" should, once the Plan is
administered by a Committee consisting solely of two or more "outside
directors," and provided the other requirements of Section 162(m) of the Code
are satisfied, not be subject to the deduction limit of Section 162(m) of the
Code. Nonqualified stock options granted with an option price less than the fair
market value at the time of grant will not qualify as performance-based
compensation.
RECOMMENDATION AND VOTE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE ADOPTION OF THE 2000 INCENTIVE STOCK OPTION PLAN.
PROPOSAL NO. 4 -- Ratification of Independent Public Accountants
The Board of Directors has appointed the firm of Bright Almagor & Co., a
member of Deloitte Touche Tohmatsu, as independent auditors to audit the
Company's consolidated financial statements for the fiscal year ending December
31, 2000, subject to ratification by the stockholders.
Auditor Change
On June 30, 1998, we appointed BDO Almagor & Co. to re-issue a report on
our consolidated financial statements for the year ended December 31, 1997. On
July 3, 1998, Schneider Ehrlich & Wengrover LLP (or SE&W) resigned as our
independent
<PAGE>
22
auditors by mutual agreement. The decision to change accountants was approved by
the Board of Directors.
During the fiscal years ended December 31, 1997 and 1996 and the period
between January 1, 1998, up to and including the day of its resignation, there
were no disagreements between the Company and SE&W on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures which if not resolved to SE&W's satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement. SE&W's report on our financial statements for such fiscal years
indicated that substantial doubt exists regarding our ability to continue as a
going concern.
The audit of Brightman Almagor & Co., a member of Deloitte Touche
Tohmatsu, as our independent accountants did not result in any changes to such
financial statements, and the related audit report of Brightman Almagor & Co., a
member of Deloitte Touche Tohmatsu, also states that substantial doubt exists
regarding our ability to continue as a going concern.
RECOMMENDATION AND VOTE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE INDEPENDENT AUDITORS PROPOSAL.
OTHER MATTERS
Management does not intend to present to the meeting any matters other
than matters referred to herein, and as of this date Management does not know of
any matter that will be presented by other persons named in the attached proxy
to vote thereon in accordance with their best judgment on such matters.
Marc D. Tokayer
Chairman of the Board
<PAGE>
23
TTR TECHNOLOGIES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON JULY 11, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Emanuel Kronitz and Marc D. Tokayer, and
each of them, with full power of substitution and power to act alone, as proxies
to vote all the shares of Common Stock which the undersigned would be entitled
to vote if personally present and acting at the Annual Meeting of Stockholders
of TTR TECHNOLOGIES, INC., to be held on July 11, 2000, and at any adjournment
or adjournments thereof, on the matters set forth on the reverse side and such
other matters as may properly come before the meeting.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears hereon, date and return in the
enclosed business reply envelope. Joint owners should each sign personally.
Corporation proxies should be signed by an authorized officer. Executors,
administrators, trustees, etc., should so indicate when signing.
Please provide new address, if applicable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. Election of Directors: FOR ALL WITH FOR ALL
NOMINEES HOLD EXCEPT
Marc D. Tokayer |_| |_| |_|
Dr. Baruch Sollish |_| |_| |_|
Michael Fine |_| |_| |_|
Michael Braunold |_| |_| |_|
IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE(S), MARK THE
"FOR ALL EXCEPT" BOX ABOVE AND STRIKE A LINE THROUGH THE NAME(S) OF THE
NOMINEE(S) YOU DO NOT WISH TO VOTE FOR. YOUR SHARES WILL BE VOTED FOR THE
REMAINING NOMINEE(S).
2. Approval of the Proposal to
amend the Company's Certificate of
Incorporation as provided in
Exhibit A hereto. FOR AGAINST ABSTAIN
|_| |_| |_|
3. Approval of proposal to adopt
the 2000 Option Plan and to
reserve 1,500,000 shares
<PAGE>
24
for issuance thereunder. FOR AGAINST ABSTAIN
|_| |_| |_|
4. Ratification of the selection
of BDO Alamgor as independent
auditors. FOR AGAINST ABSTAIN
|_| |_| |_|
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING. THIS PROXY WHEN PROPERLY EXECUTED WILL
BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 2, 3 AND 4 AND FOR THE ELECTION OF
THE PERSONS NOMINATED FOR DIRECTORS.
Mark box at right if an address change has been noted on the reverse side of
this card.
Please be sure to sign and date this Proxy.
Stockholder sign here Co-owner sign here
<PAGE>
25
Exhibit A
Proposed Amendment to the Company's Certificate of Incorporation
The first paragraph of Paragraph 4 of the Certificate of Incorporation is hereby
amended to read as follows:
"4. The aggregate number of shares of stock which the corporation
shall have the authority to issue is 60,000,000, 50,000,000 of which are
shares of Common Stock, each with a par value of $0.001, each entitled to
one vote per share, and 10,000,000 of which are Preferred Stock."
<PAGE>
26
Exhibit B
2000 TTR TECHNOLOGIES, INC.
EQUITY INCENTIVE PLAN
................................
Section 1. Purpose of the Plan
The purpose of the TTR Teechnologies, Inc. Equity Incentive Plan
(the "Plan") is to further the interests of TTR Technologies, Inc. (the
"Company") and its shareholders by providing long-term performance incentives to
those key employees and consultants of the Company and its Subsidiaries who are
largely responsible for the management, growth and protection of the business of
the Company and its Subsidiaries.
Section 2. Definitions
For purposes of the Plan, the following terms shall be defined as
set forth below:
(a) "Award" means any Option, Performance Unit, SAR (including a Limited
SAR), Restricted Stock, Stock granted as a bonus or in lieu of other awards,
other Stock-Based Award, Tax Bonus or other cash payments granted to a
Participant under the Plan.
(b) "Award Agreement" shall mean the written agreement, instrument or
document evidencing an Award.
(c) "Change of Control" means and includes each of the following: (i) the
acquisition, in one or more transactions, of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) by any person or entity or any
group of persons or entities who constitute a group (within the meaning of
Section 13(d)(3) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
Subsidiary, of any securities of the Company such that, as a result of such
acquisition, such person, entity or group either (A) beneficially owns (within
the meaning of Rule l3d-3 under the Exchange Act), directly or indirectly, more
than 50% of the Company's outstanding voting securities entitled to vote on a
regular basis for a majority of the members of the Board of Directors of the
Company or (B) otherwise has the ability to elect, directly or indirectly, a
majority of the members of the Board; (ii) a change in the composition of the
Board of Directors of the Company such that a majority of the members of the
Board of Directors of the Company are not Continuing Directors; or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
<PAGE>
27
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one or more transactions) all or substantially
all of the Company's assets.
Notwithstanding the foregoing, the preceding events shall not be
deemed to be a Change of Control if, prior to any transaction or transactions
causing such change, a majority of the Continuing Directors shall have voted not
to treat such transaction or transactions as resulting in a Change of Control.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(e) A "Continuing Director" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board on the effective date of the Plan or (ii) was nominated for election or
elected to such Board with the affirmative vote of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(g) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee in good faith and in accordance with applicable law.
Unless otherwise determined by the Committee, the Fair Market Value of Stock
shall mean the mean of the high and low sales prices of Stock on the relevant
date as reported on the stock exchange or market on which the Stock is primarily
traded, or if no sale is made on such date, then the Fair Market Value is the
weighted average of the mean of the high and low sales prices of the Stock on
the next preceding day and the next succeeding day on which such sales were
made, as reported on the stock exchange or market on which the Stock is
primarily traded.
(h) "ISO" means any Option designated as an incentive stock option within
the meaning of Section 422 of the Code.
(i) "Limited SAR" means an SAR exercisable only for cash upon a Change of
Control or other event, as specified by the Committee.
(j) "Option" means a right granted to a Participant pursuant to Section
6(b) to purchase Stock at a specified price during specified time
<PAGE>
28
periods. An Option may be either an ISO or a nonstatutory Option (an Option not
designated as an ISO).
(k) "Performance Unit" means a right granted to a Participant pursuant to
Section 6(c) to receive a payment in cash equal to the increase in the book
value of the Company during specified time periods if specified performance
goals are met.
(l) "Restricted Stock" means Stock awarded to a Participant pursuant to
Section 6(d) that may be subject to certain restrictions and to a risk of
forfeiture.
(m) "Stock-Based Award" means a right that may be denominated or payable
in, or valued in whole or in part by reference to the market value of, Stock,
including, but not limited to, any Option, SAR (including a Limited SAR),
Restricted Stock, Stock granted as a bonus or Awards in lieu of cash
obligations.
(n) "SAR" or "Stock Appreciation Right" means the right granted to a
Participant pursuant to Section 6(e) to be paid an amount measured by the
appreciation in the Fair Market Value of Stock from the date of grant to the
date of exercise of the right, with payment to be made in cash, Stock or as
specified in the Award, as determined by the Committee.
(o) "Subsidiary" shall mean any corporation, partnership, joint venture or
other business entity of which 50% or more of the outstanding voting power is
beneficially owned, directly or indirectly, by the Company.
(p) "Tax Bonus" means a payment in cash in the year in which an amount is
included in the gross income of a Participant in respect of an Award of an
amount equal to the federal, foreign, if any, and applicable state and local
income and employment tax liabilities payable by the Participant as a result of
(i) the amount included in gross income in respect of the Award and (ii) the
payment of the amount in clause (i) and the amount in this clause (ii). For
purposes of determining the amount to be paid to the Participant pursuant to the
preceding sentence, the Participant shall be deemed to pay federal, foreign, if
any, and state and local income taxes at the highest marginal rate of tax
imposed upon ordinary income for the year in which an amount in respect of the
Award is included in gross income, after giving effect to any deductions
therefrom or credits available with respect to the payment of any such taxes.
Section 3. Administration of the Plan
The Plan shall be administered by shall be administered by the Board
of Directors of the Company or, at the discretion of the Board, by a committee
composed of at least two members of the Board. Any such committee designated by
the Board, and the Board itself acting in its capacity as administrator of the
Equity Incentive Plan, is referred to herein as the "Committee." After any such
designation, no member of the Committee while
<PAGE>
29
serving as such shall be eligible for participation in the Plan. Any action of
the Committee in administering the Plan shall be final, conclusive and binding
on all persons, including the Company, its Subsidiaries, employees,
Participants, persons claiming rights from or through Participants and
stockholders of the Company.
Subject to the provisions of the Plan, the Committee shall have full
and final authority in its discretion (a) to select the key employees and
consultants who will receive Awards pursuant to the Plan ("Participants"), (b)
to determine the type or types of Awards to be granted to each Participant, (c)
to determine the number of shares of Stock to which an Award will relate, the
terms and conditions of any Award granted under the Plan (including, but not
limited to, restrictions as to transferability or forfeiture, exercisability or
settlement of an Award and waivers or accelerations thereof, and waivers of or
modifications to performance conditions relating to an Award, based in each case
on such considerations as the Committee shall determine) and all other matters
to be determined in connection with an Award; (d) to determine whether, to what
extent, and under what circumstances an Award may be settled, or the exercise
price of an Award may be paid, in cash, Stock, other Awards or other property,
or an Award may be canceled, forfeited, or surrendered; (e) to determine
whether, and to certify that, performance goals to which the settlement of an
Award is subject are satisfied; (f) to correct any defect or supply any omission
or reconcile any inconsistency in the Plan, and to adopt, amend and rescind such
rules and regulations as, in its opinion, may be advisable in the administration
of the Plan; and (g) to make all other determinations as it may deem necessary
or advisable for the administration of the Plan. The Committee may delegate to
officers or managers of the Company or any Subsidiary or to unaffiliated service
providers the authority, subject to such terms as the Committee shall determine,
to perform administrative functions and to perform such other functions as the
Committee may determine, to the extent permitted under Rule 16b-3, Section
162(m) of the Code and applicable law.
Section 4. Participation in the Plan
Participants in the Plan shall be selected by the Committee from
among the key employees and consultants of the Company and its Subsidiaries,
provided, however, that only key employees shall be eligible to receive ISOs
under the Plan.
Section 5. Plan Limitations; Shares Subject to the Plan
(a) Subject to the provisions of Section 8(a) hereof, the aggregate number
of shares of common stock, $.001 par value, of the Company (the "Stock")
available for issuance as Awards under the Plan shall not exceed 1,500,000
shares.
<PAGE>
30
(b) Subject to the provisions of Section 8(a) hereof, the aggregate number
of Performance Units which may be awarded under the Plan shall not exceed
350,000. If any Performance Units awarded under the Plan shall be forfeited or
canceled, such Performance Units shall thereafter be available for award under
the Plan.
No Award may be granted if the number of shares to which such Award
relates, when added to the number of shares previously issued under the Plan and
the number of shares which may then be acquired pursuant to other outstanding,
unexercised Awards, exceeds the number of shares available for issuance pursuant
to the Plan. If any shares subject to an Award are forfeited or such Award is
settled in cash or otherwise terminates for any reason whatsoever without an
actual distribution of shares to the Participant, any shares counted against the
number of shares available for issuance pursuant to the Plan with respect to
such Award shall, to the extent of any such forfeiture, settlement, or
termination, again be available for Awards under the Plan; provided, however,
that the Committee may adopt procedures for the counting of shares relating to
any Award to ensure appropriate counting, avoid double counting, and provide for
adjustments in any case in which the number of shares actually distributed
differs from the number of shares previously counted in connection with such
Award.
Section 6. Awards
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 8(a)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms requiring forfeiture
of Awards in the event of termination of employment by the Participant;
provided, however, that the Committee shall retain full power to accelerate or
waive any such additional term or condition as it may have previously imposed.
All Awards shall be evidenced by an Award Agreement.
(b) Options. The Committee may grant Options to Participants on the
following terms and conditions:
(i) Exercise Price. The exercise price of each Option shall be
determined by the Committee at the time the Option is granted, but (except as
provided in Section 7(a)) the exercise price of any ISO shall not be less than
the Fair Market Value (110% of the Fair Market Value in the case of a 10%
shareholder, within the meaning of Section 422(c)(5) of the Code) of the shares
covered thereby at the time the Option is granted.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, whether
the exercise price shall be paid in cash or by the surrender at Fair Market
Value of Stock, or by any combination of cash and shares of Stock,
<PAGE>
31
including, without limitation, cash, Stock, other Awards, or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis, such as through "cashless exercise" arrangements,
to the extent permitted by applicable law), and the methods by which Stock will
be delivered or deemed to be delivered to Participants.
(iii) Incentive Stock Options. The terms of any Option granted under
the Plan as an ISO shall comply in all respects with the provisions of Section
422 of the Code, including, but not limited to, the requirement that no ISO
shall be granted more than ten years after the effective date of the Plan.
(c) Performance Units. The Committee is authorized to grant Performance
Units to Participants on the following terms and conditions:
(i) Performance Criteria and Period. At the time it makes an award
of Performance Units, the Committee shall establish both the performance goal or
goals and the performance period or periods applicable to the Performance Units
so awarded. A performance goal shall be a goal, expressed in terms of growth in
book value, earnings per share, return on equity or any other financial or other
measurement deemed appropriate by the Committee, or may relate to the results of
operations or other measurable progress of either the Company as a whole or the
Participant's Subsidiary, division or department. The performance period will be
the period of time over which one or more of the performance goals must be
achieved, which may be of such length as the Committee, in its discretion, shall
select. Neither the performance goals nor the performance periods need be
identical for all Performance Units awarded at any time or from time to time.
The Committee shall have the authority, in its discretion, to accelerate the
time at which any performance period will expire or waive or modify the
performance goals of any Participant or Participants. The Committee may also
make such adjustments, to the extent it deems appropriate, to the performance
goals for any Performance Units awarded to compensate for, or to reflect, any
material changes which may have occurred in accounting practices, tax laws,
other laws or regulations, the financial structure of the Company, acquisitions
or dispositions of business or Subsidiaries or any unusual circumstances outside
of management's control which, in the sole judgment of the Committee, alters or
affects the computation of such performance goals or the performance of the
Company or any relevant Subsidiary, division or department.
(ii) Value of Performance Units. The value of each Performance Unit
at any time shall equal the book value per share of the Company's Stock, as such
value appears on the consolidated balance sheet of the Company as of the end of
the fiscal quarter immediately preceding the date of valuation.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
<PAGE>
32
(i) Restricted Period. Restricted Stock awarded to a Participant
shall be subject to such restrictions on transferability and other restrictions
for such periods as shall be established by the Committee, in its discretion, at
the time of such Award, which restrictions may lapse separately or in
combination at such times, under such circumstances, or otherwise, as the
Committee may determine.
(ii) Forfeiture. Restricted Stock shall be forfeitable to the
Company upon termination of employment during the applicable restricted periods.
The Committee, in its discretion, whether in an Award Agreement or anytime after
an Award is made, may accelerate the time at which restrictions or forfeiture
conditions will lapse or remove any such restrictions, including upon death,
disability or retirement, whenever the Committee determines that such action is
in the best interests of the Company.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates may bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Restricted Stock.
(iv) Rights as a Shareholder. Subject to the terms and conditions of
the Award Agreement, the Participant shall have all the rights of a stockholder
with respect to shares of Restricted Stock awarded to him or her, including,
without limitation, the right to vote such shares and the right to receive all
dividends or other distributions made with respect to such shares. If any such
dividends or distributions are paid in Stock, the Stock shall be subject to
restrictions and a risk of forfeiture to the same extent as the Restricted Stock
with respect to which the Stock has been distributed.
(e) Stock Appreciation Rights. The Committee is authorized to grant SARs
to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of Stock on the date of exercise over (B) the
grant price of the SAR as determined by the Committee as of the date of grant of
the SAR, which grant price (except as provided in Section 7(a)) shall not be
less than the Fair Market Value of one share of Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method by
which Stock will be delivered or deemed to be delivered to Participants, whether
or not an SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Limited SARs may be granted on such terms, not
inconsistent with this Section 6(e), as the Committee may
<PAGE>
33
determine. Limited SARs may be either freestanding or in tandem with other
Awards.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company or Subsidiary obligations to pay cash or deliver other property under
other plans or compensatory arrangements; provided that, in the case of
Participants subject to Section 16 of the Exchange Act, such cash amounts are
determined under such other plans in a manner that complies with applicable
requirements of Rule 16b-3 so that the acquisition of Stock or Awards hereunder
shall be exempt from Section 16(b) liability. Stock or Awards granted hereunder
shall be subject to such other terms as shall be determined by the Committee.
(g) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other
Stock-Based Awards in addition to those provided in Sections 6(b) and (d)
through (e) hereof, as deemed by the Committee to be consistent with the
purposes of the Plan. The Committee shall determine the terms and conditions of
such Awards. Stock delivered pursuant to an Award in the nature of a purchase
right granted under this Section 6(g) shall be purchased for such consideration
and paid for at such times, by such methods, and in such forms, including,
without limitation, cash, Stock, other Awards, or other property, as the
Committee shall determine.
(h) Cash Payments. The Committee is authorized, subject to limitations
under applicable law, to grant to Participants Tax Bonuses and other cash
payments, whether awarded separately or as a supplement to any Stock-Based
Award. The Committee shall determine the terms and conditions of such Awards.
Section 7. Additional Provisions Applicable to Awards
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution for, any other Award
granted under the Plan or any award granted under any other plan of the Company
or any Subsidiary, or any business entity acquired by the Company or any
Subsidiary, or any other right of a Participant to receive payment from the
Company or any Subsidiary. If an Award is granted in substitution for another
Award or award, the Committee shall require the surrender of such other Award or
award in consideration for the grant of the new Award. Awards granted in
addition to, or in tandem with other Awards or awards may be granted either as
of the same time as, or a different time from, the grant of such other Awards or
awards. The per share exercise price of any Option, grant price of any SAR, or
purchase price of any other Award conferring a right to purchase Stock:
<PAGE>
34
(i) granted in substitution for an outstanding Award or award, shall
be not less than the lesser of (A) the Fair Market Value of a share of Stock at
the date such substitute Award is granted or (B) such Fair Market Value at that
date, reduced to reflect the Fair Market Value at that date of the Award or
award required to be surrendered by the Participant as a condition to receipt of
the substitute Award; or
(ii) retroactively granted in tandem with an outstanding Award or
award, shall not be less than the lesser of the Fair Market Value of a share of
Stock at the date of grant of the later Award or at the date of grant of the
earlier Award or award.
(b) Exchange and Buy Out Provisions. The Committee may at any time offer
to exchange or buy out any previously granted Award for a payment in cash,
Stock, other Awards (subject to Section 7(a)), or other property based on such
terms and conditions as the Committee shall determine and communicate to a
Participant at the time that such offer is made.
(c) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee.
(d) Term of Awards. The term of each Award shall, except as provided
herein, be for such period as may be determined by the Committee; provided,
however, that in no event shall the term of any ISO, or any SAR granted in
tandem therewith, exceed a period of ten years from the date of its grant (or
such shorter period as may be applicable under Section 422 of the Code).
(e) Form of Payment. Subject to the terms of the Plan and any applicable
Award Agreement, payments or transfers to be made by the Company or a Subsidiary
upon the grant or exercise of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash, Stock, other
Awards, or other property (and may be made in a single payment or transfer, in
installments, or on a deferred basis), in each case determined in accordance
with rules adopted by, and at the discretion of, the Committee. (Such payments
may include, without limitation, provisions for the payment or crediting of
reasonable interest on installments or deferred payments.) The Committee, in its
discretion, may accelerate any payment or transfer upon a change in control as
defined by the Committee. The Committee may also authorize payment upon the
exercise of an Option by net issuance or other cashless exercise methods.
(f) Loan Provisions. With the consent of the Committee, and subject at all
times to laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
<PAGE>
35
Participant of any or all federal, state, or local income or other taxes due in
connection with any Award. Subject to such limitations, the Committee shall have
full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms, and provisions of any such loan or loans, including
the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be with or without recourse against the borrower, the
terms on which the loan is to be repaid and the conditions, if any, under which
the loan or loans may be forgiven.
(g) Awards to Comply with Section 162(m). The Committee may (but is not
required to) grant an Award pursuant to the Plan to a Participant who, in the
year of grant, may be a "covered employee," within the meaning of Section 162(m)
of the Code, which is intended to qualify as "performance-based compensation"
under Section 162(m) of the Code (a "Performance-Based Award"). The right to
receive a Performance-Based Award, other than Options and SARs granted at not
less than Fair Market Value, shall be conditional upon the achievement of
performance goals established by the Committee in writing at the time such
Performance-Based Award is granted. Such performance goals, which may vary from
Participant to Participant and Performance-Based Award to Performance-Based
Award, shall be based upon the attainment by the Company or any Subsidiary,
division or department of specific amounts of, or increases in, one or more of
the following, any of which may be measured either in absolute terms or as
compared to another company or companies: revenues, earnings, cash flow, net
worth, book value, stockholders' equity, financial return ratios, market
performance or total stockholder return, and/or the completion of certain
business or capital transactions. Before any compensation pursuant to a
Performance-Based Award is paid, the Committee shall certify in writing that the
performance goals applicable to the Performance-Based Award were in fact
satisfied.
The maximum amount which may be granted as Performance-Based Awards
to any Participant in any calendar year shall not exceed (i) Stock-Based Awards
for 100,000 shares of Stock (whether payable in cash or stock), subject to
adjustment as provided in Section 8(a) hereof, (ii) 100,000 Performance Units,
(iii) a Tax Bonus payable with respect to the Stock-Based Awards described in
clause (i) and Performance Units described in clause (ii), and (iv) cash
payments (other than Tax Bonuses) of $1,000,000.
(h) Change of Control. In the event of a Change of Control of the Company,
all Awards granted under the Plan (including Performance-Based Awards) that are
still outstanding and not yet vested or exercisable or which are subject to
restrictions shall become immediately 100% vested in each Participant or shall
be free of any restrictions, as of the first date that the definition of Change
of Control has been fulfilled, and shall be exercisable for the remaining
duration of the Award. All Awards that are exercisable as of the effective date
of the Change of Control will remain exercisable for the remaining duration of
the Award.
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Section 8. Adjustments upon Changes in Capitalization; Acceleration in Certain
Events
(a) In the event that the Committee shall determine that any stock
dividend, recapitalization, forward split or reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase or share exchange, or
other similar corporate transaction or event, affects the Stock or the book
value of the Company such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock which may thereafter be issued in
connection with Awards, (ii) the number and kind of shares of Stock issuable in
respect of outstanding Awards, (iii) the aggregate number and kind of shares of
Stock available under the Plan, (iv) the number of Performance Units which may
thereafter be granted and the book value of the Company with respect to
outstanding Performance Units, and (v) the exercise price, grant price, or
purchase price relating to any Award or, if deemed appropriate, make provision
for a cash payment with respect to any outstanding Award; provided, however, in
each case, that no adjustment shall be made which would cause the Plan to
violate Section 422(b)(1) of the Code with respect to ISOs or would adversely
affect the status of a Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.
(b) In addition, the Committee is authorized to make adjustments in the
terms and conditions of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including, without limitation, events described
in the preceding paragraph) affecting the Company or any Subsidiary, or in
response to changes in applicable laws, regulations, or accounting principles.
Notwithstanding the foregoing, no adjustment shall be made in any outstanding
Performance-Based Awards to the extent that such adjustment would adversely
affect the status of that Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.
Section 9. General Provisions
(a) Changes to the Plan and Awards. The Board of Directors of the Company
may amend, alter, suspend, discontinue, or terminate the Plan or the Committee's
authority to grant Awards under the Plan without the consent of the Company's
stockholders or Participants, except that any such amendment, alteration,
suspension, discontinuation, or termination shall be subject to the approval of
the Company's stockholders within one year after such Board action if such
stockholder approval is required by any federal or state law or regulation or
the rules of any stock exchange or automated quotation system on which the Stock
may then be listed or quoted, and the Board may otherwise, in its discretion,
determine to submit other such changes to the Plan to the stockholders for
approval; provided, however, that without the consent of an affected
Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may materially and adversely affect the rights of such
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37
Participant under any Award theretofore granted and any Award Agreement relating
thereto. The Committee may waive any conditions or rights under, or amend,
alter, suspend, discontinue, or terminate, any Award theretofore granted and any
Award Agreement relating thereto; provided, however, that without the consent of
an affected Participant, no such amendment, alteration, suspension,
discontinuation, or termination of any Award may materially and adversely affect
the rights of such Participant under such Award.
The foregoing notwithstanding, any performance condition specified
in connection with an Award shall not be deemed a fixed contractual term, but
shall remain subject to adjustment by the Committee, in its discretion at any
time in view of the Committee's assessment of the Company's strategy,
performance of comparable companies, and other circumstances, except to the
extent that any such adjustment to a performance condition would adversely
affect the status of a Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.
Notwithstanding the foregoing, if the Plan is ratified by the
stockholders of the Company at the Company's 2000 Annual Meeting of
Stockholders, then unless approved by the stockholders of the Company, no
amendment will: (i) change the class of persons eligible to receive Awards; (ii)
materially increase the benefits accruing to Participants under the Plan, or
(iii) increase the number of shares of Stock or the number of Performance Units
subject to the Plan.
(b) No Right to Award or Employment. No employee or other person shall
have any claim or right to receive an Award under the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee any right
to be retained in the employ of the Company or any Subsidiary.
(c) Taxes. The Company or any Subsidiary is authorized to withhold from
any Award granted, any payment relating to an Award under the Plan, including
from a distribution of Stock or any payroll or other payment to a Participant
amounts of withholding and other taxes due in connection with any transaction
involving an Award, and to take such other action as the Committee may deem
advisable to enable the Company and Participants to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Award.
This authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations.
(d) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, encumbered, or
hypothecated to, or in favor of, or subject to any lien, obligation, or
liability of such Participants to, any party, other than the Company or any
Subsidiary, or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution, and such Awards and rights shall
be exercisable during the lifetime of the Participant only by the Participant or
his or her guardian or
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legal representative. Notwithstanding the foregoing, the Committee may, in its
discretion, provide that Awards or other rights or interests of a Participant
granted pursuant to the Plan (other than an ISO) be transferable, without
consideration, to immediate family members (i.e., children, grandchildren or
spouse), to trusts for the benefit of such immediate family members and to
partnerships in which such family members are the only partners. The Committee
may attach to such transferability feature such terms and conditions as it deems
advisable. In addition, a Participant may, in the manner established by the
Committee, designate a beneficiary (which may be a person or a trust) to
exercise the rights of the Participant, and to receive any distribution, with
respect to any Award upon the death of the Participant. A beneficiary, guardian,
legal representative or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the Plan
and any Award Agreement applicable to such Participant, except as otherwise
determined by the Committee, and to any additional restrictions deemed necessary
or appropriate by the Committee.
(e) No Rights to Awards; No Stockholder Rights. No Participant shall have
any claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Participants. No Award shall confer on any
Participant any of the rights of a stockholder of the Company unless and until
Stock is duly issued or transferred to the Participant in accordance with the
terms of the Award.
(f) Discretion. In exercising, or declining to exercise, any grant of
authority or discretion hereunder, the Committee may consider or ignore such
factors or circumstances and may accord such weight to such factors and
circumstances as the Committee alone and in its sole judgment deems appropriate
and without regard to the affect such exercise, or declining to exercise such
grant of authority or discretion, would have upon the affected Participant, any
other Participant, any employee, the Company, any Subsidiary, any stockholder or
any other person.
(g) Effective Date. The effective date of the Plan is May 30, 2000.
(h) Shareholder Approval. Unless and until the Plan is approved by the
stockholders of the Company at the Company's 2000 Annual Meeting of
Stockholders, no Stock-Based Award may be granted to any officer of the Company.
