<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[_] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Number Nine Visual Technology Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Number Nine Visual Technology Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
18 Hartwell Avenue
Lexington, Massachusetts 02421
May 6, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Number Nine Visual Technology Corporation (the "Company") to be held at
10:00 a.m. on Thursday, June 24, 1999, at The Seaport Hotel, at One Seaport
Lane, Boston, Massachusetts 02210 (the "Annual Meeting").
At the Annual Meeting, two persons will be elected to the Board of
Directors. The stockholders will also be asked to act upon proposals to: (i)
authorize an amendment to the Companys Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock by 10,000,000
shares from 20,000,000 shares to 30,000,000 shares; (ii) approve the issuance
of more than 1,883,236 shares of Common Stock upon the conversion of 300
shares of Series B Convertible Preferred Stock; and (iii) approve the Companys
1999 Employee, Director and Consultant Stock Option Plan. In addition, the
Company will ask the stockholders to ratify the selection of
PricewaterhouseCoopers L.L.P. as the Company's independent public accountants.
The Board of Directors recommends the approval of each of these proposals.
Such other business will be transacted as may properly come before the Annual
Meeting.
We hope you will be able to attend the Annual Meeting. Whether you plan to
attend the Annual Meeting or not, it is important that your shares are
represented. Therefore, you are urged to complete, sign, date and return the
enclosed proxy card promptly in accordance with the instructions set forth on
the card. This will ensure your proper representation at the Annual Meeting.
Sincerely,
ANDREW NAJDA Chairman of the Board
and Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held June 24, 1999
To the Stockholders of Number Nine Visual Technology Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Number Nine Visual
Technology Corporation, a Delaware corporation (the "Company"), will be held
on Thursday, June 24, 1999 at The Seaport Hotel, located at One Seaport Lane,
Boston, Massachusetts 02210 at 10:00 a.m. for the following purposes:
1. To elect one member to the Board of Directors to serve for a term ending
in 2002 and until their successors are duly elected and qualified.
2. To consider and act upon a proposal to increase the authorized shares of
Common Stock by 10,000,000 shares, from 20,000,000 shares to 30,000,000
shares.
3. To consider and act upon a proposal to approve the issuance of more than
1,883,236 shares of Common Stock upon the conversion of 300 shares of
Series B Convertible Preferred Stock.
4. To consider and act upon a proposal to approve the 1999 Employee,
Director and Consultant Stock Option Plan.
5. To consider and act upon a proposal to ratify the appointment of
PricewaterhouseCoopers L.L.P. as the Company's independent public
accountants for the fiscal year ending January 1, 2000.
6. To transact such other business as may be properly brought before the
Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on April 29, 1999 as
the record date for the determination of Stockholders entitled to notice of
and to vote at the Annual Meeting and at any adjournments thereof.
All Stockholders are cordially invited to attend the Annual Meeting. Whether
you plan to attend the Annual Meeting or not, you are requested to complete,
sign, date and return the enclosed proxy card as soon as possible in
accordance with the instructions on the proxy card. A pre-addressed, postage
prepaid return envelope is enclosed for your convenience.
BY ORDER OF THE BOARD OF DIRECTORS
NEIL H. ARONSON
Secretary
May 6, 1999
<PAGE>
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
18 Hartwell Avenue
Lexington, Massachusetts 02421
(781) 674-0009
----------------
PROXY STATEMENT
----------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Number Nine Visual Technology Corporation (the
"Company"), a Delaware corporation, of proxies, in the accompanying form, to
be used at the Annual Meeting of Stockholders to be held at The Seaport Hotel,
located at One Seaport Lane, Boston, Massachusetts 02210 on Thursday, June 24,
1999 at 10:00 a.m., and any adjournments thereof (the "Meeting").
Where the Stockholder specifies a choice on the proxy as to how his or her
shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of the one nominee for director named herein, FOR approval of an
increase by 10,000,000 shares in the number of authorized shares of Common
Stock, FOR approval to issue more than 1,883,236 shares of Common Stock upon
conversion of 300 shares of Series B Convertible Preferred Stock, FOR approval
of the 1999 Employee, Director and Consultant Stock Option Plan, and FOR the
ratification of the appointment of PricewaterhouseCoopers L.L.P. as the
Company's independent public accountants for the fiscal year ending January 1,
2000. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date.
Any Stockholder who has executed a proxy but is present at the Meeting, and
who wishes to vote in person, may do so by revoking his or her proxy as
described in the preceding sentence. Shares represented by valid proxies in
the form enclosed, received in time for use at the Meeting and not revoked at
or prior to the Meeting, will be voted at the Meeting. The presence, in person
or by proxy, of the holders of a majority of the outstanding shares of the
Company's common stock, par value $.01 per share ("Common Stock"), is
necessary to constitute a quorum at the Meeting.
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Meeting is required to approve each proposal, other
than the election of directors which requires a plurality of the shares voted
affirmatively or negatively at the Meeting. With respect to the tabulation of
votes on any matter, abstentions are treated as votes against a proposal,
while broker non-votes have no effect on the vote.
The close of business on April 29, 1999 has been fixed as the record date
for determining the Stockholders entitled to notice of and to vote at the
Meeting. As of the close of business on April 16, 1999, the Company had
9,416,187 shares of Common Stock outstanding and entitled to vote. Holders of
Common Stock are entitled to one vote per share on all matters to be voted on
by Stockholders.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their
expenses in forwarding proxy material to such beneficial owners. Solicitation
of proxies by mail may be supplemented by telephone, telegram, telex and
personal solicitation by the directors, officers or employees of the Company.
No additional compensation will be paid for such solicitation.
<PAGE>
This Proxy Statement and the accompanying proxy are being mailed on or about
May 6, 1999 to all Stockholders entitled to notice of and to vote at the
Meeting.
The Annual Report to Stockholders for the fiscal year ended January 2, 1999
is being mailed to the Stockholders with this Proxy Statement, but does not
constitute a part hereof.
SHARE OWNERSHIP
The following table sets forth certain information as of April 16, 1999
concerning the beneficial ownership of (i) shares of the Company's Common
Stock, (ii) shares of the Company's Preferred Stock, in each case by each
Stockholder known by the Company to be the beneficial owner of more than 5% of
its outstanding shares of Common Stock, each current member of the Board of
Directors, each executive officer named in the Summary Compensation Table on
page 8 hereof, and all current directors and executive officers as a group.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Shares Beneficially Shares Beneficially
Owned (1) Owned
--------------------------------------------
Name and Address** Number Percent Number Percent
------------------ ----------- --------------------- ----------
<S> <C> <C> <C> <C>
Silicon Graphics Inc. (2)........... 3,656,052 28.0% 3,656,052 100%
2011 North Shoreline Boulevard
Mountain View, CA 94043
Andrew Najda (3).................... 1,696,304 18.0% -- --
c/o Number Nine Visual Technology
Corporation
18 Hartwell Avenue
Lexington, MA 02421
Stanley W. Bialek (4)............... 1,020,664 10.8% -- --
c/o Number Nine Visual Technology
Corporation
18 Hartwell Avenue
Lexington, MA 02421
John Hancock Mutual Life Insurance
Company Affiliated Entities (5)..... 542,736 5.8% -- --
c/o John Hancock Place
Post Office Box 111
Boston, MA 02117
Dr. Fouad H. Nader (6)(7)........... 226,200 2.0% -- --
William H. Thalheimer (6)(8)........ 316,528 3.3% -- --
William L. Ralph (6)................ 46,584 * -- --
Laurence P. McIntosh (6)(9)......... 66,311 * -- --
Michael P. Green (6)................ 66,850 * -- --
All executive officers and directors
as a group (7 persons) (10)......... 3,078,113 31.3% -- --
</TABLE>
- --------
*Represents beneficial ownership of less than 1% of the Company's outstanding
shares of Common Stock.
**Addresses are given for beneficial owners of more than 5% of the outstanding
Common Stock only.
2
<PAGE>
(1) The number of shares of Common Stock issued and outstanding on April 16,
1999 was 9,416,187, and the number of shares of Series A Convertible
Preferred Stock issued and outstanding on April 16, 1999 was 3,656,052.
In addition, 300 shares of Series B Convertible Preferred Stock, which
are non-voting and not yet convertible, were issued and outstanding on
April 16, 1999, 100% of which was held by KA Investments, LDC. The
calculation of percentage ownership for each listed beneficial owner is
based upon the number of shares of Common Stock issued and outstanding at
April 16, 1999, plus shares of Common Stock subject to options held by
such person at April 16, 1999 and exercisable within 60 days thereafter,
shares of Preferred Stock held by such person at April 16, 1999 and
convertible into shares of Common Stock within 60 days thereafter, and a
warrant held by Silicon Graphics, Inc. (the "SGI Warrant") at April 16,
1999 and exercisable for shares of Common Stock within 60 days
thereafter. The persons and entities named in the table have sole voting
and investment power with respect to all shares shown as beneficially
owned by them, except as noted below.
(2) Includes (i) 3,350,894 shares of Common Stock issuable upon conversion of
3,350,894 shares of Series A Convertible Preferred Stock held by such
stockholder, which shares are convertible within 60 days of April 16,
1999, and (ii) 305,158 shares of Common Stock issuable upon conversion of
305,158 shares of Series A Convertible Preferred Stock which are issuable
upon exercise of the SGI Warrant to purchase 305,158 shares of Series A
Convertible Preferred Stock, which SGI Warrant is exercisable and which
shares are thereafter convertible within 60 days of April 16, 1999.
(3) Also includes 148,000 shares held in the Andrew Najda Irrevocable
Children's Trust, as to which Mr. Najda disclaims beneficial ownership.
(4) Also includes 213,328 shares held in the Stanley W. Bialek Irrevocable
Children's Trust, as to which Mr. Bialek disclaims beneficial ownership.
(5) Includes 542,736 shares held by Hancock Venture Partners, Inc.
("Venture"), which is a managing General Partner of the General Partner
of Hancock Venture Partners IV--Direct Fund L.P. ("Hancock IV") which
holds 508,816 of such shares, and Falcon Ventures II L.P. ("Falcon"),
which holds 33,920 of such shares. Each of such stockholders disclaims
beneficial ownership of all shares held by the other stockholder. Venture
may be deemed to be the beneficial owner of such shares, with sole voting
and investment power as to all such shares. Venture is a wholly-owned
subsidiary of John Hancock Subsidiaries, Inc. ("JHSI"), which is a
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company
("JHMLICO"). Through their parent-subsidiary relationship to Venture,
JHMLICO and JHSI may be deemed to have indirect beneficial ownership of
all such shares deemed beneficially owned by Venture.
(6) Includes the following shares subject to currently exercisable stock
options and stock options exercisable within 60 days of April 16, 1999:
Dr. Nader--78,200; Mr. Thalheimer--103,200; Mr. Ralph--46,214;
Mr. McIntosh--62,650; and Mr. Green--66,850.
(7) Includes 148,000 shares held on behalf of the Andrew Najda Irrevocable
Children's Trust, of which Dr. Nader is the sole trustee. Dr. Nader
exercises sole voting and investment power with respect to such shares.
(8) Includes 213,328 shares held on behalf of the Stanley W. Bialek
Irrevocable Children's Trust, of which Mr. Thalheimer is the sole
trustee. Mr. Thalheimer exercises sole voting and investment power with
respect to such shares.
(9) Includes 590 shares held on behalf of Laurence McIntosh's children. Mr.
McIntosh exercises sole voting and investment power with respect to such
shares.
(10) Includes 329,814 shares subject to currently exercisable stock options
and stock options exercisable within 60 days of April 16, 1999.
3
<PAGE>
MANAGEMENT
Directors
The Company's Restated Certificate of Incorporation and By-Laws, as amended,
provide for the Company's business to be managed by or under the direction of
the Board of Directors. Under the Company's Restated Certificate of
Incorporation and By-Laws, as amended, the number of directors is fixed from
time to time by the Board of Directors. The Board of Directors currently
consists of four members, classified into three classes as follows: Andrew
Najda and Stanley W. Bialek constitute a class with a term ending in 2001 (the
"Class C directors") and Dr. Fouad H. Nader constitutes a class with a term
which expires at the upcoming Meeting (the "Class A director"); and William H.
Thalheimer constitutes a class with a term ending in 2000 (the "Class B
director"). At each annual meeting of Stockholders, directors are elected for
a full term of three years to succeed those directors whose terms are
expiring.
Pursuant to a Stockholders Agreement entered into in December 1994, Messrs.
Najda and Bialek have each agreed to vote their shares in favor of the other's
election to the Board of Directors, and not vote their shares in favor of the
election to the Board of Directors of any person to which the other reasonably
objects.
The names of the Company's current directors and certain information about
them are set forth below:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Andrew Najda............ 44 Chief Executive Officer and Chairman of the Board of Directors
Stanley W. Bialek....... 44 Director
Dr. Fouad H. Nader...... 44 Director
William H. Thalheimer... 45 Director
</TABLE>
Andrew Najda, a co-founder of the Company, has been a director of the
Company since its inception in May 1982. During the period through May 1993,
Mr. Najda and Stanley W. Bialek alternated the positions of President and
Chairman of the Board on an annual basis. In May 1993, Mr. Najda reassumed the
position of President, and in December 1994 assumed the new position of Chief
Executive Officer. Mr. Najda also assumed the position of Chairman of the
Board of Directors in April 1995. Mr. Najda relinquished the position of
President in May 1996, but remains the Company's Chief Executive Officer and
Chairman of the Board of Directors. Mr. Najda holds a B.S. in electrical
engineering from the Illinois Institute of Technology.
Stanley W. Bialek, a co-founder of the Company, has been a director of the
Company since its inception in May 1982. During the period through May 1993,
Mr. Bialek and Andrew Najda alternated the positions of President and Chairman
of the Board on an annual basis. In May 1993, Mr. Bialek assumed the positions
of Chairman of the Board, which he held until his resignation in April 1995,
and Chief Operating Officer, which he held until January 1995. Mr. Bialek
studied engineering at the Illinois Institute of Technology.
Dr. Fouad H. Nader has served as a director of the Company since September
1994. Since 1981, Dr. Nader has been a Senior International Management and
Technology Consultant at Arthur D. Little, Inc. Dr. Nader holds a B.S. in
mechanical engineering, an M.S. in engineering management and a professional
engineer's degree in industrial engineering from Northeastern University; a
Ph.D. in operations research from Cornell University, and a Ph.D. in
industrial engineering from the University of California at Berkeley.
4
<PAGE>
William H. Thalheimer has served as a director of the Company since
September 1994, and has served as a financial and business consultant to the
Company since 1992. Mr. Thalheimer also served as the Company's Acting Chief
Operating Officer from April 1996 to June 1996. Since 1979, Mr. Thalheimer has
been a partner of Thalheimer and Lemma, Certified Public Accountants. Mr.
Thalheimer is a member of the American Institute of Certified Public
Accountants and holds a B.S. in accounting from Indiana University.
Committees of the Board of Directors and Meetings
Meeting Attendance. During the fiscal year ended January 2, 1999 there were
seven meetings of the Board of Directors, and the various committees of the
Board of Directors met a total of nine times. No director attended fewer than
75% of the total number of meetings of the Board and of committees of the
Board on which he served during fiscal 1998. In addition, from time to time,
the members of the Board of Directors and its committees acted by unanimous
written consent pursuant to Delaware law.
Audit Committee. The Audit Committee, which met two times in fiscal 1998 has
two members, Dr. Fouad H. Nader and William H. Thalheimer. The Audit Committee
reviews the engagement of the Company's independent accountants, reviews
annual financial statements, considers matters relating to accounting policy
and internal controls and reviews the scope of annual audits.
Compensation Committee. The Compensation Committee has two members, Dr.
Fouad H. Nader (Chairman) and Stanley W. Bialek. The Compensation Committee
met one time during fiscal 1998. The Compensation Committee reviews, approves
and makes recommendations on the Company's compensation policies, practices
and procedures to ensure that legal and fiduciary responsibilities of the
Board of Directors are carried out and that such policies, practices and
procedures contribute to the success of the Company. The Compensation
Committee also administers the Company's stock and employee benefit plans,
including the Company's 1989 Stock Option Plan (the "1989 Stock Plan"), 1994
Employee, Director and Consultant Stock Option Plan (the "1994 Stock Plan"),
1996 Employee, Director and Consultant Stock Option Plan (the "1996 Stock
Plan") and 1999 Employee, Director and Consultant Stock Option Plan (the "1999
Stock Plan").
Nominating Committee. The Company does not have a standing Nominating
Committee.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee has two members, Dr. Fouad H. Nader (Chairman) and
Stanley W. Bialek. None of such members is or has been an employee of the
Company. No executive officer of the Company serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
Compensation of Directors
The Company reimburses ordinary and necessary out-of-pocket expenses
incurred by non-employee directors in connection with their services,
including attendance at meetings of the Board of Directors. In addition,
directors of the Company are eligible to receive non-qualified stock options
under the Company's 1994 Stock Plan, 1996 Stock Plan and 1999 Stock Plan.
During fiscal 1998, as compensation for serving as the Company's Acting Chief
Operating Officer from April 1996 to June 1996, William H. Thalheimer was
granted a fully vested non-qualified stock option to purchase 25,000 shares of
Common Stock under the 1994 Stock Plan. No other options to purchase shares
were granted during fiscal 1998 to any of the Company's directors.
5
<PAGE>
Executive Officers
The names of, and certain information regarding, executive officers of the
Company who are not also directors, are set forth below.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
William L. Ralph.................... 33 General Manager and Assistant Treasurer
Timothy J. Burns.................... 59 Chief Financial Officer and Treasurer
Laurence P. McIntosh................ 42 Senior Vice President, Sales
Michael P. Green.................... 33 Vice President, Product Development
</TABLE>
William L. Ralph has served as the Company's General Manager and Assistant
Treasurer since June 1998, and served as the Company's Assistant Treasurer and
Finance Manager since joining the Company in January 1995. From June 1988 to
December 1994, Mr. Ralph was employed by Digital Equipment Corporation, most
recently as a Financial Analyst. Mr. Ralph holds a M.S. in finance from Boston
College, and a B.A. in Economics from Colby College.
Timothy J. Burns has been the Company's Chief Financial Officer since May
1999. Prior to his current position, Mr. Burns was the Company's Acting Chief
Financial Officer since the Company hired Argus Management Corporation
("Argus") as a consultant for financial matters working with the Company in
February 1998. Prior to joining the Company, Mr. Burns worked at Ibis
Technology Corporation from June 1994 to January 1998, most recently as Chief
Financial Officer and Operations Manager. From January 1988 to June 1994, Mr.
Burns was employed by Argus as a Principal focusing on corporate
restructurings, turnarounds and financial management issues. Mr. Burns holds a
M.B.A. in finance from the University of Chicago, a B.S. in Economics from
Boston College, and is a C.P.A from the State of Massachusetts.
Laurence P. McIntosh has been the Company's Senior Vice President of Sales
since June 1998, and has been employed by Number Nine since May 1989. Prior to
his current position, Mr. McIntosh served as the Companys Vice President of
OEM Sales since 1993. Mr. McIntosh holds a B.A. in Psychology and Economics
from Fairfield University.
Michael P. Green has been the Company's Vice President of Product
Development since December 1997. Prior to his current position, Mr. Green
served as an OEM Sales Engineer since joining the Company in February 1992.
Prior to Number Nine, Mr. Green was an Technical Sales Engineer for Texas
Instruments from 1987 to 1992. Mr. Green has a B.S. in Electrical Engineering
from Worcester Polytechnical Institute.
6
<PAGE>
EXECUTIVE COMPENSATION
Summary of Executive Compensation
The following Summary Compensation Table sets forth summary information as
to compensation received for services rendered to the Company in all
capacities during fiscal 1996, 1997 and 1998 by: (i) the Company's Chief
Executive Officer (the "CEO") and (ii) each of the four other most highly
compensated persons who were serving as executive officers of the Company
(other than the CEO) as of January 2, 1999 whose salary and bonus earned
during fiscal 1998 exceeded $100,000 (collectively, the "named executive
officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation(1)
------------------------------------- ---------------
Securities
Name and Principal Fiscal Other Annual Underlying
Position Year Salary(2) Bonus Compensation Options(#)
------------------ ------ --------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Andrew Najda............ 1998 $245,841 -- -- --
Chief Executive Officer
and 1997 $200,000 -- -- --
Chairman of the Board 1996 $200,000 -- $35,561(3) --
Timothy J. Burns(4)..... 1998 -- -- -- --
Chief Financial Officer
William L. Ralph........ 1998 $ 93,750 $17,000 -- 86,464
General Manager and
Assistant Treasurer 1997 $ 70,000 $20,000 -- 28,000
1996 $ 59,338 -- -- 15,000
Laurence P. McIntosh.... 1998 $135,417 $38,981 -- 73,000
Senior Vice President,
Sales 1997 $ 93,750 $36,722 -- --
1996 $ 75,000 $69,139 -- 24,000
Michael P. Green........ 1998 $125,938 $25,000 -- 27,000
Vice President, Product
Development 1997 $114,450 -- -- 20,000
1996 $ 80,000 $32,668 -- 5,000
</TABLE>
- --------
(1) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive plan payments during
its 1996, 1997 or 1998 fiscal years.
(2) Includes amounts deferred during 1996, 1997 and 1998 under the Company's
401(k) plan. The Company does not make any matching contributions under
that plan.
(3) Represents amounts paid to Mr. Najda for reimbursement of certain personal
expenses.
(4) In February 1998, the Company retained Argus Management Corporation
("Argus"), a financial consulting firm with experience in working with
financially troubled companies. Mr. Burns, in the capacity of Acting Chief
Financial Officer, was the main consultant from Argus to the Company on
this assignment. The Company paid $294,000 for Mr. Burns's services, as
well as for other financial consulting services, directly to Argus
Management.
7
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding options granted
during the fiscal year ended January 2, 1999 by the Company to its named
executive officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates
of Stock Price
Appreciation for Option
Individual Grants Term (2)
----------------------------------------------- -----------------------------
Number of % of Total Exercise
Securities Options or Base
Underlying Granted to Price
Options Employees in Per Expiration
Name Granted Fiscal Year (1) Share Date 5% 10%
---- ---------- --------------- -------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Najda............ -- -- -- -- -- --
Timothy J. Burns........ -- -- -- -- -- --
William L. Ralph........ 3,464(3) 0.3% $1.375 1/12/05 $ 1,939 $ 4,519
10,000(3) 1.0% $1.375 11/03/05 $ 5,598 $ 13,045
5,000(3) 0.5% $1.375 9/18/06 $ 3,283 $ 7,862
3,000(3) 0.3% $1.375 3/13/07 $ 2,274 $ 5,602
25,000(3) 2.4% $1.375 12/10/07 $ 18,952 $ 46,679
40,000 3.9% $ 2.44 6/2/08 $ 61,380 $ 155,549
Laurence P. McIntosh.... 73,000 7.0% $ 2.44 6/2/08 $ 112,019 $ 283,877
Michael P. Green........ 27,000 2.6% $ 3.07 12/23/06 $ 41,432 $ 104,996
</TABLE>
- --------
(1) The Company granted options representing 795,000 share of Common Stock in
fiscal 1998.
(2) Represents the hypothetical gains that could be achieved for the options
if exercised at the end of option terms. These gains are based on assumed
rates of stock price appreciation of 5% and 10% compounded annually from
the date the respective options were granted to their expiration dates.
There is no assurance the stock price will appreciate at the rates shown
in this table.
(3) In fiscal 1998, the Company repriced the November 13, 1995, November 16,
1995, September 9, 1996, October 22, 1996 and December 23, 1996 and March
13, 1997 non-qualified stock options to purchase shares of Common Stock
granted to William L. Ralph, under the Company's 1994 and 1996 Stock
Plans. See "Compensation Committee Report on Ten Year Option Repricings."
Repriced options are considered grants for the purpose of this table.
8
<PAGE>
Option Exercises in Last Fiscal Year and Fiscal Year-End Values
None of the named executive officers exercised stock options during the
fiscal year ended January 2, 1999. The following table provides information
regarding the number of shares covered by both exercisable and unexercisable
stock options held by each of the named executive officers as of January 2,
1999 and the values of "in-the-money" options, which values represent the
positive spread between the exercise price of any such option and the fiscal
year-end value of the Company's Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of the Unexercised
Options at Fiscal Year- In-The-Money Options at
End Fiscal Year-End (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Andrew Najda................ -- -- -- --
Timothy J. Burns............ -- -- -- --
William L. Ralph............ 41,214 45,250 $ 0 $ 0
Laurence P. McIntosh........ 44,400 79,000 $ 0 $ 0
Michael P. Green............ 62,800 37,200 $ 0 $ 0
</TABLE>
- --------
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Company's Common Stock of $1.19, the closing
sale price per share of the Company's Common Stock as reported in the
Nasdaq National Market on January 2, 1999. The exercise price of each of
the options held by Mr. Ralph, Mr. McIntosh and Mr. Green exceeds $1.19.
Employment Agreements, Termination of Employment and Change-in-Control
Arrangements
None of the Company's named executive officers has an employment agreement
with the Company. The named executive officers are parties to confidentiality
agreements with the Company, whereby each is required to disclose to the
Company certain inventions, discoveries and developments, and to assign his
rights therein to the Company.
Under the Company's 1989 Stock Plan, 1994 Stock Plan, 1996 Stock Plan and
1999 Stock Plan, if the Company is consolidated with or acquired by another
entity, the Compensation Committee may, among other things, make all options
granted thereunder immediately exercisable just prior to such consolidation or
merger or arrange to have any successor or acquiring entity grant replacement
options to the optionees. In addition, under the 1994 Stock Plan, 1996 Stock
Plan and 1999 Stock Plan, in the event of a consolidation or acquisition of
the Company, the Compensation Committee may terminate all options in exchange
for a cash payment equal to the difference between the fair market value of
the shares then subject to purchase pursuant to the options and the exercise
price for such shares pursuant to the options.
9
<PAGE>
PERFORMANCE GRAPH
The following graph and table compare the cumulative total stockholder
return on a monthly basis on the Company's Common Stock for the period from
May 25, 1995 (the date of the Company's initial public offering) through
January 2, 1999, against the cumulative total returns on the Nasdaq Stock
Market Index (U.S.) and the Nasdaq Stock Market Index for Computer
Manufacturers' Stocks during the same period. It should be noted that the
Company has not paid any dividends on the Common Stock, and no dividends are
included in the representation of the Company's performance. The stock price
performance on the graph below is not necessarily indicative of future price
performance. The graph lines merely connect period-end dates and do not
reflect fluctuations between those dates.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
05/25/1995 12/29/1995 06/28/1996 12/27/1996 06/27/1997 12/26/1997 06/26/1998 12/31/1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Company $ 100.00 $ 58.33 $ 52.50 $ 32.50 $ 31.67 $ 14.17 $ 15.00 $ 7.92
Broad Index $ 100.00 $ 120.79 $ 136.74 $ 148.72 $ 165.71 $ 175.33 $ 215.96 $ 256.70
Select $ 100.00 $ 132.25 $ 153.20 $ 182.74 $ 191.21 $ 204.00 $ 307.75 $ 464.74
</TABLE>
*Select Index is the Computer Manufacturer's Index of Nasdaq
Stock Market
*Broad Index is the Nasdaq Stock Market
The above graph and table assume $100 invested on May 25, 1995, with all
dividends reinvested, in each of the Company's Common Stock, the Nasdaq Stock
Market Index (U.S.) and the Nasdaq Stock Market Index for Computer
Manufacturers' Stocks.
10
<PAGE>
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee's compensation policy for continuing executive
officers of the Company has been to provide salary based on a combination of
historical levels and market conditions, and to provide both discretionary
bonuses and stock options for executive officers which are intended to provide
incentives. The compensation of executive officers engaged by the Company
during the past year have been determined by a combination of market
conditions and negotiations with these individuals, with the policy of
providing incentives through both bonuses and stock options.
The objectives of the Committee are to attract and retain talented and
productive executives, to provide incentives for superior performance and to
align the interests of the executive officers, officers and certain senior
management (all three groups collectively, the "Senior Managers") with the
interest of the Company's stockholders.
The Company's executive compensation program combines cash compensation with
long-term incentive compensation, consisting primarily of stock option grants.
In addition, Senior Managers are included in the Company's benefit plan which
includes health, dental, and disability insurance and which is offered to all
employees of the Company.
Cash compensation consists of base salary and annual bonus programs. When
setting base salary levels, the Committee considers the individual's salary
history, experience, performance and contribution to the management team. The
Committee considers salaries of executives in other companies of similar size
and industry, as well as the competitive market conditions. The compensation
for Andrew Najda, the Company's Chief Executive Officer, effective January 15,
1998, consisted of a base salary of $250,000. The Chief Executive Officer's
compensation has not been tied to measures of the Company's performance.
Cash bonuses are awarded to Senior Managers principally as a mechanism to
recognize and reward individual and/or Company achievements. Cash bonuses are
awarded based upon the Senior Manager's progress for meeting specific goals,
including the performance of the specific area of the Company's business for
which the Senior Manager has direct responsibility and progress toward
implementing the Company's overall business plans and profit goals.
The Committee believes that stock option grants; (1) align Senior Managers'
interest with stockholder interest by creating a direct link between
compensation and stockholder return; (2) assure that Senior Managers maintain
a significant long-term interest in the success of the Company; and (3) help
retain Senior Managers in a competitive market. The Company's determination of
whether option grants are appropriate each year is based upon individual
and/or Company performance measures established for each individual.
Generally, options vest in equal installments over a period of four years and
expire ten years from the date of grant.
Dr. Fouad H. Nader Stanley W. Bialek
COMPENSATION COMMITTEE REPORT ON TEN-YEAR OPTION REPRICINGS
The Company's Stock Plans were established as an employment incentive to
retain persons necessary for the development and financial success of the
Company. As a result of the decrease in the market price of the Company's
Common Stock during the preceding months and recognizing that previously
granted stock options had lost much of their value in motivating employees,
including certain executive officers, to remain with the
11
<PAGE>
Company and share in its overall financial goals, the Compensation Committee
voted on January 27, 1998 to reprice the options held by certain employees,
certain executive officers and Directors, including the executive officer
named below, granted since December 1994 to an option exercise price equal to
the fair market value on the date of repricing, subject to a provision that
the repriced options would not be exercisable for at least six months. Options
for a total of 243,864 shares were repriced. By repricing these options, the
Company intends to provide incentives to and reward the executive officer
named below and holding such options for his contributions to the Company.
In particular, in connection with the repricing the Compensation Committee
concluded it was advisable to reprice the options to purchase 46,464 shares of
Common Stock granted to Mr. Ralph. Accordingly, these options were repriced at
the exercise price of $1.375 per share, the closing price of the Company's
Common Stock on the Nasdaq National Market on January 27, 1998, the date the
Compensation Committee deemed repricing advisable. Existing vesting scheules
were unaffected by the repricing.
The table below sets forth information pertaining to options held by Mr.
Ralph which were repriced during fiscal 1998. Options are considered to be
repriced whenever the Company adjusts or amends the exercise price of stock
options previously granted, whether through amendment, cancellation or
replacement grants, or any other means.
<TABLE>
<CAPTION>
Length of
Original
Number of Market Price Option Term
Securities of Stock at Exercise Price Remaining at
Date of Underlying Time of at Time New Date of
Name Repricing Options Repriced Repricing of Repricing Exercise Price Repricing
---- --------- ---------------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William L. Ralph 1/27/98 3,464 $1.375 $3.07 $1.375 7.00 years
1/27/98 10,000 $1.375 $3.07 $1.375 6.75 years
1/27/98 5,000 $1.375 $3.07 $1.375 7.75 years
1/27/98 3,000 $1.375 $3.07 $1.375 8.25 years
1/27/98 25,000 $1.375 $3.07 $1.375 8.75 years
</TABLE>
Dr. Fouad H. NaderStanley W. Bialek
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission
(the "SEC") initial reports of beneficial ownership and reports of changes in
beneficial ownership of the Common Stock and other equity securities of the
Company. Officers, directors and greater than 10% beneficial owners are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to it and written representations that no other reports were
required during the fiscal year ended January 2, 1999, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with, except that: (i) James T. O'Bray, the
former Vice President of Manufacturing of the Company, failed to file a Form 5
with respect to the exercise of a stock option.
12
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fourth quarter of 1998, the Company entered into a Product
Distribution and Procurement Agreement (the "Distribution Agreement") with
Silicon Graphics, Inc. ("SGI"), a beneficial owner of approximately 28.0% of
the Company's Common Stock. Under the Distribution Agreement, and upon our
request, SGI may place orders for the manufacture of the Company's products,
implementing the Company's technical designs. SGI can then resell such
products to the Company. At January 2, 1999, the Company had purchased
approximately $1.2 million of finished good products from SGI under the
Distribution Agreement during the fourth quarter of 1998, and recognized the
corresponding accounts payable liability in the Company's balance sheet for
the period ended January 2, 1999.
Also under the Distribution Agreement, SGI appointed the Company to act
through June 30, 1999 as an authorized sales representative with respect to
selling and marketing the Digital Flat Panel Solution Pack. Acting as an agent
of SGI, the Company is authorized to (i) sell and market the Digital Flat
Panel Solution Pack to national and international distributors, and to
strategic OEM customers, (ii) provide technical and customer support for the
Revolution(R) IV-FP graphics subsystem component of the Digital Flat Panel
Solution Pack, and (iii) provide administrative duties such as order entry,
invoicing and collection services for the sales of the Digital Flat Panel
Solution Pack. In exchange for providing these services, SGI pays the Company
a royalty, sales commission and support fee. During 1998, the amounts earned
by the Company were immaterial. The Distribution Agreement may be extended
beyond June 30, 1999.
The Company accepted the resignation of Daniel W. Muehl, the Companys former
Chief Operating Officer and Chief Financial Officer as of January 19, 1998
pursuant to which Mr. Muehl resigned his position at the Company effective
January 31, 1998. The Company accepted the resignation of James T. O'Bray, the
Company's former Vice President of Manufacturing as of February 6, 1998
pursuant to which Mr. O'Bray resigned his position at the Company effective
February 20, 1998. The Company accepted the resignation of Archie K. Miller,
the Company's former Senior Vice President of Sales as of May 13, 1998
pursuant to which Mr. Miller resigned his position at the Company effective
May 27, 1998. The Company accepted the resignation of Michael Romanies, the
Company's former Vice President of Marketing as of August 19, 1998 pursuant to
which Mr. Romanies resigned his position at the Company effective August 25,
1998. The Company did not enter into separation arrangements with Mr. Muehl,
Mr. O'Bray, Mr. Miller or Mr. Romanies.
The Company entered into a consultancy arrangement with Michael Romanies,
the Company's former Vice President of Marketing, effective August 26, 1998,
pursuant to which the Company received assistance in the marketing activities.
This agreement expired on October 23, 1998.
The Company entered into an arrangement with Argus Management Corporation
("Argus"), a financial consulting firm, pursuant to which the Company received
financial assistance in the capacity of Acting Chief Financial Officer of the
Company. In this relationship, Timothy J. Burns was the main consultant to the
Company on this assignment. Under this arrangement and in connection with
providing other financial consulting services, Argus received fees of
$294,000.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-Laws, as amended,
provide for a classified Board of Directors. The Board of Directors currently
consists of four members, classified into three classes as follows:, Andrew
Najda and Stanley W. Bialek constitute a class with a term ending in 2001 (the
"Class C directors"); Dr. Fouad H. Nader constitutes a class with a term which
expires at the upcoming Meeting (the
13
<PAGE>
"Class A director") and William H. Thalheimer constitutes a class with a term
ending in 2000 (the "Class B director"). At each annual meeting of
Stockholders, directors are elected for a full term of three years to succeed
those directors whose terms are expiring.
Unless authority to vote for the nominee named above is withheld, the shares
represented by the enclosed proxy will be voted FOR the election as a director
of such nominee. In the event that the nominee shall become unable or
unwilling to serve, the shares represented by the enclosed proxy will be voted
for the election of such other person as the Board of Directors may recommend
in his place. The Board has no reason to believe that the nominee will be
unable or unwilling to serve.
A plurality of the shares voted affirmatively or negatively at the Meeting
is required to elect the nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF FOUAD H. NADER AS A
DIRECTOR, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF
UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
PROPOSAL 2
APPROVAL OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
On April 7, 1999, the Board unanimously adopted a resolution proposing that
the Company amend its Restated Certificate of Incorporation to increase the
number of authorized shares of Common Stock by 10,000,000 shares from
20,000,000 to 30,000,000. That proposed amendment to the Company's Restated
Certificate of Incorporation is now being submitted for Stockholder approval.
As of April 16, 1998, the Company had 9,416,187 shares of Common Stock
outstanding. At the present time, there are an insufficient number of shares
of Common Stock authorized to raise capital through equity financings, after
subtracting from the number of authorized shares of Common Stock the number of
shares outstanding and the number of shares issuable under existing
arrangements.
The Board has proposed a substantial increase in authorized Common Stock.
Such an increase is designed to provide flexibility to the Company's
management by making shares available for issuance in connection with capital
raising transactions. However, these additional shares, if issued, could have
a substantial dilutive effect on present Stockholders. In addition, the
authorization of such a substantial increase in the authorized Common Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, a majority of the outstanding voting stock of the Company.
Management believes that the proposed amendment to the Company's Restated
Certificate of Incorporation will provide several long-term advantages to the
Company and its Stockholders. The passage of the proposal would enable the
Company to pursue acquisitions or enter into transactions which management
believes provide the potential for growth and profit. Additional authorized
shares of Common Stock could be used to raise cash assets through sales of
Common or Preferred Stock to investors. If additional shares are available,
transactions dependent upon the issuance of additional shares would be less
likely to be undermined by delays and uncertainties occasioned by the need to
obtain Stockholder authorization prior to the consummation of such
transactions. The ability to issue shares, as deemed in the Company's best
interests by the Board, will also permit the Company to avoid the expenses
which are incurred in holding special stockholders' meetings in many
circumstances.
14
<PAGE>
Except as described herein, the Company has no specific plans or proposals
for the use of the additional shares of Common Stock, the authorization of
which is sought hereby. In the event the proposal is passed, Stockholder
approval of the issuance of the 10,000,000 additional shares of Common Stock
will not be sought prior to the issuance of additional securities unless such
issuances relate to a merger, consolidation or other transaction which
requires Stockholder approval.
Accordingly, the following resolution will be offered at the Meeting:
RESOLVED, that Article FOURTH of the Restated Certificate of Incorporation
be amended by deleting Section A of Article FOURTH in its entirety and
inserting in its place the following:
FOURTH: A. Designation and Number of Shares.
The total number of shares of stock which the Corporation is
authorized to issue is Thirty-Five Million (35,000,000) shares which
shall be divided into two classes, consisting of:
30,000,000 shares of a class of Common Stock, par value of one cent
($.01) per share (the "Common Stock"); and
5,000,000 shares of a class of Preferred Stock, par value of one
cent ($.01) per share (the "Preferred Stock").
The relative powers, designations, preferences, special rights,
restrictions and other matters relating to such, Common Stock and
Preferred Stock are as set forth below in this Article FOURTH.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF AN AMENDMENT
OF THE FOURTH ARTICLE OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM
20,000,000 SHARES TO 30,000,000 SHARES AND PROXIES SOLICITED BY THE BOARD WILL
BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE
PROXY.
PROPOSAL 3
APPROVAL OF THE ISSUANCE BY THE COMPANY OF SHARES OF
COMMON STOCK UPON CONVERSION OF OR AS DIVIDENDS ON ITS
SERIES B CONVERTIBLE PREFERRED STOCK
Approval of Proposal 3 allows the Company to issue Common Stock upon
conversion of, or as dividends on, its Series B Preferred Stock equal to or in
excess of 1,883,236 shares of Common Stock (20% of the shares of Common Stock
outstanding on the issuance date of the Series B Preferred Stock) in
compliance with Rule 4460 of the Nasdaq Stock Market Marketplace Rules.
Failure to approve this Proposal could result in certain adverse consequences
to the Company such as the incurrence of expenses associated with calling and
conducting a special stockholders' meeting to consider and act upon this
proposal at a future time, and redemption requirements, all as further
described below.
On March 31, 1999 (the "Closing Date"), the Company consummated a private
placement with KA Investments, LDC (the "Investor") of 300 shares of its
Series B Preferred Stock, together with a warrant (the "Warrant") to purchase
up to 195,000 shares of the Company's Common Stock until March 31, 2002 at an
exercise price of $3.45 per share, for an aggregate purchase price of
$3,000,000 for the Series B Preferred Stock and the Warrant.
15
<PAGE>
Each share of Series B Preferred Stock has a stated value of $10,000 (the
"Stated Value") and accrues a dividend of 4% per annum from the date of
issuance. Subject to certain volume restrictions, each share of the Series B
Preferred Stock is convertible into shares of Common Stock at the option of
the holder on or after July 28, 1999 at the Conversion Price. The "Conversion
Price" for each share of Series B Preferred Stock in effect on any conversion
date shall be the lesser of (a) $4.14 or (b) 88% of the average of the ten
(10) lowest per share market values during the thirty (30) trading days
immediately preceding the applicable conversion date. The Conversion Price is
subject to certain anti-dilution protection.
Pursuant to the terms of the Series B Preferred Stock, at the option of a
Holder, up to twenty-five percent (25%) of the Series B Preferred Stock issued
on the Closing Date is convertible on or after July 28, 1999 (the "Initial
Conversion Date"). On and after the first month anniversary of the Initial
Conversion Date, a holder shall be entitled to convert up to fifty percent
(50%) of the number of shares of Series B Preferred Stock issued to it on the
Closing Date, on a cumulative basis. On or after the second month anniversary
of the Initial Conversion Date, a holder shall be entitled to convert up to
seventy-five percent (75%) of the number of shares of Series B Preferred
Stock, on a cumulative basis. On and after the third month anniversary of the
Initial Conversion Date, a holder shall be entitled to convert all of the
shares of Series B Preferred Stock on a cumulative basis. Subject to certain
restrictions, all of the Series B Preferred Stock shall be automatically
converted on the third anniversary of the Closing Date. Under certain
circumstances the Company may elect to redeem all or any portion of the shares
of Series B Preferred Stock that have not been previously redeemed provided
that the average per share market value of the Common Stock was less than
$4.14 during any period of 90 consecutive trading days or less than $1.60
during any period of two consecutive trading days. As of the date of this
Proxy Statement no shares of Series B Preferred Stock have been presented for
conversion.
Pursuant to the Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock, all of the shares of Series B Preferred
Stock are redeemable at the Redemption Price, as defined below, at the option
of the holders upon the occurrence of certain events, including, without
limitation, the Company's inability to issue shares of Common Stock upon
conversion of Series B Preferred Stock because the Company does not have a
sufficient number of shares of Common Stock authorized and available for
issuance or is otherwise prohibited by the rules of the Nasdaq Stock Market
from issuing all the Common Stock to be issued upon such conversion. In
particular, Rule 4460 of the Nasdaq Stock Market Marketplace Rules requires
the specific stockholder approval being requested under this Proposal 3 for
the issuance of convertible securities, such as the Series B Preferred Stock,
if the number of shares of Common Stock to be issued is or will be equal to or
in excess of 20% of the number of shares of Common Stock outstanding before
the issuance of such convertible securities and such shares of Common Stock
are issued at a price per share less than the market value of the Common Stock
on the date of issuance. Due to the indeterminate nature of the Conversion
Price, the total number of shares of Common Stock issuable upon conversion of
the Series B Preferred Stock may exceed 20% of the number of shares of Common
Stock outstanding on the original date of issuance of the Series B Preferred
Stock, which was March 31, 1999, and such Common Stock may be issued at a
price below its market value on the date of conversion.
If the Company does not obtain stockholder approval of the issuance of
shares of Common Stock upon conversion of the Series B Preferred Stock and,
upon presentment for conversion, is not able to issue all of the shares of
Common Stock then issuable in compliance with the rules of the Nasdaq Stock
Market, then the Investor will have the right to require the Company to redeem
from it those shares of Series B Preferred Stock for which the Company is
unable to issue Common Stock at a price per share equal to the sum of (i) the
greater of either (A) the Stated Value and all accrued dividends with respect
to such share and (B) the product of (a) the per share market value on the
trading day immediately preceding (x) the conversion date, or (y) the date of
16
<PAGE>
payment in full by the Company of the applicable redemption price, whichever
is greater, and (b) the conversion ratio calculated on the conversion date,
and (ii) all other amounts, costs, expenses and liquidated damages due in
respect of such share of Series B Preferred Stock (the "Redemption Price"). In
the alternative, if the Company does not obtain stockholder approval of the
issuance of shares of Common Stock upon conversion of the Series B Preferred
Stock and, upon presentment for conversion, is not able to issue all of the
shares of Common Stock then issuable in compliance with the rules of the
Nasdaq Stock Market, then the Investor may require the Company to call and
conduct a special stockholders' meeting to consider and act upon this proposal
at a future time.
TO COMPLY WITH RULE 4460 OF THE NASDAQ STOCK MARKET MARKETPLACE RULES AND
AVOID THE POTENTIAL ADVERSE CONSEQUENCES OF HOLDING A SPECIAL STOCKHOLDERS'
MEETING OR UNDERGOING A REQUIRED REDEMPTION OF THE SERIES B PREFERRED STOCK,
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE ISSUANCE BY
THE COMPANY OF ALL THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF OR
AS DIVIDENDS ON THE ACTUALLY ISSUED AND POTENTIALLY ISSUABLE SHARES OF SERIES
B PREFERRED STOCK, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR
THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
PROPOSAL 4
APPROVAL OF THE COMPANY'S 1999 EMPLOYEE, DIRECTOR AND
CONSULTANT STOCK OPTION PLAN
In April 1999, the Board of Directors adopted, subject to approval by the
Company's stockholders, the 1999 Option Plan. Based upon a recommendation from
the Compensation Committee, the Board believes that options and other stock
awards are an important compensation element in attracting and retaining key
employees, directors and consultants. As the Company has been limited in the
amount of options it has been able to issue, the Board believes that the 1999
Option Plan is necessary to enable the Company to attract and retain key
employees, directors and consultants and that the 1999 Option Plan is an
important part of its overall incentive program.
As of April 23, 1999, the Board of Directors has granted, subject to
stockholder approval of this Proposal 4, the following options pursuant to the
1999 Option Plan:
<TABLE>
<CAPTION>
Number of Shares
Name and Position Underlying the Options
- ----------------- ----------------------
<S> <C>
Andrew Najda, Chief Executive Officer.................... 0
Timothy J. Burns, Chief Financial Officer................ 50,000
William L. Ralph, General Manager........................ 0
Laurence P. McIntosh, Senior Vice President, Sales....... 0
Michael P. Green, Vice President, Product Development.... 0
Executive Group:
Non-Executive Director Group............................. 0
Non-Executive Officer Employee Group..................... 50,000
-------
TOTAL.................................................. 100,000
=======
</TABLE>
17
<PAGE>
All of the above options have been granted at Fair Market Value, as defined
in the 1999 Option Plan. All of the above options vest ratably over a four
year period and none of such options are immediately exercisable.
Summary Description of the Plan
General
The 1999 Option Plan is intended to encourage ownership of shares of the
Common Stock by key employees and directors of and certain consultants to the
Company in order to attract such people, to induce them to work for the
benefit of the Company, and to provide additional incentive for them to
promote the success of the Company. The 1999 Option Plan provides for the
granting of incentive stock options ("ISOs"), as defined in Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code"), and stock options
that do not conform to the requirements of that Code section ("Non-Qualified
Options," together with the ISOs, the "Options"). The number of shares of
Common Stock which may be issued from time to time pursuant to the 1999 Option
Plan is 1,500,000. As of April 23, 1999, the Board has granted options
covering 100,000 shares of Common Stock pursuant to the 1999 Option Plan.
Administration and Eligibility
The Administrator of the 1999 Option Plan (the "Administrator") will be the
Board of Directors, except to the extent the Board of Directors delegates its
authority to the Compensation Committee of the Board of Directors, in which
case the Compensation Committee will be the Administrator. Subject to the
provisions of the 1999 Option Plan, the Administrator is authorized to:
a) Interpret the provisions of the 1999 Option Plan or of any option
agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the 1999 Option Plan;
b) Determine which employees of the Company shall be designated as key
employees and which of the key employees, directors and consultants
will be granted Options;
c) Determine the number of shares for which an Option or Options will be
granted;and
d) Specify the terms and conditions upon which an Option or Options may be
granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions must be made and prescribed in the context of preserving the
tax status under Section 422 of the Code of those Options which are designated
as ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the 1999 Option Plan or of any Option
granted under it will be final, unless otherwise determined by the Board of
Directors, if the Administrator is the Compensation Committee.
The Administrator will, in its sole discretion, name the participants in the
1999 Option Plan; provided, however, that each participant must be a key
employee, director or consultant of the Company at the time an Option is
granted. Notwithstanding the foregoing, the Administrator may authorize the
grant of an Option to a person not then an employee, director or consultant of
the Company; provided, however, that the actual grant of such Option must be
conditioned upon such person becoming eligible to become a participant at or
prior to the time of the delivery of the option agreement evidencing such
Option. ISOs may be granted only to key employees and consultants, including
without limitation, an employee who is also serving as an officer or director
of the Company. Non-Qualified Options may be granted to any key employee or
director of or any consultant to the Company. The granting of any Option to
any individual shall neither entitle that individual to, nor disqualify him or
her from, participation in any other grant of Options.
18
<PAGE>
As of April 23, 1999, approximately 90 employees, directors and consultants
were eligible to participate in the 1999 Option Plan.
Exercise Price
For Non-Qualified Options, the exercise price per share is determined by the
Administrator, subject to the limitation that the exercise price at least
equal the par value per share of the Common Stock (i.e. $.01 per share). For
ISOs, the exercise price per share is determined by the Administrator, subject
to the limitation that it be at least equal to 100% of the fair market value
per share of Common Stock on the date of grant of the ISO. If the optionee
owns more than 10% of the total combined voting power of the Company, the
exercise price per share must be at least equal to 110% of the fair market
value per share of Common Stock on the date of grant of the ISO.
Term
The term of Non-Qualified Options is determined by the Administrator. For
ISOs, the term of the Option, like the exercise price, is dependent upon the
ownership interest of the optionee in the Company. Generally, the term of an
ISO will be ten years. However, if the optionee owns more than 10% of the
total combined voting power of the Company, the term of the ISO will be no
more than five years. An Option is subject to early termination upon the
termination of employment or other relationship of the optionee with the
Company, whether such termination is at the option of the Company, the
optionee, or as a result of the death or disability of the optionee.
Vesting and Exercisability
An Option may be exercised by giving written notice to the Company, together
with provision for payment of the full exercise price for the number of shares
as to which the Option is being exercised. The ability of an optionee to
exercise an Option, however, is subject to the vesting of the Option. At the
time the Option is granted, a vesting period is established, which generally
extends over a period of three years. As the Option vests, an optionee will be
able to exercise the Option with respect to the vested portion of the shares
and ultimately with respect to all of the vested shares, until such time as
the Option expires or terminates.
Federal Income Tax Consequences Relating to Stock Options
Incentive Stock Options. An optionee does not realize taxable income upon
the grant or exercise of an ISO under the 1999 Option Plan. If no disposition
of shares issued to an optionee pursuant to the exercise of an ISO is made by
the optionee within two years from the date of grant or within one year from
the date of exercise, then (a) upon sale of such shares, any gain or loss
sustained will be a long-term capital gain or loss, and (b) no deduction will
be allowed to the Company for Federal income tax purposes. The exercise of
ISOs gives rise to an adjustment in computing alternative minimum taxable
income that may result in alternative minimum tax liability for the optionee.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of the two-year and one-year holding periods
described above (a "disqualifying disposition"), then (a) the optionee
realizes ordinary income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of the shares at exercise (or, if
less, the amount realized on a sale of such shares) over the option price
thereof, and (b) the Company is entitled to deduct such amount. Any further
gain realized is taxed as a short-term or long-term capital gain and does not
result in any deduction to the Company. A disqualifying disposition in the
year of exercise will generally avoid the alternative minimum tax consequences
of the exercise of an ISO.
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Non-Statutory Stock Options. No income is realized by the optionee at the
time a non-statutory option is granted. Upon exercise, (a) ordinary income is
realized by the optionee in an amount equal to the difference between the
option price and the fair market value of the shares on the date of exercise,
and (b) the Company receives a tax deduction for the same amount. Upon
disposition of the shares, appreciation or depreciation after the date of
exercise is treated as short-term or long-term capital gain or loss and will
not result in any deduction by the Company.
Required Vote
The affirmative vote of a majority of the shares voted affirmatively or
negatively at the Meeting is required for the approval of the 1999 Option Plan
and the issuance of stock options in accordance with its terms.
THE BOARD OF DIRECTORS BELIEVES THAT THE ADOPTION OF THE 1999 OPTION PLAN IS
IN THE BEST INTEREST OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE
FOR THE PROPOSAL TO APPROVE THE 1999 OPTION PLAN AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
PROPOSAL 5
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers L.L.P.,
independent public accountants, to audit the financial statements of the
Company for the fiscal year ending January 1, 2000. The Board proposes that
the Stockholders ratify this appointment. PricewaterhouseCoopers L.L.P.
audited the Company's financial statements for the fiscal year ended January
2, 1999. The Company expects that representatives of PricewaterhouseCoopers
L.L.P. will be present at the Meeting, with the opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions.
In the event that ratification of the appointment of Pricewaterhousecoopers
L.L.P. as the independent public accountants for the Company is not obtained
at the Meeting, the Board of Directors will reconsider its appointment.
The affirmative vote of a majority of the shares present or represented and
entitled to vote is required to ratify the appointment of the independent
public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS L.L.P. AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR
THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
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OTHER MATTERS
The Board of Directors knows of no other business which will be presented to
the Meeting. If any other business is properly brought before the Meeting, it
is intended that proxies in the enclosed form will be voted in respect thereof
in accordance with the judgment of the persons voting the proxies.
STOCKHOLDER PROPOSALS
In order to be included in proxy materials for the Annual Meeting to be held
in 2000, stockholder proposals must be received by the Company on or before
January 6, 2000. For stockholder proposals which are not to be included in
proxy materials for the Annual Meeting to be held in 2000, in order for a
stockholder to nominate a person or persons for election to the Board of
Directors or to properly bring other business before an Annual Meeting, notice
of such nomination or business proposal must be received by the Company not
earlier than February 21, 2000 and not later than March 22, 2000. Stockholder
proposals must be received marked for the attention of: Secretary, Number Nine
Visual Technology Corporation, 18 Hartwell Avenue, Lexington, Massachusetts
02421.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
FILL OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST
CONVENIENCE.
BY ORDER OF THE BOARD OF DIRECTORS
NEIL H. ARONSON
Secretary
May 6, 1999
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APPENDIX
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
1999 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Number Nine Visual Technology Corporation
1999 Employee, Director and Consultant Stock Option Plan, have the following
meanings:
Administrator means the Board of Directors, unless it has delegated power
to act on its behalf to a committee. See Paragraph 4.
Affiliate means a corporation which, for purposes of Section 424 of the
Code, is a parent or subsidiary of the Company, direct or indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as amended.
Committee means the Committee to which the Board of Directors has
delegated power to act under or pursuant to the provisions of the Plan.
Common Stock means shares of the Company's Common Stock, $.01 par value,
or shares of any other class of capital stock of the Company for or into
which the Company's Common Stock is exchanged or re-classified.
Company means Number Nine Visual Technology Corporation, a Delaware
corporation.
Disability or Disabled means permanent and total disability as defined in
Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are regularly
reported for the Common Stock, either (a) the average of the closing or
last prices of the Common Stock on the Composite Tape or other
comparable reporting system for the ten (10) consecutive trading days
immediately preceding the applicable date or (b) the closing or last
price of the Common Stock on the Composite Tape or other comparable
reporting system for the trading day immediately preceding the
applicable date, as the Administrator shall determine.
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading days or
day referred to in clause (1), and if bid and asked prices for the
Common Stock are regularly reported, either (a) the average of the mean
between the bid and the asked price for the Common Stock at the close
of trading in the over-the-counter market for the ten (10) trading days
on which Common Stock was traded immediately preceding the applicable
date or (b) the mean between the bid and the asked price for the Common
Stock at the close of trading in the over-the-counter market for the
trading day on which Common Stock was traded immediately preceding the
applicable date, as the Administrator shall determine; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
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ISO means an option meant to qualify as an incentive stock option under
Code Section 422.
Key Employee means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by the
Administrator to be eligible to be granted one or more Options under the
Plan.
Non-Qualified Option means an option which is not intended to qualify as
an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
Option Agreement means an agreement between the Company and a Participant
delivered pursuant to the Plan.
Participant means a Key Employee, director or consultant to whom one or
more Options are granted under the Plan. As used herein, "Participant"
shall include "Participant's Survivors" where the context requires.
Participant's Survivors means a deceased Participant's legal
representatives and/or any person or persons who acquired the Participant's
rights to an Option by will or by the laws of descent and distribution.
Plan means this Number Nine Visual Technology Corporation 1999 Employee,
Director and Consultant Stock Option Plan.
Shares means shares of the Common Stock as to which Options have been or
may be granted under the Plan or any shares of capital stock into which the
Shares are changed or for which they are exchanged within the provisions of
Paragraph 3 of the Plan. The Shares issued upon exercise of Options granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury, or both.
2. PURPOSES OF THE PLAN.
The Plan is intended to encourage ownership of Shares by Key Employees,
directors and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an
Affiliate and to provide additional incentive for them to promote the success
of the Company or of an Affiliate. The Plan provides for the issuance of ISOs
and Non-Qualified Options.
3. SHARES SUBJECT TO THE PLAN.
The number of Shares subject to this Plan as to which Options may be granted
from time to time shall be 1,500,000, or the equivalent of such number of
Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Paragraph 16 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, the Shares
which were subject to such Option shall be available for the granting of other
Options under the Plan. Any Option shall be treated as "outstanding" until
such Option is exercised in full, or terminates or expires under the
provisions of the Plan, or by agreement of the parties to the pertinent Option
Agreement.
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4. ADMINISTRATION OF THE PLAN.
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to a Committee of the
Board of Directors. Subject to the provisions of the Plan, the Administrator
is authorized to:
a. Interpret the provisions of the Plan or of any Option or Option
Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants shall be granted Options;
c. Determine the number of Shares for which an Option or Options shall be
granted; and
d. Specify the terms and conditions upon which an Option or Options may be
granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the
tax status under Code Section 422 of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Option granted under it
shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is other than the Board of Directors.
5. ELIGIBILITY FOR PARTICIPATION.
The Administrator will, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time an Option
is granted. Notwithstanding any of the foregoing provisions, the Administrator
may authorize the grant of an Option to a person not then an employee,
director or consultant of the Company or of an Affiliate. The actual grant of
such Option, however, shall be conditioned upon such person becoming eligible
to become a Participant at or prior to the time of the execution of the Option
Agreement evidencing such Option. ISOs may be granted only to Key Employees.
Non-Qualified Options may be granted to any Key Employee, director or
consultant of the Company or an Affiliate. The granting of any Option to any
individual shall neither entitle that individual to, nor disqualify him or her
from, participation in any other grant of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate
including, without limitation, subsequent approval by the stockholders of the
Company of this Plan or any amendments thereto. The Option Agreements shall be
subject to at least the following terms and conditions:
A. Non-Qualified Options: Each Option intended to be a Non-Qualified Option
shall be subject to the terms and conditions which the Administrator
determines to be appropriate and in the best interest of the Company,
subject to the following minimum standards for any such Non-Qualified
Option:
a. Option Price: The option price (per share) of the Shares covered by
each Option shall be determined by the Administrator but shall not
be less than the Fair Market Value per share of Common Stock;
b. Each Option Agreement shall state the number of Shares to which it
pertains;
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c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or become
exercisable in installments over a period of months or years, or
upon the occurrence of certain conditions or the attainment of
stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to the
Administrator providing for certain protection for the Company and
its other stockholders including requirements that:
i.The Participant's or the Participant's Survivors' right to sell or
transfer the Shares may be restricted; and
ii.The Participant or the Participant's Survivors may be required to
execute letters of investment intent and must also acknowledge
that the Shares will bear legends noting any applicable
restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
Employee and be subject to at least the following terms and conditions,
with such additional restrictions or changes as the Administrator
determines are appropriate but not in conflict with Code Section 422 and
relevant regulations and rulings of the Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards required
of Non-Qualified Options, as described above, except clause (a)
thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Code Section 424(d):
i.Ten percent (10%) or less of the total combined voting power of all
classes of share capital of the Company or an Affiliate, the
Option price per share of the Shares covered by each Option shall
not be less than one hundred percent (100%) of the Fair Market
Value per share of the Shares on the date of the grant of the
Option;
ii.More than ten percent (10%) of the total combined voting power of
all classes of share capital of the Company or an Affiliate, the
Option price per share of the Shares covered by each Option shall
not be less than one hundred ten percent (110%) of the said Fair
Market Value on the date of grant.
c. Term of Option: For Participants who own:
i.Ten percent (10%) or less of the total combined voting power of all
classes of share capital of the Company or an Affiliate, each
Option shall terminate not more than ten (10) years from the date
of the grant or at such earlier time as the Option Agreement may
provide;
ii.More than ten percent (10%) of the total combined voting power of
all classes of share capital of the Company or an Affiliate, each
Option shall terminate not more than five (5) years from the date
of the grant or at such earlier time as the Option Agreement may
provide.
d. Limitation on Yearly Exercise: The Option Agreements shall restrict
the amount of Options which may be exercisable in any calendar year
(under this or any other ISO plan of the Company or an Affiliate) so
that the aggregate Fair Market Value (determined at the time each
ISO is granted) of the stock with respect to which ISOs are
exercisable for the first time by the Participant in any calendar
year does not exceed one hundred thousand dollars ($100,000),
provided that this subparagraph (d) shall have no force or effect if
its inclusion in the Plan is not necessary for Options issued as
ISOs to qualify as ISOs pursuant to Section 422(d) of the Code.
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e. Limitation on Grant of ISOs: No ISOs shall be granted after April
21, 2009, the date which is ten (10) years following the date of the
adoption of the Plan by the Company.
7. EXERCISE OF OPTION AND ISSUE OF SHARES.
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address, together with
provision for payment of the full purchase price in accordance with this
Paragraph for the Shares as to which such Option is being exercised, and upon
compliance with any other condition(s) set forth in the Option Agreement. Such
written notice shall be signed by the person exercising the Option, shall
state the number of Shares with respect to which the Option is being exercised
and shall contain any representation required by the Plan or the Option
Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash
or by check, or (b) at the discretion of the Administrator, through delivery
of shares of Common Stock having a fair market value equal as of the date of
the exercise to the cash exercise price of the Option, determined in good
faith by the Administrator, or (c) at the discretion of the Administrator, by
delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the applicable federal rate, as
defined in Section 1274(d) of the Code, or (d) at the discretion of the
Administrator, in accordance with a cashless exercise program established with
a securities brokerage firm, and approved by the Administrator or (e) at the
discretion of the Administrator, by any combination of (a), (b), (c) and (d)
above. Notwithstanding the foregoing, the Administrator shall accept only such
payment on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's
Survivors, as the case may be). In determining what constitutes "reasonably
promptly," it is expressly understood that the delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation which
requires the Company to take any action with respect to the Shares prior to
their issuance. The Shares shall, upon delivery, be evidenced by an
appropriate certificate or certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise of
any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any
Key Employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to Paragraph 19) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
Paragraph 6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by the Plan, (ii) any such amendment shall be made only with the consent of
the Participant to whom the Option was granted or in the event of the death of
the Participant, the Participant's Survivors, if the amendment is adverse to
the Participant, and (iii) any such amendment of any ISO shall be made only
after the Administrator, after consulting the counsel for the Company,
determines whether such amendment would constitute a "modification" of any
Option which is an ISO (as that term is defined in Section 424(h) of the Code)
or would cause any adverse tax consequences for the holders of such ISO.
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8. RIGHTS AS A STOCKHOLDER.
No Participant to whom an Option has been granted shall have rights as a
stockholder with respect to any Shares covered by such Option, except after
due exercise of the Option and tender of the full purchase price for the
Shares being purchased pursuant to such exercise and registration of the
Shares in the Company's share register in the name of the Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
By its terms, an Option granted to a Participant shall not be transferable
by the Participant other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act or the
rules thereunder, provided, however, that the designation of a beneficiary of
an Option by a Participant shall not be deemed a transfer prohibited by this
Paragraph. Except as provided in the preceding sentence, an Option shall be
exercisable, during the Participant's lifetime, only by such Participant (or
by his or her legal representative) and shall not be assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and shall
not be subject to execution, attachment or similar process. Any attempted
transfer, assignment, pledge, hypothecation or other disposition of any Option
or of any rights granted thereunder contrary to the provisions of this Plan,
or the levy of any attachment or similar process upon an Option, shall be null
and void.
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE".
Except as otherwise provided in the pertinent Option Agreement, in the event
of a termination of service (whether as an employee, director or consultant)
with the Company or an Affiliate before the Participant has exercised all
Options, the following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
"for cause", Disability, or death for which events there are special
rules in Paragraphs 11, 12, and 13, respectively), may exercise any
Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only within
such term as the Administrator has designated in the pertinent Option
Agreement.
b. In no event may an Option Agreement provide, if the Option is intended
to be an ISO, that the time for exercise be later than three (3) months
after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of Paragraph 12
or 13, shall apply to a Participant who subsequently becomes disabled or
dies after the termination of employment, director status or
consultancy, provided, however, in the case of a Participant's death
within three (3) months after the termination of employment, director
status or consulting, the Participant's Survivors may exercise the
Option within one (1) year after the date of the Participant's death,
but in no event after the date of expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director status
or termination of consultancy, but prior to the exercise of an Option,
the Board of Directors determines that, either prior or subsequent to
the Participant's termination, the Participant engaged in conduct which
would constitute "cause", then such Participant shall forthwith cease to
have any right to exercise any Option.
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e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability), or who is on leave of absence for any purpose, shall not,
during the period of any such absence, be deemed, by virtue of such
absence alone, to have terminated such Participant's employment,
director status or consultancy with the Company or with an Affiliate,
except as the Administrator may otherwise expressly provide.
f. Options granted under the Plan shall not be affected by any change of
employment or other service within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate, provided,
however, if a Participant's employment by either the Company or an
Affiliate should cease (other than to become an employee of an Affiliate
or the Company), such termination shall affect the Participant's rights
under any Option granted to such Participant in accordance with the
terms of the Plan and the pertinent Option Agreement.
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all of his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the date the Participant
is notified his or her service is terminated "for cause" will
immediately be forfeited, unless the Option Agreement provides
otherwise.
b. For purposes of this Paragraph, "cause" shall include (and is not
limited to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized disclosure
of confidential information, and conduct substantially prejudicial to
the business of the Company or any Affiliate. The determination of the
Administrator as to the existence of cause will be conclusive on the
Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause", then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause" for
termination and which is in effect at the time of such termination,
shall supersede the definition in this Plan with respect to such
Participant.
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the
Company or of an Affiliate by reason of Disability may exercise any Option
granted to such Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
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b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of the
accrual period which next ends following the date of Disability. The
proration shall be based upon the number of days of such accrual period
prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date that the Participant became Disabled,
notwithstanding that the Participant might have been able to exercise the
Option as to some or all of the Shares on a later date if he or she had not
become disabled and had continued to be an employee, director or consultant
or, if earlier, within the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such
determination). If requested, the Participant shall be examined by a physician
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
13. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Option Agreement, in the event
of the death of a Participant to whom an Option has been granted while the
Participant is an employee, director or consultant of the Company or of an
Affiliate, such Option may be exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration shall
be based upon the number of days of such accrual period prior to the
Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date
of death of such Participant, notwithstanding that the decedent might have
been able to exercise the Option as to some or all of the Shares on a later
date if he or she had not died and had continued to be an employee, director
or consultant or, if earlier, within the originally prescribed term of the
Option.
14. PURCHASE FOR INVESTMENT.
Unless the offering and sale of the Shares to be issued upon the particular
exercise of an Option shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
a. The person(s) who exercise such Option shall warrant to the Company,
prior to the receipt of such Shares, that such person(s) are acquiring
such Shares for their own respective accounts, for investment, and not
with a view to, or for sale in connection with, the distribution of any
such Shares, in which event the person(s) acquiring such Shares shall be
bound by the provisions of the following legend which shall be endorsed
upon the certificate(s) evidencing their Shares issued pursuant to such
exercise or such grant:
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"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by any
person, including a pledgee, unless (1) either (a) a Registration
Statement with respect to such shares shall be effective under the
Securities Act of 1933, as amended, or (b) the Company shall have
received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and (2) there
shall have been compliance with all applicable state securities
laws.
b. The Company shall have received an opinion of its counsel that the
Shares may be issued upon such particular exercise in compliance with
the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until completion of any action
or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any Option to
the extent that the Option is exercisable as of the date immediately prior to
such dissolution or liquidation.
16. ADJUSTMENTS.
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Option granted to him or her hereunder which have not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the written agreement between the
Participant and the Company relating to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock shall be
subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend
on its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of such Option shall be appropriately
increased or decreased proportionately, and appropriate adjustments
shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the
Administrator or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"), shall, as
to outstanding Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for
the Shares then subject to such Options either the consideration payable
with respect to the outstanding shares of Common Stock in connection
with the Acquisition or securities of any successor or acquiring entity;
or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at
the discretion of the Administrator, all Options being made fully
exercisable for purposes of this subparagraph B), within a specified
number of days of the date of such notice, at the end of which period
the Options shall terminate; or (iii) terminate all Options in exchange
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for a cash payment equal to the excess of the Fair Market Value of the
shares subject to such Options (either to the extent then exercisable
or, at the discretion of the Administrator, all Options being made fully
exercisable for purposes of this subparagraph B) over the exercise price
thereof.
C. Recapitalization or Reorganization. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
subparagraph B above) pursuant to which securities of the Company or of
another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising an Option shall be entitled
to receive for the purchase price paid upon such exercise the securities
he or she would have received if he or she had exercised such Option
prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraph A, B or C with respect to ISOs shall be
made only after the Administrator, after consulting with counsel for the
Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424(h)
of the Code) or would cause any adverse tax consequences for the holders
of such ISOs. If the Administrator determines that such adjustments made
with respect to ISOs would constitute a modification of such ISOs, it
may refrain from making such adjustments, unless the holder of an ISO
specifically requests in writing that such adjustment be made and such
writing indicates that the holder has full knowledge of the consequences
of such "modification" on his or her income tax treatment with respect
to the ISO.
17. ISSUANCES OF SECURITIES.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.
18. FRACTIONAL SHARES.
No fractional share shall be issued under the Plan and the person exercising
such right shall receive from the Company cash in lieu of such fractional
share equal to the Fair Market Value thereof.
19. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise
price of the appropriate installments of such Options. At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any Participant the right to have such Participant's ISO's converted
into Non-Qualified Options, and no such conversion shall occur until and
unless the Administrator takes appropriate action. The Administrator, with the
consent of the Participant, may also terminate any portion of any ISO that has
not been exercised at the time of such termination.
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20. WITHHOLDING.
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be
withheld from the Option holder's salary, wages or other remuneration in
connection with the exercise of an Option or a Disqualifying Disposition (as
defined in Paragraph 21), the Option holder shall advance in cash to the
Company, or to any Affiliate of the Company which employs or employed the
Option holder, the amount of such withholdings unless a different withholding
arrangement, including the use of shares of the Company's Common Stock, is
authorized by the Administrator (and permitted by law). For purposes hereof,
the fair market value of the shares withheld for purposes of payroll
withholding shall be determined in the manner provided in Paragraph 1 above,
as of the most recent practicable date prior to the date of exercise. If the
fair market value of the shares withheld is less than the amount of payroll
withholdings required, the Option holder may be required to advance the
difference in cash to the Company or the Affiliate employer. The Administrator
in its discretion may condition the exercise of an Option for less than the
then Fair Market Value on the Participant's payment of such additional
withholding.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition
of any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
22. TERMINATION OF THE PLAN.
The Plan will terminate on April 21, 2009, the date which is ten (10) years
following the date of the adoption of the Plan by the Company. The Plan may be
terminated at an earlier date by vote of the stockholders of the Company;
provided, however, that any such earlier termination will not affect any
Options granted or Option Agreements executed prior to the effective date of
such termination.
23. AMENDMENT OF THE PLAN AND AGREEMENTS.
The Plan may be amended by the stockholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Options granted under the
Plan or Options to be granted under the Plan for favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, and to the extent
necessary to qualify the shares issuable upon exercise of any outstanding
Options granted, or Options to be granted, under the Plan for listing on any
national securities exchange or quotation in any national automated quotation
system of securities dealers. Any amendment approved by the Administrator
which is of a scope that requires stockholder approval in order to ensure
favorable federal income tax treatment for any incentive stock options shall
be subject to obtaining such stockholder approval. Any modification or
amendment of the Plan shall not, without the consent of a Participant,
adversely affect his or her rights under an Option previously granted to him
or her. With the consent of the Participant affected, the Administrator may
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amend outstanding Option Agreements in a manner which may be adverse to the
Participant but which is not inconsistent with the Plan. In the discretion of
the Administrator, outstanding Option Agreements may be amended by the
Administrator in a manner which is not adverse to the Participant.
24. EMPLOYMENT OR OTHER RELATIONSHIP.
Nothing in this Plan or any Option Agreement shall be deemed to prevent the
Company or an Affiliate from terminating the employment, consultancy or
director status of a Participant, nor to prevent a Participant from
terminating his or her own employment, consultancy or director status or to
give any Participant a right to be retained in employment or other service by
the Company or any Affiliate for any period of time.
25. GOVERNING LAW.
This Plan shall be construed and enforced in accordance with the laws of the
Commonwealth of Massachusetts.
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