Security Ownership of Management
The following table sets forth certain information known to the Company with respect to beneficial ownership of the Company’s Common Stock at December 31, 2001 by (i) each of the Company’s directors and nominees for director, (ii) each executive officer named in the Summary Compensation Table and (iii) all executive officers and directors as a group. For purposes of this Proxy Statement, beneficial ownership is defined in accordance with the rules of the Commission to mean generally the power to vote or dispose of shares, regardless of any economic interest therein.
| | | Amount and Nature | | | | | Of Beneficial | Percent of | Name | | Ownership(1) | Class (2) | John R. Bennett | | 2,484,217(3) | 3.1% | Richard M. Brook | | 0 | * | C. Lee Cooke | | 49,410,655(4) | 62.4% | Justin L. Ferrero | | 52,202,244 (5) | 65.9% | Parris H. Holmes, Jr. | | 50,628,523 (6) | 63.9% | Joseph C. Klein | | 341,494 (7) | * | Terry W. Reynolds | | 102,500 (8) | * | David P. Tusa | | 49,405,655 (9) | 62.4% | Theodore W. Van Duyn | | 243,750 (10) | * |
All executive officers and directors as a group (8 persons, representing the executive officers and directors listed above) 56,597,073(11) 71.4% _______________ *Represents less than one percent (1%) of the issued and outstanding shares of Common Stock.
(1) Unless otherwise noted, each of the persons named has sole voting and investment power with respect to the shares reported. (2) The percentages indicated are based on outstanding stock options exercisable within 60 days from December 31, 2001 for each individual, Common Stock outstanding at December 31, 2001 of 24,147,534 shares, and Series A Preferred Stock owned by each as if that one person or entity were the only one of the Series A Preferred stockholders to convert to Common Stock. This calculation is in accordance with Section 13(d)(3) of the Securities Exchange Act. (1) Includes 115,625 shares that Mr. Bennett has the right to acquire upon exercise of stock options, exercisable within 60 days and 62,922 shares of Series A Preferred Stock convertible into 2,097,442 shares of Common Stock. (2) Includes 1,482,140 shares of Series A Preferred Stock convertible into 49,405,655 shares of Common Stock owned by New Century Equity Holdings Corp. of which Mr. Cooke is a Director. (3) Includes 83,896 shares of Series A Preferred stock convertible into 2,796,589 shares of Common Stock owned by Tuscany Partners of which Mr. Ferrero is a 50% owner, and 1,482,140 shares of Series A Preferred Stock convertible into 49,405,655 shares of Common Stock owned by New Century Equity Holdings Corp. of which Mr. Ferrero is a Director. (4) Includes 229,688 shares that Mr. Holmes has the right to acquire upon exercise of stock options, exercisable within 60 days and includes 1,482,140 shares of Series A Preferred Stock convertible into 49,405,655 shares of Common Stock owned by New Century Equity Corp. of which Mr. Holmes is a Director. (5) Includes 158,125 shares that Mr. Klein has the right to acquire upon exercise of stock options, exercisable within 60 days and 4,196 shares of Series A Preferred Stock convertible into 139,869 shares of Common Stock. (6) Includes 67,500 shares that Mr. Reynolds has the right to acquire upon exercise of stock options, exercisable within 60 days. (7) Includes 1,482,140 shares of Series A Preferred Stock convertible into 49,405,655 shares of Common Stock owned by New Century Equity Holdings Corp. of which Mr. Tusa is a Director. (8) Includes 61,250 shares that Mr. Van Duyn has the right to acquire upon exercise of stock options, exercisable within 60 days. (9) Includes 632,188 shares that 5 directors and executive officers have the right to acquire upon exercise of stock options, exercisable within 60 days and 1,633,154 shares of Series A Preferred Stock convertible into 54,439,555 shares of Common Stock. The Series A Preferred Stock owned by New Century Equity Holdings Corp. has been included only once even though it has been included in each of the beneficial ownerships of Messers. Cooke, Ferrero, Holmes, and Tusa.
Change in Control
On August 13, 2001, the Company sold 2,635,000 shares of its Series A Preferred Stock for $1.00 per share pursuant to a Series A Preferred Stock Purchase Agreement dated August 13, 2001 (the “Purchase Agreement”) to the Purchasers named therein, including New Century Equity Holdings Corp., a Delaware corporation (“New Century”), which purchased 1,060,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock is initially convertible into 33.334 shares of the Company’s Common Stock. The amount of consideration paid by New Century for the 1,060,000 shares it purchased was $1,060,000. As of December 31, 2001, the percentage of the voting securities of the Company beneficially owned directly or indirectly by New Century is 67.2%, computed as specified in Rule 13d-3 under the Exchange Act.
On August 13, 2001, the date the Purchase Agreement was signed, Mr. Parris H. Holmes, Jr. served as Chairman of the Board of Directors of both New Century and the Company. Effective August 13, 2001, each of Mr. Gordon Matthews and Mr. William D. Jobe resigned from their positions as members of the Board of Directors of the Company, and Mr. David P. Tusa and Mr. Justin L. Ferrero, both of whom were nominated by New Century, were appointed to the Board of Directors. Mr. Tusa and Mr. Ferrero also serve on the Board of Directors of New Century. Subject to compliance with Section 14(f) of the Securities Exchange Act of 1934, as amended, and with any other applicable law, New Century will also have the right to replace Mr. Parris H. Holmes, Jr. with another nominee of New Century. New Century has informed the Company that Mr. Parris H. Holmes, Jr. plans to resign as Ch airman of the Board of Directors of the Company ten days after the mailing of this Proxy Statement and that New Century intends to appoint Mr. C. Lee Cooke to replace Mr. Holmes as Chairman of the Board. Mr. Cooke also serves on the Board of Directors of New Century. Under the Purchase Agreement, New Century has the ��contractual right to appoint a majority of the Board of Directors.
MATTERS TO COME BEFORE THE ANNUAL MEETING
Proposal 1: Election of Directors
The Bylaws of the Company provide that the Board of Directors will consist of not less than three nor more than fifteen members and that the number of directors, within such limits, shall be determined by resolution of the Board of Directors at any meeting or by the stockholders at the Annual Meeting. The Board of Directors of the Company has set the number of directors comprising the Board of Directors at seven, with such directors being divided into three classes, of which currently two have two members each and one has one member. Each class is typically elected for a term of three years so that the term of office of one class of directors expires at every annual meeting, although occasionally a director may be elected for a shorter term in order to keep the number of directors in each class approximately equal.
In accordance with the terms of the Series A Preferred Stock Purchase Agreement dated August 13, 2001, New Century Equity Holding Corp. (“New Century”) has the contractual right to appoint a majority of the members of the Company’s Board of Directors. Accordingly, New Century appointed two directors, Mr. David P. Tusa and Mr. Justin L. Ferrero, to replace two of the existing directors in conjunction with the closing of the Series A Preferred Stock transaction. New Century has informed the Company that Mr. Parris H. Holmes, Jr. plans to resign as Chairman of the Board of Directors of the Company ten days after the mailing of this Proxy Statement and that New Century intends to appoint Mr. C. Lee Cooke to replace Mr. Holmes as Chairman of the Board.
On September 28, 2001, Mr. Charles T. Comiso resigned from the Company as Director, President and Chief Executive Officer. On October 1, 2001, Mr. Richard M. Brook was engaged by the Company as President and Chief Executive Officer. The Board of Directors has voted to fill the Board vacancy left by Mr. Comiso with Mr. Brook effective ten days after the mailing of this Proxy Statement. The Board of Directors has nominated two persons for election as directors in the class whose term of office will expire at the Company’s 2005 Annual Meeting of Stockholders or until their respective successor is elected and qualified. The nominees are Mr. C. Lee Cooke and Mr. Theodore W. Van Duyn. The Board of Directors has nominated Mr. David P. Tusa and Mr. Richard M. Brook for election as directors in the class whose term of office will expire at the Company’s 2004 Annual Meeting of Stockholders or until their successors are elected and qualified. In addition, the Board of Directors also has nominated one person for election as director in the class whose term of office will expire at the Company’s 2003 Annual Meeting of Stockholders or until his successor is elected and qualified. The nominee is Mr. Justin L. Ferrero. ;The respective terms of the directors expire on the dates set forth below. If all five of the nominees listed above are elected by the stockholders at the Annual Meeting, two vacancies will remain, which may be filled by the Board of Directors upon selection of qualified candidates.
Directors whose terms expire at the 2002 Annual Meeting and nominees for election for terms Position and Offices expiring at the 2005 Annual Meeting with the Company Age Director Since
C. Lee Cooke Chairman of the Board 57 2002 Theodore W. Van Duyn Director 51 1994
Directors whose terms expire Position and Offices at the 2004 Annual Meeting with the Company Age Director Since
David P. Tusa Director 41 2001
Richard M. Brook Chief Executive Officer, 42 2001 President and Director
Director whose term expires Position and Offices at the 2003 Annual Meeting with the Company Age Director Since
Justin L. Ferrero Director 28 2001
Biographical information on these directors is set forth below under “Board of Directors and Executive Officers.”
It is the intention of the persons named in the enclosed proxy to vote such proxy for the election of the nominees. Management of the Company does not contemplate that any of such nominees will become unavailable for any reason, but if that should occur before the Annual Meeting, proxies that do not withhold authority to vote for directors will be voted for another nominee, or other nominees, in accordance with the best judgment of the person or persons appointed to vote the proxy.
The enclosed form of proxy provides a means for the holders of Common Stock and Series A Preferred to vote for all of the nominees listed therein or to withhold authority to vote for one or more of such nominees. Each properly executed proxy received in time for the Annual Meeting will be voted as specified therein, or if a stockholder does not specify in his or her executed proxy how the shares represented by his or her proxy are to be voted, such shares shall be voted for the nominees listed therein orfor other nominees as provided above. The director nominees receiving aplurality of the votes cast at the Annual Meeting will be elected as directors.
Committees of the Board of Directors
The business of the Company is managed under the direction of its Board of Directors. The Company’s Board of Directors has established two standing committees: (1) the Audit Committee and (2) the Compensation/Stock Option Committee. The Board of Directors does not currently utilize a nominating committee or committee performing similar functions.
The Audit Committee is comprised of certain directors who are not employees of the Company or any of its subsidiaries. Messrs. Tusa and Ferrero are the current members of the Audit Committee. The Audit Committee acts on behalf of the Board of Directors with respect to the Company’s financial statements, record-keeping, auditing practices and matters relating to the Company’s independent public accountants, including recommending to the Board of Directors the firm to be engaged as independent public accountants for the next fiscal year; reviewing with the Company’s independent public accountants the scope and results of the audit and any related management letter; consulting with the independent public accountants and management with regard to the Company’s accounting methods and the adequacy of its internal accounting controls; approving professional serv ices by the independent public accountants; and reviewing the independence of the independent public accountants.
The Compensation/Stock Option Committee is comprised of certain directors who are not employees of the Company or any of its subsidiaries. Mr. Van Duyn is the current member of the Compensation/Stock Option Committee. The Board intends to appoint Mr. Cooke as a member of the Compensation/Stock Option Committee upon Mr. Cooke's appointment to the Board of Directors. The Compensation/Stock Option Committee’s functions include reviews and recommendations concerning major compensation policies and compensation of officers and executive employees, including stock options.
Meetings of the Board of Directors
During the fiscal year ended September 30, 2001, the Board of Directors met thirteen times and took action on seven occasions by unanimous written consent, the Audit Committee met two times and the Compensation/Stock Option Committee met one time and took action on six occasions by unanimous written consent. Each of the directors of the Company attended at least 75% of the aggregate of the meetings of the Board of Directors and committees of which he was a member.
Compensation of Directors
Directors are not paid a fee for attending Board of Director or committee meetings but are reimbursed for their travel expenses to and from the meetings.
Stock Options: 1997 Non-Employee Director Plan.The Company’s 1997 Non-Employee Director Plan (the "Director Plan") is administered by the Board of Directors. The Director Plan authorizes the granting of nonqualified options to eligible persons.
The Director Plan was adopted by the Company’s Board of Directors on January 15, 1997. Prior to this date, non-employee directors were granted options under the 1993 Option Plan. The purpose of the plan is to advance the interests of the Company by providing an additional incentive to attract and retain qualified and competent directors, upon whose efforts and judgment the success of the Company is largely dependent, through the encouragement of stock ownership in the Company by such persons.
The Director Plan authorizes the granting to non-employee directors (totaling four eligible individuals at December 31, 2001) of nonqualified options (“Director Options”) exercisable for the purchase of 25,000 shares of Common Stock on the date they are elected or appointed to the Board of Directors, whether at the annual meeting of stockholders or otherwise, at an exercise price equal to the fair market value of the Common Stock on the date such non-employee director is elected or appointed, vesting one third on each of the first three anniversaries of the date of grant. In addition, upon their re-election, each non-employee director receives, on the first business day after the date of each annual meeting of stockholders of the Company, commencing with the annual meeting of stockholders immediately following the full vesting of any previously granted Director Option, a Director Option to purchase an additional 25,000 shares of Common Stock at an exercise price per share equal to the fair market value of the Common Stock on the date of grant.
The Director Plan also provides for the granting of discretionary options (“Discretionary Options”) from time to time by the Board of Directors to any non-employee director of the Company. The Discretionary Options will vest according to the vesting schedule determined by the Board of Directors and expire no more than seven years from the date of grant. At least six months must elapse from the date of the acquisition of the Discretionary Option to the date of disposition of the Discretionary Option (other than upon exercise or conversion) or its underlying Common Stock.
Common Stock issued under the Director Plan may be newly issued or treasury shares. Already owned Common Stock may be used as payment for the exercise price of options if approved by the Board of Directors at the time of exercise. If any option granted under the Director Plan terminates, expires or is surrendered, new options may thereafter be granted covering such shares.
Under the terms of the Director Plan, a total of 2,000,000 shares of Common Stock have been reserved for issuance upon exercise of Director Options and Discretionary Options. At December 31, 2001, a total of 4,911,250 options had been granted under the Director Plan subject to approval of Proposal 6 in this Proxy Statement. If Proposal (6) is not approved by the stockholders, options granted in excess of the 2,000,000 shares originally authorized by the stockholders will be cancelled. Options, once granted and to the extent vested and exercisable, will remain exercisable throughout their term, except that the unexercised portion of a Director Option will terminate 30 days after the date an optionee ceases to be a director for any reason other than death, in which case the Director Option will terminate one year after the optionee’s death or six months after the optionee’s death if the death occurs during the 30-day period referenced above.
The Director Plan terminates on January 15, 2007, and any Director Option or Discretionary Option outstanding on such date will remain outstanding until it has either expired or been exercised.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF THE INDIVIDUALS NOMINATED FOR ELECTION AS DIRECTORS.
Proposal 2: Ratification of Appointment of Independent Public Accountants
The Board of Directors, upon the recommendation of its Audit Committee, has appointed the firm of Brown, Graham and Company, P.C., to serve as independent public accountants of the Company for the fiscal year ending September 30, 2002. Although stockholder ratification is not required, the Board of Directors has directed that such appointment be submitted to the stockholders of the Company for ratification at the Annual Meeting. Brown, Graham and Company, P.C., has served as independent public accountants of the Company with respect to the Company’s consolidated financial statements for the fiscal years ending September 30, 1999, 2000, and 2001 and is considered by management of the Company to be well qualified. If the stockholders do not ratify the appointment of Brown, Graham and Company, P.C., the Board of Directors may reconsider the appointm ent.
Representatives of Brown, Graham and Company, P.C., will be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from stockholders.
Assuming the presence of a quorum, ratification of the appointment of Brown, Graham and Company, P.C., requires the affirmative vote of a majority of the votes cast by the combined holders of shares of Common Stock and Series A Preferred entitled to vote in person or by proxy at the Annual Meeting. Proxies will be voted for or against such approval in accordance with specifications marked thereon, and if no specification is made, the proxies will be voted for such approval.
Audit Fees:
Audit fees accrued and paid by the Company to Brown, Graham and Company, P.C. during the Company’s 2001 fiscal year for the audit and review of the Company’s annual financial statements and those financial statements included in the Company’s quarterly reports on Form 10-Q totaled $52,022.
Financial Information Systems Design and Implementation Fees:
The Company did not engage Brown, Graham and Company, P.C. to provide advice to the Company regarding financial information systems design and implementation during the fiscal year ended September 30, 2001.
All Other Fees:
Fees accrued and paid by the Company to Brown, Graham and Company, P.C. during the fiscal year ended September 30, 2001 for all non-audit services rendered to the Company, including tax related services totaled $6,000.
The Audit Committee considered whether the provision of tax and other non-audit services is compatible with the Company's accountants' independence and determined that The provision of such services had no effect on the independence of the accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO RATIFY THE APPOINTMENT OF BROWN, GRAHAM AND COMPANY, P.C., AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2002.
Proposal 3: Proposal to Increase Authorized Shares of Common Stock
The Company’s Board of Directors has approved a proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock of the Company to one billion (1,000,000,000) shares in order to have an adequate number of shares of Common Stock authorized for future potential conversion of Preferred Stock and exercise of stock options. (See “Certain Relationships and Related Party Transactions” below).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO INCREASE THE COMMON STOCK AUTHORIZED.
Proposal 4: Proposal to Increase Authorized Shares of Preferred Stock
The Company’s Board of Directors has approved a proposal to amend the Company’s Articles of Incorporation to increase the number of shares of Preferred Stock authorized to 50,000,000 shares in order to have an adequate number of shares of Preferred Stock authorized for potential issuances of Preferred Stock in accordance with the Series A Preferred Stock Purchase Agreement (See “Certain Relationships and Related Party Transactions” below).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO INCREASE THE PREFERRED STOCK AUTHORIZED.
Proposal 5: Proposal to Amend the Company’s 1993 Stock Option Plan to Increase the Number of Shares Reserved for Issuance Thereunder by 40,000,000 Shares
Proposal 5 seeks shareholder approval of an amendment to the Company's 1993 Stock Option Plan (the "Stock Option Plan") to increase the total number of shares in the Stock Option Plan by 40,000,000 shares, from 5,000,000 to 45,000,000 shares. The 40,000,000 share increase represents approximately 16% of the number of shares of the Company's Common Stock that would be outstanding if all of the issued Series A Shares were converted into Common Stock as of the Record Date. None of the Series A Shares had been converted into Common Stock as of the Record Date.
The Stock Option Plan was originally approved by the shareholders in 1994. The persons eligible to participate in the Stock Option Plan are employees and directors of the Company, as well as consultants to the Company. The Stock Option Plan will expire on October 24, 2003, and no options may be granted under the Stock Option Plan after that date. In August 2001, as described elsewhere in this Proxy Statement, the Board of Directors approved the creation and issuance of a series of preferred stock designated as the Company's Series A Preferred Stock, and an aggregate of 2,635,000 shares of Series A Preferred Stock were issued in August 2001 and an additional 7,200 shares of Series A Preferred Stock were issued in September 2001. Each share of Series A Stock is initially convertible into 33.334 shares of Common Stock.
In September 2001, the Board of Directors approved, subject to shareholder approval, an amendment to the Stock Option Plan to increase the aggregate number of shares available thereunder by 40,000,000 shares in order to have an adequate number of shares available for future option grants. At present, the total number of shares that may subjected to options under the Stock Option Plan is 5,000,000. As of December 31, 2001, a total of 22,750 shares had been issued upon the previous exercise of options under the Stock Option Plan and were no longer available for option grants; 2,815,350 of the shares available under the Stock Option Plan were reserved for issuance upon the exercise of currently outstanding options, at prices ranging from $0.03 to $4.00 per share, or a weighted average per share exercise price of $0.24; and a total of 2,161,900 shares rem ained available for additional option grants, prior to giving effect to the proposed increase.
The Board of Directors believes that it is in the best interests of the Company to be able to continue to create equity incentives to assist in attracting, retaining, and motivating the key employees and consultants of the Company. The Board of Directors believes that the 2,161,900 shares remaining available as of December 31, 2001, for granting options pursuant to the Stock Option Plan are insufficient for that purpose, largely as a consequence of the issuance of the 2,642,200 shares of Series A Preferred Stock, which, in the aggregate, are convertible into approximately 88,075,095 shares of the Company's Common stock at a conversion price of $0.03 per share, as well as the Company's subsequent issuance of an additional 99,051 shares of Series A Preferred Stock (which are convertible into an additional 33,302,366 shares of the Company's Common Stock) as a result of the Company's failure to meet certain financial targets. The Company also issued 53,229 shares of Series A Preferred Stock (which are convertible into 1,774,335 shares of the Company’s Common Stock) in lieu of cash for the September 30, 2001 dividend. The Company further anticipates that it may be required to issue up to an estimated additional 27,000,000 shares of Series A Preferred Stock pursuant to the terms of the Stock Purchase Agreement dated August 13, 2001 pursuant to which it originally issued the Series A Preferred Stock. Consequently, in order to be able to continue to create equity incentives to assist in attracting, retaining, and motivating the key employees and consultants of the Company, the Board of Directors believes that the Board may find it advisable to grant options covering up to an additional 40,000,000 shares of Common Stock prior to October 24, 2003, when the Stock Option Plan will expire.
From the inception of the Stock Option Plan through December 31, 2001, the following persons or groups had received options to purchase shares of Common Stock under the Stock Option Plan as follows: (i) the Chief Executive Officer and the other executive officers named in the Summary Compensation Table: Mr. Brook (current Chief Executive Officer), 0 shares, Mr. Comiso (former Chief Executive Officer), 600,000 shares, Mr. Bennett, 275,000 shares, Mr. Giandana, 223,500 shares, Mr. Klein, 335,000 shares, and Mr. Reynolds, 200,000 shares; (ii) all current executive officers of the Company as a group: 1,633,500 shares; (iii) each associate of any of such directors, executive officers or nominees, (iv) each other person who received or is to receive five percent of such options, and (v) all employees of the Company, including all current officers who are not executive office rs, as a group: 1,181,850 shares.
The Common Stock is traded under the symbol of “TNIS” on the Nasdaq OTC Bulletin Board. On December 19, 2001, the last reported bid and asked prices for the Common Stock were $0.06 and $0.065, respectively.
Subject to the approval of the proposed amendments by the shareholders, the Board has approved additional grants of options as follows: (i) the Chief Executive Officer and the other executive officers named in the Summary Compensation Table: Mr. Brook (current Chief Executive Officer), 6,600,000 shares, Mr. Bennett, 1,306,250 shares, Mr. Klein, 1,306,250 shares, and Mr. Reynolds, 1,250,000 shares; (ii) all current executive officers of the Company as a group: 10,462,500 shares; (iii) each associate of any of such directors, executive officers or nominees, 0 shares; (iv) each other person who received or is to receive five percent of such options, 0 shares; and (v) all employees of the Company, including all current officers who are not executive officers, as a group: 12,993,750 shares.
Except as described above, the Company cannot now determine the number of options to be received in the future by all current executive officers as a group, all current directors who are not also executive officers as a group, or all employees including any current officers who are not executive officers as a group.
The following summary of the principal features of the Stock Option Plan is qualified by reference to the terms of the Stock Option Plan, a copy of which is available without charge upon stockholder request to: Terry Reynolds, Vice President and Chief Financial Officer, Tanisys Technology, Inc., 12201 Technology Boulevard, Suite 125, Austin Texas 78727-6101.
SUMMARY OF STOCK OPTION PLAN
The Stock Option Plan provides for the granting to key employees, officers, directors, and consultants to the Company and its subsidiaries (approximately 50 persons as of December 31, 2001) of options to purchase shares of the Company's Common Stock. The Stock Option Plan is administered by the Board of Directors or a committee thereof (such committee or the Board acting as such committee is herein called the "Compensation Committee"), which, subject to the express provisions of the Plan and guidelines which may be adopted from time to time, has the authority to determine, among other things, to whom options will be granted, the number of shares, the term during which an option may be exercised, and the rate at which the option may be exercised; however, options must vest equally over a period of at least three years.
The purpose of the Stock Option Plan is to enhance the interest of the Company's key employees, officers, directors, and consultants in the success of the Company by giving them an ownership interest in the Company and to give them an incentive to continue their service to the Company. The Plan also affords a means of providing additional recognition for services previously rendered. With the exception of options to be granted to its members, the Stock Option Committee determines in its sole discretion which of the eligible persons are granted options and the number of shares subject to such options.
Options granted to employees may be designated as incentive stock options (ISOs) or as non-statutory stock options (NSOs). Only NSOs may be granted to consultants. The Internal Revenue Code, as presently in effect, limits the number of ISOs which can become exercisable by any employee in any one year and provides that the Company and optionees receive different tax treatment upon exercise of NSOs and ISOs. No tax consequences result to the Company or an ISO grantee upon the issuance and exercise of an ISO. No tax consequences result to the Company or an NSO grantee upon the issuance of an NSO pursuant to the Stock Option Plan having an exercise price equal to the fair market value of the Company's common stock on the date of grant of the NSO. Upon the exercise of the NSO, a grantee realizes income in an amount equal to the difference between the option exercise p rice and the fair market value of the Company's common stock on the date of exercise of the NSO, and the Company is entitled to a compensation deduction for the same amount.
ISOs can be exercised only if the optionee is still an employee of the Company and its subsidiaries, and for a limited time period after termination of employment (or within one year after the death or disability of the optionee). All of the outstanding options under the Stock Option Plan have five-year or seven-year terms. The options are not immediately exercisable upon grant, but become exercisable in equal installments over four-year periods. The Stock Option Plan allows the Board of Directors and/or Stock Option Committee discretion to modify the terms of outstanding options within certain limits, including accelerating the vesting of outstanding options.
All options granted under the Stock Option Plan must have an exercise price not less than the fair market value of the Company's common stock on the date the option is granted. Payment for the shares upon the exercise of options is made in cash. The number of shares remaining available in the Stock Option Plan is proportionately adjusted in the case of a stock split or dividend, as is the number of shares subject to outstanding options and the exercise price of such options.
The Board of Directors may at any time amend the Stock Option Plan, provided that no amendment may affect any then outstanding options or any unexercised portions thereof absent the optionee's consent. Stockholder approval is required for amendments that materially increase the number of shares reserved under the Stock Option Plan, materially alter the persons or class of persons eligible to be granted stock options, and for several types of amendments related to government codes and regulations. The Board of Directors may terminate the Stock Option Plan at any time. If not earlier terminated, the Stock Option Plan will terminate on October 24, 2003. Termination of the Stock Option Plan will not affect rights and obligations theretofore granted and then in effect.
In the event of a merger or sale of assets or like event, the Board of Directors is empowered to make appropriate adjustments to options under the Stock Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO INCREASE THE NUMBER OF AVAILABLE SHARES FOR GRANT UNDER THE 1993 STOCK OPTION PLAN.
Proposal 6: Proposal to Amend the Company’s 1997 Non-Employee Director Stock Option Plan to Increase the Number of Shares Reserved for Issuance Thereunder by 10,000,000 Shares
Proposal 6 seeks shareholder approval of an amendment to the Company's 1997 Non-Employee Director Stock Option Plan (the "Director Plan") to increase the total number of shares in the Director Plan by 10,000,000 shares, from 2,000,000 to 12,000,000 shares. The 10,000,000 share increase represents approximately 5% of the number of shares of the Company's Common Stock that would be outstanding if all of the issued Series A Shares were converted into Common Stock as of the Record Date. None of the Series A Shares had been converted into Common Stock as of the Record Date.
The Director Plan was originally approved by the shareholders in 1997. The persons eligible to participate in the Director Plan are non-employee directors and Board advisors of the Company. The Director Plan will expire on January 15, 2007, and no options may be granted under the Director Plan after that date. In August 2001, as described elsewhere in this Proxy Statement, the Board of Directors approved the creation and issuance of a series of preferred stock designated as the Company's Series A Preferred Stock, and an aggregate of 2,635,000 shares of Series A Preferred Stock were issued in August 2001 and an additional 7,200 shares of Series A Preferred Stock were issued in September 2001. Each share of Series A Stock is initially convertible into 33.334 shares of Common Stock.
In September 2001, the Board of Directors approved, subject to shareholder approval, an amendment to the Director Plan to increase the aggregate number of shares available thereunder by 10,000,000 shares in order to have an adequate number of shares available for future option grants. At present, the total number of shares that may subjected to options under the Director Plan is 2,000,000. As of, December 31, 2001, no shares had been issued upon the previous exercise of options under the Director Plan; 536,250 of the shares available under the Director Plan were reserved for issuance upon the exercise of currently outstanding options, at prices ranging from $0.48 to $4.00 per share, or a weighted average per share exercise price of $1.63; and a total of 1,463,750 shares remained available for additional option grants, prior to giving effect to the proposed increase.
The Board of Directors believes that it is in the best interests of the Company to be able to continue to create equity incentives to advance the interests of the Company by attracting and retaining qualified, competent non-employee Directors, upon whose efforts and judgment the success of the Company is largely dependent. The Board of Directors believes that the 1,463,750 shares remaining available as of December 31, 2001, for granting options pursuant to the Director Plan are insufficient for that purpose, largely as a consequence of the issuance of the 2,642,200 shares of Series A Preferred Stock, which, in the aggregate, are convertible into approximately 88,075,095 shares of the Company's Common stock at a conversion price of $0.03 per share, as well as the Company's subsequent issuance of an additional 99,051 shares of Series A Preferred Stock (which are co nvertible into an additional 33,302,366 shares of the Company's Common Stock) as a result of the Company's failure to meet certain financial targets. The Company also issued 53,229 shares of Series A Preferred Stock (which are convertible into 1,774,335 shares of the Company’s Common Stock) in lieu of cash for the September 30, 2001 dividend. The Company further anticipates that it may be required to issue up to an estimated additional 27,000,000 shares of Series A Preferred Stock pursuant to the terms of the Stock Purchase Agreement dated August 13, 2001 pursuant to which it originally issued the Series A Preferred Stock. Consequently, in order to be able to continue to create equity incentives to assist in attracting and retaining qualified, competent non-employee Directors, the Board of Directors believes that it may be advisable to grant options covering up to an additional 10,000,000 shares of Common Stock prior to January 15, 2007, when the Director Plan will expire.
From the inception of the Director Plan through December 31, 2001, the following persons or groups had received options to purchase shares of Common Stock under the Stock Option Plan as follows: (i) Mr. Holmes (former Chairman of the Board), 416,250 shares; (ii) each non-employee nominee for director: Mr. Cooke (Chairman of the Board), 0 shares, Mr. Van Duyn, 120,000 shares, Mr. Ferrero, 0 shares, and Mr. Tusa, 0 shares; (iii) all current non-employee directors of the Company as a group, including Mr. Holmes (former Chairman of the Board): 536,250 shares; (iv) each associate of any of such directors or nominees, and (v) each other person who received or is to receive five percent of such options.
The Common Stock is traded under the symbol of “TNIS” on the Nasdaq OTC Bulletin Board. On December 19, 2001, the last reported bid and asked prices for the Common Stock were $0.06 and $0.065, respectively.
Subject to the approval of the proposed amendments by the shareholders, the Board has approved additional grants of options as follows: (i) the former Chairman of the Board: Mr. Holmes, 937,500; (ii) each non-employee nominee for director: Mr. Cooke (Chairman of the Board), 625,000 shares, Mr. Van Duyn, 937,500 shares, Mr. Ferrero, 937,500 shares, and Mr. Tusa, 937,500 shares; (iii) all current non-employee directors of the Company as a group, including Mr. Holmes (former Chairman of the Board): 4,375,000 shares; (iv) each associate of any of such directors or nominees, and (v) each other person who received or is to receive five percent of such options.
Except as described above, the Company cannot now determine the number of options to be received in the future by all current executive officers as a group, all current directors who are not also executive officers as a group, or all employees including any current officers who are not executive officers as a group.
The following summary of the principal features of the Director Plan is qualified by reference to the terms of the Director Plan, a copy of which is available without charge upon stockholder request to: Terry Reynolds, Vice President and Chief Financial Officer, Tanisys Technology, Inc., 12201 Technology Boulevard, Suite 125, Austin Texas 78727-6101.
SUMMARY OF DIRECTOR PLAN
Stock Options: 1997 Non-Employee Director Plan.The Company’s 1997 Non-Employee Director Plan (the "Director Plan") is administered by the Board of Directors. The Director Plan authorizes the granting of nonqualified options to eligible persons.
The Director Plan was adopted by the Company’s Board of Directors on January 15, 1997. Prior to this date, non-employee directors were granted options under the 1993 Option Plan. The purpose of the plan is to advance the interests of the Company by providing an additional incentive to attract and retain qualified and competent directors, upon whose efforts and judgment the success of the Company is largely dependent, through the encouragement of stock ownership in the Company by such persons.
The Director Plan authorizes the granting to non-employee directors (totaling four eligible individuals at December 31, 2001) of nonqualified options (“Director Options”) exercisable for the purchase of 25,000 shares of Common Stock on the date they are elected or appointed to the Board of Directors, whether at the annual meeting of stockholders or otherwise, at an exercise price equal to the fair market value of the Common Stock on the date such non-employee director is elected or appointed, vesting one third on each of the first three anniversaries of the date of grant. In addition, upon their re-election, each non-employee director receives, on the first business day after the date of each annual meeting of stockholders of the Company, commencing with the annual meeting of stockholders immediately following the full vesting of any previously granted Director Option, a Director Option to purchase an additional 25,000 shares of Common Stock at an exercise price per share equal to the fair market value of the Common Stock on the date of grant.
The Director Plan also provides for the granting of discretionary options (“Discretionary Options”) from time to time by the Board of Directors to any non-employee director of the Company. The Discretionary Options will vest according to the vesting schedule determined by the Board of Directors and expire no more than seven years from the date of grant. At least six months must elapse from the date of the acquisition of the Discretionary Option to the date of disposition of the Discretionary Option (other than upon exercise or conversion) or its underlying Common Stock.
Common Stock issued under the Director Plan may be newly issued or treasury shares. Already owned Common Stock may be used as payment for the exercise price of options if approved by the Board of Directors at the time of exercise. If any option granted under the Director Plan terminates, expires or is surrendered, new options may thereafter be granted covering such shares.
Under the terms of the Director Plan, a total of 2,000,000 shares of Common Stock have been reserved for issuance upon exercise of Director Options and Discretionary Options. At December 31, 2001, a total of 4,911,250 options had been granted under the Director Plan subject to approval of Proposal 6 in this Proxy Statement. Options, once granted and to the extent vested and exercisable, will remain exercisable throughout their term, except that the unexercised portion of a Director Option will terminate 30 days after the date an optionee ceases to be a director for any reason other than death, in which case the Director Option will terminate one year after the optionee’s death or six months after the optionee’s death if the death occurs during the 30-day period referenced above.
On December 6, 2000, the Company filed a Registration Statement on Form S-8 with the Securities and Exchange Commission requesting that a total of 7,000,000 shares of Common Stock be registered and set aside for both of the Company’s stock option plans, including the 2,000,000 shares of Common Stock subject to the Director Plan. In addition, the Company is in the process of amending its Registration Statement on Form S-8 with the Commission requesting an additional 10,000,000 shares of Common Stock be registered and set aside for the Director Plan (see Proposal 6).
The Director Plan terminates on January 15, 2007, and any Director Option or Discretionary Option outstanding on such date will remain outstanding until it has either expired or been exercised.
Options granted to employees may be designated as incentive stock options (ISOs) or as non-statutory stock options (NSOs). Only NSOs may be granted to consultants. The Internal Revenue Code, as presently in effect, limits the number of ISOs which can become exercisable by any employee in any one year and provides that the Company and optionees receive different tax treatment upon exercise of NSOs and ISOs. No tax consequences result to the Company or an ISO grantee upon the issuance and exercise of an ISO. No tax consequences result to the Company or an NSO grantee upon the issuance of an NSO pursuant to the Stock Option Plan having an exercise price equal to the fair market value of the Company's common stock on the date of grant of the NSO. Upon the exercise of the NSO, a grantee realizes income in an amount equal to the difference between the option exercise p rice and the fair market value of the Company's common stock on the date of exercise of the NSO, and the Company is entitled to a compensation deduction for the same amount.
ISOs can be exercised only if the optionee is still an employee of the Company and its subsidiaries, and for a limited time period after termination of employment (or within one year after the death or disability of the optionee). All of the outstanding options under the Director Plan have five-year or seven-year terms. The options are not immediately exercisable upon grant, but become exercisable in equal installments over four-year periods. The Director Plan allows the Board of Directors the discretion to modify the terms of outstanding options within certain limits, including accelerating the vesting of outstanding options.
All options granted under the Director Plan must have an exercise price not less than the fair market value of the Company's common stock on the date the option is granted. Payment for the shares upon the exercise of options is made in cash. The number of shares remaining available in the Director Plan is proportionately adjusted in the case of a stock split or dividend, as is the number of shares subject to outstanding options and the exercise price of such options.
The Board of Directors may at any time amend the Director Plan, provided that no amendment may affect any then outstanding options or any unexercised portions thereof absent the optionee's consent. Stockholder approval is required for amendments that materially increase the number of shares reserved under the Director Plan, materially alter the persons or class of persons eligible to be granted stock options, and for several types of amendments related to government codes and regulations. The Board of Directors may terminate the Director Plan at any time. If not earlier terminated, the Director Plan will terminate on January 15, 2007. Termination of the Director Plan will not affect rights and obligations theretofore granted and then in effect.
In the event of a merger or sale of assets or like event, the Board of Directors is empowered to make appropriate adjustments to options under the Director Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO INCREASE NUMBER OF AVAILABLE SHARES FOR GRANT UNDER THE 1997 NON-EMPLOYEE DIRECTOR PLAN.
Proposal 7: Proposal to Amend the Terms of the Series A Preferred Stock
The Board of Directors has approved an amendment of Section 7 (Voting Rights) of the provision of the Company's Articles of Incorporation relating to the Series A Preferred Stock. The amendment will decrease the percentage of the Series A shares required to approve certain transactions from 66-2/3% of the outstanding Series A shares to 50% of the outstanding Series A shares plus one share. The provisions of the Articles of Incorporation that require the approval of the holders of a specified percentage of the Series A shares were negotiated by the Series A shareholders to prevent the Company from taking specified actions without the consent of the Series A shareholders; thus, the proposed decrease to those approval requirements will increase the likelihood that the Company may be able to obtain the required consent if necessary in the future. At present the Company has no plans to seek any such consent for any transaction. The amendment will also provide that, to the extent permitted by applicable Wyoming law, future amendments of the provisions of the Articles of Incorporation relating solely to the terms of the Series A Preferred Stock may be approved by the Board and the holders of the Series A Preferred Stock, and any such amendments will not require the approval of the holders of the Common Stock. The text of the proposed amendment is included in Appendix B to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE TERMS OF THE SERIES A PREFERRED STOCK.
FURTHER INFORMATION
Board of Directors and Executive Officers
Set forth below is information with respect to each director and executive officer of the Company as of December 31, 2001. The executive officers are elected by the Board of Directors and serve at the discretion of the Board. There are no family relationships between any two directors or executive officers.
Name Age Position(s)
Richard Brook 42 President, Chief Executive Officer and Director John R. Bennett 41 Vice President of Sales and Marketing Joseph C. Klein 45 Vice President of Operations and Engineering Terry W. Reynolds 45 Vice President of Finance and Chief Financial Officer C. Lee Cooke 57 Chairman of the Board (3) Justin L. Ferrero 28 Director (1) Parris H. Holmes, Jr. 58 Chairman of the Board (2)(3) David P. Tusa 41 Director (1) Theodore W. Van Duyn 52 Director (2)
(1) Member of the Audit Committee. (2) Member of the Compensation/Stock Option Committee (3) New Century has informed the Company that Mr. Parris H. Holmes, Jr. plans to resign as Chairman of the Board of Directors of the Company ten days after the mailing of this Proxy Statement and that New Century intends to appoint Mr. C. Lee Cooke to replace Mr. Holmes as Chairman of the Board.
The following are biographies of the Company’s executive officers and directors, including all positions currently held with the Company and positions held during the last five years.
Richard M. Brookjoined the Company as President and Chief Executive Officer in October 2001. Prior to joining the Company, Mr. Brook served in a variety of management positions for technology companies as a consultant for Brook and Associates. From 1991 to 1998, Mr. Brook was a founder and served as President and Chief Executive Officer of Peak International, a supplier of materials to the semiconductor industry. Prior to working at Peak, he worked for more than nine years at Texas Instruments. Mr. Brook holds two patents on semiconductor packaging and wafer processing. The Board of Directors has voted to have Mr. Brook fill the vacancy on the Board of Directors left by the resignation of Mr. Comiso, the Company’s former Director, President and Chief Executive Officer. Mr. Brook will become a director effective te n days following the mailing of this Proxy Statement.
John R. Bennett,Vice President of Sales and Marketing, joined the Company in November 1996 with many years of sales and marketing experience in the electronics, computer and peripherals businesses. Prior to being appointed Vice President in October 1997, Mr. Bennett served as Director of Sales at Tanisys, with prior responsibilities for the sales management of Tanisys' DarkHorse line of memory test equipment. Other positions held by Mr. Bennett include Senior Consultant, IBM, from October 1995 to November 1996, Vice President, Marketing, CACTUS Inc., from August 1994 to October 1995 and National Marketing Manager and National Sales Manager, CalComp (Division of Lockheed), from July 1988 to August 1994.
Joseph C. Klein,Ph.D., Vice President of Operations and Engineering, joined the Company in November 1997. Dr. Klein has over 15 years of experience in the electronics and computer industry. Prior to joining the Company, Dr. Klein was Vice President of Engineering/Research and Development for PNY Technologies, Inc. from November 1994 to November 1997 and was World Wide Manager of Semiconductor Memory Product for IBM from November 1984 to November 1994.
Terry W. Reynolds,CPA, joined the Company as Vice President of Finance in January 2000. He currently serves the Company as Vice President of Finance and Administration as well as the Company’s Chief Financial Officer. Prior to joining the Company, Mr. Reynolds served from October 1998 to December 1999 as Chief Financial Officer of Doyle Wilson Homebuilder. From September 1996 to October 1998, he was the Chief Financial Officer for Windsport, and prior to that he worked for the public accounting firms of Charles Douthitt & Co. and Arthur Andersen LLP. He has over 20 years experience in financial management and has also held positions with Chrysler Technologies Corporation and First Financial Corporation. C. Lee Cooke,has served as Special Advisor to the Board since August 2001. New Century has appointed Mr. Cooke as the Company’s Chairman of the Board of Directors effective upon resignation of Mr. Parris H. Holmes, Jr. from that position effective ten days following the mailing of this Proxy Statement. Mr. Cooke also serves as a Director with New Century Equity Holdings Corp., a holding company focused on high growth, technology-based companies and investments. Since September 1991, he has been Chairman of the Board and Chief Executive Officer of Habitek International, Inc., d/b/a U.S. Medical Systems, Inc. Mr. Cooke is also a director of Sharps Compliance Corp., a provider of mail-back medical disposal, and serves as an advisory director to M2K, an interactive marketing firm, and the Staubach Group, CTLLC. He was Presi dent and Chief Executive Officer of Cuville, Inc., d/b/a Good2CU.com, from 1999 until 2000. Mr. Cooke served as Chief Executive Officer of The Greater Austin Chamber of Commerce from 1983 to 1987. From 1988 to 1991 he served in the elected position as Mayor of Austin, Texas.
Justin L. Ferrero has served as a Director since August 2001 when he was appointed a Director by New Century Equity Holdings Corp. Mr. Ferrero is also a Director with New Century Equity Holdings Corp., a holding company focused on high growth, technology-based companies and investments. Mr. Ferrero also serves as a Director of Clique Capital, LLC, a company of experienced venture investors providing initial and secondary funding for high-growth companies in a wide range of industries, including technology, new economy and healthcare. Mr. Ferrero works closely with Clique Capital’s portfolio companies to improve their business models and raise additional financing.
Parris H. Holmeshas served as Chairman of the Board since October 1997 and as Director of the Company since August 1993. Mr. Holmes is also Chairman of the Board and Chief Executive Officer of New Century Equity Holdings Corp., a holding company focused on high-growth, technology-based companies and investments, a position he has held since May 1996. Mr. Holmes served as both Chairman of the Board and Chief Executive Officer of USLD Communications Corp., formerly U.S. Long Distance Corp. (“USLD”), from September 1986 until August 1996, and served as Chairman of Board of USLD until June 2, 1997. Prior to March 1993, Mr. Holmes served as President of USLD. Mr. Holmes also serves as a Director of Sharps Compliance Corp., a provider of mail-back sharps disposal services for certain types of medical sharps (needles, syringes and razors) products. New Century has informed the Company that Mr. Parris H. Holmes, Jr. plans to resign as Chairman of the Board of Directors of the Company ten days after the mailing of this Proxy Statement and that New Century intends to appoint Mr. C. Lee Cooke to replace Mr. Holmes as Chairman of the Board.
David P. Tusa,CPA, has served as a Director and as Corporate Secretary since August 2001 when he was appointed a Director by New Century Equity Holdings Corp. Mr. Tusa has served as Senior Vice President and Chief Financial Officer of New Century Equity Holdings Corporation, a holding company focused on high-growth, technology-based companies and investments, since August 1999 and was appointed Corporate Secretary in January 2001. Mr. Tusa was Executive Vice President and Chief Financial Officer of U. S. Legal Support, Inc., a provider of litigation support services with over 36 offices in seven states, from September 1997 to August 1999. Prior to this, Mr. Tusa served as Senior Vice President and Chief Financial Officer of Serv-Tech, Inc., a $300 million, publicly held provider of specialty services to industrial customers in multiple industries, from April 1994 through August 1997. Additionally, Mr. Tusa was with CRSS, Inc., a $600 million, publicly held diversified services company, from May 1990 through April 1994, most recently as Corporate Controller.
Theodore W. Van Duynhas served as a Director since March 1994. Mr. Van Duyn was Chief Technology Officer of BMC Software, Inc. from February 1993 to August 2000. Mr. Van Duyn joined BMC Software, Inc. in 1985 as Director of Research and served as Senior Vice President, Research and Development, from 1986 until assuming the position of Chief Technology Officer in 1993. He retired from BMC Software, Inc. in August 2000.
All directors hold office for their elected terms or until their successors are duly elected and qualified. If a director should be disqualified or unable to serve as a director, the Board of Directors may fill the vacancy so arising for the unexpired portion of his term. All officers serve at the discretion of the Board of Directors. There are no family relationships between members of the Board of Directors or any executive officers of the Company.
Mr. Charles T. Comiso resigned from the Company as its Director, Chief Executive Officer, and President effective September 28, 2001.
Compensation/Stock Option Committee Report on Executive Compensation
General. The Compensation/Stock Option Committee of the Board of Directors of the Company (the “Committee”) has furnished the following report on the Company’s executive compensation policies. The report describes the Committee’s compensation policies applicable to the Company’s executive officers and provides specific information regarding the compensation of the Company’s Chief Executive Officer. (The information contained in the report shall not be deemed to be “soliciting material” or to be “filed” with the Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing .)
The Committee is comprised of two outside directors, Messrs. Cooke and Van Duyn, and oversees all aspects of the Company’s executive compensation policy and reports its determinations to the Board of Directors. The Committee’s overall goal is to develop executive compensation policies that are consistent with, and linked to, strategic business objectives and Company values. The Committee approves the design of, assesses the effectiveness of, and administers executive compensation programs in support of, the Company’s compensation policies. The Committee also reviews and approves all salary arrangements and other remuneration for executives, evaluates executive performance and considers related matters.
Compensation Philosophy. The Company’s executive compensation policies have four primary objectives: to attract and retain highly competent executives to manage the Company’s business, to offer executives appropriate incentives for accomplishment of the Company’s business objectives and strategy, to encourage stock ownership by executives to enhance mutuality of interest with stockholders and to maximize long-term stockholder value. The Committee believes that the compensation policies should operate in support of these objectives and should emphasize the following: a long-term and at-risk focus, a pay-for-performance culture, an equity orientation and management development.
Elements of Compensation. Each element of compensation considers median compensation levels paid within the competitive market. Competitive market data compares the Company’s compensation practices to a group of comparable companies that tend to have similar sales volumes, market capitalizations, employment levels and lines of business. The Committee reviews and approves the selection of companies used for compensation comparison purposes.
The key elements of the Company’s executive compensation are base salary, annual incentive and long-term incentive. These key elements are addressed separately below. In determining compensation, the Committee considers all elements of an executive’s total compensation package.
Base Salaries. Base salaries for executives are initially determined by evaluating executives’ levels of responsibility, prior experience, breadth of knowledge, internal equity issues and external pay practices. Base salaries are below the size-adjusted medians of the competitive market.
Increases to base salaries are driven primarily by individual performance. Individual performance is evaluated based on sustained levels of individual contribution to the Company. When evaluating individual performance, the Committee considers the executive’s efforts in promoting Company values, continuing educational and management training, improving product quality, developing relationships with customers, suppliers and employees, and demonstrating leadership abilities among co-workers. As the former President and Chief Executive Officer, Mr. Charles T. Comiso received $240,000 base salary, $11,800 in additional compensation, and $60,000 of severance pay as provided for in his employment agreement (see “Employment Agreements”). As President and Chief Executive Officer effective October 1, 2001, Mr. Richard M. Brook will receive $180,000 base salary as provided for in his employment agreement (see “Employment Agreements”).
Annual Incentive. Each year, the Committee evaluates the performance of the Company as a whole, as well as the performance of each individual executive. Factors considered include revenue growth, net profitability and cost control. The Committee does not utilize formalized mathematical formulae, nor does it assign weightings to these factors. The Committee, in its sole discretion, determines the amount, if any, of incentive payments to each executive. The Committee believes that the Company’s growth in revenue and profitability requires subjectivity on the part of the Committee when determining incentive payments. The Committee believes that specific formulae restrict flexibility and are too rigid at this stage of the Company’s development.
Long-Term Incentives. The Company’s long-term compensation philosophy provides that long-term incentives should relate to improvement in stockholder value, thereby creating a mutuality of interests between executives and stockholders. Additionally, the Committee believes that the long-term security of executives is critical for theperpetuation of the Company. Long-term incentives are provided to executives through the Company’s 1993 Stock Option Plan and through restricted stock awards.
In keeping with the Company’s commitment to provide a total compensation package that favors at-risk components of pay, long-term incentives comprise an appreciable portion of an executive’s total compensation package. When awarding long-term incentives, the Committee considers executives’ respective levels of responsibility, prior experience, historical award data, various performance criteria and compensation practices at comparable companies. Again, the Committee does not utilize formal mathematical formulae when determining the number of options/shares granted to executives.
Charles T. Comisojoined the Company as President, Chief Executive Officer and Director in October 1997. Prior to joining the Company, Mr. Comiso served as a Senior Officer of Wyse Technology, Inc. from 1984 to September 1997. From 1995 to September 1997, Mr. Comiso served as Senior Vice President of the parent company and from 1990 to 1995 as President and Chief Executive Officer of Link Technologies, Inc., a wholly owned subsidiary of Wyse Technology, Inc. Mr. Comiso is an electrical engineer with more than 35 years of technology industry experience and also has held positions with Hewlett Packard Company, Texas Instruments, IT&T Labs and Bendix Corporation.
John R. Bennett,Vice President of Sales and Marketing, joined the Company in November 1996 with many years of sales and marketing experience in the electronics, computer and peripherals businesses. Mr. Bennett became the Vice President of Sales and Marketing in October 1999. From October 1997 to September 1999, Mr. Bennett served as Vice President of Sales. Prior to being appointed Vice President of Sales in October 1997, Mr. Bennett served as Director of Sales at Tanisys. Other positions held by Mr. Bennett include Senior Consultant, IBM, from October 1995 to November 1996, Vice President, Marketing, CACTUS Inc., from August 1994 to October 1995, and National Marketing Manager and National Sales Manager, CalComp (Division of Lockheed), from July 1988 to August 1994.
Richard R. Giandana, Vice President of Human Resources and Administration, joined the Company in May 1998 with many years’ experience in domestic and international human resources and education management, including experience in Europe, Australia and Latin America. He has worked in high-tech manufacturing with IBM, Xerox and Tandem Computers. Mr. Giandana was formerly a member of the faculties at the Rochester Institute of Technology in New York and Cabrillo College in California. He was also President of the Center for Training and Communication in Scotts Valley, California and has provided consulting services and training to high-tech firms in California and Texas, including hisSelling Ideas to Decision Makers seminar.
Joseph C. Klein,Ph.D., joined the Company in November 1997 as Vice President of Engineering and became the Vice President of Operations and Engineering in January 2000. Dr. Klein has over 15 years of experience in the electronics and computer industry. Prior to joining the Company, Dr. Klein was Vice President of Engineering/Research and Development for PNY Technologies, Inc. from November 1994 to November 1997 and was World Wide Manager of Semiconductor Memory Product for IBM from November 1984 to November 1994.
Terry W. Reynolds,CPA, joined the Company as Vice President of Finance in January 2000 and was promoted to Chief Financial Officer in January 2001. Prior to joining the Company, Mr. Reynolds served from October 1998 to December 1999 as Chief Financial Officer of Doyle Wilson Homebuilder, Inc. From September 1996 to October 1998, he was the Chief Financial Officer for Windsport, and prior to that he worked for the public accounting firms of Charles Douthitt & Co. and Arthur Andersen LLP. He has over 20 years’ experience in financial management and has also held positions with Chrysler Technologies Corporation and First Financial Corporation. Mr. Reynolds is a Certified Public Accountant licensed in the state of Texas.
Parris H. Holmes, Jr. has served as Chairman of the Board since October 1997 and as Director of the Company since August 1993. Mr. Holmes has been Chairman and Chief Executive officer of Billing Concepts Corp., formerly a third-party billing clearinghouse and information management services business, since May 1996. Mr. Holmes served as Chairman of the Board of USLD Communications Corp. from September 1986 until August 1996 and continued as Chairman of the Board of USLD Communications Corp. until June 1997.
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