ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
10675 Sorrento Valley Road, Suite 200
San Diego, California 92121
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON AUGUST 29, 2002
The Annual Meeting of the Shareholders ("Annual Meeting") of Advanced
Remote Communication Solutions, Inc., a California corporation ("ARCOMS" or the
"Company"), will be held at the office of the Company's subsidiary, Enerdyne
Technologies, Inc., 1935 Cordell Court, El Cajon, California 92020 on August 29,
2002, at 10:00 a.m. for the following purposes:
1. To elect five directors of the Company, all of whom shall serve until
the 2003 Annual Meeting of Shareholders (and until the
election and qualification of their successors);
2. To consider and act upon a proposal to ratify and approve an amendment
to the Company's 1996 Stock Option Plan increasing the number of
available shares to 7,500,000; and
3. To consider and act upon any other matters which may properly come
before the Annual Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on July 2, 2002 as the
record date for the determination of the holders of the Company's capital stock
entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in person.
Regardless of whether you plan to attend the Annual Meeting, please sign and
date the enclosed Proxy and return it as promptly as possible in the enclosed
pre-addressed and postage paid envelope. The prompt return of Proxies will
ensure a quorum and save the Company the expense of further solicitation. Any
shareholder returning the enclosed Proxy may revoke it prior to its exercise by
voting in person at the Annual Meeting or by filing with the Secretary of the
Company a written revocation or duly executed Proxy bearing a later date.
By Order of the Board of Directors,
Brandon L. Nixon
Chief Executive Officer, Chairman
San Diego, California
July 22, 2002
Advanced Remote Communication Solutions, Inc.
10675 Sorrento Valley Road, Suite 200
San Diego, California 92121
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 29, 2002
I. PROXIES
This Proxy Statement is furnished in connection with the solicitation of proxies
by or on behalf of the Board of Directors ("Board") of Advanced Remote
Communication Solutions, Inc., a California corporation (the "Company"), for use
at the Company's 2002 Annual Meeting of Shareholders to be held on August 29,
2002 at the office of the Company's subsidiary, Enerdyne Technologies, Inc.,
1935 Cordell Court, El Cajon, California 92020 at 10:00 a.m., and at any and all
adjournments thereof (the "Annual Meeting"), for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders.
Any shareholder may revoke his or her proxy by delivering written notice of
revocation to the Secretary of the Company at its principal office, 10675
Sorrento Valley Road, Suite 200, San Diego, California 92121, by delivery of a
proxy bearing a later date, or by attendance at the Annual Meeting and voting in
person.
This Proxy Statement and the Annual Report of the Company for the year ended
December 31, 2001 will be mailed on or about July 22, 2002, to each shareholder
of record as of the close of business on July 2, 2002.
The solicitation of proxies is being made by use of the mails. The cost of
preparing, assembling and mailing these proxy materials will be paid by the
Company. Following the mailing of this Proxy Statement, directors, officers and
regular employees of the Company may solicit proxies by mail, telephone,
telegraph or personal interview. Such persons will receive no additional
compensation for such services. Brokerage houses and other nominees, fiduciaries
and custodians nominally holding shares of the Company's capital stock of record
will be requested to forward proxy soliciting material to the beneficial owners
of the shares, and will be reimbursed by the Company for their reasonable
out-of-pocket expenses incurred in forwarding these materials.
At the Annual Meeting, the holders of common stock and preferred stock vote
together as a single class to elect two directors. The remaining three directors
will be elected by the holders of C-1, C-2 and C-3 preferred stock as provided
in the Company's Articles of Incorporation.
When your proxy is returned properly signed, the shares represented will be
voted in accordance with your directions. Where specific choices are not
indicated, proxies will be voted in favor of the two persons nominated to be
directors in Proposal One and in favor of Proposal Two. If a proxy indicates
that a shareholder or nominee abstains from voting or that shares are not to be
voted on a particular proposal, the shares will not be counted as having been
voted on that proposal, and those shares will not be reflected in the final
tally of the votes cast with regard to that proposal, although such shares will
be counted as in attendance at the Annual Meeting for purposes of determining a
quorum. Additionally, broker non-votes are not counted as votes cast on any
matter to which they relate.
The presence at the Annual Meeting in person or by proxy of the holders of a
majority of the shares of capital stock(1) entitled to vote at the Annual
Meeting is necessary to constitute a quorum for the transaction of business.
________________________
(1) Capital stock - Capital stock when used in this Proxy refers to 21,231,627
shares of no par value common stock and an aggregate of 11,018.25 shares of
preferred stock (351.25 shares of Series B preferred stock, which may be
exchanged into Series C-3 preferred stock prior to the date of the Annual
Meeting, 6,667 shares of Series C-1 preferred stock and 4,000 shares of Series
C-2 preferred stock) which are entitled to vote 12,372,204 shares on an "as
converted" basis as set forth in the Company's Articles of Incorporation.
Holders of common stock are entitled to one vote per share and holders of
preferred stock are entitled to vote shares on an "as converted" basis as set
forth in the Company's Articles of Incorporation on matters brought before the
Annual Meeting and to cumulate votes for the election of directors. Shareholders
holding common stock and shareholders holding preferred stock, voting together
as a single class on a "as converted" basis, will vote for the two directors as
shown on the proxy card in Proposal One and for Proposal Two. Holders of Series
C-1 and C-2 preferred stock, voting together as a single class, will be entitled
to elect two additional members of the Company's Board of Directors at the
Annual Meeting, their nominees are listed under "Nominees". Holders of Series
C-3 preferred stock will be entitled to elect one additional member of the
Company's Board of Directors at the meeting. The Series C3 preferred stock's
nominee is listed under "Nominees". In total five directors have been nominated
for election at the Annual Meeting.
A shareholder may not cumulate votes unless the shareholder has announced at the
Annual Meeting the intention to do so before the voting has begun, but if any
shareholder makes such an announcement, all shareholders may cumulate votes.
Cumulative voting rights entitle a shareholder to give one nominee as many votes
as are equal to the number of directors to be elected, multiplied by the number
of shares owned by the shareholder, or to distribute his or her votes as the
shareholder sees fit among the nominees for whom they are voting. For each class
entitled to vote on one or more directors, the nominees receiving the highest
number of votes will be elected.
An affirmative vote of a majority of the shares represented and voting at the
Annual Meeting is required for approval of Proposal Two.
Directors and officers beneficially own approximately 36% of the outstanding
shares of capital stock. The directors and officers have indicated that to the
extent they have voting rights, they intend to vote for each of the nominees for
director and in favor of Proposal Two.
The Company had 21,231,627 shares of common stock outstanding at the close of
business on July 2, 2002 and the holders of 11,018.25 shares of preferred stock
are entitled to vote 12,372,204 shares on an "as converted" basis as set forth
in the Company's Articles of Incorporation. Holders of record of shares of the
capital stock at the close of business on July 2, 2002 will be entitled to
notice of and to vote at the Annual Meeting. Holders of preferred stock will be
entitled to notice of and to vote the number of shares as set forth in the
Company's Articles of Incorporation at the Annual Meeting.
The Company has made an Exchange Offer to the holders of Series B preferred
stock to exchange their shares of Series B to Series C-3 preferred stock. If all
of the holders of Series B preferred stock exchange their shares to Series C-3
preferred stock, at the date of the exchange there will be a total of 11,820.35
shares of preferred stock entitled to vote 11,926,903 shares of common stock on
an "as converted" basis. In addition, the Exchange Offer allows the holders of
Series B preferred stock who exchange their Series B preferred stock to Series
C-3 preferred stock, to purchase a total of 257.95 additional shares of Series
C-1 preferred stock at a purchase price of $300 per share and an additional
154.75 shares of Series C-2 preferred stock at $500 per share. The additional
shares of C-1 and C-2 preferred stock, if purchased by the holders of Series B
preferred stock, would allow the holders to vote an additional 412,700 shares of
common stock on an "as converted" basis.
II. Securities Ownership of Certain Beneficial Owners and Management
Set forth below is certain information concerning the ownership of the Company's
capital stock as of July 2, 2002 by (i) all persons known to the Company to be
beneficial owners of more than 5% of the outstanding capital stock, (ii) each
director and nominee for director of the Company, (iii) each executive officer
of the Company, and (iv) all executive officers and directors of the Company as
a group. Except as otherwise indicated, and subject to applicable community
property and similar laws, the persons named have sole voting and investment
power with respect to the securities owned by them.
% OF CERTAIN BENEFICIAL OWNERS
Name and Address Number of Common Shares Percent of
of Shareholder(1) Beneficially Owned Outstanding Capital Stock
Irene Shinsato 2,373,075 (2) 7
Post Office Box 2495
La Jolla, CA 92038
Jon S. Gilbert 3,108,300 (3) 9
1298 Prospect Street
La Jolla, CA 92037
Scott T. Boden 2,373,075 (4) 7
Post Office Box 57
La Jolla, CA 92038
Housatonic Micro Fund SBIC, L.P. 8,072,328(5) 22
88 Kearny Street
San Francisco, CA 94108
Lexington Funding LLC 4,034,041(6) 11
9350 Wilshire Boulevard
Beverly Hills, CA 90212
SECURITY OWNERSHIP BY MANAGEMENT
Brandon L. Nixon (7) 250,000 1
Michael L. Silverman 3,544,837 10
Mohammed G. Abutaleb 619,125 2
Joseph M. Niehaus 8,072,328(8) 22
Harvey Gettleson 0
Andrew Werth 35,000 *
Daniel V. Flanagan 35,000 *
Douglas Dwyre 35,000 *
Dean Kernus 56,000 *
Charles J. Drobny, Jr. 308,857 (9) 1
John R. Westgarth 40,000 *
All Directors and Executive
Officers as a group
(11 persons) (10) 12,996,147 36%
_____________________
<FN>
(1) The address for all directors and executive officers is 10675 Sorrento
Valley Road, Suite 200, San Diego, California 92121.
(2) Includes 244,225 warrants and 663,500 options. All the securities are
in trusts for which Ms. Shinsato is a trustee.
(3) Shares are held in a family trust of which Mr. Gilbert is a trustee.
(4) Includes 244,225 warrants and 663,500 options. The shares are held in
family trusts for which Mr. Boden is a trustee, excepting for 100,000
warrants which are held in trust for minor children. Mr. Boden is not a
trustee of this trust and disclaims beneficial ownership.
(5) Housatonic Micro Fund SBIC, L.P. ("Housatonic") holds Series C-1 and
C-2 preferred stock which is convertible into 8,072,328 shares of
common stock. The shares shown are on an "as converted" basis and are
held by Housatonic.
(6) Lexington Funding LLC holds Series B, Series C-1 and Series C-2
preferred stock which are convertible into a total of 4,034,041 shares
of common stock.
(7) Mr. Nixon is a non voting partner of Housatonic. In May 2002, Mr. Nixon
received a stock option grant of 3,000,000 shares, which vests monthly
and was issued outside of the ARCOMS 1996 stock option plan.
(8) Mr. Neihaus is a general partner of Housatonic Micro Partners SBIC,
L.L.C and has voting power of the preferred stock held by Housatonic
(see note 5). The shares shown are on an "as converted" basis.
(9) 240,000 of the shares are represented by restricted stock granted under
an agreement, and the remaining 68,857 shares were issued under the
terms of an employment agreement.
(10) Includes shares issuable upon the exercise of options and warrants
within 60 days of July 2, 2002, as follows:
Mr. Nixon 250,000 shares
Mr. Silverman 150,000
Mr. Abutaleb 78,000
Mr. Dwyre 35,000
Mr. Flanagan 35,000
Mr. Werth 35,000
Mr. Kernus 56,000
Mr. Drobny 6,000
Mr. Westgarth 40,000
* Less than 1%
</FN>
III. Election Of Directors (Proposal No. 1 on Proxy Card)
The persons named below have been nominated by management for election as
directors of the Company to serve until the 2003 Annual Meeting of Shareholders
or until their respective successors are duly elected and qualify.
Unless otherwise instructed, the enclosed proxy will be voted for election of
the nominees listed below, except that the persons designated as proxies reserve
full discretion to cast their votes for another person recommended by management
in the unanticipated event that any nominee is unable to or declines to serve.
The Company's Board of Directors has no reason to believe that any nominee will
be unable or unwilling to serve.
Name of Nominee Age Position with the Company
Brandon L. Nixon (1) 38 Chairman, Director
Chief Executive Officer
Joseph M. Niehaus (1) 39 Director
Harvey Gettleson (2) 49 Director
Michael L. Silverman 57 Director
Mohammed G. Abutaleb 44 Director, President,
Innovative Communications
Technologies, Inc.
(1) Mr. Nixon and Mr. Niehaus have been nominated as directors by the holders
of Series C-1 and C-2 preferred stock as outlined in the Company's Articles
of Incorporation. The holders of Series C-1 and C-2 preferred stock have
indicated that they intend to vote in favor of the election of Mr. Nixon and
Mr. Niehaus.
(2) In anticipation of the conversion of the Series B preferred stock held by
Lexington Funding LLC into Series C-3 preferred stock, Mr. Gettleson has been
nominated as director as outlined in the Company's Articles of Incorporation.
Mr. Nixon joined the Company as Chairman and Chief Executive Officer in May
2002. Prior to joining the Company he was a General Partner with Housatonic
Partners, a private equity investment firm, where he founded the firm's
communications practice. Prior to Housatonic Partners, Mr. Nixon was Vice
President and General Manager of Cirrus Logic's infrastructure products
business. He has also held engineering, marketing and general management
positions with Hewlett-Packard, Texas Instruments and SAIC. Mr. Nixon holds a
Bachelor of Science degree in computer engineering from the University of
California, San Diego and a Master of Business Administration degree from
Stanford University. He also serves on the board of directors of several private
companies.
Mr. Niehaus joined Housatonic Partners as a General Partner in 2001. He was
employed as a Managing Director from 1993 until early 2001 at Hellman & Friedman
LLC before joining Housatonic Partners. Mr. Niehaus holds a Bachelor of Arts
degree from Dartmouth College and a Master of Business Administration degree
from Harvard University. He also serves on the boards of directors of several
private companies. He became a director of the Company in May 2002.
Mr. Gettleson is the Chief Operating Officer of Lexington Ventures, LLC. An
attorney and CPA, Mr. Gettleson formerly was the managing partner of the
Business Management Group at Ernst & Young LLP. He serves as a board
member/strategic advisor to several Lexington Ventures companies including
Firstream, Intermedia Advertising Group/RewardTV.Com, Omnipod and Vidius. Mr.
Gettleson graduated with a PhD with Distinction and Phi Beta Kappa from Monteith
College at Wayne State University. He also received his Juris Doctorate degree
in a joint program with the Schools of Law and Business of Wayne State
University. He became a director of the Company in May 2002.
Mr. Silverman formed Boatracs, Inc. in 1990 ("Old Boatracs") and served as
its Chairman, Chief Executive Officer, President and a director from its
inception until the merger of Old Boatracs with the Company (the "Merger") on
January 12, 1995, at which time he assumed the same positions with the Company.
Mr. Silverman served the Company as President and Chief Executive Officer from
the date of the Merger until October 1997 and again from November 1999 until May
2002. He continues to serve as a director. Since January 2001, Mr. Silverman has
served as a director of S.V.I. Holdings, Inc., a publicly traded retail software
company. Mr. Silverman is a Chartered Accountant (South Africa) and received a
Master of Business Administration degree from Stanford University.
Mr. Abutaleb joined the Company in September 1999 upon the merger of
Innovative Communications Technologies, Inc. ("ICTI") and the Company. Mr.
Abutaleb co-founded ICTI in 1989. Previously, Mr. Abutaleb was employed by
COMSAT Corporation and Fairchild Industries. While working for these companies,
he held technical and technical management positions. Mr. Abutaleb received a
Master of Science degree in Electrical Engineering from the University of
Maryland with an emphasis in communications and semiconductor physics. He was
appointed a director of the Company in November 1999.
There are no family relationships between any of the Company's directors and
officers. As part of the recapitalization transaction described in "Certain
Transactions," certain "Key Holders" of the capital stock of the Company signed
a Voting Agreement, agreeing to vote in favor for Proposal Two. The Key Holders
hold a total of 5,155,103 shares of common stock and 12,106,369 shares of Series
B, Series C-1 and Series C-2 preferred stock on an "as converted" basis. In
addition, the holders of common stock representing 3,982,838 shares and holders
of Series B, Series C-1 and Series C-2 preferred stock, representing 12,106,369
voting shares on an "as converted" basis, have agreed to elect Michael Silverman
to the Board of Directors. There are no other arrangements or understandings
between any director or executive officer and any other person pursuant to which
any person has been elected or nominated as a director or executive officer. Mr.
Werth served as a consultant during 2001 for a fee of $6,500 per quarter. All
directors and executive officers serve for a term of one year until the next
Annual Meeting of Shareholders.
During the year ended December 31, 2001, the Board of Directors held four
meetings where all directors were present except Mr. Major who did not attend
two meetings. During 2001, the Company had a Compensation Committee of the Board
of Directors consisting of John Major, Chairman, and Andrew Werth. Mr. Major
resigned as a Director of the Company in March 2002. The Compensation
Committee's primary function is to establish compensation for employees and
effect promotions. During 2001, the Audit Committee of the Board of Directors
consisted of Daniel Flanagan, Chairman, John Major and Doug Dwyre. The Audit
Committee advised the Board as to the selection of the Company's independent
accountants, reviewed with the independent accountants the accounting principles
and practices followed by the Company and the adequacy thereof, approved the
Company's annual audit and financial results and any material change thereto and
made recommendations to the Board regarding such matters. The Audit Committee
adopted the "ARCOMS Audit Committee Charter" in 2000, a copy of which was
attached as Exhibit-99 in the Proxy Statement dated April 9, 2001. The Board
does not have a standing Nominating Committee. During 2001, the Compensation
Committee and the Audit Committee each met twice.
Independent Public Accountants
Audit Fees
The aggregate fees paid by the Company to its independent accounting firms for
professional services rendered in connection with the audit of the Company's
annual financial statements for the year ended December 31, 2001 and for the
reviews of the Company's quarterly financial statements included in its
quarterly reports on Form 10-QSB for the year ended December 31, 2001 was
$113,000.
Replacement of Independent Accountants
In July 2001, the Company approved the engagement of KPMG LLP ("KPMG") as its
independent accountants replacing Deloitte and Touche LLP ("Deloitte and
Touche"). In March 2002, the Company dismissed KPMG and engaged Singer Lewak
Greenbaum & Goldstein LLP ("SLGG") as its independent accountants for the year
ended December 31, 2001.
In connection with the audits of the Company's financial statements for the
previous years ended December 31, 2000, 1999 and 1998 and in connection with the
review of the subsequent interim period ending March 31, 2001, there were no
disagreements with Deloitte and Touche on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures. The
accountant's reports of Deloitte and Touche on the financial statements of the
Company did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified to audit scope, or accounting principles; however, the
accountant's report for the year ended December 31, 2000 was qualified as to the
uncertainty that ARCOMS would continue as a going concern.
In connection with the audit of the Company's financial statements for the year
ended December 31, 2001 the Company determined that the cost of the audit, which
was in progress by KPMG, had become excessive. On March 20, 2002, the Audit
Committee recommended and the Board of Directors of the Company approved, the
dismissal of KPMG as the Company's independent accountants prior to completion
of the audit.
During the audit of the year ended December 31, 2001, KPMG informed the Company
that information had come to its attention related to capitalized software and
revenue recognition on licensing agreements, that if further investigated, may
materially impact the fairness or reliability of the Company's 2001 financial
statements. These conditions remained unresolved at the time KMPG was dismissed.
The Company's new accountants, SLGG, addressed these conditions during its
conduct of the audit of the year ended December 31, 2001. As a result of the
audit, Company recorded the adjustments necessary to ensure that its accounting
for software development costs and revenue on licensing agreements are compliant
with generally accepted accounting principles. These adjustments required the
Company to amend the quarterly reports on Form 10-QSB previously filed with the
Securities and Exchange Commission for the quarters ended March 31, 2001, June
30, 2001 and September 30, 2001. These amended forms 10-QSB reflected the fact
we should have recognized one particular time-based license arrangement ratably
over the term of the agreement due to its specific earnings process, rather than
recognizing the entire fee upon receipt. In addition, these amended forms 10-QSB
reflect the restatement of certain software development costs from capitalized
software costs to research and development costs.
In connection with the uncompleted audit of the year ended December 31, 2001 and
review of the interim periods ended June 30, 2001 and September 30, 2001, there
were no disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures. Nor,
except to the extent discussed below, were there any reportable events within
the meaning of Item 304 (a) (1) (v) of Regulation S-K for the interim periods
ended June 30, 2001 and September 30, 2001, and the fiscal year ended December
31, 2001.
KPMG also informed the Company that they noted certain matters involving the
Company's internal controls and its operations that they considered to be
reportable conditions under standards established by the American Institute of
Certified Public Accountants. The reportable conditions are related to:
(a) timely performance of account analysis; and
(b) the design and operation of internal controls in place
related to the documentation and communication of establishing
technological feasibility in connection with Statement of Financial
Accounting Standards No. 86.
In addition, the Company's new accountants, Singer Lewak Greenbaum and Goldstein
LLP ("SLGG") also informed the Company of a reportable condition as outlined in
(b) above.
The Company had not consulted with any other independent auditors regarding
either: (i) the application of accounting principles to a specified transaction,
either completed or proposed; or (ii) the type of audit opinion that might be
rendered on the Company's financial statements.
Financial Information Technology Service, Design and Implementation Fees
During the year ended December 31, 2001, the Company did not retain the services
of Deloitte & Touche, KPMG nor SLGG to consult on information technology issues.
All Other Fees
During the year ended December 31, 2001, the Company paid a total of $49,000 in
other fees to Deloitte & Touche and KPMG for the preparation of the Company's
tax returns.
During the year ended December 31, 2001 there were no payments made to outside
accountants for nonaudit services, other than the preparation of the Company's
tax return, and as a consequence neither the Board nor the Audit Committee
considered whether such services were compatible with maintaining the
independence of the Company's principal accounting firms.
Executive Officers
In addition to those listed above, the following individuals are also executive
officers:
Name Age Position with the Company
Charles J. Drobny, Jr. 51 Chief Operating Officer,
Boatracs Division
Dean B. Kernus 43 Chief Financial Officer, Secretary
John R. Westgarth 37 President, Enerdyne Technologies, Inc.
Mr. Drobny joined the Company effective November 1997 as Vice President,
Application Development when the Company purchased Boatracs Gulfport
("Gulfport"). In June 2000, he became Chief Operating Officer of the Boatracs
Division. Mr. Drobny founded Gulfport in September 1993. Prior to 1993, Mr.
Drobny was Vice President and General Manager of Genesis Systems in Bay St.
Louis, Mississippi, a manufacturer of marine information systems.
Mr. Kernus joined the Company in February 2000 as Chief Financial Officer. Prior
to joining the Company, Mr. Kernus was Vice President of Corporate and Project
Accounting for SeaWest WindPower, Inc., and an Audit Manager with McGladrey and
Pullen, LLP and with PricewaterhouseCoopers. His experience includes mergers and
acquisitions and business development. In public accounting, Mr. Kernus
concentrated on high technology and real estate companies. Mr. Kernus holds a
Bachelor of Science degree in Economics from the Wharton School of the
University of Pennsylvania and is a Certified Public Accountant.
Mr. Westgarth joined the Company in January 2001 as President of Enerdyne. From
1999 to January 2000, Mr. Westgarth was a marketing and strategy consultant for
a number of high technology companies. From 1998 to 1999, he was Vice President
of Marketing at Gyyr Inc., a division of Odetics Corporation. From 1995 to 1998,
Mr. Westgarth held the position of Vice President of Marketing of CBS
Corporation (formerly Westinghouse Electric Corporation). Mr. Westgarth holds a
Bachelor of Science degree in Business Administration from California
Polytechnic State University and holds both a Master in Business Administration
degree and a Master of Arts degree in Asian Studies from Cornell University.
IV. Executive Compensation
Executive Compensation
The following table sets forth for the years indicated certain compensation of
the Company's Chairman and the persons occupying the office of Chief Executive
Officer and the Company's executive officers who actually earned or who were
paid on a basis of more than $100,000 in salary and bonuses in such years.
SUMMARY COMPENSATION TABLE
No. of shares
Annual Other underlying
Principal Position Year Salary Compensation (1) Options
Michael L. Silverman 2001 $180,000 $3,760 100,000
Chairman, CEO & 2000 141,101 2,625
President (2) 1999 120,242 1,615 200,000
Charles J. Drobny, Jr. (3) 2001 $180,000 $2,574 30,000
Chief Operating Officer, 2000 185,671 2,626
Boatracs 1999 153,997 1,320
Mohammed G. Abutaleb 2001 $149,450 $2,745 190,000
President, ICTI (4) 2000 120,000 2,700 100,000
1999 50,000 50,000
John R. Westgarth 2001 $131,923 $1,509 300,000
President, Enerdyne (5)
Dean B. Kernus (6) 2001 $120,000 $2,781 40,000
Chief Financial Officer 2000 94,811 2,733 125,000
________________
<FN>
(1) Other compensation represents the Company match to the 401k plan and group
life insurance.
(2) Mr. Silverman has been the President and Chief Executive Officer of the
Company since November 1999 until May 2002 and previously from inception until
October 1997. He also served as Chairman of the Board of Directors until May
2002. He continues to serve as a director. The Company entered into an
employment agreement with Mr. Silverman effective January 1, 1995. Under the
agreement, Mr. Silverman's annual base compensation was $100,000 subject to
increases at the Board's discretion. The employment agreement automatically
renewed for successive one-year periods unless terminated, and was terminable by
the Company at any time for good cause as defined in the agreement. As a result
of the transaction described in "Certain Transactions", Mr. Silverman resigned
as chairman of the Company's Board of Directors as well as the position as chief
executive officer and president and the employment agreement was terminated.
(3) Mr. Drobny became Vice President effective November 1, 1997 when the Company
acquired Boatracs Gulfport ("Gulfport"). In connection with the Company's
purchase of Gulfport in November 1997, the Company entered into a four-year
employment agreement with Mr. Drobny. Under the terms of the employment
agreement, Mr. Drobny was paid base compensation of $150,000 for two years
commencing November 1, 1997 and $180,000 for the following two years. Mr. Drobny
could receive, at his election, up to $30,000 per year in the form of shares of
the Company's common stock for the first two years, and up to $60,000 per year
in the form of shares of common stock for the second two years. The salary shown
for 2000, 1999 and 1998 above includes $30,000 which Mr. Drobny has received in
salary to purchase Company stock. The employment agreement expired in October
2001. In June 2000, Mr. Drobny became Chief Operating Officer of the Boatracs
division.
(4) Mr. Abutaleb joined the Company as President of ICTI in September 1999 as
a consequence of the acquisition of his company, ICTI.
(5) Mr. Westgarth joined the Company in January 2001 at which time the Company
entered into an employment contract with him. Under the agreement Mr.
Westgarth's salary at the commencement of employment was $140,000 per year. In
addition he received 150,000 shares of Company stock as a signing bonus, to be
vested at the rate of 20% after six months, an additional 20% after one year and
20% per year thereafter. He also received an option to purchase 200,000 shares
of Company common stock under the Company's stock option plan at fair market
value to vest over five years. Mr. Westgarth is to receive, as an incentive, a
percentage of base salary, commencing at 25%, if earnings before interest,
taxes, depreciation and amortization ("EBITDA") at Enerdyne reaches $2 million,
and reaching 75% of base salary if EBITDA at Enerdyne reaches $4 million.
Additionally, Mr. Westgarth will receive a bonus if Enerdyne is sold commencing
at 5% of the sale price if the selling price is in excess of $12 million and
reaching 10% of the sales price if the selling price is in excess of $20
million.
(6) Mr. Kernus joined the Company in February 2000.
</FN>
The following table sets forth the information concerning individual grants of
stock options and appreciation rights during the last fiscal year to the
Company's Chief Executive Officer and the executive officers of the Company who
earned more than $100,000 last year.
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number Percent of Potential Realizable Value at
of Securities Total Options Assumed Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for Option(1)
Options Employees in Price Expira- term
Name Granted # Fiscal year ($/Share) tion 5% 10%
Michael Silverman 100,000 5% $0.41 2006 $11,328 $25,031
Charles J. Drobny 30,000 2% $0.69 2008 8,427 19,638
Mohammed G. Abutaleb 50,000 3% $0.69 2008 14,045 32,731
40,000 2% $0.31 2008 5,048 11,764
100,000 5% $0.37 2008 15,063 35,103
John R. Westgarth 200,000 10% $0.75 2008 61,065 142,308
100,000 5% $0.37 2008 15,063 35,103
Dean B. Kernus 30,000 2% $0.69 2008 8,427 19,638
10,000 1% $0.37 2008 1,506 3,510
<FN>
(1) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation only, in
accordance with the Securities and Exchange Commission's rules. Actual gains, if
any, on stock option exercises are dependent on the future performance of the
common stock, overall market conditions and the option holders continued
employment through the vesting period. The amounts reflected in this table may
not necessarily be achieved.
</FN>
The following table sets forth the information concerning each exercise of stock
options during the last fiscal year by the Company's Chief Executive Officer and
the executive officers of the Company who earned more than $100,000 last year,
and the fiscal year end value of unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number Of
Securities Value Of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options Options
On Value At FY-End At FY-End
Exercise Realized Exercisable/ Exercisable/
Name ($) Unexercisable Unexercisable
Michael L.Silverman 0 0 100,000/200,000 $0/$0
Charles J. Drobny, Jr. 0 0 0/30,000 $0/$0
Mohammed G. Abutaleb 0 0 40,000/300,000 $0/$8,000
John R. Westgarth 0 0 0/300,000 $0/$4,000
Dean B. Kernus 0 0 25,000/140,000 $0/$400
Compensation Committee Interlock and Insider Participation
During fiscal year 2001, Michael Silverman, an officer and director of the
Company, attended Compensation Committee meetings concerning executive officer
compensation.
Director Compensation
Non-employee directors currently receive stock options to purchase common stock
of the Company as compensation for Board meetings. Non-employee directors also
receive options for serving on the Audit and Compensation committees. Mr. Boden
received 25,000 options to purchase common stock of the Company exercisable at
$.35 in August 2001, Messrs. Dwyre, Flanagan and Werth each received 35,000
options to purchase common stock of the Company exercisable at $.35 in August
2001 and Mr. Major received 45,000 options to purchase common stock of the
Company exercisable at $.35 in August 2001. As a result of the Company's
recapitalization (see Certain Transactions), Messrs. Boden, Dwyre, Flanagan and
Werth resigned in May 2002. Mr. Major resigned in March 2002.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than 10%
of the Company's stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission. Executive
officers, directors and greater than 10% beneficial owners are required by
applicable regulations to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely upon a review of the copies of such forms furnished to the Company
and information involving securities transactions of which the Company is aware,
the Company believes that during the year ended December 31, 2001, all its
executive officers, directors and greater than 10% beneficial shareholders
complied with Section 16(a) filing requirements except for Mr. Kernus who filed
Form 5 several days late in 2001.
V. Certain Transactions
The Company has a number of contractual relationships with QUALCOMM, which owns
1,172,265 shares (3%) of the outstanding common stock.
The Company entered into a License and Distribution Agreement (the "Distribution
Agreement") dated June 13, 1990, which grants the Company certain exclusive
rights to distribute QUALCOMM's OmniTRACS System for marine applications in the
coastal waters of the United States and the Atlantic and Pacific Oceans. This
Distribution Agreement has been amended from time to time. The Distribution
Agreement has an initial term of five years and three five-year extensions. The
Company exercised its first two extensions in 1995 and 2000, extending the
agreement through 2005.
Under the Distribution Agreement, the Company is required to comply with
"minimum purchase requirements" annually. In accordance with an amendment to the
Distribution Agreement, the Company and QUALCOMM agreed that commencing January
1, 2000 and annually thereafter, the required minimum purchase requirements
would be mutually agreed upon by QUALCOMM and the Company, except that for each
subsequent annual period thereafter, the Company would purchase an additional
number of units equal to at least ten percent (10%) of the minimum purchase
requirement for the immediately preceding year. On March 7, 2002, QUALCOMM
asserted that the Company was in default of the "minimum purchase requirements"
for 2001. The Company directed QUALCOMM's attention to the applicable amendment
to the Distribution Agreement and had invited QUALCOMM to enter into
negotiations for the purpose of agreeing upon the minimum purchase requirements.
The Company had, also under protest, issued a purchase order to QUALCOMM for a
sufficient number of units to comply with QUALCOMM's demand in order to preserve
the Company's rights, which was rejected by QUALCOMM. The Company and QUALCOMM
then entered into good faith negotiations in an attempt to agree to minimum
purchase requirements without prejudice to the parties' respective asserted
positions.
On June 3, 2002, the Company executed an amendment to the Distribution Agreement
(the "Amendment") and paid QUALCOMM $500,000 in order to reinstate ARCOMS'
exclusivity rights under the Distribution Agreement. The exclusivity was
reinstated through September 30, 2002 without any additional purchase
requirements. In accordance with the Amendment, ARCOMS released QUALCOMM and
waived any existing or future claims, liabilities, or arguments contesting the
number of units to be purchased to meet the minimum purchase requirements for
maintaining exclusivity under the Distribution Agreement for 2003 and all prior
years. The Amendment also defined the revised minimum purchase requirements
under the Distribution Agreement.
In September 2001, the Company issued 35,851 shares of common stock to Chuck
Drobny, the Chief Operating Officer of the Boatracs division, under the terms of
an Employment Agreement effective November 1997 and in reliance on Section 4 (2)
of the Securities Act of 1933. The shares were valued at an average price of
$.84 each.
In May and June 2001, the Company borrowed from Mr. Michael Silverman, Chief
Executive Officer and Chairman of the Board of Directors, $60,000 and $20,000,
respectively. Interest was accrued at 10% and both loans were repaid in full
within 60 days of the loan date.
Mr. Werth, a director of the Company, was engaged as a consultant during
2001 and was paid a total of $26,000 in consulting fees. Mr. Werth resigned as
a director in May 2002.
On May 31, 2002, the Company entered into an agreement (the "Stock Purchase
Agreement") with two private companies (the "Purchasers"). Under the Stock
Purchase Agreement, the Company sold an aggregate of 10,667 shares of two newly
designated classes of the Company's preferred stock, having a total aggregate
purchase price of $4,000,000 to the Purchasers pursuant to a private placement
exempt from registration under the Securities Act. In addition, the Company has
offered all existing holders of its Series B preferred Stock to exchange such
shares for shares of a third newly designated class of its preferred stock. The
holders of all classes of the preferred stock are entitled to receive, when and
if declared by the Board of Directors, cumulative cash dividends, in preference
and priority to dividends on any junior stock at 10% per annum. In addition,
each share of the newly designated classes of preferred stock is convertible
into common stock at various conversion prices and may be adjusted for certain
recapitalization events.
As part of the transaction described above, Mr. Silverman resigned as chairman
of the Company's Board of Directors as well as the position as chief executive
officer and president, and four of the remaining five members of the Company's
Board of Directors resigned as directors. In addition, three new directors were
appointed to the Company's Board of Directors, one of whom, Mr. Nixon, was also
appointed Chairman of the Company's Board of Directors. In addition, the Stock
Purchase Agreement grants the investors the exclusive right, exercisable by
delivery of written notice to the Company during the period from August 2, 2002
through June 1, 2003 to purchase the assets of the Company's Boatracs division
at a purchase price as defined in the Stock Purchase Agreement. In the event
that the investors exercise their option to purchase Boatracs' assets, they may
tender their shares of Series C preferred stock toward the purchase price, which
shall be valued at their original purchase price plus accrued but unpaid
dividends thereon.
In conjunction with the Stock Purchase Agreement, the Company also entered into
an employment contract with Mr. Nixon, the chief executive officer, in
accordance with which and upon the approval of the Board of Directors, the
Company granted the executive nonstatutory stock options to purchase 3,000,000
shares of the Company's common stock.
VI. Approval of Amendments to 1996 Stock Option Plan (Proposal No.2 on Proxy
Card)
The Board of Directors has approved an amendment to the 1996 Stock Option Plan
(the "Plan") to increase the shares authorized under the Plan to 7,500,000.
Prior to this amendment there were 6,000,000 shares authorized under the Plan. A
summary of the Plan follows, but shareholders should read the entire Plan
attached to this Proxy Statement as Appendix I for a full understanding of the
Plan.
Options and Shares
Shares purchased upon exercise of options granted under the Plan may be composed
of authorized and unissued shares. If an option granted under the Plan expires
or is otherwise terminated prior to exercise, the shares subject to that option
will become available for future grants under the Plan. The total number of
shares subject to outstanding options under the Plan or under any other stock
option or similar plan may not exceed 30% of the total number of shares of
common stock outstanding on the date of the grant of any option under the Plan.
Administration
The Plan is administered by the Board of Directors or by a committee designated
by the Board consisting of at least two directors who are not also employees of
the Company (the "Committee"). Through 2001, the Committee consisted of John
Major and Andrew Werth. The structure of the Committee may be changed as
necessary to comply with any future changes in tax or securities laws or
regulations. For convenience, the following summary refers to the Committee as
the administering body under the Plan, although the Plan may be administered by
the Board as a whole. The Committee has authority consistent with the provisions
of the Plan to establish the terms of the stock options granted, to establish
rules and regulations appropriate for Plan administration and to interpret and
make determinations under the Plan.
Stock Options and Participation
Options issued under the Plan may be either incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified stock options ("Non-Qualified Options"). The
differences between these options are discussed below. Persons who receive
options pursuant to the Plan are referred to as either "optionees" or
"grantees."
The Committee may grant Non-Qualified Options to any person who has or has
agreed to have any of the following relationships ("Relationships") with the
Company or any of its subsidiaries: officer, director, employee or consultant.
The Committee may grant Incentive Options only to employees (including officers
or directors who are employees) of the Company or any of its subsidiaries. The
amendment of the Plan may benefit the current executive officers and directors
of the Company; however, because of the discretionary nature of the Plan, the
Company cannot at this time determine the amount of benefit to any particular
executive officer or director or to all executive officers and directors as a
group.
Incentive Options granted under the Plan will expire 10 years after the grant
date. Options may terminate prior to their expiration date if the Relationship
between the optionee and the Company terminates prior to the expiration date
(see below). Incentive Options and Non-Qualified Options issued to persons who
own more than 10% of the outstanding common stock of the Company on the date of
the grant will expire 5 years after the grant date.
All options granted under the Plan will be exercisable as the Committee or Board
determines. Despite the preceding sentence, all options will be exercisable at a
minimum as follows: 20% of the shares subject to the option ("option shares")
may be purchased beginning on the first anniversary after the grant date and an
additional 20% of the shares will become available for purchase after each
successive one year anniversary. Accordingly, all option shares will be
available for purchase (to the extent not previously purchased) on the fifth
anniversary of the grant date. Once an option is exercisable, an optionee may
exercise all or any part of the option which is then exercisable.
The exercise price of Incentive Options must be at least 100% of the fair market
value of the common stock on the grant date, or at least 110% of the fair market
value in the case of Incentive Options granted to a person who owns more than
10% of the outstanding common stock. The purchase price for shares subject to a
Non-Qualified Option must be at least 85% of the fair market value of the common
stock on the grant date. Non-Qualified options granted to a person holding more
than 10% of the outstanding common stock must have a purchase price of at least
110% of the fair market value of the common stock on the grant date. A grantee
exercising a Non-Qualified Option must pay the exercise price plus any
withholding tax due at the time of exercise. This amount may be paid in cash or
in shares of the common stock valued at the then current fair market value of
such shares, or a combination of both. The Committee may in its discretion allow
other forms of payment.
Options granted under the Plan may not be transferred or assigned except upon
the death of the optionee, by will or by the laws of descent. Upon the
termination of an optionee's Relationship with the Company by reason other than
death or disability, his or her Non-Qualified Options will automatically
terminate 30 days from the date the Relationship terminates and his or her
Incentive Options will terminate three months from the date of termination.
During the applicable post-termination period, the optionee may exercise his or
her options to the extent the options were exercisable on the date of
termination of the Relationship. The optionee will also be entitled to exercise
a percentage of the options that are not yet exercisable as determined by a
formula based on the length of service during each period that the options
become exercisable.
Unless the Committee expressly determines otherwise, any Non Qualified Options
granted to a person whose Relationship with the Company terminates because of
death or disability will terminate six months after the date of death or
disability. Any Incentive Option will terminate one year after the date of death
or disability. (If an option would have expired before the expiration of such
period, it will terminate on its natural expiration date.) The options will be
exercisable during the applicable exercise period to the extent they were
exercisable on the date of death or disability. The optionee will also be
entitled to exercise a percentage of the options that are not yet exercisable as
determined by a formula based on the length of service during each period that
the options become exercisable. If the Relationship is terminated by death, the
option may be exercised by the heir or devisee of the optionee.
These and other terms and conditions of the options will be reflected in an
agreement entered into between the Company and the optionee at the time an
option is granted to the optionee.
Term and Amendment
The Plan became effective December 7, 1995 and will terminate February 8, 2004
or when all shares available under the Plan have been distributed. The Board of
Directors may modify or discontinue the Plan at any time, but no modification
may adversely affect any outstanding grant unless the recipient of that grant
gives written consent. Amendments which (i) materially increase the benefits
accruing to participants under the Plan, (ii) increase the number of shares of
common stock which may be issued under the Plan, or (iii) materially modify the
requirements as to eligibility for participation in the Plan, will require
shareholder approval unless such changes are required to comply with federal or
state securities laws.
Adjustments
The number of shares available under the Plan and the number and the exercise
price of shares underlying outstanding options will be adjusted appropriately in
the event of a merger, reorganization, reclassification, stock split, stock
dividend or other similar transaction which affects all shares of common stock.
If the Company dissolves, sells all of its assets or merges with another company
where the Company is not the surviving company, the Plan and each outstanding
option will terminate. In that event, the surviving or acquiring company may at
its election issue to the optionees under the Plan comparable replacement
options to purchase common stock in the surviving or acquiring company. If the
surviving or acquiring company does not issue replacement options, all options
then outstanding under the Plan will become fully exercisable immediately before
the effective date of the transaction, even if those options would not have
otherwise been fully exercisable as of the date of the transaction.
Certain Federal Income Tax Consequences
The following is a summary of the federal income tax consequences to both the
grantee and the Company of options granted under the Plan. Because tax laws vary
in their applicability to different individuals, and because they are subject to
change at any time, the Company urges persons granted options under the Plan to
seek advice from their own tax advisers concerning the options.
Incentive Options. The Company believes that Incentive Options granted under the
Plan will qualify as incentive stock options under Section 422 of the Code. The
following summarizes the principal federal income tax aspects of Incentive
Options.
In general, an optionee does not recognize income at the time an Incentive
Option is granted or at the time it is exercised. If the optionee does not sell
or otherwise dispose of the shares received upon exercise of an Incentive Option
either within two years from the grant date or one year from the exercise date,
the optionee will recognize capital gain or loss when the optionee disposes of
the shares. The gain or loss will be measured by the difference between the
exercise price and the sale price of the shares.
If the optionee sells or disposes of shares acquired upon exercise of an
Incentive Option before the expiration of either of the one-year or two-year
holding periods described above (a "disqualifying disposition"), the difference
between the exercise price and the fair market value of the shares at the time
of exercise will be taxable as ordinary income in the year the shares were sold.
In most situations, a disqualifying disposition of the shares acquired upon
exercise causes part of the profit realized upon sale to be taxed as ordinary
income rather than as capital gain. For most taxpayers, this means a higher tax
rate and a loss of the ability to offset some of the gain against other capital
losses.
The Company will not be allowed a deduction for federal income tax purposes at
the time of the grant or exercise of an Incentive Option. To the extent any
optionee recognizes ordinary income as a result of a disqualifying disposition,
the Company will generally be entitled to an offsetting deduction of the amount
recognized by the employee as ordinary income.
Non-Qualified Options. An optionee does not recognize income at the time a
Non-Qualified Option is granted. An optionee will recognize ordinary income at
the time he or she exercises a Non-Qualified Option. The income recognized will
be equal to the difference between the exercise price and the fair market value
of the shares on the exercise date.
The Company generally will be entitled to an offsetting deduction in the year an
optionee recognizes ordinary income from the exercise of a Non-Qualified Option.
When an optionee sells common stock acquired by exercise of a Non-Qualified
Option, he or she will recognize a capital gain or loss equal to the difference
between the sale price of the stock and the option exercise price.
The Company will in most cases have a legal obligation to withhold for taxes due
upon the exercise of a Non-Qualified Option by an employee of the Company. Where
withholding obligations apply, the Company will require the optionee to pay such
amounts on exercise, or the Company may at its option offset the withholding
amount against salary or other payments due to the optionee.
Vote Required
Approval of the amendment to the Plan requires the affirmative vote of the
holders of at least a majority of the outstanding shares of capital stock which
are present or represented by proxy at the Annual Meeting.
Board Recommendation
Because each of the directors may receive options under the Plan if the
shareholders approve the amendment to the Plan, the Board has a conflict of
interest in connection with the Plan amendment. Nonetheless, the Board believes
that adoption of the amendment to the Plan will help the Company attract and
retain qualified individuals to serve as employees, consultants, officers and
directors of the Company. The Board also believes the amendment will give the
Board and the Compensation Committee additional flexibility to structure
compensation packages to better align the financial interests of the Company's
directors, officers, consultants and employees with those of the Company's
shareholders. Accordingly, the Board unanimously recommends a vote FOR the
approval of the amendment to the Plan.
VI. Date for Submission of Shareholder Proposals - For 2003 Annual Meeting
Any proposal relating to a proper subject which a shareholder may intend to
present for action at the 2003 Annual Meeting of Shareholders and which such
shareholder may wish to have included in the Company's proxy materials for such
meeting must, in accordance with the provisions of Rule 14a-8 promulgated under
the Securities Exchange Act of 1934, be received in proper form by the Company
at its principal executive office not later than December 1, 2002. It is
suggested that any such proposal be submitted by certified mail, return receipt
requested.
VII. Other Business
Management is not aware of any matters to come before the Annual Meeting other
than those stated in this Proxy Statement. However, inasmuch as matters of which
management is not now aware may come before the Annual Meeting or any
adjournment thereof, the proxies confer discretionary authority with respect to
acting thereon, and the persons named in such proxies intend to vote, act, and
consent in accordance with their best judgment with respect thereto. Upon
receipt of such proxies (in the form enclosed and properly signed) in time for
voting, the shares represented thereby will be voted as indicated thereon and in
this Proxy Statement.
By Order of the Board of Directors,
BRANDON L. NIXON, Chief Executive Officer, Chairman
San Diego, California
July 22, 2002
APPENDIX I
Dated: July 22, 2002
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
1996 STOCK OPTION PLAN
(as amended March 24, 1997, March 20, 1998, March 13, 2000 and May 28, 2002)
1. Purposes of the Plan.
The Advanced Remote Communication Solutions, Inc. ("ARCOMS") 1996 Stock Option
Plan (the "Plan") is intended to promote the interests of ARCOMS, a California
corporation (the "Company"), by providing a method whereby (i) employees of the
Company (or its parent or subsidiary corporations) responsible for the
management, growth and financial success of the Company (or its parent or
subsidiary corporations), and (ii) officers, directors and consultants who
provide valuable services to the Company (or its parent or subsidiary
corporations), as determined by the Plan Administrator, may be offered
incentives and rewards which will encourage them to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company and
continue to render services to the Company (or its parent or subsidiary
corporations).
2. Administration of the Plan.
(a) The Plan shall be administered by the Company's Board of Directors (the
"Board") or, to the extent provided by the Board, a committee (the "Committee")
appointed by the Board, which shall consist of not less than two non-employee
directors (as such term is defined in Rule 16b-3, or any successor rule, under
the Securities Exchange Act of 1934), who shall serve at the pleasure of the
Board; provided, however, that the Plan may be administered by the Board. For
purposes of the Plan, the term "Plan Administrator" shall mean the Board, or if
the Board delegates responsibility for any matter to the Committee. The Board
may alter the Plan administration so that the Plan administration is structured
to comply with the rules governing a discretionary plan under Rule 16b-3.
(b) Subject to the provisions of the Plan, the Plan Administrator shall have
full power and authority to select the Optionees (as defined in Section 3) to be
granted the options under the Plan, and to determine (i) whether each granted
option is to be an incentive stock option ("Incentive Stock Option") which
satisfies the requirements of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code") or a non-statutory Stock Option not
intended to meet such requirements, (ii) the number of shares to be subject to
such option; (iii) the exercise prices of such shares, (iv) the terms of
exercise, (v) the expiration dates and (vi) all other terms and conditions upon
which such option may be exercised. The Plan Administrator shall have the full
power and authority (subject to the provisions of the Plan) to establish such
rules and regulations as it may deem appropriate for the proper administration
of the Plan and to make such determinations under, and issue such
interpretations of, the Plan and any outstanding option as it may deem necessary
or advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any outstanding option. No
person acting under this subsection shall be held liable for any action or
determination made in good faith with respect to the Plan or any option granted
under the Plan.
(c) The Company shall indemnify and hold harmless each Committee member and each
director of the Company, and the estate and heirs of such Committee member or
director, against all claims, liabilities, expenses, penalties, damages or other
pecuniary losses, including legal fees, which such Committee member or director,
his or her estate or heirs may suffer as a result of his or her
responsibilities, obligations or duties in connection with the Plan, to the
extent that insurance, if any, does not cover the payment of such items.
3. Eligibility for Option Grants.
The persons eligible to receive option grants pursuant to the Plan ("Optionees")
are as follows:
(a) Employees of the Company (or its parent or subsidiary corporations,
including officers and directors who are employees) who contribute to the
success and growth of the Company (or its parent or subsidiary corporations) or
who may reasonably be anticipated to contribute to the future success and growth
of the Company (or its parent or subsidiary corporations); and
(b) Directors, officers and consultants who provide valuable services to the
Company (or its parent or subsidiary corporations).
4. Stock Subject to the Plan.
(a) The stock issuable under the Plan shall be shares of the Company's
authorized but unissued or reacquired common stock (the "common stock"). The
aggregate number of shares which may be issued under the Plan shall not exceed
7,500,000 shares of common stock. The total number of shares issuable under the
Plan shall be subject to adjustment from time to time in accordance with the
provisions of this Section 4.
(b) Should an option be terminated for any reason without being exercised or
surrendered in whole or in part, the shares subject to the portion of the option
not so exercised or surrendered shall be available for subsequent option grants
under the Plan.
(c) In the event that the outstanding shares of common stock issuable under the
Plan as a class are increased or decreased, or changed into or exchanged for a
different number or kind of shares or securities, as a result of any Corporate
Transactions (as defined in Section 7), stock splits, stock dividends, or the
like affecting the outstanding common stock as a class, then appropriate
adjustments shall be made to the aggregate number of shares issuable under the
Plan and to the number of shares and price per share of the common stock subject
to each outstanding option, in order to prevent the dilution or enlargement of
benefits under such outstanding options.
5. Terms and Conditions of Options.
Options granted pursuant to the Plan shall be authorized by action of the Plan
Administrator and may, at the Plan Administrator's discretion, be either
Incentive Stock Options or Non-Qualified Stock Options. Individuals who are not
employees of the Company or its parent or subsidiary corporations may only be
granted Non-Qualified Stock Options. Each granted option shall be evidenced by
one or more written instruments in a form approved by the Plan Administrator;
provided, however, that each such instrument shall comply with and incorporate
the terms and conditions specified in this Section 5.
(a) Option Price.
(1) Subject to sub paragraph (a) (2), the option price per share (the "Option
Price"), (a) with respect to a Non-Qualified Stock Option, shall be between
eighty-five percent (85%) and one hundred percent (100%) of the fair market
value of a share of common stock on the date of the option grant, as determined
by the Company on a case by case basis and (b) with respect to an Incentive
Stock Option, be one hundred percent (100%) of the fair market value of a share
of common stock on the date of the option grant.
(2) 10% Shareholder. If any Optionee under the Plan on the date of grant of an
Incentive Stock Option or Non Qualified Stock Option is the owner of stock (as
determined under Section 424(d) of the Internal Revenue Code) possessing ten
percent (10%) or more of the total combined voting power of all classes of stock
of the Company or any one of its parent or subsidiary corporations (a "10%
Shareholder"), then the option price per share acquired pursuant to exercise of
the Incentive Stock Option or Non Qualified Stock Option shall not be less than
one hundred and ten percent (110%) of the fair market value of a share of common
stock on the date of the option grant.
(3) The option price shall become immediately due upon exercise of the option
and shall, subject to the provisions of the instrument evidencing the grant, be
payable in one of the alternative forms specified below:
(i) full payment in cash or cash equivalents; or
(ii) full payment in shares of common stock having a fair market value on the
Exercise Date (as defined below) in an amount equal to the option price; or
(iii) a combination of shares of common stock valued at fair market value on the
Exercise Date and cash or cash equivalents, equal in the aggregate to the option
price; or
(iv) any other form of consideration as the Plan Administrator may approve.
For purposes of this Section 5(a)(3), the Exercise Date shall be the first date
on which the Company shall have received both written notice of the exercise of
the option and payment of the option price for the purchased shares of common
stock.
(4) For all valuation purposes under the Plan, the fair market value of a share
of common stock shall be determined in accordance with the following provisions:
(i) If the common stock is not at the time listed or admitted to trading on any
stock exchange but is traded in the over-the-counter market, the fair market
value shall be the mean between the highest bid and lowest asked prices (or, if
such information is available, the closing selling price) of one share of common
stock in the over-the-counter market, as such prices are reported by the
National Association of Securities Dealers through its NASDAQ system or any
successor system, on the date of the option grant or Exercise Date, as the case
may be. If there are no reported bid and asked prices (or closing selling price)
for the common stock on the date in question, then the mean between the highest
bid price and lowest asked price (or the closing selling price) on the last
preceding date for which such quotations exist shall be determinative of fair
market value.
(ii) If the common stock is at the time listed or admitted to trading on any
stock exchange, then the fair market value shall be the closing selling price of
one share of common stock on the date in question on the stock exchange
determined by the Plan Administrator to be the primary market for the common
stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of common stock on such exchange
on the date in question, then the fair market value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.
(iii) If the common stock at the time is neither listed nor admitted to trading
on any stock exchange nor traded in the over-the-counter market, then the fair
market value shall be determined by the Plan Administrator in accordance with
Section 260.140.50 of the California Code of Regulations or any successor rule.
(b) Option Period.
The term of each Non Qualified Option shall commence on the date of grant and
shall be for a term not exceeding ten (10) years. The term of each Incentive
Option shall be ten (10) years. Despite the preceding sentence, if an Incentive
Stock Option or Non Qualified Stock Option is granted to an Optionee who,
immediately before the grant of the Incentive Stock Option or Non Qualified
Stock Option owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations, the exercise period specified in the option agreement
for which the Incentive Stock Option or Non Qualified Stock Option thereunder is
granted, shall not exceed five years from the date of grant. Subject to other
provisions of the Plan, each option shall be exercisable during its term as to
at least twenty percent (20%) of the option shares during the twelve (12) months
beginning on the first anniversary of the date of grant, and twenty percent
(20%) thereafter during each of the four (4) next successive twelve (12) month
periods. Additionally, if an Optionee shall not in any period purchase all of
the option shares which the Optionee is entitled to purchase in such period,
then the Optionee may purchase all or any part of such shares subject to this
Agreement at any time after the end of such period and prior to the expiration
of the option. Despite the foregoing, the Board may at its discretion provide
for earlier exercisability.
(c) Effect of Termination.
(1) Subject to the other provisions of the Plan, should an Optionee cease to be
an employee, officer, director or consultant of the Company or any of its
subsidiaries for death or permanent disability as defined in Section 22 (e)(3)
of the Internal Revenue Code, then any option or options granted under the Plan
to such Optionee and outstanding on the date of termination shall remain
exercisable for a period not to exceed six (6) months from the date of such
termination in the case of Non Qualified Stock Options and one year in the case
of Incentive Stock Options, the specific amount of time to be determined at the
time of granting the option; provided, however, that under no circumstances
shall such options be exercisable after the expiration date of the option term
specified in the instrument evidencing the option grant. If the optionee's
relationship with the Company terminates for reasons other than death or
disability, the Board may fix a such shorter period of exercisability following
the termination date, as determined by the Company at the time of original
grant, but in no event less than thirty (30) days in the case of a Non Qualified
Stock Option or three (3) months in the case of an Incentive Stock Option. Each
such option shall, during such period, be exercisable to the extent of the
number of shares (if any) for which the option is exercisable on the termination
date (the "Vested Shares"), and to the extent that on the termination date the
number of shares (if any) for which the option is not exercisable will become
exercisable within the following year, the Optionee may exercise the option for
a percentage of such shares based on the following fraction: the numerator shall
be the number of days from the last anniversary date of the grant of the option
to the termination date and the denominator shall be the number of days from the
last anniversary date of the grant of the option to the next anniversary date of
the grant of the option. Upon the expiration of such applicable period or (if
earlier) upon the expiration of the option term, the option shall terminate and
cease to be exercisable.
(2) Notwithstanding subsection (c)(1) above, the Plan Administrator shall have
complete discretion, exercisable either at the time the option is granted or at
the termination date to provide that options held by such Optionee may be
exercised not only with respect to Vested Shares as of the termination date, but
also with respect to one or more subsequent installments of shares for which the
option would otherwise have become exercisable.
(3) For purposes of the Plan, the Optionee shall be deemed to be a consultant of
the Company for so long as the Optionee renders periodic services to the Company
or one or more of its parent or subsidiary corporations.
(d) No Employment or Service Contract. Nothing in the Plan shall confer upon the
Optionee any right to continue in the service of the Company (or any parent or
subsidiary corporation of the Company employing or retaining the Optionee) for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Company (or any parent or subsidiary corporation of the
Company employing or retaining Optionee) or the Optionee, to terminate the
service provider status of Optionee at any time for any reason or no reason
whatsoever, with or without cause.
(e) Shareholder Rights. An Optionee shall have none of the rights of a
shareholder with respect to any shares covered by the option until such
individual shall have duly exercised the option and paid the option price.
6. Exercise of Options.
(a) Each Option may be exercised in whole or in part (but not as to fractional
shares) by delivering it for surrender or endorsement to the Company, attention
of the Corporate Secretary, at the Company's principal office, together with
payment of the Exercise Price and an executed Notice and Agreement of Exercise
in the form prescribed by the Company.
(b) Exercise of each Option is conditioned upon the agreement of the Optionee to
the terms and conditions of this Plan and of such Option as evidenced by the
Optionee's execution and delivery of a Notice and Agreement of Exercise in a
form to be determined by the Committee in its discretion. Such Notice and
Agreement of Exercise shall set forth the agreement of the Optionee that: (a) no
Option Shares will be sold or otherwise distributed in violation of the
Securities Act of 1933 (the "Securities Act") or any other applicable federal or
state securities laws, (b) each Option Share certificate may be imprinted with
legends reflecting any applicable federal and state securities law restrictions
and conditions, (c) the Company may comply with said securities law restrictions
and issue "stop transfer" instructions to its Transfer Agent and Registrar
without liability, (d) each Optionee will timely file all reports required under
federal securities laws, and (e) each Optionee will report all sales of Option
Shares to the Company in writing on a form prescribed by the Company.
(c) No Option shall be exercisable unless and until any applicable registration
or qualification requirements of federal and state securities laws, and all
other legal requirements, have been fully complied with. The Company will use
reasonable efforts to maintain the effectiveness of a Registration Statement
under the Securities Act for the issuance of Options and shares acquired
thereunder, but there may be times when no such Registration Statement will be
currently effective. The exercise of Options may be temporarily suspended
without liability to the Company during times when no such Registration
Statement is currently effective, or during times when, in the reasonable
opinion of the Committee, such suspension is necessary to preclude violation of
any requirements of applicable law or regulatory bodies having jurisdiction over
the Company. If any Option would expire for any reason except the end of its
term during such a suspension, then if exercise of such Option is duly tendered
before its expiration, such Option shall be exercisable and exercised (unless
the attempted exercise is withdrawn) as of the first day after the end of such
suspension. The Company shall have no obligation to file any Registration
Statement covering resales of Option Shares.
(d) Withholding Taxes. The Company shall have the right at the time of exercise
of any Stock Option to make adequate provision for any federal, state, local, or
foreign taxes which it believes are or may be required by law to be withheld
with respect to such exercise.
(e) Dollar Limitation. The aggregate fair market value (determined as of the
respective date or dates of grant) of the common stock for which one or more
options granted to any Employee under the Plan (or any other option plan of the
Company or its parent or subsidiary corporations) may for the first time become
exercisable as Incentive Stock Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). In the event that
Section 422 of the Internal Revenue Code is amended to alter the limitation set
forth therein so that following such amendment such limitation shall differ from
the $100,000 limitation set forth above, the dollar limitation of this Section
6(e) shall be automatically adjusted accordingly. To the extent the Employee
holds two or more such options which become exercisable for the first time in
the same calendar year, the foregoing limitation on the exercisability thereof
as Incentive Stock Options shall be applied on the basis of the order in which
such options are granted, and any Incentive Stock Options subject to the
limitations of this Section 6(e) shall be treated as Non-Qualified Stock Options
subject to the applicable terms and conditions of the Plan.
7. Corporate Transactions.
(a) In the event of any of the following transactions (a "Corporate
Transaction"):
(i) a merger or consolidation in which the Company is not the surviving entity,
except for a transaction the principal purpose of which is to change the State
of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or substantially all of the
assets of the Company, or
(iii) any reverse merger in which the Company is the surviving entity but in
which fifty percent (50%) or more of the Company's outstanding voting stock is
transferred to holders different from those who held the stock immediately prior
to such merger, then each outstanding option which is not to be assumed by the
successor corporation or parent thereof (or to be replaced with a comparable
option to purchase shares of the capital stock of such successor corporation or
parent thereof) automatically shall be accelerated so that each such option,
immediately prior to the specified effective date for such Corporate
Transaction, shall become fully exercisable with respect to the total number of
shares of common stock purchasable under such option. Any such accelerated
options not exercised as of the consummation of the Corporate Transaction shall
terminate and cease to be exercisable, unless assumed by the successor
corporation or parent thereof (or replaced with a comparable option to purchase
shares of the capital stock of such successor corporation or parent thereof).
(b) In connection with any Corporate Transaction, the exercisability of any
accelerated options under the Plan as an Incentive Stock Option shall remain
subject to the applicable dollar limitation of Section 6(e).
(c) The Plan Administrator shall have the right and power at any time to waive
in whole or in part, absolutely or conditionally, any right of the Company
contained in any instrument or option agreement evidencing any options granted
under the Plan.
(d) The grant of options under the Plan shall in no way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
8. Amendment of the Plan.
(a) The Board shall have complete and exclusive power and authority to amend or
modify the Plan in any or all respects whatsoever; provided, however, that no
such amendment or modification shall, without the consent of the holders,
adversely affect rights and obligations with respect to options at the time
outstanding under the Plan; and provided further, that the Board shall not amend
the plan without the approval of the shareholders of the Company where required
by law.
(b) The provisions of this Plan pertaining to Incentive Stock Options are
intended to comply with all requirements of the Internal Revenue Code pertaining
to qualification of such incentive stock options as Incentive Stock Options
under the Internal Revenue Code and all provisions of the Plan with respect
thereto shall be construed in a manner consistent therewith.
9. Effective Date and Term of Plan.
(a) The Plan shall become effective when adopted by the Board, but no option
granted under the Plan shall become exercisable unless and until the Plan shall
have been approved by the shareholders of the Company. If such shareholder
approval is not obtained within twelve (12) months after the date of the Board's
adoption of the Plan, then all options previously granted under the Plan shall
terminate and no further options shall be granted. Subject to such limitation,
the Plan Administrator may grant options under the Plan at any time after the
Plan effective date and before the date fixed herein for termination of the
Plan.
(b) Unless sooner terminated in accordance with the provisions hereof, the Plan
shall terminate upon the earlier of (i) the expiration of the eight (8) year
period measured from the date of the Board's adoption of the Plan or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued or canceled pursuant to the exercise or surrender of options granted
under the Plan.
10. Regulatory Approvals.
The implementation of the Plan, the granting of any option under the Plan, and
the issuance of common stock upon the exercise or surrender of any such option,
shall be subject to the procurement by the Company of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under the Plan and the common stock issued pursuant to the Plan.
11. Requests for Information.
For additional information about the Plan or the Plan Administrator, please
direct all such requests to the Chief Financial Officer of Advanced Remote
Communication Solutions, Inc., 10675 Sorrento Valley Road, Suite 200, San Diego,
CA 92121, telephone number (858) 450-7600.
12. Financial Reports.
The Company shall deliver financial and other information regarding the Company,
on an annual or other periodic basis, to each individual holding an outstanding
option under the Plan, to the extent the Company is required to provide such
information pursuant to Section 260.140.46 (or any successor thereto) of the
Rules of the California Corporations Commissioner.
13. Successors in Interest.
The Company shall not assign or delegate to any other person this Plan or any
rights or obligations under this Plan. Subject to any restriction on
transferability contained in this Plan, this Plan shall be binding upon and
shall inure to the benefit of the successors-in-interest and assigns of each
party to this Plan. Nothing in this Paragraph shall create any rights
enforceable by any person not a party to this Plan, except for the rights of the
successors-in-interest and assigns of each party to this Plan, unless such
rights are expressly granted in this Plan to other specifically identified
persons.
14. Governing Law.
This Plan shall be construed in accordance with, and governed by, the laws of
the State of California.
15. Attorney's Fees.
In the event any litigation, arbitration, mediation, or other proceeding
("Proceeding") is initiated by any party(ies) against any other party(ies) to
enforce, interpret or otherwise obtain judicial or quasi-judicial relief in
connection with this Plan the prevailing party(ies) in such Proceeding shall be
entitled to recover from the unsuccessful party(ies) all costs, expenses, and
actual attorney's and expert witness fees relating to or arising out of (a) such
Proceeding (whether or not such Proceeding proceeds to judgment), and (b) any
post-judgment or post-award proceeding including without limitation one to
enforce any judgment or award resulting from any such Proceeding. Any such
judgment or award shall contain a specific provision for the recovery of all
such subsequently incurred costs, expenses, and actual attorney's and expert
witness fees.
16. Prior Understandings.
This Plan contains the entire agreement between the parties with respect to the
subject matter of the Plan, is intended as a final expression with respect to
such terms as are included in the Plan, and supersedes all negotiations,
stipulations, understandings, agreements, representations and warranties, if
any, with respect to such subject matter, which precede or accompany the
execution of the Plan.
17. Arbitration.
All disputes pertaining to this Plan shall be resolved by the American
Arbitration Association pursuant to its rules in San Diego, California.
18. Option Non-Transferable; Exceptions
This option shall be neither transferable nor assignable by Optionee other than
by will or by the laws of descent and distribution and may be exercised, during
Optionee's lifetime, only by Optionee.