SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Telebyte, Inc.
--------------
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
[OBJECT OMITTED]
270 Pulaski Road
Greenlawn, New York 11740
================================================================================
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 12, 2001
================================================================================
To the Stockholders of Telebyte, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Telebyte, Inc., a Delaware corporation (the "Company"), will be
held at the Company's executive offices at 270 Pulaski Road, Greenlawn, New York
11740 on July 12, 2001 at 10:00 a.m., local time, for the following purposes:
(1) To elect a Board of four directors.
(2) To ratify the adoption of the Company's 2001 Stock Option Plan.
(3) To ratify the adoption of the Company's 2001 Employee Stock Purchase
Plan.
(4) To ratify the appointment of Grant Thornton LLP as the Company's
independent auditors for the fiscal year ending December 31, 2001.
(5) To transact such other business as may properly come before the
Meeting.
Only stockholders of record at the close of business on June 14, 2001 are
entitled to notice of and to vote at the Meeting or any adjournment thereof.
By Order of the Board of Directors
Kenneth S. Schneider
Chairman
Greenlawn, New York
June 18, 2001
================================================================================
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, WE URGE YOU TO
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF
DIRECTORS OF TELEBYTE, INC., AND RETURN IT IN THE PRE-ADDRESSED ENVELOPE
PROVIDED FOR THAT PURPOSE. A STOCKHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE
THE MEETING BY WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED
PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
================================================================================
[OBJECT OMITTED]
270 Pulaski Road
Greenlawn, New York 11740
PROXY STATEMENT
SOLICITING, VOTING AND REVOCABILITY OF PROXY
This Proxy Statement is being mailed to all stockholders of record of
Telebyte, Inc. (the "Company") at the close of business on June 14, 2001 in
connection with the solicitation by the Board of Directors (the "Board") of
Proxies to be voted at the Annual Meeting of Stockholders (the "Meeting") to be
held at the Company's executive offices at 270 Pulaski Road, Greenlawn, New York
11740 on July 12, 2001 at 10:00 a.m., local time, or any adjournment thereof.
The Proxy and this Proxy Statement were mailed to stockholders on or about June
18, 2001.
All shares represented by Proxies duly executed and received will be voted
on the matters presented at the Meeting in accordance with the instructions
specified in such Proxies. Proxies so received without specified instructions
will be voted (1) FOR the nominees named in the Proxy to the Company's Board of
Directors; (2) FOR the ratification of the adoption of the Company's 2001 Stock
Option Plan; (3) FOR the ratification of the adoption of the Company's 2001
Employee Stock Purchase Plan; and (4) FOR the ratification of the appointment of
Grant Thornton, LLP as the Company's independent auditors for the fiscal year
ending December 31, 2001. The Board does not know of any other matters that may
be brought before the Meeting nor does it foresee or have reason to believe that
Proxy holders will have to vote for substitute or alternate nominees to the
Board. In the event that any other matter should come before the Meeting or any
nominee is not available for election, the persons named in the enclosed Proxy
will have discretionary authority to vote all Proxies not marked to the contrary
with respect to such matters in accordance with their best judgment.
The total number of shares of Common Stock of the Company ("Common Shares")
outstanding and entitled to vote as of June 14, 2001 was 1,253,631. The Common
Shares are the only class of securities of the Company entitled to vote on
matters presented to the stockholders of the Company, each share being entitled
to one non-cumulative vote. A majority of the Common Shares outstanding and
entitled to vote as of June 14, 2001, or 626,816 Common Shares, must be present
at the Meeting in person or by proxy in order to constitute a quorum for the
transaction of business. Only stockholders of record as of the close of business
on June 14, 2001 will be entitled to vote.
With regard to the election of directors, votes may be cast in favor or
withheld. Directors shall be elected by a plurality of the votes cast. Votes
withheld in connection with the election of one or more of the nominees for
director will not be counted as votes cast for such individuals.
Stockholders may expressly abstain from voting on Proposal 4 by so
indicating on the Proxy. Abstentions and broker non-votes will be counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. However, neither abstentions nor broker non-votes will be counted
for the purpose of determining whether a particular proposal has been approved.
Since Proposal 4 requires the affirmative vote of a majority of the votes cast
for or against the proposal at the Meeting (assuming a quorum is present at the
Meeting), abstentions and broker non-votes will have no effect. Under Delaware
law, stockholders are not entitled to dissenter's rights of appraisal with
respect to Proposals 1, 2, 3 or 4.
Any person giving a Proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise. The Proxy may be revoked
by filing with the Company written notice of revocation or a fully executed
Proxy bearing a later date. The Proxy may also be revoked by affirmatively
electing to vote in person while in attendance at the Meeting. However, a
stockholder who attends the Meeting need not revoke a Proxy given and vote in
person unless the stockholder wishes to do so. Written revocations or amended
Proxies should be sent to the Company at 270 Pulaski Road, Greenlawn, New York
11740, Attention: Corporate Secretary.
1
The Company's Board of Directors is soliciting the Proxy. The Company will bear
the cost of the solicitation of Proxies, including the charges and expenses of
brokerage firms and other custodians, nominees and fiduciaries for forwarding
proxy materials to beneficial owners of the Company's shares. Solicitations will
be made primarily by mail, but certain directors, officers or employees of the
Company may solicit Proxies in person or by telephone, telecopier or telegram
without special compensation.
Executive Compensation
The following table provides summary information concerning the cash and certain
other compensation paid or accrued by the Company during the last three fiscal
years to the executive officers of the Company whose cash compensation exceeded
$100,000. The table includes Company contributions on the officer's behalf to
the Company's 401(k) Plan.
Summary Compensation Table
- ------------------------------------------------------------------- ----------------------------------------------------------------
Annual Compensation Long-Term Compensation
- ------------------------------------------------------------------- ----------------------------------------------------------------
Awards Payouts
- --------------- -------- ------------ ---------- ------------------ ------------- ----------------- -------------- -----------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------- -------- ------------ ---------- ------------------ ------------- ----------------- -------------- -----------------
Name and Other Annual Restricted Stock Long-Term All Other
Principal Year Salary Bonus Compensation Stock Awards Options/SARs Incentive Compensation
Position Payout
($) ($) ($) (No.) (No.) ($) ($)
- -------------- -------- ------------ ---------- ------------------ ------------- ----------------- -------------- -----------------
Kenneth S. 2000 $136,836 0 0 0 0 $4,080(3) $5,110
Schneider -------- ------------ ---------- ------------------ ------------- ----------------- -------------- -----------------
Chairman, CEO, 1999 $125,685 0 0 0 0 $4,080(3) $5,112
Secretary & (1)
Director -------- ------------ ---------- ------------------ ------------- ----------------- -------------- -----------------
1998 $112,534 $22,000 $10,170(2) 0 0 $4,080(3) $7,104
============== ======== ============ ========== ================== ============= ================= ============== =================
Joel A. Kramer 1999 $10,574 0 $1,726(2) 0 0 0 $95,243(4)
(Former) (1)
President, CEO
& Director
- --------------- -------- ------------ ---------- ------------------ ------------- ----------------- -------------- ----------------
1998 $124,306 $25,000 $20,130(2) 0 0 $5,747(3) $8,040
- --------------- -------- ------------ ---------- ------------------ ------------- ----------------- -------------- ----------------
(1) Mr. Kramer left the employ of the Company in January 1999, at which
time Dr. Schneider was elected the Chief Executive Officer by the Board
of Directors, and at which time he dropped the title of Vice President.
(2) Commissions-Mr. Kramer received a 2.5% commission of net sales to
customers not located within the United States.
(3) Deferred Compensation - see Long-Term Incentive Plans Table below.
(4) Consulting services and fringes.
2
Long-Term Incentive Plans - Awards in Last Fiscal Year
- ------------------------------------------------------------------------------------------------------------------------
Estimated Future Payouts under
Non-Stock Price-Based Plans
-------------------------------------------------------------
Number of Performance or
Shares, Units Other Period
or Other Until Maturation Threshold Target Maximum
Name Rights (#) Or Payout ($ or #) ($ or #) ($ or #)
- ----------------------- ---------------- ----------------- ------------------------ ----------------- ------------------
Kenneth S. Schneider
Chairman, CEO, - April 16, 2010 $26,667(1) $26,667(1) $26,667(1)
Secretary & Director
- ----------------------- ---------------- ----------------- ------------------------ ----------------- ------------------
(1) In 1990, the Company entered into a deferred compensation agreement
with Kenneth S. Schneider, pursuant to which he will receive a defined
amount, approximately 30% of his 1990 base salary, each year for a
period of 10 years after reaching age 65. The deferred compensation
plan is funded through life insurance and is being provided for
currently. The expense charged to operations in 2000 for such future
obligations was $4,080.
Aggregate Option Grants in Last Fiscal Year
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
% of Total Options Exercise or
Number of Options Granted to Employees Base Price Expiration
Name Granted in Fiscal Year 2000 ($/Share) Date
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Joel A. Kramer 0 0 - -
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Kenneth S. Schneider 5,000 16.0% $1.625 12/20/2010
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
The following table sets forth information concerning each exercise of stock
options during fiscal 2000 by each of the named executive officers and fiscal
year-end value of unexercised options:
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
- ------------------------- -------------------- --------------------- ----------------------- -------------------------
Number of Shares Value Realized Number of Unexercised Value of Unexercised
Acquired on Options at December In-the-Money Options at
Name Exercise ($) 31,2000 December 31, 2000 (1)
- ------------------------- -------------------- --------------------- ----------------------- -------------------------
Joel A. Kramer 0 0 0 $0
- ------------------------- -------------------- --------------------- ----------------------- -------------------------
Kenneth S. Schneider 0 0 205,000 (2) $94,000
- ------------------------- -------------------- --------------------- ----------------------- -------------------------
(1) Calculation based upon the closing price of the Company's common stock
($1.50 per share) as reported by Nasdaq Trading and Market Services on
December 31, 2000.
(2) 60,000 option shares vest June 30, 2004, and the remaining 100,000
option shares vest January 1, 2005; subject, however, to accelerated
events if certain targets are met.
Compensation Plans and Other Compensation
The Company's Board of Directors, with the approval of the stockholders, has
adopted a Stock Option Plan (the "1999 Plan") and has reserved for issuance
thereunder 500,000 shares of the Company's common stock. As of December 31,
2000, options to purchase an aggregate of 438,000 shares have been granted and
there were 62,000 shares available for grants under the 1999 Plan. Pursuant to
the 1999 Plan, the Company may grant options under the 1999 Plan which are
intended either to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("Incentive Stock Options"), or not so qualify ("Nonstatutory Stock Options").
3
The 1999 Plan provides for its administration by the Board of Directors or by a
committee (the "Stock Option Committee") consisting of at least one director
chosen by the Board of Directors. The Board of Directors or the Stock Option
Committee has authority (subject to certain restrictions) to select from the
group of eligible employees, non-employee directors, consultants and advisors
the individuals or entities to whom options will be granted, and to determine
the times at which and the exercise price for which options will be granted.
The exercise price of shares underlying an Incentive Stock option may not be
less than the fair market value (as such term is defined in the 1999 Plan) of
the common stock on the date upon which such option is granted. In addition, in
the case of a recipient of an Incentive Stock Option who, at the time the option
is granted, owns more than 10% of the total combined voting power of all classes
of stock of the Company or of a parent or subsidiary corporation of the Company
(a "10% Stockholder"), the exercise price of the shares subject to such option
must be at least 110% of the fair market value of the common stock on the date
upon which such option is granted. The exercise price of shares underlying a
Nonstatutory Stock Option will be determined by the Board of Directors or the
Stock Option Committee at the time of grant and need not be equal to or greater
than the fair market value of the Company's common stock.
In 1994 the Company adopted the 1993 Stock Option Plan (the "1993 Plan") under
which options to purchase 100,000 shares of the common stock were reserved. All
directors, officers or other key employees of the Company are eligible to
participate in the 1993 Plan, which is administered by the Board of Directors of
the Company. As of December 31, 2000, there were options to purchase 16,050
shares available under the 1993 Plan. Pursuant to the 1993 Plan, the Company is
permitted to issue incentive stock options.
In 1987, the Company adopted a plan, which provided for grants to officers and
key employees of the Company, of incentive stock options to purchase up to an
aggregate of 250,000 shares of the Company's common stock. Options to purchase
10,800 shares are outstanding.
The Company has an informal bonus plan in which officers and other key personnel
participate. The Board of Directors, fixes the bonus award fixes, annually.
There were no bonuses paid under this plan during fiscal year 2000.
The Company maintains a deferred compensation plan under Internal Revenue Code
Section 401(k). All employees are eligible to participate; the Company
contributes 50% of the first 2% deferred by the employee. Each employee may
voluntarily contribute up to 15% of annual compensation, or the maximum allowed
as determined by the Internal Revenue Code.
During 2000, the Company renewed, for an additional three-year term, the
employment agreement with Kenneth S. Schneider. The employment agreement
provides that Dr. Schneider would receive a minimum salary of $105,155 per
annum. During the employment period Dr. Schneider is entitled upon termination
or expiration of the agreement under certain circumstances (including a change
of control) to certain severance benefits.
During 1999, the Company entered into a three-year employment agreement with
Michael Breneisen. The employment agreement provides that Mr. Breneisen will
receive a minimum salary of $75,000 per annum. During the employment period Mr.
Breneisen is entitled upon termination or expiration of the agreement under
certain circumstances (including a change of control) to certain severance
benefits.
Except for life and medical insurance benefit programs, which are available to
all employees, the Company has no other compensation plans.
The outside directors do not receive a per meeting fee, but do receive
reimbursement of expenses for attending each meeting and are eligible to receive
stock options.
4
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 31, 2000 information concerning
(i) the shares held by each person or group known to own beneficially more than
5% of the outstanding shares of common stock, (ii) shares owned by the Chief
Executive Officer and (iii) shares owned by all executive officers and directors
as a group.
- --------------------------------------------------------------------------------
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Owned Class
- -------------------------------------------------------------------------------
Kenneth S. Schneider 328,037(1) 23.4%
270 Pulaski Road
Greenlawn, NY 11740
- -------------------------------------------------------------------------------
Michael Breneisen 81,900 (2) 5.8%
270 Pulaski Road
Greenlawn, NY 11740
- -------------------------------------------------------------------------------
Jamil Sopher 36,730 (3) 2.6%
270 Pulaski Road
Greenlawn, NY 11740
- -------------------------------------------------------------------------------
Jonathan D. Casher 6,000 (4) 0.4%
270 Pulaski Road
Greenlawn, NY 11740
- -------------------------------------------------------------------------------
Jim Wright 15,000 (5) 1.1%
270 Pulaski Road
Greenlawn, NY 11740
- -------------------------------------------------------------------------------
All executive officers and 467,667 33.3%
directors As a group (5 in number)
- ---------------------------------------- ----------------------------- --------
(1) Includes 45,000 shares issuable upon exercise of stock options granted
under the Company's 1999 Stock Option Plan. Does not include 160,000
shares issuable upon exercise of stock options under the 1999 Plan, of
which 60,000 option shares vest June 30, 2004, and the remaining
100,000 option shares vest January 1, 2005; subject, however, to
acceleration if certain targets are met.
(2) Includes 5,000 shares issuable upon exercise of stock options granted
under the Company's 1987 Stock Option Plan. Includes 45,000 shares
issuable upon exercise of stock options granted under the Company's
1999 Stock Option Plan. Does not include 160,000 shares issuable upon
exercise of stock options under the 1999 Plan, of which 60,000 option
shares vest June 30, 2004, and the remaining 100,000 option shares
vest January 1, 2005; subject, however, to acceleration if certain
targets are met.
(3) Includes 20,000 shares issuable upon exercise of stock options granted
under the Company's 1993 Stock Option Plan. Includes 15,000 shares
issuable upon exercise of stock options granted under the Company's
1999 Stock Option Plan.
(4) Includes 1,000 shares issuable upon exercise of stock options granted
under the Company's 1993 Stock Option Plan. Includes 5,000 shares
issuable upon exercise of stock options granted under the Company's
1999 Stock Option Plan.
(5) Includes 15,000 shares issuable upon exercise of stock options granted
under the Company's 1993 Stock Option Plan.
5
Item 12. Certain Relationships and Related Transactions
Effective January 20, 1999, Joel A. Kramer, then the Chairman of the Board,
President and Chief Executive Officer of the Company, resigned such positions.
However, it was intended that Mr. Kramer would serve as a consultant to the
Company through January 19, 2002 for an aggregate consideration of $165,000 plus
reimbursement for certain expenses. In addition, the Company purchased all of
the shares of common stock of the Company owned by Mr. Kramer and Mr. Kramer
agreed to cancel options to purchase 10,000 shares of common stock of the
Company for an aggregate consideration of $1,075,190, of which $867,510 was for
such shares, $17,680 was for the cancellation of such options and $190,000 was
in exchange for Mr. Kramer's restrictive covenant. In addition, Mr. Kramer
agreed not to compete with the business of the Company until January 19, 2003
and released the Company from certain potential claims relative to his previous
employment. The Company transferred a life insurance policy to Mr. Kramer,
previously maintained for Mr. Kramer's benefit and having a cash value of
approximately $80,000.
In December 1999, the Company received information indicating that Mr. Kramer
had breached certain of the non-competition provisions of the Consulting
Agreement entered into by Mr. Kramer and the Company, and also of the Stock
Purchase Agreement and the Termination Agreement entered into by Mr. Kramer and
the Company. In response to this information the Company asserted its rights
under the Consulting Agreement and cancelled it for cause on January 12, 2000,
and ceased making payments thereunder. The Company is considering what further
legal action it may take, if any, with respect to this situation as warranted
under the circumstances.
Effective January 20, 1999 Dr. Kenneth S. Schneider was elected as Chairman of
the Board and Chief Executive Officer and Michael Breneisen as President and
Chief Operating Officer. Dr. Schneider was a co-founder of the Company and has
served as a Senior Vice President, Secretary, Treasurer and Director. Mr.
Breneisen has served as Vice President and Chief Financial Officer; he will also
continue to serve as Chief Financial Officer and serve as a director.
PROPOSAL 1: ELECTION OF DIRECTORS
Four directors are to be elected at the Meeting to serve until the next
annual meeting of stockholders and until their respective successors have been
elected and have qualified, or until their earlier resignation or removal. If
for some unforeseen reason one or more of the nominees is not available as a
candidate for director, the Proxies may be voted for such other candidate or
candidates as may be nominated by the Board.
Nominees for Director
All four of the nominees are currently directors of the Company. The
following table sets forth the positions and offices presently held with the
Company by each nominee, his age as of June 14, 2001 and the year in which he
became a director. Proxies not marked to the contrary will be voted in favor of
each such nominee's election. The Board recommends a vote FOR all nominees.
Positions and Offices
Presently Held with Director
Name Age the Company Since
- --------------------------------------------------------------------------------
Kenneth S. Schneider 56 Chairman of the Board of 1983
Directors, Chief Executive
Officer, Secretary and Director
Michael Breneisen 36 President, Chief Operating and 1999
Financial Officer, Treasurer and
Director
Jamil Sopher 57 Director 1996
Jonathan D. Casher 56 Director 2000
6
Dr. Schneider has served as Chairman of the Board and Chief Executive
Officer of the Company since January 1999. He has also served as Secretary since
March 1991. Dr. Schneider served as Vice President and Treasurer of the company
from August 1983 to January 1999. He was elected a Director on July 21, 2000 for
a term of one year or until the next annual meeting of shareholders.
Mr. Breneisen has served as President and Chief Operating Officer of
the Company since January 1999 and Chief Financial Officer since January 1997.
Mr. Breneisen has also served as Treasurer since March 2000. He served as
Controller of the Company from July 1992 to January 1999 and Vice President from
January 1997 to January 1999. He was elected a Director on July 21, 2000 for a
term of one year or until the next annual meeting of shareholders.
Mr. Sopher currently is an independent consultant. Mr. Sopher worked
for Unisphere Inc. from September 2000 to March 2001. Mr. Sopher worked for the
World Bank where he was employed from 1980 to 2000. Mr. Sopher received a
Bachelor of Science Degree and M. Eng. (Elect.) Degree from Cornell University
and an MBA from Harvard University. He was elected a Director on July 21, 2000
for a term of one year or until the next annual meeting of shareholders.
Mr. Jonathan D. Casher is the founder, Chairman and CEO of RECAP, Inc.
Mr. Casher received a Bachelor Degree in Operations Research from Cornell
University and a Masters Degree from the MIT Sloan School of Management. He was
elected a Director on July 21, 2000 for a term of one year or until the next
annual meeting of shareholders.
Meetings and Compensation
During the fiscal year ended December 31, 2000, the Board of Directors
held ten meetings. All Directors attended all of the meetings.
The Board of Directors has an Audit Committee to meet and review with
the Company's independent auditors the plan, scope and results of its audits.
Members of the Audit Committee are Mr. Sopher, and Mr. Casher. There was one
meeting of the Audit Committee during the fiscal year ended December 31, 2000.
No fee is paid to such committee members.
The Board of Directors formed a Compensation Committee in 1999 for the
purpose of recommending to the Board the compensation for corporate officers for
the ensuing year. Members of the Compensation Committee are Mr. Sopher and Mr.
Casher. The full Board of Directors reviews the Committee's recommendations
regarding executive compensation. The Committee held one meeting in 2000. No fee
is paid to such committee members.
The Company does not have a standing nominating committee of the Board
of Directors or a committee performing similar functions. The Board as a whole
currently performs these functions.
Audit Committee Report
The Audit Committee of the Board of Directors is comprised of two
directors: Mr. Sopher and Mr. Casher. The members of the Audit Committee are
independent (as independence is defined in Rule 4200(a) of the National
Association of Securities Dealers' ("NASD") listing standards).
The Audit Committee assists the Board of Directors in fulfilling its
oversight responsibilities by reviewing the Company's consolidated financial
reports, its internal financial and accounting controls, and its auditing,
accounting and financial reporting processes generally. In May 2001, the Board
of Directors approved and adopted a written Audit Committee Charter, which is
attached to this Proxy Statement as Exhibit A.
In discharging its oversight responsibilities regarding the audit
process, the Audit Committee reviewed and discussed the audited consolidated
financial statements of the Company as of and for the year ended December 31,
7
2000, with Company management and Grant Thornton LLP ("Grant"), the independent
auditors. The Audit Committee received the written disclosures and the letter
from Grant required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, discussed with Grant any relationships which
might impair that firm's independence from management and the Company, and
satisfied itself as to the auditors' independence. The Audit Committee reviewed
and discussed with Grant all communications required by generally accepted
auditing standards, including Statement on Auditing Standards No. 61,
Communications with Audit Committees, as amended.
Based upon these reviews and discussions, the Audit Committee
recommended to the Board of Directors that the Company's audited consolidated
financial statements be included in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2000 for filing with the Securities and
Exchange Commission.
/s/ Mr. Jamil Sopher
/s/ Mr. Casher
The foregoing Audit Committee Report shall not be deemed "filed" with the
Securities and Exchange Commission or subject to the liabilities of Section 18
of the Securities Exchange Act of 1934.
Principal Accounting Firm Fees
The following table sets forth the aggregate fees, including
out-of-pocket expenses, billed to the Company for the fiscal year ended December
31, 2000 by the Company's principal accountants, Grant Thornton LLP.
Annual Audit Fees $ 39,050
Review of Quarterly Reports $ 4,500
Financial Information Systems Design
and Implementation Fees $ 500(a)
Tax Services $ 10,150(a)
---------
$ 54,200
(a) The Audit Committee has considered whether the provision of these services
is compatible with maintaining the principal accountants' independence.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended ("Section
16"), requires that reports of beneficial ownership of Common Shares and changes
in such ownership be filed with the Securities and Exchange Commission (the
"SEC") by Section 16 "reporting persons," including directors, certain officers,
holders of more than 10% of the outstanding Common Shares and certain trusts of
which reporting persons are trustees. The Company is required to disclose in
this Proxy Statement each reporting person whom it knows to have failed to file
any required reports under Section 16 on a timely basis during the fiscal year
ended December 31, 2000. To the Company's knowledge, based solely on a review of
copies of Forms 4 and 5 furnished to it and written representations that no
other reports were required, during the fiscal year ended December 31, 2000, the
Company's officers, directors and 10% stockholders complied with all Section
16(a) filing requirements applicable to them.
8
PROPOSAL 2: 2001 STOCK OPTION PLAN
The Company's Board of Directors has adopted the 2001 Stock Option Plan
(subject to stockholder approval thereof) (the "2001 Plan") and has reserved for
issuance thereunder 500,000 Common Shares of the Company. The following
statements include summaries of certain provisions of the 2001 Plan. The
statements do not purport to be complete and are qualified in their entirety by
reference to the provisions of the 2001 Plan, a copy of which is available at
the offices of the Company.
Purpose
The purpose of the 2001 Plan is to advance the interests of the Company
by inducing persons or entities of outstanding ability and potential to join and
remain with, or provide consulting or advisory services to, the Company, by
encouraging and enabling eligible employees, non-employee directors, consultants
and advisors to acquire proprietary interests in the Company, and by providing
such employees, non-employee directors, consultants and advisors with an
additional incentive to promote the success of the Company.
Administration
The 2001 Plan provides for its administration by the Board or by a
committee (the "Stock Option Committee") consisting of at least one person
chosen by the Board of Directors. The Board or the Stock Option Committee has
authority (subject to certain restrictions) to select from the group of eligible
employees, non-employee directors, consultants and advisors the individuals or
entities to whom options will be granted, and to determine the times at which
and the exercise price for which options will be granted. The Board or the Stock
Option Committee is authorized to interpret the 2001 Plan and the interpretation
and construction by the Board or the Stock Option Committee of any provision of
the 2001 Plan or of any option granted there under shall be final and
conclusive. The receipt of options by directors or any members of the Stock
Option Committee shall not preclude their vote on any matters in connection with
the administration or interpretation of the 2001 Plan.
Nature of Options
The Board or Stock Option Committee may grant options under the 2001
Plan which are intended to either qualify as "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") ("Incentive Stock Options"), or not so qualify ("Nonstatutory Stock
Options"). The Federal income tax consequences relating to the grant and
exercise of Incentive Stock Options and Nonstatutory Stock Options are described
below under "Federal Income Tax Consequences."
Eligibility
Subject to certain limitations as set forth in the 2001 Plan, options
to purchase shares may be granted thereunder to persons or entities who, in the
case of Incentive Stock Options, are employees (including officers) of either
the Company or its subsidiaries or, in the case of Nonstatutory Stock Options,
are employees (including officers) or non-employee directors of, and certain
consultants or advisors to, the Company or its subsidiaries. At May 24, 2001,
approximately 46 employees and two non-employee directors were eligible to
receive options under the 2001 Plan.
Option Price
The option price of the shares subject to an Incentive Stock Option may
not be less than the fair market value (as such term is defined in the 2001
Plan) of the Common Shares on the date upon which such option is granted. In
addition, in the case of a recipient of an Incentive Stock Option who, at the
time the option is granted, owns more than 10% of the total combined voting
power of all classes of stock of the Company or of a parent or subsidiary
corporation of the Company (a "10% Stockholder"), the option price of the shares
subject to such option must be at least 110% of the fair market value of the
Common Shares on the date upon which such option is granted.
The option price of shares subject to a Nonstatutory Stock Option will
be determined by the Board of Directors or the Stock Option Committee at the
time of grant and need not be equal to or greater than the fair market value for
the Company's Common Shares.
9
On June 11, 2001, the closing bid price for the Company's Common
Shares, as reported NASDAQ Trading and Market Services, was $1.50 per share.
Exercise of Options
An option granted under the 2001 Plan shall be exercised by the
delivery by the holder thereof to the Company at its principal office (attention
of the Secretary) of written notice of the number of shares with respect to
which the option is being exercised. Such notice shall be accompanied, or
followed within ten days, by payment of the full option price of such shares
which shall be made by the holder's delivery of (i) a check payable to the order
of the Company in such amount; or (ii) previously acquired Common Shares held at
least six months prior to exercise, the fair market value of which shall be
determined as of the date of exercise; or (iii) if provided in the option
agreement, an interest bearing promissory note payable to the Company
accompanied by cash payment of the par value of the Common Shares being
purchased; or a combination of (i), (ii) and (iii).
Reload Feature
The Board of Directors or the Stock Option Committee may grant options
with a reload feature. A reload feature shall only apply when the option price
is paid by delivery of Common Shares. The agreement for options containing the
reload feature shall provide that the option holder shall receive,
contemporaneously with the payment of the option price in Common Shares, a
reload stock option to purchase that number of Common Shares equal to the number
of Common Shares used to exercise the option, and, with respect to Nonstatutory
Stock Options, the number of Common Shares used to satisfy any tax withholding
requirement incident to the exercise of such Nonstatutory Stock Option. The
exercise price of the reload options shall be equal to the fair market value of
the Common Shares on the date of grant of the reload option (or 110% of fair
market value in the case of a 10% Stockholder) and the term of the reload option
shall be equal to the remaining term of the option which gave rise to the reload
option. Subject to the foregoing, the terms of the 2001 Plan applicable to the
option shall be equally applicable to the reload option.
Alternate Stock Appreciation Rights
The Board of Directors or the Stock Option Committee may award to an
optionee, with respect to each Common Share covered by an option ("Related
Option"), a related alternate stock appreciation right ("SAR"), permitting the
optionee to be paid the appreciation on the Related Option in lieu of exercising
the Related Option. An SAR granted with respect to an incentive stock option
must be granted together with the Related Option; an SAR granted with respect to
a Nonstatutory Stock Option may be granted together with, or subsequent to, the
grant of such Related Option. An SAR may be exercised only if and to the extent
that its Related Option is eligible to be exercised. The SAR may be exercised
from time to time by delivery by the holder thereof to the Company of a written
notice of the number of shares with respect to which it is being exercised.
An optionee may exercise an SAR only when the market price on the
exercise date of a share of Common Stock subject to the Related Option exceeds
the exercise price per share of the Related Option (the "SAR Spread"). The
amount of payment to which an optionee shall be entitled upon the exercise of
each SAR shall be equal to 100% of the SAR Spread. Such amount is payable by the
Company, in the sole determination of the Company, in Common Shares, cash or a
combination thereof, as set forth in the SAR agreement. In the case of a payment
in shares, the number of Common Shares to be paid upon exercise of an SAR shall
be determined by dividing the amount of payment due to the optionee by the fair
market value of a Common Share on the exercise date of such SAR. The exercise of
any SAR shall cancel and terminate the right to purchase an equal number of
shares covered by the Related Option. Upon the exercise or termination of any
Related Option, the SAR with respect to such Related Option shall terminate to
the extent of the number of Common Shares as to which the Related Option was
exercised or terminated.
Duration of Options
No Incentive Stock Option granted under the 2001 Plan shall be
exercisable after the expiration of ten years from the date of its grant.
However, if an Incentive Stock Option is granted to a 10% Stockholder, such
option shall not be exercisable after the expiration of five years from the date
of its grant.
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Nonstatutory Stock Options granted under the 2001 Plan may be of such
duration as shall be determined by the Board or the Stock Option Committee.
Non-Transferability
Options granted under the 2001 Plan are not transferable otherwise than
by will or the laws of descent and distribution and such options are
exercisable, during a holder's lifetime, only by the optionee.
Death, Disability or Termination of Employment
Subject to the terms of the stock option agreement pursuant to which
options are granted, if the employment of an employee or the services of a
non-employee director, consultant or advisor shall be terminated for cause, or
such employment or services shall be terminated voluntarily, any options held by
such persons or entities shall expire immediately. If such employment or
services shall terminate other than by reason of death or disability,
voluntarily by the employee, non-employee director, consultant or advisor or for
cause, then, subject to the terms of the stock option agreement pursuant to
which options are granted, such option may be exercised at any time within three
months after such termination, but in no event after the expiration of the
option. For purposes of the 2001 Plan, the retirement of an individual either
pursuant to a pension or retirement plan adopted by the Company or at the normal
retirement date prescribed from time to time by the Company is deemed to be a
termination of such individual's employment other than voluntarily by the
employee or for cause.
Subject to the terms of the stock option agreement pursuant to which
options are granted, if an option holder under the 2001 Plan (i) dies while
employed by the Company or its subsidiary or while serving as a non-employee
director of, or consultant or advisor to, the Company or its subsidiary, or (ii)
dies within three months after the termination of his employment or services
other than voluntarily or for cause, then such option may be exercised by the
estate of the employee, non-employee director, consultant or advisor, or by a
person who acquired such option by bequest or inheritance from the deceased
option holder, at any time within one year after his death. Subject to the terms
of the stock option agreement pursuant to which options are granted, if the
holder of an option under the 2001 Plan ceases employment or services because of
permanent and total disability (within the meaning of Section 22(e)(3) of the
Code) while employed by, or while serving as a non-employee director of, or
consultant or advisor to, the Company or its subsidiary, then such option may be
exercised at any time within one year after his termination of employment,
termination of directorship, or termination of consulting or advisory
arrangement or agreement due to the disability.
Amendment and Termination
The 2001 Plan (but not options previously granted thereunder) shall
terminate on July 12, 2011, ten years from the date that it was adopted by the
Board. Subject to certain limitations, the 2001 Plan may be amended or modified
from time to time or terminated at an earlier date by the Board or by the
stockholders.
Federal Income Tax Consequences
Nonstatutory Stock Options
Under the Code and the Treasury Department Regulations (the
"Regulations"), a Nonstatutory Stock Option does not ordinarily have a "readily
ascertainable fair market value" when it is granted. This rule will apply to the
Company's grant of Nonstatutory Stock Options. Consequently, the grant of a
Nonstatutory Stock Option to an optionee will result in neither income to him
nor a deduction to the Company. Instead, the optionee will recognize
compensation income at the time he exercises the Nonstatutory Stock Option in an
amount equal to the excess, if any, of the then fair market value of the shares
transferred to him over the option price. Subject to the applicable provisions
of the Code and the Regulations regarding withholding of tax, a deduction will
be allowable to the Company in the year of exercise in the same amount as is
includable in the optionee's income.
For purposes of determining the optionee's gain or loss on the sale or
other disposition of the shares transferred to him upon exercise of a
Nonstatutory Stock Option, the optionee's basis in such shares will be the sum
of his option price plus the amount of compensation income recognized by him on
exercise. Such gain or loss will
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be capital gain or loss and will be long-term or short-term depending upon
whether the optionee held the shares for more than one year or one year or less.
No part of any such gain will be an "item of tax preference" for purposes of the
"alternative minimum tax."
Incentive Stock Options
Options granted under the 2001 Plan which qualify as Incentive Stock
Options under Section 422 of the Code will be treated as follows:
Except to the extent that the alternative minimum tax rule described
below applies, no tax consequences will result to the optionee or the Company
from the grant of an Incentive Stock Option to, or the exercise of an Incentive
Stock Option by, the optionee. Instead, the optionee will recognize gain or loss
when he sells or disposes of the shares transferred to him upon exercise of the
Incentive Stock Option. For purposes of determining such gain or loss, the
optionee's basis in such shares will be his option price. If the date of sale or
disposition of such shares is at least two years after the date of the grant of
the Incentive Stock Option, and at least one year after the transfer of the
shares to him upon exercise of the Incentive Stock Option, the optionee will
realize long-term capital gain treatment upon their sale or disposition.
The Company generally will not be allowed a deduction with respect to
an Incentive Stock Option. However, if an optionee fails to meet the foregoing
holding period requirements (a so-called disqualifying disposition), any gain
recognized by the optionee upon the sale or disposition of the shares
transferred to him upon exercise of an Incentive Stock Option will be treated in
the year of such sale or disposition as ordinary income, rather than capital
gain, to the extent of the excess, if any, of the fair market value of the
shares at the time of exercise (or, if less, in certain cases the amount
realized on such sale or disposition) over their option price, and in that case
the Company will be allowed a corresponding deduction.
For purposes of the alternative minimum tax, the amount, if any, by
which the fair market value of the shares transferred to the optionee upon such
exercise exceeds the option price will be included in determining the optionee's
alternative minimum taxable income. In addition, for purposes of such tax, the
basis of such shares will include such excess.
To the extent that the aggregate fair market value (determined at the
time the option is granted) of the stock with respect to which Incentive Stock
Options are exercisable for the first time by the optionee during any calendar
year exceeds $100,000, such options will not be Incentive Stock Options. In this
regard, upon the exercise of an option which is deemed, under the rule described
in the preceding sentence, to be in part an Incentive Stock Option and in part a
Nonstatutory Stock Option, under existing Internal Revenue Service guidelines,
the Company may designate which shares issued upon exercise of such options are
Incentive Stock Options and which shares are Nonstatutory Stock Options. In the
absence of such designation, a pro rata portion of each share issued is to be
treated as issued pursuant to the exercise of an Incentive Stock Option and the
balance of each share treated as issued pursuant to the exercise of a
Nonstatutory Stock Option.
Recommendation and Required Vote
The affirmative vote of a majority of the total votes cast for or
against the proposal at the Meeting is required for approval of this proposal.
The Board of Directors recommends a vote FOR ratification of the adoption of the
2001 Stock Option Plan.
PROPOSAL 3: 2001 EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors has adopted the 2001 Employee Stock Purchase
Plan (subject to stockholder approval thereof) and has reserved for issuance
there under 400,000 Common Shares of the Company. The following statements
include summaries of certain provisions of the 2001 Employee Stock Purchase Plan
(the "Purchase Plan"). The statements do not purport to be complete and are
qualified in their entirety by reference to the provisions of the Purchase Plan,
a copy of which is available at the offices of the Company.
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Purpose
The purpose of the Purchase Plan is to provide a means by which
eligible employees of the Company and its subsidiaries to be given an
opportunity to purchase the Company's common stock through payroll deductions.
The Purchase Plan is an employee stock purchase plan under Internal Revenue
Service Code Section 423. That section provides certain tax benefits to
employees, as explained below. The Board of Directors believes that employee
participation in the ownership of the Company will be to the mutual benefit of
both the employees and the Company.
Subject to adjustment upon an increase or decrease in the amount of issued
shares of common stock resulting from a subdivision or consolidation of shares
or other capital adjustments, we have reserved and made available for issuance
and purchase under the Purchase Plan 400,000 shares of the common stock.
Administration
The Board of Directors will administer the Purchase Plan. The Board of
Directors has the authority to interpret the Purchase Plan, to prescribe, amend
and rescind rules relating to it, and to make all other determinations necessary
or advisable in connection with its administration. All of the Board of
Director's determinations will be final and binding.
Eligibility
Any employee of the Company or its subsidiaries may participate in the
Purchase Plan, except the following, who are ineligible to participate: (i) an
employee whose customary employment is for not more than five months in any
calendar year; (ii) an employee whose customary employment is 20 hours or less
per week; and (iii) an employee who, after exercising his or her rights to
purchase stock under the Purchase Plan, would own stock representing five
percent or more of the total combined voting power of all classes of stock of
the Company. An employee must be employed on the last day of the offering period
in order to acquire stock under the Purchase Plan. Upon termination of
employment for any reason whatsoever, including but not limited to death or
retirement, the balance in the account of a participating employee shall be paid
to the employee or his estate.
Participation Election
An eligible employee may become a participant in the Purchase Plan by
completing an Enrollment Agreement provided by the Company and submitting that
form to the Company's payroll department. The form will authorize the Company to
have deductions made from pay on each payday following enrollment. The
deductions or contributions will then be credited to the employee's account. An
employee may not during any offering period increase his or her percentage of
payroll deduction or contribution for that offering period, nor may an employee
withdraw any contributed funds other than by terminating participation in the
Purchase Plan (as described below). A participating employee may increase or
decrease his or her payroll deduction (subject to a $5 minimum deduction
amount), to take effect on the first day of the next offering period, by
delivering to the Company a new Enrollment Agreement. A participating employee
may terminate payroll deductions or contributions at any time.
Purchase Price
Rights to purchase shares of our Common Stock will be deemed granted to
participating employees as of the first trading day of each offering period. The
purchase price for each share (the "Purchase Price") will be set by the Board of
Directors. The Purchase Price per share shall be the lesser of (i) 85% of the
fair market value of the stock on the offering date or (ii) 85% of the fair
market value of the stock on the last business day of the offering.
Purchase Limit
No employee may purchase Common Stock in any calendar year under the
2001 Employee Stock Purchase Plan and all other "employee stock purchase plans"
of the Company and any parent or subsidiary having an
13
aggregate fair market value in excess of $25,000 of the fair market value of
such shares, determined at the time such right to subscribe is granted. Nor may
any employee purchase more than 2,000 shares of stock during any single
offering. The Company may also impose a limitation on the number or value of
shares of Common Stock an employee may purchase during an offering period.
Purchase of Common Stock
Promptly following the end of each offering, the number of shares of
common stock purchased by each participant shall be issued to each participant
or, if so elected by the Board, be deposited into an account established in the
participant's name at a stock brokerage or other financial services firm
designated by the Company (the "ESPP Broker"). If an ESPP Broker is utilized,
the participant may direct, by written notice to the Company at the time of his
enrollment in the Purchase Plan, that his ESPP Broker account be established in
the names of the participant and one other person designated by the participant,
as joint tenants with right of survivorship, tenants in common, or community
property, to the extent and in the manner permitted by applicable law.
Termination of Participation
An employee may withdraw from an offering, in whole but not in part, at
any time prior to the last business day of such offering by delivering a
Withdrawal Notice to the Company, in which event the Company will refund the
entire balance of his deductions as soon as practicable thereafter. Upon
termination of employment for any reason whatsoever, including but not limited
to death or retirement, the balance in the account of a participating employee
shall be paid to the employee or his estate.
Transferability of Shares
No employee shall be permitted to sell, assign, transfer, pledge or
otherwise dispose of or encumber either the payroll deductions credited to his
account or any rights with regard to the exercise of an option or to receive
shares under the Purchase Plan other than by will or the laws of descent and
distribution, and such right and interest shall not be liable for, or subject
to, the debts, contracts, or liabilities of the employee. If any such action is
taken by the employee, or any claim is asserted by any other party in respect of
such right and interest whether by garnishment, levy, attachment or otherwise,
such action or claim will be treated as an election to withdraw funds in
accordance with the provisions of the Purchase Plan.
Amendment of Plan
The Board shall have the right to amend, modify, or terminate the
Purchase Plan at any time without notice, provided that no employee's existing
rights under any offering already made under the Purchase Plan may be adversely
affected thereby, and provided further that no such amendment of the Purchase
Plan shall, except as provided therein, increase above 400,000 shares the total
number of shares to be offered unless shareholder approval is obtained
therefore.
Termination of Plan
This Purchase Plan shall terminate at the earliest of (i) June 30,
2011; (ii) the date of the filing of a Statement of Intent to Dissolve by the
Company or the effective date of a merger or consolidation wherein the Company
is not to be the surviving corporation, which merger or consolidation is not
between or among corporations related to the Company. Prior to the occurrence of
either of such events, on such date as the Company may determine, the Company
may permit a participating employee to exercise the option to purchase shares
for as many full shares as the balance of his account will allow at the price
set forth in accordance with the Purchase Plan (If the employee elects to
purchase shares, the remaining balance of his account will be refunded to him
after such purchase); (iii) the date the Board acts to terminate the Purchase
Plan; or (iv) the date when all shares reserved under the Purchase Plan have
been purchased.
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Reorganizations
In the event of reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, offerings of rights, or
any other change in the structure of the common shares of the Company, the Board
may make such adjustment, if any, as it may deem appropriate in the number,
kind, and the price of shares available for purchase under the Purchase Plan,
and in the number of shares which an employee is entitled to purchase.
No Employment Rights
Neither the 2001 Employee Stock Purchase Plan nor any right to purchase
Common Stock under the 2001 Employee Stock Purchase Plan confers upon any
employee any right to continued employment with the Company or a participating
affiliate.
FEDERAL INCOME TAX CONSEQUENCES
The 2001 Employee Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code.
Amounts withheld from pay under the 2001 Employee Stock Purchase Plan are
taxable income to participating employees in the year in which the amounts
otherwise would have been received, but the participating employees will not be
required to recognize additional income for federal income tax purposes either
at the time the employee is deemed to have been granted a right to purchase
Common Stock (on the first day of an offering period) or when the right to
purchase Common Stock is exercised (on the last day of the offering period).
If the participating employee holds the Common Stock purchased under the
2001 Employee Stock Purchase Plan for at least two years after the first day of
the offering period in which the Common Stock was acquired (the "Grant Date"),
when the participating employee disposes of the Common Stock, he or she will
recognize as ordinary income an amount equal to the lesser of:
(i) The excess of the fair market value of the Common Stock on the
date of disposition over the price paid for the Common Stock;
or
(ii) The fair market value of the Common Stock on the Grant Date
multiplied by the discount percentage for stock purchases
under the Employee Stock Purchase Plan. The discount
percentage is generally 15%, although the Company may use a
lesser discount percentage, including a zero discount
percentage.
If the participating employee disposes of the Common Stock within two years
after the Grant Date, he or she will recognize ordinary income equal to the fair
market value of the Common Stock on the last day of the offering period in which
the Common Stock was acquired less the amount paid for the Common Stock. The
ordinary income recognition pertains to any disposition of Common Stock acquired
under the 2001 Employee Stock Purchase Plan (such as by sale, exchange or gift).
Upon disposition of the Common Stock acquired under the 2001 Employee Stock
Purchase Plan, any gain realized in excess of the amount reported as ordinary
income will be reportable by the participating employee as a capital gain, and
any loss will be reportable as a capital loss. Amounts required to be reported
as ordinary income on the disposition of the Common Stock may be added to the
purchase price in determining any remaining capital gain or loss. Capital gain
or loss will be long-term if the employee has satisfied the two-year holding
period requirement described above or, in any event, if the employee has held
the Common Stock for at least one year. Otherwise, the capital gain or loss will
be short-term.
If the participating employee satisfies the two-year holding period for
Common Stock purchased under the 2001 Employee Stock Purchase Plan, the Company
will not receive any deduction for federal income tax purposes with respect to
that Common Stock or the right under which it was purchased. If the employee
does not satisfy the two-year holding period, the Company will be entitled to a
deduction in an amount equal to the amount that is considered ordinary income.
Otherwise, the 2001 Employee Stock Purchase Plan has no tax effect on the
Company.
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Recommendation and Required Vote
The affirmative vote of a majority of the total votes cast for or
against the proposal at the Meeting is required for approval of this proposal.
The Board of Directors recommends a vote FOR ratification of the adoption of the
2001 Employee Stock Purchase Plan.
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed the firm of Grant
Thornton LLP as the Company's independent auditors for the fiscal year ending
December 31, 2001 and proposes ratification of such appointment.
A representative of Grant Thornton LLP is expected to be present at the Meeting
with the opportunity to make a statement if he or she desires to do so, and
shall be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 2002
Annual Meeting of Stockholders pursuant to the provisions of Rule 14a-8 of the
SEC, promulgated under the Securities Exchange Act of 1934, as amended, must be
received by the Secretary of the Company at the principal executive offices of
the Company by January 25, 2002 for inclusion in the Company's Proxy Statement
and form of Proxy relating to such meeting.
OTHER BUSINESS
While the accompanying Notice of Annual Meeting of Stockholders
provides for the transaction of such other business as may properly come before
the Meeting, the Company has no knowledge of any matters to be presented at the
Meeting other than those listed as Proposals 1, 2, 3 and 4 in the notice.
However, the enclosed Proxy gives discretionary authority in the event that any
other matters should be presented.
FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2000, as filed with the Securities and Exchange
Commission (excluding exhibits), has been furnished with this Proxy Statement to
each stockholder entitled to vote at the meeting.
By Order of the Board of Directors
Kenneth S. Schneider, Ph.D
Chairman of the Board and
Chief Executive Officer
Greenlawn, New York
June 18, 2000
16
Exhibit A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
TELEBYTE, INC.
1. Organization
There shall be a committee of the board of directors ("Board") of Telebyte, Inc.
("Corporation") to be known as the Audit Committee ("Committee"). The Committee
shall be composed of three or more directors, the majority of whom shall be
independent of the management of the Corporation and free of any relationship
that, pursuant to applicable regulations, or in the opinion of the Board, would
interfere with their exercise of independent judgment as a Committee member.
2. Purpose
The primary function of the Committee is to assist the Board in fulfilling its
oversight responsibilities by reviewing: (a) the financial reports and other
financial information provided by the Corporation to the Securities and Exchange
Commission (b) the Corporation's systems of internal controls regarding finance
and accounting; and (c) the Corporation's auditing, accounting and financial
reporting processes generally. The Committee's primary duties and
responsibilities are to:
A. Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control system,
as set forth above;
B. Review and appraise the audit efforts of the Corporation's independent
auditors; and
C. Encourage a free and open means of communication among the independent
accountants, the Corporation's senior management and the Board.
3. Meetings
The Committee shall meet at least once annually to review the results for the
prior fiscal year, or more frequently as circumstances require. The Committee
may ask members of management or others to attend meetings and provide pertinent
information as necessary, possibly in separate executive sessions to discuss any
matters that the Committee or management believes should be discussed privately.
The Chair of the Committee shall then inform the entire Committee in person or
by conference call of the results of the review.
4. Responsibilities and Duties
To fulfill its responsibilities and duties the Committee shall:
a) Meet in person or by conference call with the independent auditors and
senior management of the Corporation to review the scope of the
proposed audit for the current year and the audit procedures to be
utilized;
b) At the conclusion of the audit, the Committee shall meet with the
independent auditors to review:
17
(1) Significant findings during the year and any comments or
recommendations of the independent auditors, including the status of
previous audit recommendations;
(2) Difficulties encountered in the course of audit work, including
any restrictions on the scope of activities or access to required
information;
(3) Changes required in the planned scope of the internal audit plan
for the current year;
(4) The effectiveness of the accounting and financial controls of the
Corporation and any recommendations by the independent auditors for
the improvement of such controls; and
(5) The results of the monitoring of compliance with the AICPA's Code
of Ethical Conduct;
c) Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the
shareholders. Any changes in accounting principles also should be
reviewed;
d) Provide sufficient opportunity for the independent auditors to meet
with the members of the Committee without members of management
present. Among the items to be discussed in these meetings are the
independent auditors' evaluations of the Corporation's financial and
accounting personnel;
e) Submit the minutes of all meetings of the Committee to, or discuss the
matters discussed at each Committee meeting with, the Board;
f) Inquire of management about significant risks or exposures and assess
the steps management has taken to minimize such risk to the
Corporation;
g) Investigate any matter brought to its attention within the scope of
its duties, with the power to retain outside counsel for this purpose
if, in its judgment, that is appropriate; and
h) Review annually, and if deemed advisable by the Committee amend the
Committee's Charter.
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