SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant [X]
Filed by Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Information Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14c-5(d)(2))
[X] Definitive Information Statement
WIRELESS SYNERGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) 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:
WIRELESS SYNERGIES, INC.
21700 OXNARD STREET
SUITE 1030
WOODLAND HILLS, CA 91367
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To Our Stockholders:
The purpose of this letter is to inform you that we intend to take the
following action by written consent of our stockholders:
1. To amend our Articles of Incorporation to change the name of the
corporation to "2KSounds Corporation";
2. To amend our Articles of Incorporation to increase the authorized
number of shares of capital stock from one hundred one million (101,000,000)
shares to six hundred million (600,000,000) shares consisting of five hundred
million (500,000,000) shares of common stock and one hundred million
(100,000,000) shares of preferred stock;
3. To approve a 20-for-1 forward stock split of the outstanding
shares of the Company's common stock;
4. To appoint Corbin & Wertz as the independent auditors of the
Company for the fiscal year ending December 31, 2002; and
5. To adopt our proposed 2002 Stock Option Plan.
Holders of a majority of our outstanding common stock owning approximately
61% of the outstanding shares of our Common Stock (the "Majority Stockholders"),
have executed a written consent in favor of the actions described above. This
consent will satisfy the stockholder approval requirement for the proposed
action and allows us to take the proposed action on or after May 21,2002.
WE ARE NOT ASKING FOR YOUR PROXY. Because the written consent of the
Majority Stockholders satisfies any applicable stockholder voting requirement of
the Nevada General Corporation Law and our Articles of Incorporation and
By-Laws, we are not asking for a proxy and you are not requested to send one.
The accompanying Information Statement is for information purposes only
and explains the terms of the amendments to our Articles of Incorporation, the
20-for-1 forward stock split, our appointment of independent auditors and the
2002 Stock Option Plan. Please read the accompanying Information Statement
carefully.
By Order of the Board of Directors
/s/John Guidon
-----------------------------
John Guidon
Chief Executive Officer
April 29, 2002
WIRELESS SYNERGIES, INC.
21700 OXNARD STREET
SUITE 1030
WOODLAND HILLS, CA 91367
----------------
INFORMATION STATEMENT
APRIL 29, 2002
----------------
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is being mailed on or about April 29, 2002 to
the stockholders of record of Wireless Synergies, Inc. (the "Company") at the
close of business on April 17, 2002 (the "Record Date"). This Information
Statement is being sent to you for information purposes only. No action is
requested on your part.
This Information Statement is being furnished to our stockholders to
inform you of the adoption of resolutions by written consent by the holders of a
majority of the outstanding shares of our common stock, par value $.001 (the
"Common Stock"). The resolutions adopted by such holders of a majority of the
outstanding Common Stock (the "Majority Stockholders") give us the authority to
take the following actions (collectively, the "Stockholder Resolutions"):
1. To amend the Articles of Incorporation of the Company (the
"Articles of Incorporation") to change the name of the Company to "2KSounds
Corporation;"
2. To amend the Articles of Incorporation to increase the authorized
number of shares of capital stock from one hundred one million (101,000,000)
shares to six hundred million (600,000,000) shares, consisting of five hundred
million (500,000,000) shares of Common Stock and one hundred million
(100,000,000) shares of preferred stock, par value $.001 (the "Preferred
Stock");
3. To approve a 20-for-1 forward stock split of the outstanding
shares of our Common Stock;
4. To appoint Corbin & Wertz as the independent auditors of the
Company for the fiscal year ending December 31, 2002; and
5. To adopt the Company's 2002 Stock Option Plan.
The board of directors of the Company (the "Board of Directors") has
adopted resolutions authorizing: (i) the amendment of our Articles of
Incorporation to increase the number of authorized shares of capital stock; (ii)
the amendment of our Articles of Incorporation to change the name of the
Company; (iii) the forward stock split of the outstanding shares of our Common
Stock; (iv) the appointment of Corbin & Wertz as the independent auditors of the
Company for the fiscal year ending December 31, 2002; and (v) the adoption of
the 2002 Stock Option Plan, and recommended that the stockholders adopt
resolutions approving the same.
As of the close of business on the Record Date, we had an aggregate of
18,697,279 shares of Common Stock outstanding and no shares of Preferred Stock
outstanding. Each outstanding share, regardless of class or series is entitled
to one vote per share.
The affirmative consent of the holders of a majority of the issued and
outstanding shares of Common Stock is necessary to approve each of the
Stockholder Resolutions in the absence of a meeting of stockholders. The
Majority Stockholders own approximately 61% of our outstanding shares of Common
Stock. Accordingly, the requisite stockholder approval of each of the
Stockholder Resolutions was obtained by the execution of the Majority
Stockholders' written consents in favor of such actions, allowing us to take the
proposed actions on or after May 21, 2002.
RESOLUTION #1
CHANGE OF THE COMPANY'S NAME
GENERAL
Article I of our Articles of Incorporation currently provides that the
name of the Company is "Wireless Synergies, Inc." We have proposed an amendment,
substantially in the form annexed to this Information Statement as Exhibit A
(the "Articles Amendment"), which provides for, among other things, a change in
the name of the Company to "2KSounds Corporation."
CONSENT REQUIRED
Approval of the Articles Amendment requires the consent of the holders of
a majority of the outstanding shares of our Common Stock, as of the Record Date.
The Majority Stockholders, who own approximately 61% of the outstanding shares
of our Common Stock as of the Record Date, have given their consent to this
amendment and accordingly, the requisite stockholder approval of the Articles
Amendment was obtained by the execution of the Majority Stockholders' written
consent in favor of the Articles Amendment.
PURPOSE
The Articles Amendment is necessary to allow us to abide by certain terms
and conditions of that certain Amended and Restated Agreement and Plan of
Merger, dated March 13, 2002 as amended by that certain letter agreement
amendment, dated March 21, 2002; each by and among the Company, 2KSounds, Inc.,
a California corporation ("2KSounds"), 2KSounds Merger Co., Inc., a California
corporation and wholly owned subsidiary of the Company, and certain selling
stockholders of 2KSounds (collectively, the "Amended Merger Agreement"), the
transactions contemplated by which were consummated on March 29, 2002.
RESOLUTION #2
INCREASE IN AUTHORIZED SHARES
GENERAL
Article IV of our Articles of Incorporation currently authorizes us to
issue up to 101,000,000 shares of capital stock consisting of 100,000,000 shares
of Common Stock and 1,000,000 shares of Preferred Stock. As of the Record Date
there were 18,697,279 shares of Common Stock (and 1,302,721 shares of Common
Stock reserved for issuance upon exercise of outstanding options and warrants
held by former stockholders of 2KSounds) and no shares of Preferred Stock
outstanding. Accordingly, we currently have the authority to issue an additional
80,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. The
Articles Amendment attached hereto as Exhibit A, if approved, would, among other
things, increase the number of authorized shares of Common Stock by 400,000,000
shares to an aggregate number of authorized shares of Common Stock of
500,000,000 shares and increase the number of authorized shares of Preferred
Stock by 99,000,000 shares to an aggregate number of authorized shares of
Preferred Stock of 100,000,000 shares.
CONSENT REQUIRED
Approval of the Articles Amendment requires the consent of the holders of
a majority of the outstanding shares of our Common Stock, as of the Record Date.
The Majority Stockholders, who own approximately 61% of the outstanding shares
of our Common Stock as of the Record Date, have given their consent to this
amendment and accordingly, the requisite stockholder approval of the Articles
Amendment was obtained by the execution of the Majority Stockholders' written
consent in favor of the Articles Amendment.
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PURPOSE
The Articles Amendment is necessary to allow us to abide by certain terms
and conditions of the Amended Merger Agreement. As a result of the merger, as
merger consideration, we issued 14,197,279 shares of Common Stock and reserved
an additional 1,302,721 shares of Common Stock for issuance upon exercise of
stock options and warrants held by the former 2KSounds stockholders.
POTENTIAL EFFECTS OF THE INCREASE IN AUTHORIZED CAPITAL
Upon effectiveness of the Articles Amendment, our authorized shares of
Common Stock will be utilized as follows:
PURPOSE NUMBER OF SHARES
------- ----------------
Outstanding Shares (as of the Record 18,697,279
Date)
Additional shares reserved (as of the 1,302,721
Record Date) for issuance upon exercise
of stock options and warrants held by
former 2KSounds stockholders
Shares that will be outstanding after 373,945,580
giving effect to the 20-for-1 forward
stock split authorized by the Board of
Directors
Additional shares that, pursuant to the 26,054,420
20-for-1 forward stock split authorized
by the Board of Directors, will be
reserved for issuance upon exercise of
stock options and warrants held by former
2KSounds stockholders
Authorized but unissued shares of Common 100,000,000
Stock
Preferred Stock 100,000,000
Total Authorized . . . . . . . . . . 600,000,000
No further action by our stockholders will be necessary or sought prior to
the issuance of the shares of Common Stock that we will be authorized to issue
after the Articles Amendment is effective.
Although the Articles Amendment is being done for the reasons stated
above, the amendment increasing the authorized shares of capital stock of the
Company could, under certain circumstances, discourage or make more difficult an
attempt by a person or organization to gain control of us by tender offer or
proxy contest, or to consummate a merger or consolidation with us after
acquiring control, and to remove incumbent management, even if such transactions
were favorable to our stockholders due to the fact that prior to any action,
such as a reverse stock split, there will be approximately 100,000,000 shares of
Common Stock available for issuance (not including shares reserved for issuance
under our 2002 Stock Option Plan and shares to be issued pursuant to the
20-for-1 forward stock split authorized by the Board of Directors) and
100,000,000 shares of Preferred Stock available for issuance. Accordingly, this
amendment to our Articles of Incorporation may be deemed (under certain
circumstances which may or may not occur) to be an anti-takeover measure.
However, the Articles Amendment is not intended as an anti-takeover measure.
RESOLUTION #3
APPROVAL OF FORWARD STOCK SPLIT
GENERAL
The Board of Directors deemed it in the best interests of the Company to
authorize a 20-for-1 forward stock split to comply with the terms of the Amended
Merger Agreement.
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CONSENT REQUIRED
Approval of the 20-for-1 forward stock split has been consented to by the
Majority Stockholders, who own approximately 61% of the outstanding shares of
our Common Stock as of the Record Date.
PURPOSE
The Board of Directors deemed it in the best interests of the Company to
authorize a 20-for-1 forward stock split to comply with the terms of the Amended
Merger Agreement.
RESOLUTION #4
APPOINTMENT OF INDEPENDENT AUDITORS
GENERAL
The Board of Directors deemed it in the best interests of the Company to
appoint Corbin & Wertz as the independent auditors of the Company for the fiscal
year ending December 31, 2002.
CONSENT REQUIRED
Ratification of the appointment of Corbin & Wertz as the Company's
independent auditors requires the consent of the holders of a majority of the
outstanding shares of our Common Stock entitled to vote at any annual meeting of
stockholders as of the Record Date. The Majority Stockholders, who own
approximately 61% of the outstanding shares of our Common Stock as of the Record
Date, have given their consent to ratify this appointment and accordingly, the
requisite stockholder approval was obtained by the execution of the Majority
Stockholders' written consent in favor of such appointment.
PURPOSE
The Board of Directors deemed it in the best interests of the Company to
appoint Corbin & Wertz as the independent auditors of the Company for the fiscal
year ending December 31, 2002. Corbin & Wertz has audited the financial
statements of 2KSounds since February 2002.
RESOLUTION #5
ADOPTION OF THE 2002 STOCK OPTION PLAN
BACKGROUND AND PURPOSE
The Board of Directors has adopted the 2002 Stock Option Plan and
recommended that it be approved by the Company's stockholders for their
approval. In connection with the mailing of this Information Statement on
Schedule 14C and the approval by the Majority Stockholders of the other
resolutions described herein, the Majority Stockholders, who own approximately
61% of the outstanding shares of Common Stock as of the Record Date, have given
their consent to approve the adoption of the 2002 Stock Option Plan.
The purpose of the 2002 Stock Option Plan is to provide an additional
incentive to attract and retain qualified competent persons who provide services
and upon whose efforts and judgment the success of the Company is largely
dependent, through the encouragement of stock ownership in the Company by such
persons. In furtherance of this purpose, the 2002 Stock Option Plan authorizes,
among other things: (a) the granting of incentive or nonqualified stock options
to purchase Common Stock (collectively, "Options") to persons selected by the
administrators of the 2002 Stock Option Plan from the class of all regular
employees of the Company, including officers who are regular employees, and
directors; (b) the granting of nonqualified stock options to purchase
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Common Stock to persons selected by the administrators of the 2002 Stock Option
Plan from the class of consultants and advisors to the Company; (c) the use of
already owned Common Stock as payment of the exercise price for Options granted
under the 2002 Stock Option Plan; and (d) the granting of restricted stock to
persons selected by the administrators of the 2002 Stock Option Plan.
Stockholder approval of the 2002 Stock Option Plan is required (i) for
purposes of compliance with certain exclusions from the limitations of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) in
order for the 2002 Stock Option Plan to be eligible under the "plan lender"
exemption from the margin requirements of Regulation U promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (iii) by
the rules of the National Association of Securities Dealers National Market
System.
The effective date of the 2002 Stock Option Plan is March 29, 2002 (the
"Effective Date"). No Options have been granted under the 2002 Stock Option Plan
as of the date of this Information Statement. However, in accordance with the
terms of the Amended Merger Agreement, the Company has reserved for issuance
981,068 shares of its Common Stock under the 2002 Stock Option Plan for future
issuance upon exercise of 2KSounds options which were converted in the merger
into options to purchase shares of the Company's Common Stock.
The following is a summary of certain principal features of the 2002 Stock
Option Plan. This summary is qualified in its entirety by reference to the
complete text of the 2002 Stock Option Plan, which is attached to this
Information Statement as Exhibit B. Stockholders are urged to read the actual
text of the 2002 Stock Option Plan in its entirety.
ADMINISTRATION OF THE PLAN
The 2002 Stock Option Plan provides that it shall be administered by the
Board of Directors or by a committee appointed by the Board of Directors (the
"Committee") which shall be composed of two or more directors all of whom shall
be "outside directors" (as defined in the 2002 Stock Option Plan) in compliance
with Rule 16b-3 of the Exchange Act and Section 162(m) of the Code (although
Rule 16b-3 also may be complied with if the option grants are approved by the
Board of Directors).
The Committee or the Board of Directors in its sole discretion determines
the persons to be awarded the Options, the number of shares subject thereto and
the exercise price and other terms thereof. In addition, the Committee or the
Board of Directors has full power and authority to construe and interpret the
2002 Stock Option Plan, and the acts of the Committee or the Board of Directors
are final, conclusive and binding on all interested parties, including the
Company, its stockholders, its officers and employees, recipients of grants
under the 2002 Stock Option Plan, and all persons or entities claiming by or
through such persons.
An aggregate of 60,000,000 shares of Common Stock (subject to adjustment
described below) are reserved for issuance upon the exercise of Options granted
under the 2002 Stock Option Plan. The number of shares reserved for issuance
under the 2002 Stock Option Plan takes into account the 20-for-1 forward stock
split approved by the Board of Directors and adopted by the Majority
Stockholders, as described in Resolution #3 above. Of this amount, 981,068
shares of Common Stock have been reserved for future issuance under the 2002
Stock Option Plan upon the exercise of options that the Company has granted to
former option holders of 2KSounds pursuant to the terms and conditions of the
Amended Merger Agreement. After giving effect to the 20-for-1 forward stock
split, the number of shares reserved for future issuance under the 2002 Stock
Option Plan to former option holders of 2KSounds will increase to 19,621,360
shares.
The maximum number of shares of Common Stock underlying Options which may
be granted to any one individual under the 2002 Stock Option Plan is 1,000,000
(subject to adjustment described below). The shares issued upon exercise of
Options granted under the 2002 Stock Option Plan, will be duly authorized, fully
paid and non-assessable shares of Common Stock. The Company's stockholders will
not have any preemptive rights to purchase or subscribe for any Common Stock by
reason of the reservation and issuance of Common Stock under the 2002 Stock
Option Plan. If any Option granted under the 2002 Stock Option Plan should
expire or terminate for any reason other than having been exercised in full, the
unpurchased shares subject to that Option will again be available for purposes
of the 2002 Stock Option Plan.
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CERTAIN TERMS AND CONDITIONS
All Options granted under the 2002 Stock Option Plan must be evidenced by
a written agreement between the Company and the option grantee (the "Optionee").
The agreement will contain such terms and conditions as the Committee or the
Board of Directors shall prescribe, consistent with the 2002 Stock Option Plan,
including, without limitation, the exercise price, term and any restrictions on
the exercisability of the Options granted.
The exercise price per share of any incentive stock Option granted under
the 2002 Stock Option Plan may not be less than the Fair Market Value of the
Common Stock on the date such incentive stock Option is granted. The exercise
price per share of any nonqualified stock Option granted under the 2002 Stock
Option Plan may not be less than 85% of the Fair Market Value of the Common
Stock on the date such nonqualified stock Option is granted. For purposes of the
2002 Stock Option Plan, the "Fair Market Value" on any date of reference is
deemed to be the closing price of the Common Stock on the business day
immediately preceding such date, unless the Committee or the Board of Directors
in its sole discretion determines otherwise in a fair and uniform manner. For
this purpose, the closing price of the Common Stock on any business day is (i)
if the Common Stock is listed or admitted for trading on any United States
national securities exchange, or if actual transactions are otherwise reported
on a consolidated transaction reporting system, the last reported sale price of
the Common Stock on such exchange or reporting system, as reported in any
newspaper of general circulation; (ii) if the Common Stock is quoted on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), or any similar system of automated dissemination of quotations of
securities prices in common use, the last reported sale price of the Common
Stock on such system or, if sales prices are not reported, the mean between the
high bid and low asked quotations for such day of the Common Stock on such
system; or (iii) if neither clause (i) nor (ii) is applicable, the mean between
the high bid and low asked quotations for the Common Stock as reported by the
National Quotation Bureau, Incorporated if at least two securities dealers have
inserted both bid and asked quotations for the Common Stock on at least 5 of the
10 preceding days. For purposes of determining Fair Market Value, the closing
price per share of the Common Stock on April 23, 2002, as reported on the
Over-the-Counter Bulletin Board (OTCBB), was $2.60.
The Committee or the Board of Directors may permit the exercise price of
an Option to be paid for in cash, by certified or official bank check or
personal check, by money order, with already owned shares of Common Stock that
have been held by the Optionee for at least six (6) months (or such other shares
as the Company determines will not cause the Company to recognize for financial
accounting purposes a charge for compensation expense), the withholding of
shares of Common Stock issuable upon exercise of the Option, by delivery of a
properly executed exercise notice together with such documentation as shall be
required by the Committee or the Board of Directors (or, if applicable, the
broker) to effect a cashless exercise, or a combination of the above. If paid in
whole or in part with shares of already owned Common Stock, the value of the
shares surrendered is deemed to be their Fair Market Value on the date the
Option is exercised. If the exercise price is paid in whole or part with the
Optionee's promissory note, such note shall (i) provide for full recourse to the
maker, (ii) be collateralized by the pledge of the shares that the Optionee
purchases upon exercise of such Option, (iii) bear interest at the prime rate of
the Company's principal lender or such other rate as the Committee or the Board
of Directors, as the case may be, shall determine, and (iv) contain such other
terms as the Committee or the Board of Directors in its sole discretion shall
reasonably require.
The use of already owned shares of Common Stock applies to payment for the
exercise of an Option in a single transaction and to the "pyramiding" of already
owned shares in successive, simultaneous Option exercises. In general,
pyramiding permits an Option holder to start with as little as one share of
Common Stock and exercise an entire Option to the extent then exercisable (no
matter what the number of shares subject thereto). By utilizing already owned
shares of Common Stock, no cash (except for fractional share adjustments) is
needed to exercise an Option. Consequently, the Optionee would receive Common
Stock equal in value to the spread between the fair market value of the shares
subject to the Option and the exercise price of such Option.
No Option granted under the 2002 Stock Option Plan is assignable or
transferable, other than by will or by the laws of descent and distribution.
During the lifetime of an Optionee, an Option is exercisable only by him or her.
The expiration date of an Option under the 2002 Stock Option Plan will be
determined by the Committee or the Board at the time of grant, but in no event
may such an Option be exercisable after 10 years from the date of grant. An
Option may be exercised at any time or from time to time or only after a period
of time in installments, as the Committee or the Board of Directors determines.
The Committee or the Board of Directors may in its sole
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discretion accelerate the date on which any Option may be exercised. Outstanding
Options granted under the 2002 Stock Option Plan may become immediately fully
exercisable in the event of certain transactions, including certain changes in
control of the Company, certain mergers and reorganizations, and certain
dispositions of substantially all the Company's assets.
Unless otherwise provided in the Option agreement, the unexercised portion
of any Option granted under the 2002 Stock Option Plan shall automatically be
terminated (a) 60 days after the date on which the Optionee's employment is
terminated for any reason other than (i) mental or physical disability, or (ii)
death; (b) one year after the date on which the Optionee's employment is
terminated by reason of mental or physical disability; or (c) one year after the
date on which the Optionee's employment is terminated by reason of the
Optionee's death.
To prevent dilution of the rights of a holder of an Option, the 2002 Stock
Option Plan provides for appropriate adjustment of the number of shares for
which Options may be granted, the number of shares subject to outstanding
Options and the exercise price of outstanding Options, in the event of any
increase or decrease in the number of issued and outstanding shares of the
Company's capital stock resulting from a stock dividend, a recapitalization or
other capital adjustment of the Company. The Committee or the Board of Directors
has discretion to make appropriate antidilution adjustments to outstanding
Options in the event of a merger, consolidation or other reorganization of the
Company or a sale or other disposition of substantially all of the Company's
assets.
The 2002 Stock Option Plan will expire on March 29, 2012, and any Option
outstanding on such date will remain outstanding until it expires or is
exercised. The Committee or the Board may amend, suspend or terminate the 2002
Stock Option Plan or any Option at any time, provided that such amendment shall
be subject to the approval of the Company's stockholders if such stockholder
approval is required by any federal or state law or regulation (including,
without limitation, Rule 16b-3 or to comply with Section 162(m) of the Code) or
the rules of any stock exchange or automated quotation system on which the
Common Stock may then be listed or granted. In addition, no amendment,
suspension or termination shall substantially impair the rights or benefits of
any Optionee, pursuant to any Option previously granted, without the consent of
the Optionee.
RESTRICTED STOCK AWARDS
The Committee or the Board of Directors is authorized to grant restricted
stock under the 2002 Stock Option Plan. Restricted stock is a grant of shares of
Common Stock which may not be sold or disposed of, and which may be forfeited in
the event of certain terminations of employment, prior to the end of a
restricted period specified by the Committee or the Board of Directors. A
participant granted restricted stock generally has all of the rights of a
stockholder of the Company, unless otherwise determined by the Committee or the
Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS OF OPTIONS AND RESTRICTED STOCK
The 2002 Stock Option Plan is not qualified under the provisions of
Section 401(a) of the Code and is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
Nonqualified Stock Options
On exercise of a nonqualified stock Option granted under the 2002 Stock
Option Plan, an Optionee will recognize ordinary income equal to the excess, if
any, of the Fair Market Value on the date of exercise of the shares of Common
Stock acquired on exercise of the Option over the exercise price. If the
Optionee is an employee of the Company, that income will be subject to the
withholding of federal income tax. The Optionee's tax basis in those shares will
be equal to their Fair Market Value on the date of exercise of the Option, and
his holding period for those shares will begin on that date.
If an Optionee pays for shares of Common Stock on exercise of an Option by
delivering shares of the Company's Common Stock, the Optionee will not recognize
gain or loss on the shares delivered, even if their Fair Market Value at the
time of exercise differs from the Optionee's tax basis in them. The Optionee,
however, otherwise will be taxed on the exercise of the Option in the manner
described above as if he had paid the exercise price in cash. If a separate
identifiable stock certificate is issued for that number of
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shares equal to the number of shares delivered on exercise of the Option, the
Optionee's tax basis in the shares represented by that certificate will be equal
to his tax basis in the shares delivered, and his holding period for those
shares will include his holding period for the shares delivered. The Optionee's
tax basis and holding period for the additional shares received on exercise of
the Option will be the same as if the Optionee had exercised the Option solely
in exchange for cash.
The Company will be entitled to a deduction for federal income tax
purposes equal to the amount of ordinary income taxable to the Optionee,
provided that amount constitutes an ordinary and necessary business expense for
the Company and is reasonable in amount, and either the employee includes that
amount in income or the Company timely satisfies its reporting requirements with
respect to that amount.
Incentive Stock Options
The 2002 Stock Option Plan provides for the grant of Options that qualify
as "incentive stock options" as defined in Section 422 of the Code. Under the
Code, an Optionee generally is not subject to tax upon the grant or exercise of
an incentive stock option. In addition, if the Optionee holds a share received
on exercise of an incentive stock option for at least two years from the date
the Option was granted and at least one year from the date the Option was
exercised (the "Required Holding Period"), the difference, if any, between the
amount realized on a sale or other taxable disposition of that share and the
holder's tax basis in that share will be long-term capital gain or loss.
If, however, an Optionee disposes of a share acquired on exercise of an
incentive stock option before the end of the Required Holding Period (a
"Disqualifying Disposition"), the Optionee generally will recognize ordinary
income in the year of the Disqualifying Disposition equal to the excess, if any,
of the Fair Market Value of the share on the date the incentive stock option was
exercised over the exercise price. If, however, the Disqualifying Disposition is
a sale or exchange on which a loss, if realized, would be recognized for federal
income tax purposes, and if the sales proceeds are less than the Fair Market
Value of the share on the date of exercise of the Option, the amount of ordinary
income recognized by the Optionee will not exceed the gain, if any, realized on
the sale. If the amount realized on a Disqualifying Disposition exceeds the Fair
Market Value of the share on the date of exercise of the Option, that excess
will be short-term or long-term capital gain, depending on whether the holding
period for the share exceeds one year.
An Optionee who exercises an incentive stock option by delivering shares
of Common Stock acquired previously pursuant to the exercise of an incentive
stock option before the expiration of the Required Holding Period for those
shares is treated as making a Disqualifying Disposition of those shares. This
rule prevents "pyramiding" the exercise of an incentive stock option (that is,
exercising an incentive stock option for one share and using that share, and
others so acquired, to exercise successive incentive stock options) without the
imposition of current income tax.
For purposes of the alternative minimum tax, the amount by which the Fair
Market Value of a share of Common Stock acquired on exercise of an incentive
stock option exceeds the exercise price of that Option generally will be an
adjustment included in the Optionee's alternative minimum taxable income for the
year in which the Option is exercised. If, however, there is a Disqualifying
Disposition of the share in the year in which the Option is exercised, there
will be no adjustment with respect to that share. If there is a Disqualifying
Disposition in a later year, no income with respect to the Disqualifying
Disposition is included in the Optionee's alternative minimum taxable income for
that year. In computing alternative minimum taxable income, the tax basis of a
share acquired on exercise of an incentive stock option is increased by the
amount of the adjustment taken into account with respect to that share for
alternative minimum tax purposes in the year the Option is exercised.
The Company is not allowed an income tax deduction with respect to the
grant or exercise of an incentive stock option or the disposition of a share
acquired on exercise of an incentive stock option after the Required Holding
Period. However, if there is a Disqualifying Disposition of a share, the Company
is allowed a deduction in an amount equal to the ordinary income includible in
income by the Optionee, provided that amount constitutes an ordinary and
necessary business expense for the Company and is reasonable in amount, and
either the employee includes that amount in income or the Company timely
satisfies its reporting requirements with respect to that amount.
8
Restricted Stock
Generally, the recipient of a stock award will recognize ordinary
compensation income at the time the stock is received equal to the excess, if
any, of the Fair Market Value of the stock received over any amount paid by the
recipient in exchange for the stock. If, however, the stock is non-vested when
it is received under the 2002 Stock Option Plan (e.g., if the employee is
required to work for a period of time in order to have the right to sell the
stock), the recipient generally will not recognize income until the stock
becomes vested, at which time the recipient will recognize ordinary compensation
income equal to the excess, if any, of the Fair Market Value of the stock on the
date it becomes vested over any amount paid by the recipient in exchange for the
stock. A recipient may, however, file an election with the Internal Revenue
Service, within thirty (30) days of his or her receipt of the stock award, to
recognize ordinary compensation income, as of the date the recipient receives
the award, equal to the excess, if any, of the Fair Market Value of the stock on
the date the award is granted over any amount paid by the recipient in exchange
for the stock.
The recipient's basis for the determination of gain or loss upon the
subsequent disposition of shares acquired as stock awards will be the amount
paid for such shares plus any ordinary income recognized either when the stock
is received or when the stock becomes vested. Upon the disposition of any stock
received as a stock award under the 2002 Stock Option Plan, the difference
between the sale price and the recipient's basis in the shares will be treated
as a capital gain or loss and generally will be characterized as long-term
capital gain or loss if the shares have been held for more the one year from the
date as of which he or she would be required to recognize any compensation
income.
Section 162 Limitations
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Code, which generally disallows a public company's tax deduction for
compensation to covered employees in excess of $1,000,000 in any tax year
beginning on or after January 1, 1994. Compensation that qualifies as
"performance-based compensation" is excluded from the $1,000,000 deductibility
cap, and therefore remains fully deductible by the company that pays it. The
Company intends that Options granted to employees whom the Committee or Board of
Directors expects to be covered employees at the time a deduction arises in
connection with such Options, will qualify as such "performance-based
compensation," so that such Options will not be subject to the Section 162(m)
deductibility cap of $1,000,000. Future changes in Section 162(m) or the
regulations thereunder may adversely affect the ability of the Company to ensure
that Options under the 2002 Stock Option Plan will qualify as "performance-based
compensation" that is fully deductible by the Company under Section 162(m).
Importance of Consulting Tax Adviser
The information set forth above is a summary only and does not purport to
be complete. In addition, the information is based upon current federal income
tax rules and therefore is subject to change when those rules change. Moreover,
because the tax consequences to any Optionee may depend on his particular
situation, each Optionee should consult his tax adviser as to the federal,
state, local and other tax consequences of the grant or exercise of an Option or
the disposition of Common Stock acquired on exercise of an Option.
9
NEW PLAN BENEFITS
The following table sets forth the stock options that the individuals and
groups referred to below have received as of April 23, 2002 under the 2002 Stock
Option Plan as a result of the consummation of the transactions contemplated by
the Amended Merger Agreement and the approval of the adoption of the 2002 Stock
Option Plan by the Majority Stockholders.
NAME AND POSITION 2002 STOCK OPTION PLAN
- ----------------- ----------------------
DOLLAR VALUE(1) NUMBER OF UNITS(1)
--------------- ------------------
John Guidon,
Chairman, Chief Executive Officer and
Chief Financial Officer(2)................. - 0
Michael Blakey,
Director and President(2).................. - 0
Bruce Gladstone,
Director, Executive Vice President and
Secretary(2)................................ - 0
Joseph Davis,
Senior Vice President-Business Development... $690,946(3) 342,731
Kenneth S. Ingber,
Vice President-Business Affairs and General
Counsel...................................... $ 86,367(4) 42,841
Executive Group............................... $1,470,151(5) 706,874
Non-Executive Director Group.................. $ 0 0
Non-Executive Officer Employee Group.......... $ 173,579(6) 83,539
- -------------------------------
(1) The information contained in this table is as of April 23, 2002, and does
not take into account any effect resulting from the 20-for-1 forward stock
split described in Resolution #3 of this Information Statement.
(2) The grant of Options in the future to this person is entirely within the
discretion of the Board of Directors or the Committee. The Company cannot
determine the nature, amount or the dollar value of stock option awards
that may be made in the future.
(3) Dollar value is based upon the difference between the closing price of the
Common Stock on the OTCBB on April 23, 2002, and $0.584, the exercise price
of the options granted. On April 23, 2002, the closing price was $2.60 per
share.
(4) Dollar value is based upon the difference between the closing price of the
Common Stock on the OTCBB on April 23, 2002, and $0.584, the exercise price
of the options granted. On April 23, 2002, the closing price was $2.60 per
share.
(5) Dollar value is based upon the difference between the closing price of the
Common Stock on the OTCBB on April 23, 2002, and $0.584 and $0.058, the
exercise prices of the options granted. On April 23, 2002, the closing
price was $2.60 per share.
10
(6) Dollar value is based upon the difference between the closing price of the
Common Stock on the OTCBB on April 23, 2002, and $0.992, $0.584 and $0.058,
the exercise prices of the options granted. On April 23, 2002, the closing
price was $2.60 per share.
CONSENT REQUIRED
Approval of the adoption of the 2002 Stock Option Plan requires the
consent of the holders of a majority of the outstanding shares of our Common
Stock, as of the Record Date. The Majority Stockholders, who own approximately
61% of the outstanding shares of our Common Stock as of the Record Date, have
given their consent to the adoption of the 2002 Stock Option Plan and
accordingly, the requisite stockholder approval was obtained by the execution of
the Majority Stockholders' written consent in favor of the adoption of the 2002
Stock Option Plan.
PURPOSE
The adoption of the 2002 Stock Option Plan is necessary to allow us to
abide by certain terms and conditions of the Amended Merger Agreement.
DESCRIPTION OF COMMON STOCK
All outstanding shares of Common Stock are fully paid and non-assessable.
Each share of the outstanding Common Stock is entitled to participate equally in
dividends as and when declared by the Board of Directors and is entitled to
participate equally in any distribution of net assets made to the stockholders
upon our liquidation. There are no redemption, sinking fund, conversion or
preemptive rights with respect to the shares of Common Stock. All shares of
Common Stock have equal rights and preferences. The holders of Common Stock are
entitled to one vote for each share held of record on all matters voted upon by
stockholders and may cumulate votes for the election of directors.
DESCRIPTION OF PREFERRED STOCK
There are no shares of Preferred Stock issued or outstanding and no rights
thereto have been fixed by the Board of Directors.
11
OWNERSHIP OF COMPANY STOCK
COMMON STOCK
The following table sets forth information regarding the number of shares
of the Common Stock beneficially owned on the Record Date, by: (i) each person
who is known by the Company to beneficially own 5.0% or more of the Common
Stock; (ii) each of the Company's directors and executive officers; and (iii)
all of the Company's directors and executive officers as a group. Except as
otherwise set forth below, the business address of each of the persons listed
below is c/o the Company, 21700 Oxnard Street, Suite 1030, Woodland Hills,
California 91367.
PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME AND ADDRESS SHARES SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
- ------------------- ------------------ ---------------------
J.P. Beehner(2)...................... 1,250,000 6.7%
Dorothy A. Mortenson(2).............. 1,450,000 7.8%
- -------------------------------------
John Guidon(3)....................... 4,271,286 22.8%
Michael Blakey(4).................... 3,643,574 19.5%
J. Michael Nixon(5).................. 2,570,483 13.7%
Bruce Gladstone(6)................... 772,431 4.1%
Joseph Davis(7)...................... 378,432 2.0%
Jorge F. Hernandez(8)................ 58,906 *
Laura Becker(9)...................... 46,855 *
Les Silver(10)....................... 18,747 *
Kenneth S. Ingber.................... 0 -
All directors and executive officers
as a group (9 persons)............ 11,713,859 61.3%
- --------------------
* Indicates less than 1.0%.
(1) The information in this table is based on our records, information provided
to us by our directors and executive officers and a review of any Schedules
13D filed by our stockholders with the Securities and Exchange Commission.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes shares over which the
indicated beneficial owner exercises voting and/or investment power. Our
shares of common stock subject to options or warrants currently exercisable
or exercisable within 60 days are deemed outstanding for computing the
percentage ownership of the person holding the options or warrants but are
not deemed outstanding for computing the percentage ownership of any other
person. This information is based on 18,697,279 shares of common stock
outstanding as of April 17, 2002.
12
(2) Neither J.P. Beehner nor Dorothy A. Mortenson is a member of the board
of directors or an executive officer of the Company or 2KSounds.
(3) Includes warrants to purchase 42,841 shares of Common Stock at an exercise
price of $0.233 per share.
(4) Includes warrants to purchase 771 shares of Common Stock at an exercise
price of $0.233 per share.
(5) Mr. Nixon's business address is c/o Masco Contractor Services, 1121
Alderman Drive, Alpharetta, Georgia 30005
(6) Includes warrants to purchase 18,422 shares of Common Stock at an exercise
price of $0.233 per share.
(7) Includes options to purchase 207,066 shares of Common Stock at an exercise
price of $0.584 per share. Does not include options to purchase 135,665
shares of Common Stock, which are not vested, at an exercise price of
$0.584 per share. Such options vest in equal monthly increments of 7,140
shares on the ninth day of each month.
(8) Represents options to purchase shares of Common Stock. Of such amount,
options to purchase 48,196 shares are exercisable at $0.058 per share, and
options to purchase 10,710 shares are exercisable at $0.584 per share. Does
not include options to purchase 37,487 shares of Common Stock at an
exercise price of $0.058 per share, which options vest in equal monthly
increments of 1,785 shares on the fifteenth day of each month. Also does
not include options to purchase 74,973 shares of Common Stock at an
exercise price of $0.584 per share, which options vest in equal monthly
increments of 1,785 shares on the ninth day of each month.
(9) Represents options to purchase shares of Common Stock at an exercise price
of $0.584 per share. Does not include options to purchase 60,249 shares of
Common Stock, which are not vested, at an exercise price of $0.584 per
share. Such options vest in equal monthly increments of 2,231 shares on the
thirteenth day of each month.
(10) Represents options to purchase shares of Common Stock at an exercise price
of $0.584 per share. Does not include options to purchase 24,094 shares of
Common Stock, which are not vested, at an exercise price of $0.584 per
share. Such options vest in equal monthly increments of 893 shares on the
thirteenth day of each month.
PREFERRED STOCK
As of the Record Date, no shares of Preferred Stock were issued and
outstanding.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
To the knowledge of the Company, no person who has been a director or
officer of the Company at any time since the beginning of the Company's last
fiscal year or any associate of any of such person has any direct or indirect
substantial interest, by security holdings or otherwise in any matter to be
acted upon, as set forth in this Information Statement.
13
INCORPORATION OF FINANCIAL INFORMATION
Our Annual Report on Form 10-KSB for the fiscal year ended June 30, 2001
as filed with the Securities and Exchange Commission on October 12, 2001
(Commission File No. 000-32229) is incorporated in its entirety by reference
into this Information Statement.
As the requisite stockholder vote for the Stockholder Resolutions, as
described in this Information Statement was obtained upon the delivery of the
written consent of Majority Stockholders, WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY. This Information Statement is for
informational purposes only. Please read this Information Statement carefully.
By Order of the Board of Directors
/s/John Guidon
-----------------------------------
John Guidon
Chief Executive Officer
April 29, 2002
14
INDEX OF EXHIBITS
A. Certificate of Amendment to Articles of Incorporation
B. 2002 Stock Option Plan