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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Avery Communications, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
AVERY COMMUNICATIONS, INC.
190 SOUTH LASALLE STREET, SUITE 1710
CHICAGO, ILLINOIS 60603
August 24, 2000
Dear Stockholder:
You are cordially invited to join us at the 2000 Annual Meeting of
Stockholders to be held near O'Hare Airport in Chicago, Illinois on September
13, 2000 at 10:00 a.m., Central Standard Time.
Enclosed with this Proxy Statement are your voting instructions and the 1999
Annual Report.
This year the Annual Meeting will be held at the Sheraton Gateway Suites
O'Hare, 6501 North Mannheim Road, Rosemont, Illinois. At this meeting we will
vote on the matters described in the Proxy Statement. We know that it is not
practical for most shareholders to attend the Annual Meeting in person.
Whether or not you plan to attend the Annual Meeting, we strongly encourage
you to designate the proxies shown on the enclosed card to vote your shares.
We are pleased to offer you the option of voting by mail for designating the
proxies and indicating your voting preferences. You may simply complete, sign,
date and return by mail the enclosed proxy card.
In response to the SEC's recent emphasis on clear and simple communications
to shareholders and investors, we have prepared our proxy statement in "plain
English." We hope you like this simplified form and welcome your comments.
I would like to take this opportunity to remind you that your vote is
important.
Sincerely,
Patrick J. Haynes, III
Chairman
QUESTIONS and ANSWERS
Q: What am I voting on?
A:Three proposals. Item numbers refer to item numbers on the proxy card.
Item 1.Election of five directors
Item 2.Approval of the 1999 Flexible Incentive Plan
Item 3. Ratification of appointment of King Griffin & Adamson P.C. as
our independent auditors
Q: Who can vote?
A: All stockholders of record at the close of business on August 21, 2000, are
entitled to vote. Holders of our common stock, series d preferred stock,
series e preferred stock and series g preferred stock are entitled to one
vote per share. All shares of common stock, series d preferred stock,
series e preferred stock and series g preferred stock vote together as one
class.
Q: Who can attend the meeting?
A: All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Please note that if you hold your shares in a
brokerage or other nominee account in "street name," you will need to bring
a copy of a brokerage statement reflecting your stock ownership as of the
record date. Everyone must check in at the registration desk at the
meeting.
Q: How do I vote?
A: Complete, date, sign and mail the proxy card in the enclosed postage pre-
paid envelope. By voting in the way listed above, you will authorize the
individuals named on the proxy card, referred to as proxies, to vote your
shares according to your instructions.
Q: What happens if I do not indicate my preference for one of the items?
A: If you do not indicate how you wish to vote for one or more of the nominees
for director, the proxies will vote FOR election of all the nominees for
director (Item 1). If you leave Item 2 blank, the proxies will vote FOR
approval of the 1999 flexible incentive plan (Item 2). If you leave Item 3
blank, the proxies will vote FOR ratification of the appointment of King
Griffin & Adamson P.C. (Item 3).
Q: What if I vote and then change my mind?
A: You can revoke your proxy by writing to us, by voting again via mail, or by
attending the meeting and casting your vote in person. Your last vote will
be the vote that is counted.
Q: What constitutes a quorum?
A: As of the record date, we had 8,753,886 shares of common stock, 1,500,000
shares of series d preferred stock, 350,000 shares of series e preferred
stock, and 7,126,894 shares of series g preferred stock outstanding. The
holders of the voting stock have the right to cast a total of 17,730,780
votes. A majority of the voting shares, present in person or represented by
proxy constitutes a quorum at the Annual Meeting. If you have properly
designated the proxies and indicated your voting preferences by mail, you
will be considered part of the quorum, and the proxies will vote your
shares as you have instructed them. If a broker holding your shares in
"street name" indicates to us on a proxy card that the broker lacks
discretionary authority to vote your shares, we will not consider your
shares as present or entitled to vote for any purpose.
Q: Is my vote confidential?
A: Yes. Proxy cards, ballots and voting tabulations that identify individual
stockholders are kept confidential except in certain circumstances where it
is important to protect the interests of Avery and its stockholders.
Generally, only the inspectors of election and the employees of Corporate
Investor Communications, Inc.
processing the votes will have access to your name. They will not disclose
your name as the author of any comments you include on the proxy card
unless you ask that your name be disclosed to management.
Q: What shares are included on the proxy card?
A: The shares listed on your proxy card sent by us represent all the shares of
common stock held in your name, as distinguished from those held in "street
name." You will receive a separate card or cards from your broker if you
hold shares in "street name."
Q: What does it mean if I get more than one proxy card?
A: It indicates that your shares are held in more than one account, such as
two brokerage accounts, and registered in different names. You should vote
each of the proxy cards to ensure that all of your shares are voted.
Q: How much did this proxy solicitation cost?
A: The company has retained Corporate Investor Communications, Inc. to solicit
proxies from shareholders at an estimated fee of $3,500, plus expenses.
This fee does not include the costs of printing and mailing the proxy
statements. Some of the officers and other employees of Avery also may
solicit proxies personally, by telephone and by mail. Avery will also
reimburse brokerage houses and other custodians for their reasonable out-
of-pocket expenses for forwarding proxy and solicitation materials to the
beneficial owners of our voting stock.
AVERY COMMUNICATIONS, INC.
190 South LaSalle Street, Suite 1710
Chicago, Illinois 60603
ANNUAL SHAREHOLDERS MEETING
PROXY STATEMENT
Date:September 13, 2000
Time:10:00 a.m., CST
Place:Sheraton Gateway Suites O'Hare
6501 North Mannheim Road
Rosemont, Illinois 60603
Record Date: August 21, 2000. If you were a stockholder on that
date, you may vote at the meeting. Each share of our
common stock, series d preferred stock, series e
preferred stock, and series g preferred stock is
entitled to one vote. You may not cumulate votes. On
the record date, we had 17,730,780 shares of our
voting stock outstanding.
Agenda: 1. Elect five directors.
2. Approve our 1999 Flexible Incentive Plan.
3. Ratify the selection of King Griffin & Adamson
P.C. as our independent auditors for 2000.
4. Any other proper business.
Proxies: Unless you tell us on the proxy card to vote
differently, we will vote signed returned proxies
"FOR" the board's nominees and "FOR" agenda items 2
and 3. The proxy holders will use their discretion on
other matters. If a nominee cannot or will not serve
as a director, the proxy holders will vote for a
person whom they believe will carry on our present
policies.
Board Recommendations: Your board of directors recommends you vote in favor
of the election of directors, approval of our 1999
Flexible Incentive Plan and the appointment of King
Griffin & Adamson P.C.
Proxies Solicited By: The Board of Directors.
First Mailing Date: We anticipate first mailing this proxy statement on
August 24, 2000.
Revoking Your Proxy: You may revoke your proxy before it is voted at the
meeting. To revoke, either write to us, vote again
via mail, or attend the meeting and cast your vote in
person. Your last vote will be the vote that is
counted.
Your Comments: Your comments about any aspect of our business are
welcome. You may use the space provided on the proxy
card for this purpose, if desired. Although we may
not respond on an individual basis, your comments
help us to measure your satisfaction, and we may
benefit from your suggestions.
IF YOU PLAN TO ATTEND:
Please note that space limitations make it necessary to limit attendance
to stockholders. If you wish to attend, please indicate your wish by
checking the box that appears on the proxy card. "Street name" holders will
need to bring a copy of a brokerage statement reflecting stock ownership as
of the record date.
PLEASE VOTE--YOUR VOTE IS IMPORTANT
It will be helpful to us if you will read the Proxy Statement and the voting
instructions on the proxy card, and then vote by filling out, signing and
dating the proxy card and returning it by mail. Prompt return of your proxy
will help reduce the costs of additional mailings.
TABLE OF CONTENTS
Page
----
BOARD OF DIRECTORS......................................................... 1
EXECUTIVE OFFICER COMPENSATION............................................. 3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 4
CHANGE IN CONTROL OF AVERY................................................. 8
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................... 9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 9
APPROVAL OF THE 1999 FLEXIBLE INCENTIVE PLAN............................... 11
SELECTION OF INDEPENDENT AUDITORS.......................................... 19
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR THE 2001 ANNUAL MEETING.......... 19
OTHER BUSINESS............................................................. 20
VOTING PROCEDURES/REVOKING YOUR PROXY...................................... 20
BOARD OF DIRECTORS
This section gives biographical information about our directors, executive
officers, and key employees. It describes the membership of directors on board
committees, their attendance at meetings and their compensation.
Election of Directors
The Board of Directors will be composed of five members. The Board has
selected five of the seven current directors as nominees for election at the
2000 Annual Meeting of Stockholders. The nominees for the 2000 Annual Meeting
are:
Patrick J. Haynes, III
Norman M. Phipps
J. Alan Lindauer
Robert T. Isham, Jr.
Scot M. McCormick
Directors elected at the Annual Meeting will hold office for a one-year
term. Unless you withhold authority to vote for one or more of the nominees,
the persons named as proxies intend to vote for the election of the five
nominees listed above.
All nominees have consented to serve as directors. We have no reason to
believe that any of the nominees will be unable to act as director. However,
if any director is unable to stand for re-election, the Board of Directors may
either reduce the size of the Board or designate a substitute. If a substitute
nominee is named, the proxies will vote for the election of the substitute.
The information includes the age of each nominee as of the date of the
meeting.
Patrick J. Haynes, III, 51
Patrick J. Haynes, III has served as a director and Chairman of the Board
of Avery since November 1995. Mr. Haynes was elected President and Chief
Executive Officer of Avery in July 1998, and served in such capacity until
December 1, 1998, and assumed these titles again on May 5, 2000. In 1992,
Mr. Haynes founded and became President of American Communications
Services, Inc., a start-up, fiber optic, competitive access provider
telephone company. Mr. Haynes directed development of the strategic plan,
put management in place and operated the company on a day-to-day basis for
18 months. He also advised and consulted in connection with the placement
of $52 million in equity and $81 million in debt. American Communications
is now a NASDAQ-listed company with a market capitalization in excess of
$200 million. Mr. Haynes is the Senior Managing Director of the Thurston
Group, Inc., a private merchant bank in Chicago. Mr. Haynes and Russell T.
Stern, Jr. founded the Thurston Group in 1987. Previously, Mr. Haynes was
associated with Merrill Lynch, Oppenheimer & Company, and Lehman Brothers
as an investment banker.
Norman M. Phipps, 40
Norman M. Phipps has served as a director of Avery since November 1995. Mr.
Phipps is also a director of LogiMetrics, Inc., a company primarily
involved in the manufacture of infrastructure equipment for the wireless
broadband telecommunications market. Since July 2000, Mr. Phipps has served
as Senior Vice President of Administration of LogiMetrics. Mr. Phipps has
served as the President and Chief Operating Officer of LogiMetrics from
April 1997 until July 2000, and also as interim Chief Financial Officer
from March 1998 until July 2000. From May 1996 to April 1997, Mr. Phipps
served as Chairman of the Board and Acting President of LogiMetrics. Mr.
Phipps has served as a principal of two private investment firms, Phipps,
Teman & Company, L.L.C. (from January 1994 to December 1997) and CP Capital
Partners (from January 1991 to December 1993).
1
J. Alan Lindauer, 61
J. Alan Lindauer has served as a director of Avery since November 1995. Mr.
Lindauer also currently serves as President of Waterside Capital and has
served as President of Waterside Management, Inc., a business consulting
firm, since 1986. Mr. Lindauer has also served as a director of Commerce
Bank of Virginia since 1986 and serves as chair of its Loan Committee,
Norfolk Division, and a member of the Executive, Trust, Marketing,
Compensation, and Mergers & Acquisition Committees. Mr. Lindauer served as
director of Citizens Trust Bank from 1982 to 1985 as well as a member of
its Trust and Loan Committees. Mr. Lindauer founded Minute-Man Fuels in
1963 and managed Minute-Man Fuels until 1985.
Robert T. Isham, Jr., 48
Robert T. Isham, Jr. originally served as a director of Avery from November
1995 to March 1996, and then rejoined the Board in July 1998. Mr. Isham is
currently a managing director of the Thurston Group, Inc., a private
merchant bank based in Chicago. Previously, he ran his own commercial law
practice in Chicago and, before that, he was a partner with the law firm of
McDermott, Will & Emery.
Scot M. McCormick, 47
Scot M. McCormick has served as Vice President, Chief Financial Officer and
Assistant Secretary of Avery since July 1996. Mr. McCormick was elected as
a director and to the office of Secretary in July 1998. Prior to becoming
the Chief Financial Officer of Avery, Mr. McCormick was a consultant to
Avery from 1995 through June 1996. From 1993 to 1995, Mr. McCormick served
as Chief Financial Officer and Secretary of The Park Corporation in
Barrington, Illinois. From 1990 to 1993, he served as Chief Financial and
Administrative Officer and Secretary of Whitestar Graphics, Inc. From 1978
to 1990, Mr. McCormick was associated with the Crown organization in
Chicago, including Controller of American Envelope Company from 1980 to
1990. From 1976 to 1978, Mr. McCormick worked for Coopers & Lybrand.
Required Vote
Nominees who receive votes equal to a plurality of our voting stock present
in person or represented by proxy at the meeting will be elected. Your Board
recommends a vote FOR the nominees listed above. Abstentions will have no
effect on the outcome of the election of directors.
Number of Meetings
The Board of Directors met seven times in 1999. Each director attended at
least 75% of the Board meetings.
Committees
The Board of Directors does not have standing audit, nominating, or
compensation committees.
Board Compensation
Each member of the Board receives a one-time warrant to purchase 75,000
shares of common stock at an exercise price determined by the Board at the
time of issuance. Each non-employee director also receives an annual stipend
of $10,000 and an annual grant of options to purchase 10,000 shares of common
stock at an exercise price determined by the Board at the time of grant. The
non-employee directors of Avery also receive $1,000 for each meeting attended,
plus reimbursement of travel expenses.
2
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information concerning compensation of our
Chief Executive Officer and other highly compensated executive officers whose
salary and bonuses exceeded $100,000 for the year ended December 31, 1999.
These gentlemen are sometimes referred to collectively as the "named executive
officers."
Long Term
Other Annual Compensation
Name and Fiscal Salary Bonus Compensation Awards/Options
Principal Position Year ($) ($) ($) (#)
------------------ ------ -------- -------- ------------ --------------
Patrick J. Haynes, 1999 $200,000 $100,000 $36,804 100,000
III(1)................... 1998 $100,000 $ 0 $30,000 420,000
Chairman of the Board
Mark J. Nielsen(2)(3)..... 1999 $200,000 $117,500 $14,400 0
President and Chief 1998 $ 16,667 $ 0 $ 0 925,000
Executive Officer
Scot M. McCormick(3)...... 1999 $130,000 $ 50,000 $12,192 150,000
Vice President and Chief 1998 $122,667 $ 35,000 $ 0 75,000
Financial Officer
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(1) Mr. Haynes served as the Chief Executive Officer of Avery through November
30, 1998. "Other Annual Compensation" represents monthly automobile
allowance and premiums on health and major medical insurance.
(2) Mr. Nielsen became the Chief Executive Officer of Avery on December 1,
1998, and resigned on May 5, 2000.
(3) "Other Annual Compensation" represents premiums on health, life,
disability and medical insurance.
Options Grants and Exercises
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1999,
to the named executive officers. No stock appreciation rights were granted
during 1999.
Individual Grants
Number of % of Total
Securities Options Granted Exercise or
Underlying to Employees Base Price Expiration
Name Options Granted for Fiscal Year ($/share) Date
---- --------------- --------------- ----------- ----------
Patrick J. Haynes, III.. 100,000 8.0% $1.63 11/18/09
Mark J. Nielsen......... 0 0 N/A N/A
Scot M. McCormick....... 150,000 11.9% $1.63 11/18/04
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
Number of Securities Value of Unexercised
Underlying Options at In-the-Money Options at
Shares Fiscal Year End (#) Fiscal Year End ($)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------ ------------------------- -------------------------
Patrick J. Haynes, III.. 0 $ 0 380,000/140,000 $37,500/$0
Mark J. Nielsen......... 0 $ 0 925,000/0 $0/$0
Scot M. McCormick....... 0 $ 0 125,000/100,000 $56,250/$37,500
Employment Agreements
All of our named executive officers have employment agreements. The terms of
those agreements are described below.
3
Haynes Agreement
Effective July 1, 1998, Mr. Haynes entered into an employment agreement with
Avery. Under his employment agreement, Mr. Haynes serves as Chairman of the
Board, President and Chief Executive Officer, subject to the power of the
Board of Directors to elect and remove officers of Avery. The employment
agreement expires June 30, 2003. Mr. Haynes' initial base salary is $200,000
annually. In addition, Mr. Haynes is entitled to receive bonuses based on
performance goals as established by the Board, to receive stock options, to
participate in applicable incentive plans established by Avery, to participate
in Avery's hospitalization and major medical plans, or, at his option, to be
reimbursed for amounts paid by Mr. Haynes for comparable coverage, and to an
automobile of his choice. Mr. Haynes also received a ten-year warrant to
purchase 420,000 shares of common stock at $3.00 per share.
Nielsen Agreement
Effective December 1, 1998, Mark J. Nielsen entered into an employment and
noncompetition agreement with Avery. Under his employment agreement, Mr.
Nielsen served as President and Chief Executive Officer. The employment
agreement had an original term of one year and automatically renewed for
additional one-year terms unless either party notified the other prior to
October of a given year that they do not wish to renew the agreement. Mr.
Nielsen's base salary was $200,000 annually. In addition, Mr. Nielsen received
an aggregate bonus of $117,500 for the first year of his employment ending on
December 1, 1999, and was entitled to participate in applicable incentive
plans established by Avery, to participate in Avery's hospitalization and
major medical plans, or, at his option, to be reimbursed for amounts paid by
Mr. Nielsen for comparable coverage, and to receive such other bonuses as the
Board may determine in its sole discretion. Mr. Nielsen also received a ten-
year stock option to purchase 925,000 shares of Avery's common stock at $2.00
per share. Mr. Nielsen delivered a notice of termination of his employment
agreement, effective May 5, 2000, and resigned from the Board effective July
31, 2000.
McCormick Agreement
Effective January 1, 2000, Scot M. McCormick entered into an employment
agreement with Avery. Under his employment agreement, Mr. McCormick serves as
Vice President, Chief Financial Officer and Secretary, subject to the power of
the Board of Directors to elect and remove officers of Avery. The employment
agreement expires December 31, 2000, and will automatically be renewed for
additional one-year terms unless either party notifies the other prior to
November 1 of a given year that they do not wish to renew the agreement. Mr.
McCormick's initial base salary is $143,000 annually. In addition, Mr.
McCormick is entitled to annual incentive compensation in an amount equal to
40% of his annual salary if certain performance goals established by the Board
of Directors are met or exceeded. Mr. McCormick is entitled to participate in
applicable incentive plans established by Avery, to participate in Avery's
hospitalization and major medical plans, or, at his option, to be reimbursed
for amounts paid by Mr. McCormick for comparable coverage, and to receive such
other bonuses as the Board may determine in its sole discretion.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial Ownership of Avery's Voting Securities
Avery has 8,753,886 shares of common stock, 1,500,000 shares of series d
preferred stock, 350,000 shares of series e preferred stock, and 7,126,894
shares of series g preferred stock outstanding. The holders of each of these
outstanding securities is presently entitled to one vote per share on any
matters submitted to Avery's stockholders for a vote. The holders of these
securities vote as a single class on all matters submitted to Avery's
stockholders for a vote unless a separate vote is otherwise required by law or
Avery's certificate of incorporation.
Therefore, as of August 21, 2000, a total of 17,730,780 shares of Avery's
voting securities were outstanding, all of which constitute a single class of
voting securities.
4
The following table sets forth information for any person who is known to
Avery to be the beneficial owner of more than five percent of Avery's single
class of voting securities. A beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares:
. voting power, which includes the power to vote, or to direct the voting,
of such security; and/or
. investment power, which includes the power to dispose, or to direct the
disposition of, such security.
All of Avery's voting securities beneficially owned by a person, regardless
of the form which such beneficial ownership takes, have been aggregated in
calculating the number of shares beneficially owned by such person. In making
these calculations, a person is deemed to be the beneficial owner of a
security if that person has the right to acquire beneficial ownership of such
security within 60 days
. through the exercise of any option, warrant or right;
. through the conversion of a security;
. pursuant to the power to revoke a trust, discretionary account, or
similar arrangement; or
. pursuant to automatic termination of a trust, discretionary account, or
similar arrangement.
Any securities not outstanding which are subject to such options, warrants,
rights or conversion privileges and beneficially owned by a person in the
table below are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person but are
not deemed to be outstanding for the purpose of computing the percentage of
the class beneficially owned by any other person.
Number Percent
Name of Beneficial Owner of Shares of Class
------------------------ ---------- --------
Patrick J. Haynes, III(1)................................... 10,505,771 38.7%
Thurston Group, Inc.(1)..................................... 8,902,811 33.6%
Stephen L. Brown(2)......................................... 1,770,938 9.7%
Spencer L. Brown(2)......................................... 1,742,188 9.6%
Franklin Capital Corporation(2)............................. 1,645,938 9.1%
Mark J. Nielsen(3).......................................... 1,564,598 8.1%
John Faltys(4).............................................. 1,154,254 6.1%
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(1) The business address of this person is 190 South LaSalle Street, Suite
1710, Chicago, Illinois 60603.
(2) The business address for this person is 450 Park Avenue, 10th Floor, New
York, New York 10022.
(3) The business address for this person is 27126-B Paseo Espada, Suite 725,
San Juan Capistrano, California 92675.
(4) The business address for this person is 18881 Von Karman, Suite 500,
Irvine, California 92612.
Security Ownership of Management
The following table sets forth information as of August 21, 2000, as to each
class of Avery's equity securities beneficially owned by all directors and
nominees, each of the named executive officers, and directors and executive
officers as a group. In calculating the ownership percentages for Avery's
common stock, we have used the 8,753,886 shares of common stock outstanding on
August 21, 2000. Since these calculations do not include the three series of
Avery's voting preferred stock included in the calculations in the preceding
table, the beneficial ownership percentages set forth below will differ from
these set forth in the preceding table.
5
Common Stock Preferred Stock
--------------------------- -----------------------------
Number Percent Number Percent
Name of Beneficial Owner of Shares of Class Series of Shares of Class
------------------------ ---------- -------- ------ --------- --------
Patrick J. Haynes, III(1)........ 10,505,771(2) 57.9% B 100,000(2) 25.6%
D 1,500,000(2) 100.0%
G 7,126,894(2) 100.0%
Mark J. Nielsen(3)............... 1,564,598(4) 15.2% G 624,598(4) 16.5%
Scot M. McCormick(1)............. 245,000(5) 2.7%
Norman M. Phipps(6).............. 75,000(7) 0.8%
J. Alan Lindauer(8).............. 783,700(9) 8.4%
Stephen L. Brown(10)............. 1,770,938(11)(12) 19.2% E 350,000(12) 100.0%
Spencer L. Brown(10)............. 1,742,188(11)(13) 18.9% E 350,000(13) 100.0%
Robert T. Isham, Jr.(1).......... 187,355(14) 2.1% A 8,333(14) 2.1%
All directors and executive
officers as a group
(2)(4)(5)(7)(9)(11)(12)(13)(14).. 16,874,550 78.1% A 8,333 2.1%
B 100,000 25.6%
D 1,500,000 100.0%
E 350,000 100.0%
G 7,126,894 100.0%
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(1) The business address for this person is 190 South LaSalle Street, Suite
1710, Chicago, Illinois 60603.
(2) Includes 8,902,811 shares beneficially owned by the Thurston Group, Inc.,
of which Mr. Haynes is the Senior Managing Director, 766,286 shares owned
by Waveland, LLC, of which Mr. Haynes is the owner, and 836,664 held in
escrow by Bank One, Texas, N.A., for the benefit of the former owners of
Hold Billing Services and for which Mr. Haynes has an irrevocable proxy.
Of these shares, 665,286 represent shares that may be acquired within 60
days upon the exercise of options or warrants, 1,600,000 represent shares
that may be acquired within 60 days upon the conversion of convertible
securities, and 7,126,894 represent shares of the series g preferred
stock for which Thurston Group has an irrevocable proxy.
(3) The business address for this person is 27126-B Paseo Espada, Suite 725,
San Juan Capistrano, California 92675.
(4) Of these shares, 925,000 represent shares that may be acquired within 60
days upon the exercise of options and 624,598 represent shares that may
be acquired upon conversion of the series g preferred stock. As described
under the caption "Change in Control of Avery" below, Mr. Nielsen has
granted an irrevocable proxy with respect to all shares of the series g
preferred stock owned by him to Thurston Group, Inc. The 624,598 shares
represent the maximum number of such shares that Mr. Nielsen could own
following the transactions described under that caption. In connection
with the distribution, Mr. Nielsen's options will also be cancelled.
(5) Of these shares, 225,000 represent shares that may be acquired within 60
days upon the exercise of options and warrants.
(6) The business address of this person is 435 Moreland Road, Hauppauge, New
York 11788.
(7) All of these shares represent shares that may be acquired within 60 days
upon the exercise of options and warrants.
(8) The business address for this person is 300 East Main Street, Suite 1380,
Norfolk, Virginia 23510.
(9) Of these shares, 686,000 are beneficially owned by Waterside Capital
Corporation, of which Mr. Lindauer is President. Of these shares, 256,000
represent shares that may be acquired within 60 days upon the exercise of
options and warrants and 280,000 represent shares that may be acquired
upon the exercise of a convertible note.
(10) The business address for this person is 450 Park Avenue, 10th Floor, New
York, New York 10022.
(11) Of these shares, 1,645,938 are beneficially owned by Franklin Capital
Corporation, of which Stephen L. Brown is Chairman of the Board and Chief
Executive Officer and Spencer L. Brown is Senior Vice President. Messrs.
Brown and Brown disclaim beneficial ownership of these shares.
6
(12) Of these shares, 120,000 represent shares that may be acquired within 60
days upon the exercise of options and warrants and 350,000 represent
shares that may be acquired upon the conversion of convertible securities.
(13) Of these shares, 95,000 represent shares that may be acquired within 60
days upon the exercise of options and warrants and 350,000 represent
shares that may be acquired within 60 days upon the conversion of
convertible securities.
(14) Of these shares, 161,368 represent shares that may be acquired within 60
days upon the exercise of options and warrants and 8,333 represent shares
that may be acquired within 60 days upon the conversion of convertible
securities.
7
CHANGE IN CONTROL OF AVERY
On August 1, 2000, as part of a distribution agreement providing for us to
distribute all the shares of our subsidiary, Primal Solutions, Inc., to our
securityholders, Thurston Group, Inc. acquired a proxy to vote 7,126,894
shares of our series g voting preferred stock.
Thurston Group is controlled by Patrick J. Haynes, III, the Chairman of
Avery.
After being granted the proxy to vote the 7,126,894 shares of our series g
voting preferred stock, Mr. Haynes now has the right to vote or to direct the
voting of an aggregate of 9,740,485 shares, or approximately 54.9%, of our
17,730,780 outstanding voting securities. Prior to being granted the proxy to
vote the 7,126,894 shares of our series g voting preferred stock, Mr. Haynes
had the right to vote or to direct the voting of an aggregate of 2,613,591
shares, or approximately 24.7%, of our 10,603,886 outstanding voting
securities.
Immediately prior to the grant of the proxy to vote the 7,126,894 shares of
our series g voting preferred stock, we had outstanding shares that were
entitled to cast an aggregate of 10,603,886 votes in the election of directors
and other matters submitted to a vote of our stockholders. These shares
included 8,753,886 shares of common stock, each of which was entitled to one
vote per share; 1,500,000 shares of our series d preferred stock, each of
which was entitled to one vote per share and the holders of which vote with
the holders of Avery's common stock as a single class in all matters submitted
to our stockholders for a vote; and 350,000 shares of our series e preferred
stock, each of which was entitled to one vote per share and the holders of
which vote with the holders of our common stock as a single class in all
matters submitted to our stockholders for a vote. Each share of our series e
voting preferred stock was entitled to one vote for each whole share of our
common stock into which it is convertible on the record date for any vote of
our stockholders. The series e voting preferred stock was convertible into
shares of our common stock on a one-for-one basis.
The 7,126,894 shares of our series g voting preferred stock were issued to
the original seven stockholders of Primal, John Faltys, Joseph R. Simrell,
David Haynes, Mark J. Nielsen, Arun Anand, Murari Cholappadi, and Sanjay
Gupta, in exchange for an aggregate of 7,126,894 shares of our series f non-
voting preferred stock as part of a series of transactions in contemplation of
our distribution of all the issued and outstanding shares of Primal to our
securityholders. Following this exchange of securities, we have outstanding
shares that are entitled to cast an aggregate of 17,730,780 votes in the
election of directors and other matters submitted to a vote of our
stockholders. These shares include 8,753,886 shares of common stock, each of
which is entitled to one vote per share; 1,500,000 shares of our series d
voting preferred stock, each of which is entitled to one vote per share and
the holders of which vote with the holders of our common stock as a single
class in all matters submitted to our stockholders for a vote; 350,000 shares
of our series e voting preferred stock, each of which is presently entitled to
one vote per share and the holders of which vote with the holders of our
common stock as a single class in all matters submitted to our stockholders
for a vote; and 7,126,894 shares of our series g voting preferred stock, each
of which is entitled to one vote per share and the holders of which vote with
the holders of our common stock as a single class in all matters submitted to
our stockholders for a vote. Each share of our series e voting preferred stock
is entitled to one vote for each whole share of our common stock into which it
is convertible on the record date for any vote of our stockholders. The series
e voting preferred stock is presently convertible into shares of our common
stock on a one-for-one basis.
In consideration for the grant of the proxy to vote the 7,126,894 shares of
our series g voting preferred stock, Thurston Group and Patrick J. Haynes III,
and each of their affiliates, including Waveland, LLC, a limited liability
company wholly owned by Mr. Haynes, granted to the original seven stockholders
of Primal, John Faltys, Joseph R. Simrell, David Haynes, Mark J. Nielsen, Arun
Anand, Murari Cholappadi, and Sanjay Gupta, an irrevocable proxy to vote all
the shares of the Primal common stock that any of them will receive in the
distribution of the Primal common stock to our stockholders as contemplated by
the distribution agreement. If the distribution were effective today, and
assuming Mr. Haynes and his affiliates do not exercise any of their options or
warrants to purchase any shares of our common stock, the proxy granted to the
former Primal stockholders would cover an aggregate of 3,610,255 shares, or
approximately 22.6%, of the Primal common
8
stock that would be outstanding following the distribution and the issuance of
250,000 additional shares of the Primal common stock to Mr. Nielsen as
contemplated by the distribution agreement. The former Primal stockholders
will also receive 32% of the Primal common stock as part of the distribution,
calculated before the issuance of 250,000 additional shares of the Primal
common stock to Mr. Nielsen as contemplated by the distribution agreement. If
the distribution were effective today, and assuming the 250,000 additional
shares of the Primal common stock were issued to Mr. Nielsen as contemplated
by the distribution agreement, the former Primal stockholders would have the
right to vote or to direct the voting of an aggregate of 8,899,260 shares, or
approximately 55.6%, of the Primal common stock outstanding after the
distribution.
Each of the proxies covering shares of the Primal common stock provides that
any action required or permitted to be taken pursuant to the proxy by John
Faltys, Joseph R. Simrell, David Haynes, Mark J. Nielsen, Arun Anand, Murari
Cholappadi and Sanjay Gupta, including any voting of the shares covered
thereby, may be so taken if the holders of at least 66% of the issued and
outstanding shares of Primal immediately prior to its acquisition by us
approve the taking of any such action. Prior to our acquisition of Primal, the
issued and outstanding shares of Primal were held as follows:
. John Faltys--30.4861%
. Joseph R. Simrell and David Haynes--21.5999% each
. Mark J. Nielsen--16.4969%
. Arun Anand, Murari Cholappadi and Sanjay Gupta--3.2724% each
This means that Mr. Faltys and any two of Messrs. Simrell, David Haynes or
Nielsen will be able to control the voting of these proxies.
In the event the distribution is not completed, all the proxies will
automatically terminate.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than 10% of our common stock,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Directors, executive officers and greater than 10%
shareholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based on a review of such forms, we believe
that all Section 16(a) filing requirements applicable to its directors and
executive officers, and all persons who own more than 10% of our common stock,
were complied with for the year ended December 31, 1999, except that Franklin
Capital Corporation, a 10% holder of our common stock, did not report the
purchase of 2,600 shares of our common stock in the month of December 1999 on
Form 4, and did not report this purchase on Form 5 until March 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1998, our Board of Directors authorized Avery to repurchase any
or all of its outstanding warrants for a price of $1.00 per underlying share.
In December 1998, Avery repurchased warrants held by Waveland, LLC to purchase
100,000 shares of common stock at an exercise price of $1.50 per share. On
January 5, 1999, Avery repurchased warrants held by the Thurston Group, Inc.
to purchase 300,000 shares of common stock at an exercise price of $1.00 per
share and warrants to purchase 200,000 shares of common stock at $1.50 per
share. On March 31, 1998, Avery repurchased warrants held by the Thurston
Group to purchase 80,000 shares of common stock at an exercise price of $1.50
per share. On April 16, 1999, Avery repurchased warrants held by Thurston
Interests, LLC to purchase 41,746 shares of common stock at an exercise price
of $1.50 per share. Of the total $621,736 used to repurchase the warrants,
$300,000 was classified as compensation paid to Mr. Haynes. None of this
amount was classified as compensation paid to Mr. Isham. Waveland, Thurston
Group
9
and Thurston Interests are affiliates of Mr. Haynes. Thurston Group and
Thurston Interests are also affiliates of Mr. Isham.
Mark J. Nielsen, Avery's former President and Chief Executive Officer, was
also the Chairman of Primal Systems, Inc. and owned approximately 16.04% of
the Primal Systems common equity on a fully diluted basis on March 19, 1999,
the date on which Avery's agreement to acquire Primal Systems was entered, and
on October 1, 1999, the date on which the acquisition was completed. Mr.
Nielsen received 320,893 shares of Avery's convertible preferred stock in the
merger. If the maximum number of shares that could be issued under the earn-
out provisions of the merger agreement were issued, Mr. Nielsen could receive
up to an additional 953,608 shares of Avery's convertible preferred stock.
Each share of Avery's convertible preferred stock issued in the merger is
immediately convertible into shares of Avery's common stock on a one-for-one
basis.
In contemplation of entering into an agreement for the acquisition of Primal
Systems, Avery made a $100,000 working capital loan to Primal Systems on
December 15, 1998. The loan was secured by a first lien on the accounts
receivable of Primal Systems. On January 25, 1999, the working capital loan
was increased to $180,000. This loan was replaced with the loan described in
the following paragraph.
In contemplation of the acquisition of certain assets from a third party, on
February 3, 1999, Avery agreed to loan Primal Systems up to $1,000,000 on a
revolving credit basis in replacement of the then-outstanding $180,000 loan
described above. This loan was secured by a pledge of all the stock of Primal
Billing Solutions, the wholly owned subsidiary of Primal Systems that acquired
the assets, and by a security interest in all of the accounts receivable and
general intangibles, including all intellectual property of Primal Systems. As
noted above, Avery completed its acquisition of Primal Systems on October 1,
1999.
10
APPROVAL OF THE 1999 FLEXIBLE INCENTIVE PLAN
INFORMATION CONCERNING THE PLAN
General
In September 1999, the Board adopted the 1999 Flexible Incentive Plan in
order to
. promote the interests of Avery and its shareholders by enabling Avery
and each of its subsidiaries to
o attract, motivate and retain their respective employees and
directors by offering such employees and directors performance-based
stock incentives and other equity interests in Avery and other
incentive awards and
o compensate consultants by offering them performance-based stock
incentives and other equity interests in Avery and other incentive
awards that recognize the creation of value for the shareholders of
Avery and
. promote Avery's long-term growth and success.
We urge you to vote "FOR" the approval of the Plan.
Description of the Long-Term Incentive Plan
Below is a summary of the Plan. It does not restate the Plan in its entirety
and is qualified by the terms of the Plan. A copy of the Plan is attached to
this Proxy as Exhibit A.
Under the Plan, officers, directors, employees and consultants are eligible
to receive awards in the form of stock options and restricted stock grants.
There are currently a total of 1,500,000 shares of our common stock available
for awards under the Plan.
Administration of the Long-Term Incentive Plan
The Plan is currently administered by our Board of Directors. Our members of
the Board serve one-year terms. In the future, the Board may appoint a
Committee to administer the Plan. The members of the Committee may be changed
by the Board at any time as long as the composition of the Committee still
permits the Plan to comply with Rule 16b-3 under the Exchange Act and Section
162(m) of the Internal Revenue Code.
The Board has full and exclusive power to interpret the Plan and to adopt
any rules, regulations and guidelines for carrying out the Plan as it may deem
necessary or proper in the best interests of Avery and in keeping with the
objectives of the Plan. The Board is permitted, in its discretion, to
. determine the persons to whom awards are to be granted;
. determine the types and combinations of awards to be granted, including
o the number of shares to be covered by an award;
o the exercise price of an award;
o the time or times when an award shall be granted and may be
exercised;
o the terms, performance criteria or other conditions, vesting periods
or any restrictions for an award;
o any restrictions on shares acquired pursuant to the exercise of an
award; and
o any other terms and conditions of an award;
. construe and interpret the provisions of the Plan, including, resolving
any ambiguities or contradictions, correcting deficiencies, and
supplying omissions;
11
. prescribe, amend and rescind rules and regulations relating to the Plan;
. determine whether, to what extent and under what circumstances to
provide loans from Avery to participants to exercise awards granted
pursuant to the Plan, and the terms and conditions of such loans;
. rely upon employees of Avery or third party administrators for such
clerical and record keeping duties as may be necessary in connection
with the administration of the Plan;
. accelerate or defer, with the consent of the participant, the vesting of
any rights pursuant to an award; and
. make all other determinations and take all other actions necessary or
advisable for the administration of the Plan.
Without limiting the Board's right to amend the Plan, the Board may take all
actions authorized above, including granting awards pursuant to the Plan as
the Board may deem necessary or appropriate.
All provisions of the Plan, including the maximum number of shares that may
be issued with respect to awards to be granted pursuant to this Plan, may at
any time be modified or amended by the Board. However, no award at any time
outstanding pursuant to this Plan may be modified, impaired or canceled
adversely to the holder of the award without the consent of the holder. In
addition, no amendment of the Plan with respect to any named executive
officer, within the meaning of Section 162(m) of the Internal Revenue Code,
may be made which would increase the maximum amount that can be paid to any
one participant pursuant to the Plan, change the specified performance goal
for payment of awards, or modify the requirements as to eligibility for
participation in the Plan, unless Avery's stockholders have first approved the
amendment in a manner which would permit the deduction under Section 162(m) of
the Internal Revenue Code of the payment in the fiscal year it is paid. The
Board is required to amend the Plan as it deems appropriate to cause amounts
payable to named executive officers to satisfy the requirements of Section
162(m).
The Board may suspend or terminate the Plan at any time, and the suspension
or termination may be retroactive or prospective. Termination of the Plan will
not impair or affect any award previously granted and the rights of the holder
of the award will remain in effect until the award has been exercised in its
entirety or has expired, or otherwise has been terminated by the terms of such
award.
The Plan is not subject to any provision of the Employee Retirement Income
Security Act of 1974.
Participants in the 1999 Flexible Incentive Plan
All of our employees and those of our subsidiaries are eligible for awards
under the Plan. In addition, directors and consultants are eligible to receive
awards under the Plan at the discretion of the Board. The Board will determine
the type or types of awards to be made under the Plan. Each award is made by a
written agreement, which contains the terms, conditions and limitations of the
award to the employee, director or consultant.
Awards Under the Long-Term Incentive Plan
An employee award may consist of
. restricted stock, which is a right to purchase a specified number of
shares of our common stock at a price specified by the Board in the
agreement and subject to certain restrictions, or
. a stock option, which is subject to applicable terms, conditions and
limitations established by the Board and, if the stock option is an
incentive stock option, which complies with Section 422 of the Internal
Revenue Code.
12
TAX EFFECTS OF PARTICIPATION IN THE
FLEXIBLE INCENTIVE PLAN
The following briefly summarizes the federal income tax consequences arising
from participation in the Plan. This discussion is based upon present law,
which is subject to change, possibly retroactively. The tax treatment to
persons who participate in the Plan may vary depending upon each person's
particular situation and, therefore, may be subject to special rules not
discussed below. This discussion does not address the effects, if any, under
any potentially applicable foreign, state, or local tax laws, or the
consequences thereunder, or the effects, if any, of any gift, estate, or
inheritance taxes, or the consequences thereunder, that may result from
acquiring, holding, or disposing of shares of our common stock issued under
the terms of the Plan.
We have the right to deduct applicable taxes from any employee award,
director option or independent contractor option and withhold, at the time of
delivery or vesting of shares of our common stock under the Plan, an
appropriate amount of cash or number of shares of our common stock or a
combination thereof for payment of taxes required by law or to take such other
action as may be necessary in our opinion to satisfy all obligations for
withholding of such taxes. The Board may also permit withholding to be
satisfied by the transfer to us of shares of our common stock owned by the
holder of the employee award, director option or independent contractor option
with respect to which withholding is required. If shares of our common stock
are used to satisfy tax withholding, those shares will be valued based on the
fair market value when the tax withholding is required to be made.
Participants Subject to Section 16(b) of the Exchange Act
The Plan is intended to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act relating to rules for our directors,
officers and 10% stockholders. Therefore, because the acquisition of shares of
our common stock will not be deemed to be a "purchase" for purposes of Section
16(b) of the Exchange Act, a sale of shares of our common stock by a Plan
participant within six months after the date of exercise of an option or SAR,
or the date restrictions on a restricted stock award lapse, should not
necessarily subject the Plan participant to liability under Section 16(b) of
the Exchange Act. However, because the sale of shares of our common stock can
still be "matched" with other purchases, if a Plan participant has purchased
shares of our common stock or a right to acquire shares of our common stock
which is considered a "purchase" for purposes of Section 16(b) within six
months before the date of exercise of an option or SAR, or the date
restrictions on a restricted stock award lapse, the Plan participant may have
short-swing liability under Section 16(b) if he or she were to sell shares of
our common stock within six months after the date of the interim purchase.
The IRS has not yet formally taken a position about the tax consequences of
this fact situation. However, because an interim purchase would trigger
liability upon the sale of shares of our common stock within six months after
the interim purchase, the shares of our common stock may be treated as subject
to a "substantial risk of forfeiture" under Section 83(c) of the Internal
Revenue Code and not transferable and, therefore, substantially non-vested.
The following discussion assumes either that no interim purchases were made or
that interim purchases do not cause shares of our common stock to be
substantially non-vested for Plan participants subject to Rule 16b-3. Plan
participants subject to Rule 16b-3 should consult with a tax advisor.
Nonqualified Stock Options
A Plan participant will not recognize taxable income upon the grant of a
nonqualified stock option. The federal income tax consequences to a Plan
participant of exercising a nonqualified stock option will vary depending on
whether the shares of our common stock received upon the exercise of such
option are either "substantially vested" or "substantially non-vested" within
the meaning of Section 83 of the Internal Revenue Code. Generally, such shares
will be "substantially non-vested" if they are both non-transferable and
subject to a substantial risk of forfeiture, and will be "substantially
vested" if they are either transferable or not subject to a substantial risk
of forfeiture. A Plan participant generally should not recognize compensation
income upon
13
exercising a nonqualified stock option for shares that are "substantially non-
vested" until such shares become "substantially vested." A Plan participant
who wishes to recognize compensation income at the time of the exercise of
such an option, rather than when the shares become "substantially vested,"
must file an election under Section 83(b) of the Internal Revenue Code.
A Section 83(b) election is made by filing a written notice with the IRS
office with which the Plan participant files his or her federal income tax
return. The notice must be filed within 30 days of the Plan participant's
receipt of the shares of our common stock related to the applicable award and
must meet certain technical requirements.
Taxation of Plan Participants
Upon the exercise of a nonqualified stock option, a Plan participant will
most likely receive stock that is substantially vested. Therefore, the Plan
participant will recognize ordinary income upon the exercise of the
nonqualified stock option in an amount equal to the excess of the fair market
value of the shares of our common stock received on the date of exercise over
the exercise price.
Company Deduction
We will be entitled to a corresponding deduction equal to the amount
recognized as income by a Plan participant at the time such amount is
recognized by the Plan participant, provided that the Plan participant's
compensation is reasonable in amount, and otherwise within statutory
limitations.
Basis
The Plan participant's basis in the shares of our common stock acquired upon
the exercise of a nonqualified stock option will be the exercise price plus
the amount of ordinary income recognized by the Plan participant with respect
to those shares of common stock, assuming the exercise price is paid solely in
cash. The tax basis in the shares of our common stock for which the exercise
price is paid in stock, if permitted by the Board pursuant to the Plan, is
discussed below under the caption "Tax Implications Related to the Exercise of
Stock Options with Avery Common Stock."
Subsequent Sale or Disposition of Common Stock
Upon the sale or other disposition of the shares of our common stock
acquired upon the exercise of a nonqualified stock option, a Plan participant
will recognize taxable income, or a deductible loss, equal to the difference
between the amount realized on the sale or disposition and the Plan
participant's basis in the shares of our common stock. The Plan participant's
gain or loss will be taxable as a capital gain or deductible as a capital loss
provided the shares constitute a capital asset in the hands of the Plan
participant. The type of capital gain or loss will depend upon the holding
period of the shares of our common stock. If the shares of our common stock
are held for twelve months or less, there will be a short-term capital gain or
loss on sale or disposition. Finally, if the shares of our common stock are
held for more than twelve months, there will be long-term capital gain or loss
on sale or disposition.
Incentive Stock Options
Incentive stock options may be granted only to our employees and employees
of our subsidiaries.
An employee will not recognize any taxable income upon the grant of an
incentive stock option. An employee also will not recognize any taxable income
upon the exercise of an incentive stock option provided that the employee was
an employee at all times beginning on the date the option was granted and
ending on the date three months before the option was exercised, or one year
in the case of a disabled employee, and holds our
14
common stock related to the option for at least two years after the date the
option was granted and for at least one year after the date the option was
exercised.
Alternative Minimum Tax
The exercise of an incentive stock option will result, however, in an item
of income for purposes of determining the alternative minimum tax. Liability
for tax under the alternative minimum tax rules will arise only if the
employee's tax liability determined under the alternative minimum tax rules
exceeds the employee's tax liability determined under the ordinary income tax
rules.
The exercise of an incentive stock option will give rise to an item of
alternative minimum tax income to an employee in an amount equal to the excess
of the fair market value of the shares of our common stock received on the
date the option is exercised over the exercise price.
Plan participants who exercise incentive stock options and receive shares of
our common stock that are subject to a substantial risk of forfeiture within
the meaning of Section 83(c) of the Internal Revenue Code are urged to consult
their tax advisor concerning the application of the alternative minimum tax
rules.
Company Deduction
We will not be entitled to a deduction for federal income tax purposes with
respect to the grant of an incentive stock option to an employee under the
Plan, the exercise of such option by the employee, or the sale of the shares
of our common stock acquired through the exercise of such option by the
employee subsequent to the expiration of the holding period.
Basis
The employee's tax basis in the shares of our common stock acquired upon the
exercise of an incentive stock option for which the exercise price is paid
solely in cash will be equal to the amount of the cash paid. The tax basis in
the shares of our common stock for which the exercise price is paid in stock,
if permitted by the Board pursuant to the Plan, is discussed below under the
caption "Tax Implications Related to the Exercise of Stock Options With Avery
Common Stock."
Subsequent Sale or Disposition after Holding Period
If the shares of our common stock acquired upon the exercise of an incentive
stock option are sold after the expiration of the holding period, which is one
year after grant and two years after exercise, upon the sale of such shares of
our common stock, the employee will recognize a long-term capital gain, or
loss, in an amount equal to the excess, or deficiency, of the sales price over
the employee's basis, provided the shares are held as a capital asset by the
employee.
Disqualifying Disposition by Employees
If the shares of our common stock acquired upon the exercise of an incentive
stock option are sold before the expiration of the holding period, the
employee will recognize ordinary income in an amount equal to the lesser of
the excess of the fair market value of the shares of our common stock on the
date of exercise over the exercise price, or the amount realized on the sale
of such stock over the exercise price.
Capital Gain
If the amount realized by an employee on the sale of the shares of our
common stock exceeds the fair market value of such shares on the date of
exercise, the excess will be taxed to the employee as a short-term or long-
term capital gain, provided that the employee held the shares of our common
stock as a capital asset.
15
Company Deduction
Upon the occurrence of a disqualifying disposition, we will be entitled to a
deduction for federal income tax purposes equal to the amount of ordinary
income recognized by the employee, provided that the employee's compensation
is reasonable and is otherwise within statutory limitations.
Alternative Minimum Tax
If an employee exercises an incentive stock option and sells the shares of
our common stock received in a disqualifying disposition in the same taxable
year, the tax treatment for purposes of ordinary income tax and alternative
minimum tax will be the same, resulting in no additional alternative minimum
tax liability. Conversely, if the employee sells shares of our common stock in
a disqualifying disposition in a tax year subsequent to the tax year in which
the incentive stock option was exercised, the employee will recognize
alternative minimum tax income, as determined above, in the first taxable
year, and ordinary taxable income, but not alternative minimum tax income, in
the year in which the disposition was made.
Exercise Following Employee's Death
Under certain circumstances, shares of our common stock acquired upon
exercise of an incentive stock option following the employee's death will
receive the tax treatment described above without regard to the holding period
requirement.
Tax Implications Related to the Exercise of Stock Options with Avery Common
Stock
The Plan permits, subject to the discretion of the Board, the exercise price
of stock options to be paid with shares of our common stock owned by the Plan
participant. The Board does not presently intend to allow the use of shares of
our common stock that are substantially non-vested, which are shares that are
nontransferable or subject to a substantial risk of forfeiture and for which a
Section 83(b) election has not been filed, to pay the exercise price of a
stock option. Therefore, only shares of our common stock that are
substantially vested may be used to pay the exercise price of a stock option.
Nonqualified Stock Options
If a Plan participant pays the exercise price of a nonqualified stock option
with shares of our common stock that are substantially vested, including,
pursuant to proposed IRS regulations, stock obtained through the exercise of
an incentive stock option and not held for the holding period, the Plan
participant will not recognize any gain on the shares surrendered.
With respect to the shares of our common stock received, that portion of the
shares of our common stock equal in number to the shares of our common stock
surrendered will have a basis equal to the basis of the shares surrendered.
The excess shares received will be taxable to the Plan participant as ordinary
compensation income in an amount equal to the fair market value if the excess
shares are substantially vested, as of the exercise date, or if the excess
shares are substantially non-vested, as of the applicable date. As used in
this discussion, "applicable date" means the earlier of the date the Plan
participant disposes of the shares of our common stock issued under the terms
of the Plan, or the first date on which shares of our common stock issued
under the terms of the Plan become substantially vested. The Plan
participant's basis in those excess shares of our common stock will equal the
amount of ordinary compensation income recognized by the Plan participant.
Incentive Stock Options
The tax consequences to an employee from using shares of our common stock to
pay the exercise price of incentive stock options will depend on the status of
the shares of our common stock acquired.
16
If an employee pays the exercise price of an incentive stock option for
stock that is substantially vested with shares of our common stock that are
substantially vested, under proposed IRS regulations the employee will not
recognize any compensation income or gain with respect to the shares
surrendered.
With respect to the shares of our common stock received, that portion of the
shares of our common stock equal in number to the shares of our common stock
surrendered will have a basis equal to the basis of the shares surrendered.
The holding period of the surrendered shares will be carried over to the
equivalent number of shares of our common stock received. The employee will
recognize no gain with respect to the excess shares received, the basis of
such shares will be zero, and the holding period of such shares will begin on
the date of receipt thereof by the employee. Similarly, it appears that if the
employee pays the exercise price for substantially non-vested shares of our
common stock with shares of our common stock that are substantially vested,
the tax consequences will be the same.
If an employee exercises an incentive stock option granted pursuant to the
Plan using shares of our common stock that were obtained through the exercise
of an incentive stock option, whether granted under the Plan or under another
one of our plans, and that have been held by the employee for the holding
period for either substantially vested shares of our common stock or
substantially non-vested shares of our common stock, the tax consequences of
such payment to the employee will be identical to those discussed in the
preceding paragraph.
Conversely, if an employee exercises an incentive stock option granted
pursuant to the Plan using shares of our common stock received upon the prior
exercise of an incentive stock option, whether granted under the Plan or under
another one of our plans, and the employee has not held that common stock for
the holding period, under proposed IRS regulations the employee will have made
a disqualifying disposition of the number of shares of our common stock used
as payment for the exercise price of the incentive stock option. If the
employee receives shares of our common stock that are substantially vested,
the employee generally will recognize ordinary compensation income with
respect to the surrender of those shares equal to the excess of the fair
market value of the shares of our common stock surrendered, determined as of
the date the option relating to such shares of our common stock was exercised,
over the exercise price of the shares surrendered. It is unclear whether, if
the employee receives shares of our common stock that are substantially non-
vested, the recognition of income will be deferred until the shares of our
common stock become substantially vested. The basis of the shares received
will equal the amount of ordinary compensation income recognized by the
employee plus the employee's basis in the shares surrendered, allocated
equally among the shares received.
Restricted Stock Grants
Taxation of Plan Participants
A Plan participant who receives a restricted stock award will recognize
ordinary income equal to the fair market value of the shares of our common
stock received at the time the restrictions lapse, unless the Plan participant
makes a Section 83(b) election to report the fair market value of the shares
of our common stock received as restricted stock as ordinary income at the
time of receipt. If any amount is paid for the restricted stock, the Plan
participant will include in income the excess of the fair market value of the
shares of our common stock received over the amount, if any, paid for such
shares, either at the time the restrictions lapse or when the Plan participant
makes a Section 83(b) election.
Company Deduction
We may deduct an amount equal to the income recognized by the Plan
participant at the time the Plan participant recognizes the income, provided
the Plan participant's compensation is reasonable, and otherwise within
statutory limitations.
17
Basis
The basis of the restricted stock in the hands of the Plan participant will
be equal to the fair market value of the restricted stock on the date the Plan
participant recognizes ordinary income as described above plus the amount of
ordinary income recognized in excess of fair market value, if any amount is
paid for the restricted stock in excess of fair market value.
Subsequent Sale or Disposition
The restrictions placed on restricted stock do not permit sale or
disposition until the restrictions lapse. Upon the sale or disposition of
restricted stock after the restrictions lapse, a Plan participant will
recognize taxable income or loss equal to the difference between the amount
realized by the Plan participant on the disposition of the stock and the Plan
participant's basis in the stock. The gain or loss will be taxable to the Plan
participant as a capital gain or deductible by the Plan participant as a
capital loss, either short-term or long-term, depending on the holding period
of the restricted stock, provided that the Plan participant held the
restricted stock as a capital asset.
Dividends
During the period in which a Plan participant holds restricted stock, prior
to the lapse of the restrictions, if dividends are declared but not
distributed to the Plan participant until the restrictions lapse, the
dividends will be treated for tax purposes by the Plan participant and us in
the following manner. If the Plan participant makes a Section 83(b) election
to recognize income at the time of receipt of the restricted stock, the
dividends will be taxed as dividend income to the Plan participant when the
restrictions lapse and we will not be entitled to a deduction and will not be
required to withhold income tax. If the Plan participant does not make a
Section 83(b) election, the dividends will be taxed as compensation to the
Plan participant when the restrictions lapse and will be deductible by us and
subject to applicable federal income tax withholding at that time.
If the Company pays the dividends to the Plan participant prior to the lapse
of the restrictions and the Plan participant makes a Section 83(b) election,
the dividends will be taxed as dividend income at the time of payment and will
not be deductible by us. Conversely, if the Plan participant does not make a
Section 83(b) election, the dividends will be taxable to the Plan participant
as compensation at the time of payment and we will be entitled to a deduction.
The above tax information is only a brief description of the federal income
tax consequences of receipt and/or exercise of options. It is based on present
federal tax and securities laws, regulations and interpretations thereof and
does not purport to be a complete description of such federal tax
consequences. The foregoing summary of federal income tax consequences may
change in the event of a change in the Internal Revenue Code or regulations
thereunder or interpretations thereof.
18
Distribution of Benefits under the Plan
The following table sets forth the options granted to directors, executive
officers, and employees under the Plan in 1999. The Board has made no
determination as to future grants under the plan.
Weighted Number of
Average Shares Underlying
Name and Position Exercise Price Options Granted
----------------- -------------- -----------------
Patrick J. Haynes, III....................... 0 0
Mark J. Nielsen.............................. 0 0
Scot M. McCormick............................ 1.625 150,000
Norman M. Phipps............................. 1.625 10,000
J. Alan Lindauer............................. 1.625 10,000
Stephen L. Brown............................. 1.625 10,000
Spencer L. Brown............................. 1.625 10,000
Robert T. Isham, Jr.......................... 1.625 10,000
All executive officers as a group............ 1.625 150,000
All directors who are not executive officers
as a group.................................. 1.625 50,000
All employees who are not executive officers
as a group.................................. $1.17 1,257,777
Our common stock is quoted and traded on a limited and sporadic basis on the
OTC Bulletin Board operated by the NASDAQ Stock Market, Inc. The latest
closing bid price was 1 1/32 and the latest closing asked price was 1 1/8.
Required Vote
The Plan will be approved if it receives the affirmative vote of a majority
of the shares present in person or by proxy at the meeting.
SELECTION OF INDEPENDENT AUDITORS
We ask that you approve the following resolution ratifying the appointment
by our Board of Directors of our principal independent auditors:
RESOLVED, that the stockowners ratify the appointment of King Griffin &
Adamson P.C. to audit the accounts of Avery and for the fiscal year 2000.
We expect a representative of King Griffin & Adamson P.C. to attend the
meeting, respond to appropriate questions and be given an opportunity to
speak.
Required Vote
The proposal will be approved if it receives the affirmative vote of a
majority of the shares present in person or by proxy at the meeting.
The Board recommends that you vote "FOR" the ratification of the appointment
of King Griffin & Adamson P.C. as Avery's independent auditors for 2000.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR THE 2001 ANNUAL MEETING
From time to time, stockholders seek to nominate directors or present
proposals for inclusion in the proxy statement and form of proxy for
consideration at the annual meeting. To be included in the proxy statement or
considered at an annual or any special meeting, you must timely submit
nominations of directors or proposals, in addition to meeting other legal
requirements. We must receive proposals for the 2001 annual meeting no later
than April 26, 2001, for possible inclusion in the proxy statement. Proposals
submitted outside the procedures established by Rule 14a-8 must be received no
later than July 10, 2001. If the date of the 2001 Annual Meeting of
Shareholders is changed by more than 30 days from September 13, 2001, then
shareholder nominations and proposals must be received a reasonable time
before we begin to print and mail our proxy materials.
19
OTHER BUSINESS
The Board of Directors knows of no other matters for consideration at the
meeting. If any other business should properly arise, the persons appointed in
the enclosed proxy have discretionary authority to vote in accordance with
their best judgment. All other business voted on at the Annual Meeting will be
decided by the vote of a majority of the shares present in person or by proxy
at the meeting, except as otherwise provided by law or our certificate of
incorporation or bylaws.
VOTING PROCEDURES/REVOKING YOUR PROXY
Quorum: The holders of the majority of the shares entitled to
vote at this year's annual stockholders meeting will
constitute a quorum.
Votes Required To be elected, directors must receive a plurality of the
to Approve a shares voting in person or by proxy. A plurality means
Proposal: receiving the largest number of votes, regardless of
whether that is a majority. To approve the Plan, we must
receive a majority of the votes held by persons entitled
to vote and present in person or by proxy at the meeting.
All other matters which may be submitted to you at the
meeting will be decided by a majority of the votes held
by persons entitled to vote and present in person or by
proxy, except as otherwise provided by law or our
certificate of incorporation or bylaws.
Shares On the record date, there were 8,753,886 shares of common
Outstanding and stock, 1,500,000 shares of series d preferred stock,
Number of 350,000 shares of series e preferred stock, and 7,126,894
Votes: shares of series g preferred stock outstanding. Each
share entitles the holder to one vote per share, and all
these shares vote together as a single class.
Abstentions and Those who fail to return a proxy or attend the meeting
Broker Non- will not count towards determining any required
Votes: plurality, majority or quorum. Stockholders and brokers
returning proxies or attending the meeting who abstain
from voting on the election of our directors or approval
of the Plan will count towards determining a quorum. Such
abstentions will have no effect on the outcome of the
election of our directors. However, such abstentions will
be the same as a vote against the approval of the Plan.
Brokers holding shares of record for customers generally
are not entitled to vote on certain matters unless they
receive voting instructions from their customers. In the
event that a broker does not receive voting instructions
for these matters from its customers, a broker may notify
us that it lacks voting authority to vote those shares.
These "broker non-votes" refer to votes that could have
been cast on the matter in question by brokers with
respect to uninstructed shares if the brokers had
received their customers' instructions. These broker non-
votes will be included in determining whether a quorum
exists, but will have no effect on the outcome of the
election of our directors or on the approval of the Plan.
How the Proxies The enclosed proxies will be voted in accordance with the
Will be Voted: instructions you place on the proxy card. Unless
otherwise stated, all shares represented by your
returned, signed proxy will be voted as noted on the
first page of this proxy statement.
How You May You may revoke your proxies before your shares are voted
Revoke Your by:
Proxies:
. Delivering a signed, written revocation letter, dated
later than the proxy, to Scot M. McCormick, Corporate
Secretary, at 190 South LaSalle Street, Suite 1710,
Chicago, Illinois 60603;
20
. Delivering a signed proxy, dated later than the first
one, to Corporate Investor Communications, Inc., 111
Commerce Road, Carlstadt, NJ 07072, Attn: David Hartie;
or
. Attending the meeting and voting in person or by proxy.
Attending the meeting alone will not revoke your proxy.
Proxy We have engaged Corporate Investor Communications, Inc.
Solicitation: to assist us in soliciting proxies related to the 2000
annual meeting of stockholders and have agreed to pay
them a fee of $3,500 for doing so. In addition, our
employees will solicit proxies for no additional
compensation. We will reimburse banks, brokers,
custodians, nominees and fiduciaries for reasonable
expenses they incur in sending these proxy materials to
you if you are a beneficial holder of our shares.
21
ANNEX A
AVERY COMMUNICATIONS, INC.
1999 FLEXIBLE INCENTIVE PLAN
Section 1. Purpose of this Plan
The purposes of the Avery Communications, Inc. 1999 Flexible Incentive Plan
are to (a) promote the interests of Avery Communications, Inc. (the "Company")
and its shareholders by enabling the Company and each of its Subsidiaries (as
hereinafter defined) to (1) attract, motivate and retain their respective
employees and Directors (as hereinafter defined) by offering such employees
and Directors performance-based stock incentives and other equity interests in
the Company and other incentive awards and (2) compensate Consultants (as
hereinafter defined) by offering such Consultants performance-based stock
incentives and other equity interests in the Company and other incentive
awards that recognize the creation of value for the shareholders of the
Company and (b) promote the Company's long-term growth and success. To achieve
these purposes, eligible Persons may receive Stock Options or Restricted Stock
(as such terms are hereinafter defined), or any combination thereof.
Section 2. Definitions
As used in this Plan, the following terms shall have the meanings set forth
below unless the context otherwise requires:
2.1 "Award" shall mean the grant of a Stock Option or Restricted Stock
pursuant to this Plan.
2.2 "Book Value" shall mean the excess of the value of the assets of an
entity over the liabilities of such entity (determined in accordance with
United States generally accepted accounting principles, consistently applied).
2.3 "Board" shall mean the Board of Directors of the Company, as the same
may be constituted from time to time.
2.4 "Cause" shall mean (a) the Participant's violation of the provisions of
any non-competition agreement, confidentiality agreement or proprietary rights
agreement; (b) an illegal or negligent action by the Participant that
materially and adversely affects the Company; (c) the Participant's failure or
refusal to perform his duties (except by reason of Disability); (d) the
Participant's failure to comply with or conform to the Company's rules and
regulations or code of conduct; or (e) the Participant's conviction of a
felony.
2.5 "Change in Control" shall mean, after the Effective Date, (a) the
occurrence of an event of a nature that would be required to be reported by
the Company in response to Item 1 of a Current Report on Form 8-K (or any
successor to such form) promulgated pursuant to the Exchange Act; provided,
without limitation, such a Change in Control shall be deemed to have occurred
if (1) any Person or Group (other than (A) the Company, (B) a wholly-owned
Subsidiary, (C) any employee benefit plan (including, without limitation, an
employee stock ownership plan) adopted by the Company or any wholly-owned
Subsidiary or (D) any trustee or other fiduciary holding securities under any
employee benefit plan adopted by the Company or any Subsidiary), becomes the
"beneficial owner" (as defined in Rule 13d-3 (or any successor to such rule)
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company or any Material Subsidiary representing fifty percent (50%) or
more of the combined voting power of the Company's or such Material
Subsidiary's then outstanding securities or (2) during any period of twenty-
four (24) months, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election by the Board or the nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds ( 2/3) of
the directors then still in office who either were directors at the beginning
of such twenty-four (24) month period or whose election or nomination for
election was previously so approved; (b) a Corporate Transaction is
consummated, other than a Corporate Transaction that would result in the
holders of voting securities of the Company outstanding immediately prior
thereto owning (directly or indirectly) not less than fifty percent (50%)
A-1
of the combined voting power of the voting securities of the
issuing/surviving/resulting entity outstanding immediately after such
Corporate Transaction; (c) the shareholders of the Company approve a plan of
complete liquidation of the Company or (d) an agreement for the sale or other
disposition of all or substantially all of the Company's assets (evaluated on
a consolidated basis, without regard to whether the sale or disposition is
effected via a sale or disposition of assets of the Company, the sale or
disposition of the securities of one or more Subsidiaries or the sale or
disposition of the assets of one or more Subsidiaries) is consummated. If the
Company is not subject to the Exchange Act, the determination of whether a
Change in Control has occurred under this Section shall be made as if the
Company were subject to the Exchange Act.
2.6 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time (or any successor to such legislation).
2.7 "Committee" shall mean the Committee established by the Board to
administer the Plan, as such Committee may be constituted from time to time;
provided, however, membership on the Committee shall be limited to "Non-
Employee Directors" (as that term is defined in Rule 16b-3 (or any successor
to such rule) promulgated under the Exchange Act) who are also "outside
directors," as required pursuant to Section 162(m) of the Code and such
Treasury regulations as may be promulgated thereunder; and provided further,
the Committee will consist of not less than two (2) directors. All members of
the Committee will serve at the pleasure of the Board.
2.8 "Common Stock" shall mean the Common Stock, par value $.01 per share of
the Company.
2.9 "Company" shall have the meaning set forth in Section 1 of this Plan.
2.10 "Consultant" shall mean any Person who or which is engaged by the
Company or any Subsidiary to render consulting services.
2.11 "Corporate Transaction" shall mean any recapitalization (other than a
transaction contemplated by Subsection 9.1(a)), merger, consolidation or
conversion involving the Company or any exchange of securities involving the
Common Stock.
2.12 "Designated Beneficiary" shall mean the beneficiary designated by a
Participant, in a manner authorized by the Committee or the Board, to exercise
the rights of such Participant in the event of such Participant's death. In
the absence of an effective designation by a Participant, the Designated
Beneficiary shall be such Participant's estate.
2.13 "Director" shall mean any member of the Board.
2.14 "Disability" shall mean permanent and total inability to engage in any
substantial gainful activity, even with reasonable accommodation, by reason of
any medically determinable physical or mental impairment which has lasted or
can reasonably be expected to last without material interruption for a period
of not less than twelve (12) months, as determined in the sole discretion of
the Committee or the Board.
2.15 "Effective Date" shall mean September 17, 1999.
2.16 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time (or any successor to such legislation).
2.17 "Fair Market Value" shall mean the fair market value of the Shares
determined as follows:
(a) If the principal market for the Common Stock is a national securities
exchange or The Nasdaq Stock Market, then the Fair Market Value as of that
date shall be the average between the lowest and highest reported sale
prices of the Common Stock on that date on the principal exchange on which
the Common Stock is then listed or admitted to trading;
A-2
(b) If sale prices are not available or if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is
not quoted on The Nasdaq Stock Market, the Fair Market Value as of that
date shall be the average between the highest bid and lowest asked prices
for the Common Stock on such date as reported on the OTC Bulletin Board or
by the National Quotation Bureau, LLC or a comparable service; or
(c) If the day is not a business day, and as a result, paragraphs (a) and
(b) next above are inapplicable, the Fair Market Value of the Stock shall
be determined as of the last preceding business day. If paragraphs (a) and
(b) next above are otherwise inapplicable, then the Fair Market Value of
the Shares shall be determined in good faith by the Committee.
Notwithstanding the foregoing, with respect to Incentive Stock Options,
Fair Market Value must be determined in accordance with Section 422 of the
Code.
2.18 "Group" shall have the meaning ascribed to such term in Section 13(d)
of the Exchange Act.
2.19 "Incentive Stock Option" shall mean any option to purchase Shares
awarded pursuant to this Plan which qualifies as an "Incentive Stock Option"
pursuant to Section 422 of the Code.
2.20 "Material Subsidiary" shall mean any Subsidiary of which the Book Value
or fair market value (whichever is greater) constitute fifty percent (50%) or
more of the Book Value of the Company. The fair market value of a Subsidiary
will be determined in good faith by the Board.
2.21 "Non-Qualified Stock Option" shall mean any option to purchase Shares
awarded pursuant to this Plan that does not qualify as an Incentive Stock
Option (including, without limitation, any option to purchase Shares
originally designated as or intended to qualify as an Incentive Stock Option).
2.22 "Non-Share Method" shall have the meaning set forth in Subsection
6.6(c) of this Plan.
2.23 "Optionee" shall mean any Participant who has been granted or holds a
Stock Option awarded pursuant to this Plan.
2.24 "Participant" shall mean any Person who has been granted or holds an
Award granted pursuant to this Plan.
2.25 "Permitted Modification" shall be deemed to be any modification of an
Award which is made in connection with a Corporate Transaction and which
provides, in connection with a Stock Option, that subsequent to the
consummation of the Corporate Transaction (a) the exercise price of such Stock
Option will be proportionately adjusted to reflect the exchange ratio
applicable to the particular Corporate Transaction and/or (b) the nature and
amount of consideration to be received upon exercise of the Stock Option will
be the same (on a per share basis) as was received by Persons who were holders
of shares of Common Stock immediately prior to the consummation of the
Corporate Transaction.
2.26 "Person" shall mean an individual, partnership, limited liability
company, corporation, joint stock company, trust, estate, joint venture,
association or unincorporated organization or any other form of business
organization.
2.27 "Plan" shall mean this Avery Communications, Inc. 1999 Flexible
Incentive Plan as it may be amended from time to time.
2.28 "Reload Option" shall mean a Stock Option as defined in Subsection
6.6(b) of this Plan.
2.29 "Reorganization" shall mean any stock split, stock dividend, reverse
stock split, combination of Shares or any other similar increase or decrease
in the number of Shares issued and outstanding.
A-3
2.30 "Restricted Stock" shall mean any Shares granted pursuant to this Plan
that are subject to restrictions or a substantial risk of forfeiture.
2.31 "Retirement" shall mean termination of employment, other than discharge
for Cause, of an employee of the Company or any Subsidiary after age 65 or on
or before age 65 if pursuant to the terms of any retirement plan maintained by
the Company or any Subsidiary in which such employee participates.
2.32 "Securities Act" shall mean the Securities Act of 1933, as amended from
time to time (or any successor to such legislation).
2.33 "Share Retention Method" shall have the meaning set forth in Subsection
6.6(c) of this Plan.
2.34 "Shares" shall mean shares of the Common Stock and any shares of
capital stock or other securities hereafter issued or issuable upon, in
respect of or in substitution or exchange for shares of Common Stock.
2.35 "Stock Option" shall mean any Incentive Stock Option or Non-Qualified
Stock Option.
2.36 "Subsidiary" shall mean a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
2.37 "Transactional Consideration" shall have the meaning set forth in
Subsection 9.1(b) of this Plan.
Section 3. Administration of this Plan
3.1 Committee/Board. This Plan shall be administered and interpreted by the
Committee and/or the Board.
3.2 Awards.
(a) Subject to the provisions of this Plan and directions from the Board,
the Committee has the discretionary authority to:
(1) determine the Persons to whom Awards are to be granted;
(2) determine the types and combinations of Awards to be granted; the
number of Shares to be covered by an Award; the exercise price of an Award;
the time or times when an Award shall be granted and may be exercised; the
terms, performance criteria or other conditions, vesting periods or any
restrictions for an Award; any restrictions on Shares acquired pursuant to
the exercise of an Award; and any other terms and conditions of an Award;
(3) construe and interpret the provisions of this Plan, including,
without limitation, resolving any ambiguities or contradictions; correcting
deficiencies; and supplying omissions;
(4) prescribe, amend and rescind rules and regulations relating to this
Plan;
(5) determine whether, to what extent and under what circumstances to
provide loans from the Company to Participants to exercise Awards granted
pursuant to this Plan, and the terms and conditions of such loans;
(6) rely upon employees of the Company or third party administrators for
such clerical and recordkeeping duties as may be necessary in connection
with the administration of this Plan;
(7) accelerate or defer (with the consent of the Participant) the vesting
of any rights pursuant to an Award; and
(8) make all other determinations and take all other actions necessary or
advisable for the administration of this Plan.
(b) Without limiting the Board's right to amend this Plan pursuant to
Section 11, the Board may take all actions authorized by Subsection 3.2(a) of
this Plan, including, without limitation, granting such Awards pursuant to
this Plan as the Board may deem necessary or appropriate.
A-4
3.3 Procedures.
(a) Proceedings by the Board with respect to this Plan will be conducted in
accordance with the articles of incorporation and bylaws of the Company.
(b) A majority of the Committee members shall constitute a quorum for action
by the Committee. All determinations of the Committee shall be made by not
less than a majority of its members.
(c) All questions of interpretation and application of this Plan or
questions pertaining to any question of fact or Award granted hereunder will
be decided by the Committee or the Board, whose decision will be final,
conclusive, and binding upon the Company and each other affected party. In the
event of a conflict between any decision of the Committee and of the Board,
the decision of the Board shall be controlling.
Section 4. Shares Subject to Plan
4.1 Limitations. The maximum number of Shares that may be issued with
respect to Awards granted pursuant to this Plan shall not exceed 1,500,000
unless increased or decreased by reason of changes in the capitalization of
the Company as hereinafter provided or by amendment of this Plan. The Shares
issued pursuant to this Plan may be authorized but unissued Shares, or may be
issued Shares which have been reacquired by the Company.
4.2 Changes. To the extent that any Award granted pursuant to this Plan
shall be forfeited, shall expire or shall be cancelled, in whole or in part,
then the number of Shares covered by the Award so forfeited, expired or
cancelled may again be awarded pursuant to the provisions of this Plan. In the
event that Shares are delivered to the Company in full or partial payment of
the exercise price for the exercise of a Stock Option, the number of Shares
available for future Awards granted pursuant to this Plan shall be reduced
only by the net number of Shares issued upon the exercise of the Stock Option.
Awards that may be satisfied either by the issuance of Shares or by cash or
other consideration shall, until the form of consideration to be paid is
finally determined, be counted against the maximum number of Shares that may
be issued pursuant to this Plan. If the Award is ultimately satisfied by the
payment of consideration other than Shares, such Shares may again be made the
subject of an Award granted pursuant to this Plan. Awards will not reduce the
number of Shares that may be issued pursuant to this Plan if the settlement of
the Award will not require the issuance of Shares.
Section 5. Eligibility
5.1 Eligibility. Eligibility for participation in this Plan shall be
confined to those individuals who are employed by the Company or a Subsidiary
and such Consultants and Directors as may be designated by the Committee or
the Board. In making any determination as to Persons to whom Awards shall be
granted, the type of Award and/or the number of Shares to be covered by the
Award, the Committee or the Board shall consider the position and
responsibilities of the Person, the importance of the Person to the Company,
the duties of the Person, the past, present and potential contributions of the
Person to the growth and success of the Company and such other factors as the
Committee or the Board may deem relevant in connection with accomplishing the
purposes of this Plan.
Section 6. Stock Options
6.1 Grants. The Committee or the Board may grant Stock Options alone or in
addition to other Awards granted pursuant to this Plan to any eligible Person.
Each Person so selected shall be offered a Stock Option to purchase the number
of Shares determined by the Committee or the Board. The Committee or the Board
shall specify whether such Stock Option is an Incentive Stock Option or Non-
Qualified Stock Option and any other terms or conditions relating to such
Award; provided, however only employees of the Company or a Subsidiary may be
granted Incentive Stock Options. To the extent that any Stock Option
designated as an Incentive Stock Option does not qualify as an Incentive Stock
Option (whether because of its provisions, the failure of the
A-5
shareholders of the Company to authorize the issuance of Incentive Stock
Options, the time or manner of its exercise or otherwise), such Stock Option
or the portion thereof which does not qualify shall be deemed to constitute a
Non-Qualified Stock Option. Each Person to be granted a Stock Option shall
enter into a written agreement with the Company, in such form as the Committee
or the Board may prescribe, setting forth the terms and conditions (including,
without limitation, the exercise price and vesting schedule) of the Stock
Option. At any time and from time to time, the Optionee and the Committee or
the Board may agree to modify an option agreement in such respects as they may
deem appropriate, including, without limitation, the conversion of an
Incentive Stock Option into a Non-Qualified Stock Option. The Committee or the
Board may require that an Optionee meet certain conditions before the Stock
Option or a portion thereof may vest or be exercised, as, for example, that
the Optionee remain in the employ of the Company or a Subsidiary for a stated
period or periods of time.
6.2 Incentive Stock Options Limitations.
(a) In no event shall any individual be granted Incentive Stock Options to
the extent that the Shares covered by any Incentive Stock Options (and any
incentive stock options granted pursuant to any other plans of the Company or
its Subsidiaries) that may be exercised for the first time by such individual
in any calendar year have an aggregate Fair Market Value in excess of
$100,000. For this purpose, the Fair Market Value of the Shares shall be
determined as of the dates on which the Incentive Stock Options are granted.
It is intended that the limitation on Incentive Stock Options provided in this
Subsection 6.2(a) be the maximum limitation on Stock Options which may be
considered Incentive Stock Options pursuant to the Code.
(b) The option exercise price of an Incentive Stock Option shall not be less
than one hundred percent (100%) of the Fair Market Value of the Shares subject
to such Incentive Stock Option on the date of the grant of such Incentive
Stock Option.
(c) Notwithstanding anything herein to the contrary, in no event shall any
employee owning more than ten percent (10%) of the total combined voting power
of the Company or any Subsidiary be granted an Incentive Stock Option unless
the option exercise price of such Incentive Stock Option shall be at least one
hundred ten percent (110%) of the Fair Market Value of the Shares subject to
such Incentive Stock Option on the date of the grant of such Incentive Stock
Option.
(d) In no event shall any individual be granted an Incentive Stock Option
after the expiration of ten (10) years from the earlier of the date this Plan
is adopted or the date this Plan is approved by the shareholders of the
Company (if shareholder approval is required by Section 422 of the Code).
(e) To the extent shareholder approval of this Plan is required by Section
422 of the Code, (1) no individual shall be granted an Incentive Stock Option
unless this Plan is approved by the shareholders of the Company within twelve
(12) months before or after the date this Plan is initially adopted and (2) in
the event this Plan is amended to increase the number of Shares subject to
issuance upon the exercise of Incentive Stock Options or to change the class
of employees eligible to receive Incentive Stock Options, no individual shall
be granted an Incentive Stock Option unless such amendment is approved by the
shareholders of the Company within twelve (12) months before or after such
amendment.
(f) To maintain special tax treatment for Incentive Stock Options, to the
extent required by Section 421 of the Code, an Optionee may not dispose of the
Stock acquired pursuant to the exercise of an Incentive Stock Option within
two years after the date of grant nor within one year after the optionee
receives the Stock following exercise of the Incentive Stock Option. This
limitation on disposal does not apply to Stock acquired pursuant to the
exercise of an Incentive Stock Option after an Optionee's death by his or her
estate or heirs, as applicable.
(g) To the extent that any Option designated as an Incentive Stock Option
does not qualify as such (whether because of its provisions, the failure of
the stockholders of the Company to authorize the issuance of Incentive Stock
Options, the timely manner of its exercise, or otherwise), such Option, or the
portion thereof which does not qualify, shall be deemed to constitute a Non-
Qualified Stock Option.
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6.3 Option Term. The term of a Stock Option shall be for such period of time
from the date of its grant as may be determined by the Committee or the Board;
provided, however, that no Incentive Stock Option shall be exercisable later
than ten (10) years from the date of its grant and no Incentive Stock Option
shall be granted to any employee owning more than ten percent (10%) of the
total combined voting power of the Company or any Subsidiary unless the term
of such Incentive Stock Option is equal to or less than five (5) years
measured from the date on which such Incentive Stock Option is granted.
6.4 Time of Exercise. No Stock Option may be exercised unless it is
exercised prior to the expiration of its stated term and, in connection with
options granted to employees of the Company or its Subsidiaries, at the time
of such exercise, the Optionee is, and has been continuously since the date of
grant of such Stock Option, employed by the Company or a Subsidiary, except
that:
(a) A Stock Option may, to the extent vested as of the date the Optionee
ceases to be an employee of the Company or a Subsidiary, be exercised
during the three month period immediately following the date the Optionee
ceases (for any reason other than death, disability or termination for
Cause) to be an employee of the Company or a Subsidiary (or within such
other period as may be specified in the applicable option agreement),
provided that, if the Stock Option has been designated as an Incentive
Stock Option and the option agreement provides for a longer exercise
period, the exercise of such Stock Option after such three-month period
shall be treated as the exercise of a Non-Qualified Stock Option;
(b) If the Optionee dies while in the employ of the Company or a
Subsidiary, or within three months after the Optionee ceases (for any
reason other than termination for Cause) to be such an employee, a Stock
Option may, to the extent vested as of the date of the Optionee's death, be
exercised by the Optionee's Designated Beneficiary during the one-year
period immediately following the date of the Optionee's death (or within
such other period as may be specified in the applicable option agreement);
(c) If the Optionee ceases to be an employee of the Company or a
Subsidiary by reason of the Optionee's Disability, a Stock Option, to the
extent vested as of the date the Optionee ceases to be an employee of the
Company or a Subsidiary, may be exercised during the one-year period
immediately following the date on which the Disability is determined to
exist (or within such other period as may be specified in the applicable
option agreement); provided that, if the Stock Option has been designated
as an Incentive Stock Option and the option agreement provides for a longer
exercise period, the exercise of such Stock Option after such one-year
period shall be treated as the exercise of a Non-Qualified Stock Option;
(d) If the Optionee's employment is terminated for Cause, all Stock
Options held by such Optionee shall immediately and simultaneously
terminate and will no longer be exercisable; and
(e) An Optionee's employment relationship with the Company or Subsidiary
will be considered to continue during a leave of absence to the extent so
provided in the personnel policies of the Company or Subsidiary; provided
that with respect to an Incentive Stock Option, such employment
relationship shall not be considered continued for a period exceeding that
set forth in Treasury Regulation Section 1.421-7(h)(2). Nothing contained
in this Subsection 6.4 will be deemed to extend the term of a Stock Option
or to revive any Stock Option which has previously lapsed or been
cancelled, terminated or surrendered. Stock Options granted under this Plan
to Consultants or Directors will contain such terms and conditions with
respect to the death or disability of a Consultant or Director or
termination of a Consultant's or Director's relationship with the Company
as the Committee or the Board deems necessary or appropriate. Such terms
and conditions will be set forth in the option agreements evidencing the
grant of such Stock Options.
6.38 Vesting of Stock Options.
(a) Each Stock Option granted pursuant to this Plan may only be exercised to
the extent that the Optionee is vested in such Stock Option. Each Stock Option
shall vest separately in accordance with the option vesting schedule
determined by the Committee or the Board, which will be incorporated in the
option agreement entered into between the Company and such Optionee. The
option vesting schedule may be accelerated if, in the sole discretion of the
Committee or the Board, the acceleration of the option vesting schedule would
be in the best interests the Company.
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(b) In the event of the dissolution or liquidation of the Company, each
Stock Option granted pursuant to this Plan shall terminate as of a date to be
fixed by the Committee or Board; provided, however, that not less than thirty
(30) days' written notice of the date so fixed shall be given to each
Optionee. During such period all Stock Options which have not previously been
terminated, exercised or cancelled will (subject to the provisions of
Subsection 6.4) fully vest and become exercisable, notwithstanding the vesting
schedule set forth in the option agreement evidencing the grant of such Stock
Option. Upon the date fixed by the Committee or the Board, any unexercised
Stock Options shall terminate and be of no further effect.
(c) Upon the occurrence of a Change in Control, all unvested Shares subject
to Stock Options shall become fifty percent (50%) vested.
6.6 Manner of Exercise of Stock Options.
(a) Stock Options may be exercised as to Shares only in amounts and at
intervals of time specified in the written option agreement between the
Company and the Optionee. Each exercise of a Stock Option, or any part
thereof, shall be evidenced by a written notice delivered by the Optionee to
the Company. The purchase price of the Shares as to which a Stock Option shall
be exercised shall be paid in full at the time of exercise, and may be paid to
the Company either:
(1) in cash (including check, bank draft or money order); or
(2) by other consideration deemed acceptable by the Committee or the
Board in its sole discretion, including, without limitation, Shares,
promissory notes, or the proceeds of loans made or guaranteed by the
Company or a Subsidiary.
(b) If an Optionee delivers Shares (including Shares of Restricted Stock)
already owned by the Optionee in full or partial payment of the exercise price
for any Stock Option, or if the Optionee elects to have the Company retain
that number of Shares out of the Shares being acquired through the exercise of
the Stock Option having a Fair Market Value equal to the exercise price of the
Stock Option being exercised, the Committee or the Board may, in its sole
discretion, authorize the grant of a new Stock Option (a "Reload Option") for
that number of Shares equal to the number of already owned Shares surrendered
(including Shares of Restricted Stock) or newly acquired Shares being retained
by the Company in payment of the option exercise price of the underlying Stock
Option being exercised. The grant of a Reload Option will become effective
upon the exercise of the underlying Stock Option. The option exercise price of
the Reload Option shall be the Fair Market Value of a Share on the effective
date of the grant of the Reload Option. Each Reload Option shall be
exercisable no later than the time when the underlying stock option being
exercised could be last exercised. The Committee or the Board may also specify
additional terms, conditions and restrictions for the Reload Option and the
Shares to be acquired upon the exercise thereof.
(c) The amount, as determined by the Committee or the Board, of any federal,
state or local tax required to be withheld by the Company due to the exercise
of a Stock Option shall, subject to the authorization of the Committee or the
Board, be satisfied, at the election of the Optionee, either (1) by payment by
the Optionee to the Company of the amount of such withholding obligation in
cash or other consideration acceptable to the Committee or the Board in its
sole discretion (the "Non-Share Method") or (2) through either the retention
by the Company of a number of Shares out of the Shares being acquired through
the exercise of the Stock Option or the delivery of already owned Shares
having a Fair Market Value equal to the amount of the withholding obligation
(the "Share Retention Method"). If an Optionee elects to use the Share
Retention Method in full or partial satisfaction of any tax liability
resulting from the exercise of a Stock Option, the Committee or the Board may
authorize the grant of a Reload Option for that number of Shares as shall
equal the number of Shares used to satisfy the tax liabilities of the Optionee
arising out of the exercise of such Stock Option. Such Reload Option will be
granted at the price and on the terms set forth in Subsection 6.6(b). The cash
payment or an amount equal to the Fair Market Value of the Shares so withheld,
as the case may be, shall be remitted by the Company to the appropriate taxing
authorities.
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(d) An Optionee shall not have any of the rights of a shareholder of the
Company with respect to the Shares covered by a Stock Option except to the
extent that such Stock Option is exercised and one or more certificates
representing such Shares shall have been delivered to the Optionee.
Section 7. Restricted Stock
7.1 Grants. The Committee or the Board may grant Awards of Restricted Stock
to any Consultant, Director or employee of the Company or a Subsidiary for
such minimum consideration, if any, as may be required by applicable law or
such greater consideration as may be determined by the Committee or the Board,
in its sole discretion. Restricted Stock may not be acquired with the proceeds
of a nonrecourse loan that is made or guaranteed by the Company or a
Subsidiary. The terms and conditions of the Restricted Stock shall be
specified by the grant agreement. The Committee or the Board, in its sole
discretion, may specify any particular rights which the Participant to whom a
grant of Restricted Stock is made shall have in the Restricted Stock during
the restriction period and the restrictions applicable to the particular
Award, the vesting schedule (which may be based on service, performance or
other factors) and rights to acceleration of vesting (including, without
limitation, whether non-vested Shares are forfeited or vested upon termination
of employment). Further, the Committee or the Board may grant performance-
based Awards consisting of Restricted Stock by conditioning the grant, or
vesting or such other factors, such as the release, expiration or lapse of
restrictions upon any such Award (including the acceleration of any such
conditions or terms) of such Restricted Stock upon the attainment of specified
performance goals or such other factors as the Committee or the Board may
determine. The Committee or the Board shall also determine when the
restrictions shall lapse or expire and the conditions, if any, pursuant to
which the Restricted Stock will be forfeited or sold back to the Company. Each
Award of Restricted Stock may have different restrictions and conditions.
Unless otherwise set forth in this Plan, Restricted Stock may not be sold,
pledged, encumbered or otherwise disposed of by the recipient until the
restrictions specified in the Award expire. Awards of Restricted Stock are
subject to acceleration of vesting, termination of restrictions and
termination in the same manner as Stock Options pursuant to Subsections 6.4
and 6.5 of this Plan.
7.2 Awards and Certificates. Any Restricted Stock issued hereunder may be
evidenced in such manner as the Committee or the Board, in its sole
discretion, shall deem appropriate including, without limitation, book-entry
registration or issuance of a stock certificate or certificates. In the event
any stock certificate is issued in respect of Shares of Restricted Stock, such
certificate shall bear an appropriate legend with respect to the restrictions
applicable to such Award. The Company may retain, at its option, the physical
custody of any stock certificate representing any awards of Restricted Stock
during the restriction period or require that the certificates evidencing
Restricted Stock be placed in escrow or trust, along with a stock power
endorsed in blank, until all restrictions are removed or expire.
Section 8. Compliance with Securities and Other Laws
8.1 Conditions. As a condition to the issuance or transfer of any Award or
any security issuable in connection with such Award, the Company may require
an opinion of counsel, satisfactory to the Company, to the effect that (a)
such issuance and/or transfer will not be in violation of the Securities Act
or any other applicable securities laws and (b) such issuance and/or transfer
will not be in violation of the rules and regulations of any securities
exchange or automated quotation system on which the Common Stock is listed or
admitted to trading. Further, the Company may refrain from issuing, delivering
or transferring any Award or any security issuable in connection with such
Award until the Committee or the Board has determined that such issuance,
delivery or transfer will not violate applicable securities laws and that the
recipient has tendered to the Company any federal, state or local tax owed as
a result of such issuance, delivery or transfer, when the Company has a legal
liability to satisfy such tax. The Company shall not be liable for damages due
to delay in the issuance, delivery or transfer of any Award or any security
issuable in connection with such Award or any agreement, instrument or
certificate evidencing such Award or security for any reason whatsoever,
including, but not limited to, a delay caused by the listing requirements of
any securities exchange or automated quotation system or any registration
requirements under the Securities Act, the Exchange Act, or under any other
state or federal law,
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rule or regulation. The Company is under no obligation to take any action or
incur any expense to register or qualify the issuance, delivery or transfer of
any Award or any security issuable in connection with such Award under
applicable securities laws or to perfect any exemption from such registration
or qualification or to list any security on any securities exchange or
automated quotation system. Furthermore, the Company will have no liability to
any person for refusing to issue, deliver or transfer any Award or any
security issuable in connection with such Award if such refusal is based upon
the foregoing provisions of this Section 8. As a condition to any issuance,
delivery or transfer of any Award or any security issuable in connection with
such Award, the Company may place legends on any agreement, instrument or
certificate evidencing such Award or security, issue stop transfer orders with
respect thereto and require such agreements or undertakings as the Company may
deem necessary or advisable to assure compliance with applicable laws or
regulations, including, if the Company or its counsel deems it appropriate,
representations from the recipient of such Award or security to the effect
that such recipient is acquiring such Award or security solely for investment
and not with a view to distribution and that no distribution of the Award or
the security will be made unless registered pursuant to applicable federal and
state securities laws, or in the opinion of counsel to the Company, such
registration is unnecessary.
Section 9. Adjustments upon the Occurrence of a Reorganization or Corporate
Transaction
9.1 Adjustments.
(a) In the event of a Reorganization, the number of Shares subject to this
Plan and to each outstanding Award, and the exercise price of each Award which
is based upon Shares, shall (to the extent deemed appropriate by the Committee
or the Board) be proportionately adjusted (as determined by the Committee or
the Board in its sole discretion) to account for any increase or decrease in
the number of issued and outstanding Shares of the Company resulting from such
Reorganization.
(b) If a Corporate Transaction is consummated and immediately following the
consummation of such Corporate Transaction the Persons who were holders of
shares of Common Stock immediately prior to the consummation of such Corporate
Transaction do not receive any securities or other property (hereinafter
collectively referred to as "Transactional Consideration") as a result of such
Corporate Transaction and continue to hold the shares of Common Stock held by
them immediately prior to the consummation of such Corporate Transaction, the
Awards will remain outstanding and will continue in full force and effect
(without any modification) following the consummation of the Corporate
Transaction.
(c) If a Corporate Transaction is consummated and immediately following the
consummation of such Corporate Transaction the Persons who were holders of
shares of Common Stock immediately prior to the consummation of such Corporate
Transaction do receive Transactional Consideration as a result of such
Corporate Transaction or do not continue to hold the shares of Common Stock
held by them immediately prior to the consummation of such Corporate
Transaction, the terms and conditions of the Awards will be modified as
follows:
(1) If the documentation pursuant to which a Corporate Transaction will
be consummated provides for the assumption by the entity issuing
Transactional Consideration to the Persons who were the holders of shares
of Common Stock immediately prior to the consummation of such Corporate
Transaction of the Awards granted pursuant to this Plan without any
modification or amendment (other than Permitted Modifications and the
modifications contemplated by Subsections 6.5(c) and 7.1 of this Plan),
such Awards will remain outstanding and will continue in full force and
effect following the consummation of such Corporate Transaction (subject to
such Permitted Modifications and other contemplated modifications).
(2) If the documentation pursuant to which a Corporate Transaction will
be consummated does not provide for the assumption by the entity issuing
Transactional Consideration to the Persons who were the holders of shares
of Common Stock immediately prior to the consummation of such Corporate
Transaction of the Awards granted pursuant to this Plan without any
modification or amendment (other than Permitted Modifications), all vesting
restrictions (performance based or otherwise) applicable to Awards which
will
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not be assumed will accelerate to the extent of fifty percent (50%) of the
unvested Shares subject to the Awards and the holders of such Awards may
(subject to the expiration of the term of such Awards) exercise/receive the
benefits of such Awards during the ten (10)-day period immediately
preceding the consummation of such Corporate Transaction. For purposes of
the immediately preceding sentence, all performance based goals will be
deemed to have been satisfied in full. The Company will provide each
Participant holding Awards which will not be assumed with reasonable notice
of the termination of such vesting restrictions and the impending
termination of such Awards. Upon the consummation of such a Corporate
Transaction, all unexercised Awards which are not to be assumed will
automatically terminate and cease to be outstanding.
Nothing contained in this Section 9 will be deemed to extend the term of an
Award or to revive any Award which has previously lapsed or been cancelled,
terminated or surrendered.
Section 10. Amendment or Termination of this Plan
10.1 Amendment of This Plan. Notwithstanding anything contained in this Plan
to the contrary, all provisions of this Plan (including, without limitation,
the maximum number of Shares that may be issued with respect to Awards to be
granted pursuant to this Plan) may at any time or from time to time be
modified or amended by the Board; provided, however, that no Award at any time
outstanding pursuant to this Plan may be modified, impaired or cancelled
adversely to the holder of the Award without the consent of such holder.
10.2 Termination of This Plan. The Board may suspend or terminate this Plan
at any time, and such suspension or termination may be retroactive or
prospective. Termination of this Plan shall not impair or affect any Award
previously granted hereunder and the rights of the holder of the Award shall
remain in effect until the Award has been exercised in its entirety or has
expired or otherwise has been terminated by the terms of such Award.
Section 11. Amendments and Adjustments to Awards
11.1 Amendments and Adjustments.
The Committee or the Board may amend, modify or terminate any outstanding
Award with the Participant's consent at any time prior to payment or exercise
in any manner not inconsistent with the terms of this Plan, including, without
limitation, (a) to change the date or dates as of which and/or the terms and
conditions pursuant to which (1) a Stock Option becomes exercisable or (2) a
Performance Award is deemed earned; (b) to amend the terms of any outstanding
Award to provide an exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Award; or (c) to
cancel an Award and grant a new Award in substitution therefor under such
different terms and conditions as the Committee or the Board determines in its
sole discretion to be appropriate including, but not limited to, having an
exercise price per share which may be higher or lower than the exercise price
per share of the cancelled Award. The Committee or the Board may also make
adjustments in the terms and conditions of, and the criteria included in
agreements evidencing Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 9 hereof)
affecting the Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations or accounting
principles, whenever the Committee or the Board determines that such
adjustments are appropriate to prevent reduction or enlargement of the
benefits or potential benefits intended to be made available pursuant to this
Plan. Any provision of this Plan or any agreement regarding an Award to the
contrary notwithstanding, the Committee or the Board may cause any Award
granted to be cancelled in consideration of a cash payment or alternative
Award made to the holder of such cancelled Award equal in value to the Fair
Market Value of such cancelled Award. The determinations of value pursuant to
this Section 11 shall be made by the Committee or the Board in its sole
discretion.
Section 12. General Provisions
12.1 No Limit on Other Compensation Arrangements. Nothing contained in this
Plan shall prevent the Company from adopting or continuing in effect other
compensation arrangements, and such arrangements may be either generally
applicable or applicable only in specific cases.
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12.2 No Right to Employment or Continuation of Relationship. Nothing in this
Plan or in any Award, nor the grant of any Award, shall confer upon or be
construed as giving any Participant any right to remain in the employ of the
Company or a Subsidiary or to continue as a Consultant or Director. Further,
the Company or a Subsidiary may at any time dismiss a Participant from
employment or terminate the relationship of any Consultant or Director with
the Company or any Subsidiary, free from any liability or any claim pursuant
to this Plan, unless otherwise expressly provided in this Plan or in any
agreement evidencing an Award made under this Plan. No Consultant, Director or
employee of the Company or any Subsidiary shall have any claim to be granted
any Award, and there is no obligation for uniformity of treatment of any
Consultant, Director or employee of the Company or any Subsidiary or of any
Participants.
12.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND EFFECT OF THIS PLAN AND
ANY RULES AND REGULATIONS RELATING TO THIS PLAN SHALL BE DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF.
12.4 Severability. If any provision of this Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as
to any individual or Award, or would disqualify this Plan or any Award under
any law deemed applicable by the Committee or the Board, such provision shall
be construed or deemed amended to conform to applicable law, or if it cannot
be construed or deemed amended without, in the sole determination of the
Committee or the Board, materially altering the intent of this Plan or the
Award, such provision shall be stricken as to such jurisdiction, individual or
Award and the remainder of this Plan and any such Award shall remain in full
force and effect.
12.5 No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to this Plan or any Award, and the Committee or the Board shall
determine, in its sole discretion, whether cash, other securities or other
property shall be paid or transferred in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be cancelled,
terminated or otherwise eliminated.
12.6 Headings. Headings are given to the Sections and Subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or
interpretation of this Plan or any provision thereof.
12.7 Effective Date. The provisions of this Plan that relate to the grant of
Incentive Stock Options shall be effective as of the date of the approval of
this Plan by the shareholders of the Company.
12.8 Transferability of Awards. Incentive Stock Options shall not be
transferable otherwise than by will or the laws of descent and distribution.
Incentive Stock Options may be exercised, during the lifetime of the holder,
only by the holder. Non-Qualified Stock Options and Restricted Stock may be
transferred upon approval of the Committee or the Board, subject to the terms
of the Plan and related Award Agreements. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of an Award contrary to the
provisions hereof, or the levy of any execution, attachment or similar process
upon an Award shall be null and void and without effect.
12.9 Rights of Participants. Except as hereinbefore expressly provided in
this Plan, any Person to whom an Award is granted shall have no rights by
reason of any subdivision or consolidation of stock of any class or the
payment of any stock dividend or any other increase or decrease in the number
of shares of stock of any class or by reason of any dissolution, liquidation,
reorganization, merger or consolidation or spinoff of assets or stock of
another corporation, and any issue by the Company of shares of stock of any
class or securities convertible into shares of stock of any class shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or exercise price of Shares subject to an Award.
12.10 No Limitation Upon the Rights of the Company. The grant of an Award
pursuant to this Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, or changes of its capital or
business structure; to merge, convert or consolidate; to dissolve or
liquidate; or sell or transfer all or any part of its business or assets.
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12.11 Date of Grant of an Award. Except as noted in this Subsection 12.11,
the granting of an Award shall take place only upon the execution and delivery
by the Company and the Participant of a written agreement and neither any
other action taken by the Committee or the Board nor anything contained in
this Plan or in any resolution adopted or to be adopted by the Committee, the
Board or the shareholders of the Company shall constitute the granting of an
Award pursuant to this Plan. Solely, for purposes of determining the Fair
Market Value of the Shares subject to an Award, such Award will be deemed to
have been granted as of the date of Board or Committee action to approve the
Award, or such later date as is specified by the Committee or the Board,
notwithstanding any delay which may elapse in executing and delivering the
applicable agreement.
12.12 Withholding. The Company shall not be required to issue or deliver any
certificates for Shares purchased upon the exercise of an Option (or an Award,
as applicable), prior to the determination by the Committee that the optionee
has tendered to the Company (in cash, Shares, or such other consideration as
is acceptable to the Committee) any federal, state or local tax owed by the
Optionee as a result of the Award, if the Company has or may have a legal
liability to satisfy such tax.
Section 13. Named Executive Officers
13.1 Applicability of Section 13. The provisions of this Section 13 shall
apply only to those executive officers (a) whose compensation is required to
be reported in the Company's proxy statement pursuant to Item 402(a)(3)(i) and
(ii) (or any successor thereto) of Regulation S-K (or any successor thereto)
under the general rules and regulations under the Exchange Act and (b) whose
total compensation, including estimated Awards, is determined by the Committee
or the Board to possibly be subject to the limitations on deductions imposed
by Section 162(m) of the Code ("Named Executive Officers"). In the event of
any inconsistencies between this Section 13 and the other Plan provisions as
they pertain to Named Executive Officers, the provisions of this Section 13
shall control.
13.2 Establishment of Performance Goals. Awards for Named Executive
Officers, other than Options, shall be based on the attainment of certain
performance goals. No later than the earlier of (a) ninety (90) days after the
commencement of the applicable fiscal year of the Company or one of its
Subsidiaries or such other award period as may be established by the Committee
or the Board ("Award Period") and (b) the completion of twenty-five percent
(25%) of such Award Period, the Committee or the Board shall establish, in
writing, the performance goals applicable to each such Award for Named
Executive Officers. At the time the performance goals are established, their
outcome must be substantially uncertain. In addition, the performance goal
must state, in terms of an objective formula or standard, the method for
computing the amount of compensation payable to the Named Executive Officer if
the goal is obtained. Such formula or standard shall be sufficiently objective
so that a third party with knowledge of the relevant performance results could
calculate the amount to be paid to the subject Named Executive Officer. The
material terms of the performance goals for Named Executive Officers and the
compensation payable thereunder shall be submitted to the shareholders of the
Company for their review and approval if and to the extent required for such
compensation to be deductible pursuant to Section 162(m) (or any successor
thereto) of the Code, and the Treasury regulations thereunder. Shareholder
approval, if necessary, shall be obtained for such performance goals prior to
any Award being paid to such Named Executive Officer. If shareholder approval
is required and not received with respect to such performance goals, no amount
shall be paid to such Named Executive Officer for such applicable Award Period
pursuant to this Plan.
13.3 Components of Awards. Each Award granted to a Named Executive Officer,
other than Options, shall be based on performance goals which are sufficiently
objective so that a third party having knowledge of the relevant facts could
determine whether the goal was met. Except as provided in Subsection 13.8
herein, performance measures which may serve as determinants of Named
Executive Officers' Awards shall be limited to the following measures:
earnings per share; return on assets; return on equity; return on capital; net
profit after taxes; net profit before taxes; operating profits; stock price;
and sales or expenses. Within ninety (90) days following the end of each Award
Period, the Committee or the Board shall certify in writing that the
performance goals, and any other material terms were satisfied. Thereafter,
Awards shall be made for each Named Executive Officer as determined by the
Committee or the Board. The Awards may not vary from the pre-established
amount based on the level of achievement.
A-13
13.4 No Mid-Year Change in Awards. Except as provided in Subsections 13.8
and 13.9 herein, each Named Executive Officer's Awards shall be based
exclusively on the performance measures established by the Committee or the
Board pursuant to Subsections 13.2 and 13.3.
13.5 No Partial Award Period Participation. A Named Executive Officer who
becomes eligible to participate in this Plan after performance goals have been
established in an Award Period pursuant to Subsections 13.2 and 13.3 may not
participate in this Plan prior to the next succeeding Award Period, except
with respect to Awards which are Options.
13.6 Performance Goals. Except as provided in Subsection 13.8 herein,
performance goals shall not be changed following their establishment, and
Named Executive Officers shall not receive any payout, except with respect to
Awards which are Options, when the minimum performance goals are not met or
exceeded.
13.7 Individual Performance and Discretionary Adjustments. Except as
provided in Subsection 13.8 herein, subjective evaluations of individual
performance of Named Executive Officers shall not be reflected in their
Awards, other than Awards which are Options. The payment of such Awards shall
be entirely dependent upon the attainment of the preestablished performance
goals.
13.8 Amendments. No amendment of this Plan with respect to any Named
Executive Officer may be made which would (a) increase the maximum amount that
can be paid to any one Participant pursuant to this Plan, (b) change the
specified performance goal for payment of Awards, or (c) modify the
requirements as to eligibility for participation in this Plan, unless the
Company's shareholders have first approved such amendment in a manner which
would permit the deduction under Section 162(m) (or any successor thereto) of
the Code of such payment in the fiscal year it is paid. The Committee or the
Board shall amend this Section 13 and such other provisions as it deems
appropriate, to cause amounts payable to Named Executive Officers to satisfy
the requirements of Section 162(m) (or any successor thereto) and the Treasury
regulations promulgated thereunder.
13.9 Options. Notwithstanding any provision of this Plan (including the
provisions of this Section 13) to the contrary, the amount of compensation
which a Named Executive Officer may receive with respect to Options which are
granted hereunder is based solely on an increase in the value of the
applicable Shares after the date of grant of such Award. Thus, no Option may
be granted hereunder to a Named Executive Officer with an exercise price less
than the Fair Market Value of shares of Stock on the date of grant.
Furthermore, the maximum number of Shares (or cash equivalent value) with
respect to which Options may be granted hereunder to any Named Executive
Officer during any calendar year may not exceed 750,000 Shares (fifty percent
(50%) of the Shares listed in Section 4.1), subject to adjustment as provided
in Section 9 hereunder.
13.10 Maximum Amount of Compensation. The maximum amount of compensation
payable as an Award (other than an Award which is an Option) to any Named
Executive Officer during any calendar year may not exceed $1,000,000.
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P
R AVERY COMMUNICATIONS, INC.
O
X Solicited by the Board of Directors for the Annual Meeting of Stockholders
Y September 13, 2000
The undersigned Stockholder of Avery Communications, Inc. hereby appoints
Patrick J. Haynes, III and Scot M. McCormick, and each of them, proxies, with
power of substitution, to vote at the Annual Meeting of Stockholders of the
Company to be held at the Sheraton Gateway Suites O'Hare, 6501 North Mannheim
Road, Rosemont, Illinois, on Wednesday, September 13, 2000, at 10:00 A.M.,
Central Time, or at any postponement or adjournment thereof, on the matters
described on the reverse side.
The Board of Directors Favors a Vote FOR All Nominees and FOR Items 2 and 3.
The Shares Represented By This Proxy Will Be Voted As Directed On Items 1, 2
and 3,
But Where No Direction is Indicated Will Be Voted FOR Items 1, 2 and 3.
(Continued and to be signed on reverse side.)
For Withhold For All
All All Except For Against Abstain
1. ELECTION OF 2. PROPOSAL TO
DIRECTORS FOR A APPROVE the
ONE YEAR TERM Company's 1999
EXPIRING IN 2001: Flexible
Nominees: Patrick J. Incentive Plan [_] [_] [_]
Haynes, III, Scot M.
McCormick, Norman M.
Phipps, J. Alan 3. PROPOSAL TO
Lindauer, Robert T. APPROVE
Isham, Jr. [_] [_] ratification of
King Griffin &
Adamson P.C. as
the Company's
independent
auditors for
_______________________ [_] 2000. [_] [_] [_]
For all nominees
except as noted above
The Board of Directors
Favors a Vote FOR Items 1,
2 and 3.
Dated: ________________, 2000
Signature(s): _______________
_____________________________
Important: Please sign
exactly as name appears
above. When shares are held
by joint tenants, both
should sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by a
duly authorized officer. If
a partnership, please sign
in partnership name by an
authorized person.