1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use
of the Commission Only (as
permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PROLOGIC MANAGEMENT SYSTEMS, INC.
(Name of Registrant as Specified in its Charter)
______________________________________________________________________
(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) (1) and 0-11.
(1) Title of each class of securities to which transaction applies:
__________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
__________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
__________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
__________________________________________________________________
(5) Total fee paid:
__________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
__________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
__________________________________________________________________
(3) Filing Party:
__________________________________________________________________
(4) Date Filed:
__________________________________________________________________
2
PROLOGIC MANAGEMENT SYSTEMS, INC.
3708 East Columbia Street, Suite 110
Tucson, Arizona 85714
(520) 747-4100
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Prologic Management Systems, Inc. to be held at the Holiday Inn Palo Verde, 4550
South Palo Verde Boulevard, Tucson, Arizona at 2:00 p.m., local time, on
Thursday, March 29, 2001.
The formal notice of the Annual Meeting of Shareholders follows. No
admission tickets or other credentials will be required for attendance at the
meeting.
At the Annual Meeting, you will be asked to consider and vote upon
numerous proposals. These proposals include the election of directors, the
amendment and restatement of the 1994 Stock Option Plan, two amendments to the
Company's Articles of Incorporation and approval of the appointment of our
independent auditors. These proposals are described in the proxy statement that
accompanies this letter.
It is important that your shares of common stock be represented at the
Annual Meeting. Whether or not you plan to attend the Annual Meeting, please
complete, sign and date the enclosed proxy card and mail it promptly using the
enclosed, pre-addressed, postage-paid, return envelope. If you attend the Annual
Meeting you may revoke the proxy given and vote in person if you wish, even if
you have previously returned your proxy card. Your prompt attention will be
greatly appreciated.
Sincerely,
/s/ James M. Heim
Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE RETURN YOUR PROXY PROMPTLY
Tucson, Arizona
February 28, 2001
2
3
PROLOGIC MANAGEMENT SYSTEMS, INC.
3708 East Columbia Street, Suite 110
Tucson, Arizona 85714
(520) 747-4100
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 29, 2001
---------------------------------
TO THE HOLDERS OF OUR COMMON STOCK:
NOTICE IS HEREBY GIVEN that an Annual Meeting (the "Annual Meeting") of
Shareholders of PROLOGIC Management Systems, Inc., an Arizona corporation (the
"Company"), will be held at the Holiday Inn Palo Verde, 4550 South Palo Verde
Boulevard, Tucson, Arizona, at 2:00 p.m., local time, on March 29, 2001. The
purposes of the Annual Meeting are:
1. To elect seven (7) directors to serve until the next annual
meeting of shareholders of the Company and until their successors are elected
and qualified. The nominees for director are James M. Heim, Richard E. Metz,
Mark S. Biestman, Bruce Carlsmith, Herbert F. Day, Edwin G. Hubert, and John
W. Olynick;
2. To amend and restate Prologic's 1994 Stock Option Plan (the "Plan") to
increase the number of shares of the Company's common stock allocated to and
reserved for issuance under the Plan from 500,000 to 3,500,000, and to extend
the term of the Plan to March 29, 2011;
3. To approve and adopt an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of the common stock of
the Company from 10,000,000 to 50,000,000 and the number of authorized shares of
the preferred stock of the Company from 1,000,000 to 5,000,000;
4. To approve and adopt an amendment to the Company's Articles of
Incorporation to limit the liability of directors to the fullest extent allowed
by Arizona law;
5. To ratify the appointment of BDO Seidman LLP as our independent
auditors for the fiscal year ending March 31, 2001; and
6. To consider any other matters which properly may come before the
meeting or any adjournments or postponements of the meeting.
The Board of Directors has fixed the close of business on February 21,
2001 as the record date (the "Record Date") for the determination of the
shareholders entitled to notice of, and to vote at, the Annual Meeting or any
adjournment thereof. Only shareholders of record at the close of business on the
Record Date are entitled to notice of, and to vote at, the Annual Meeting. The
stock transfer books will not be closed. Shares of common stock can be voted at
the Annual
4
Meeting only if the holder is present at the Annual Meeting in person or
represented by valid proxy. Each shareholder is cordially invited to attend the
Annual Meeting in person. To assure representation at the Annual Meeting,
however, shareholders are urged to date, sign and return the enclosed proxy card
as promptly as possible in the postage-prepaid envelope enclosed for that
purpose. If you attend the Annual Meeting, you may vote in person even if you
previously returned a proxy card.
We have issued shares of our Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock. None of the preferred stock that we have
issued is entitled to vote at the Annual Meeting.
We have enclosed our 2000 Annual Report, including financial statements,
and the proxy statement with this notice of annual meeting.
By Order of the Board of Directors:
/s/ Richard E. Metz
President
Tucson, Arizona
February 28, 2001
2
5
PROLOGIC MANAGEMENT SYSTEMS, INC.
3708 East Columbia Street, Suite 110
Tucson, Arizona 85714
(520) 747-4100
ANNUAL SHAREHOLDERS MEETING
PROXY STATEMENT
---------------------------
ANNUAL MEETING: Thursday, March 29, 2001 at 2:00 p.m., local time, at the
Holiday Inn Palo Verde, 4550 South Palo Verde Boulevard, Tucson, Arizona.
RECORD DATE: Close of business on February 21, 2001. If you were a holder of
shares of our common stock at that time, you may vote at the meeting. Each share
is entitled to one vote. You may not cumulate votes, except with respect to the
election of directors. As of the record date, we had 6,543,970 shares of our
common stock outstanding.
AGENDA:
1. Elect seven (7) directors to serve until the next annual meeting
of shareholders of the Company and until their successors are elected and
qualified. The nominees for director are James M. Heim, Richard E. Metz,
Mark S. Biestman, Bruce Carlsmith, Herbert F. Day, Edwin G. Hubert, and John
W. Olynick;
2. Amend and restate Prologic's 1994 Stock Option Plan (the "Plan") to
increase the number of shares of the Company's common stock allocated to and
reserved for issuance under the Plan from 500,000 to 3,500,000, and to extend
the term of the Plan to March 29, 2011;
3. Approve and adopt an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of the common stock of
the Company from 10,000,000 to 50,000,000 and the number of authorized shares of
the preferred stock of the Company from 1,000,000 to 5,000,000;
4. Approve and adopt an amendment to the Company's Articles of
Incorporation to limit the liability of directors to the fullest extent
allowed by Arizona law;
5. Ratify the appointment of BDO Seidman LLP as our independent
auditors for the fiscal year ending March 31, 2001; and
6. Consider any other matters which properly may come before the
meeting or any adjournments or postponements of the meeting.
PROXIES: Unless you tell us on the proxy card to vote differently, we will vote
signed, returned proxies "for" the proposal to elect directors, "for" the
proposal to amend and restate the 1994 Stock Option Plan, "for" both proposals
to amend the Company's Articles of Incorporation, and "for" the proposal to
ratify the appointment of BDO Seidman LLP. For other matters that properly come
before the Annual Meeting, the proxy holders will vote at their discretion.
MAILING DATE: We anticipate mailing this proxy statement on March 1, 2001.
6
PROXIES SOLICITED BY: The Board of Directors.
REVOKING YOUR PROXY: You may revoke your proxy before it is voted at the
meeting. To revoke, follow the procedures described on page 25 under "Voting
Procedures/Revoking Your Proxy."
PLEASE VOTE - YOUR VOTE IS IMPORTANT
2
7
CONTENTS
General Information..........................................................1
Disclosure Regarding Forward-Looking Statements..............................4
*Proposal 1 - Election of Directors..........................................5
Board Information............................................................7
Report of Audit Committee....................................................8
*Proposal 2 - Amendment and Restatement of the 1994 Stock Option Plan........9
*Proposal 3 - Approval and Adoption of Amendment
to Articles of Incorporation (Increase in Authorized Stock)..............15
*Proposal 4 - Approval and Adoption of Amendment
to Articles of Incorporation (Director Indemnification)..................18
*Proposal 5 - Ratification of Appointment of Independent Auditors...........20
Executive Compensation and Other Information................................21
Security Ownership of Certain Beneficial Owners and Management..............23
Section 16(a) Beneficial Ownership Reporting Compliance.....................24
Certain Relationships and Related Transactions..............................25
Voting Procedures/Revoking Your Proxy.......................................25
Submission of Shareholder Proposals.........................................26
Annual Report...............................................................27
Other Business..............................................................27
- -------------
*We expect to vote on these items at the meeting.
3
8
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements including
statements containing the words "believes," "anticipates," "expects," "intends"
and words of similar import. These statements involve known and unknown risks
and uncertainties that may cause our actual results or outcomes to be materially
different from those anticipated and discussed herein. Important factors that we
believe might cause such differences include: (1) concentration of the Company's
assets into one industry segment; (2) the impact of changing economic
conditions; (3) the actions of competitors, including pricing and new product
introductions; and (4) those specific risks that are discussed in the cautionary
statements accompanying the forward-looking statements in this proxy statement
and in the Risk Factors detailed in the Company's previous filings with the
Securities and Exchange Commission. In assessing forward-looking statements
contained herein, shareholders are urged to read carefully all cautionary
statements contained in this proxy statement and in those other filings made by
the Company with the Commission.
4
9
PROPOSAL 1 - ELECTION OF DIRECTORS
BOARD STRUCTURE: The Company's Bylaws currently provide that the board of
directors shall have no fewer than one (1) and no more than ten (10) members.
Each director serves a one-year term. At the Annual Meeting, seven directors
will be elected, and each director's term will expire at the close of the next
annual meeting of shareholders. The shares represented by the enclosed proxy
will be voted for the election of the director nominees named below, unless a
vote is withheld from any or all of the individual nominees. If any nominee
becomes unavailable for any reason or if a vacancy should occur before election
(which events are not anticipated), the shares represented by the enclosed proxy
may be voted for such other person as may be determined by the holders of the
proxy. The seven nominees receiving the highest number of votes cast at the
meeting will be elected.
Information concerning the names, ages, terms and positions with Prologic,
and business experience of the directors is set forth below. Each director has
served continuously since his election as indicated below.
Name Age Position Director Since
- ---- --- -------- --------------
James M. Heim (1) (2) (3) 49 Chief Executive Officer and 1984
Director
Richard E. Metz (1) (2) (3) 54 President and Director 1984
Mark S. Biestman (1) (2) (3) 43 Director 1997
Bruce Carlsmith 45 Director Nominee ---
Herbert F. Day 61 Director Nominee ---
Edwin G. Hubert 59 Director Nominee ---
John W. Olynick 53 Director Nominee ---
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Nominating Committee
BOARD NOMINEES: The Company intends to increase the number of directors to
seven, four of whom will be independent, non-employee directors. Each of the
nominees listed below has consented to serve as a director if elected.
JAMES M. HEIM, Chief Executive Officer, Vice President, Principal
Financial and Accounting Officer, Secretary and Director. Mr. Heim is a
co-founder of Prologic and has served as a Director since its inception in
1984. In addition, Mr. Heim served as Prologic's President from 1984 to 1999
and as its Chief Financial Officer from 1984 to 1995. Mr. Heim has over 20
years of business management experience and is responsible for capital
raising,
5
10
acquisitions, and other corporate activities. Mr. Heim holds both a Juris Doctor
degree from the College of Law and a B.S. in Business Administration from the
University of Arizona.
RICHARD E. METZ, President, Chief Administrative Officer and Director.
Mr. Metz is a co-founder of Prologic and has served as a director since its
inception in 1984. He has served as Prologic's President since December
1999, and Executive Vice President since 1995. Mr. Metz has over 30 years of
business management and investment experience, including 10 years in the
computer hardware and software industry prior to his affiliation with
Prologic. Since 1982, Mr. Metz has owned and managed The Metz Group, a
business consulting and investment firm. Mr. Metz is a member of the
American Arbitration Association and is an Associate member of the American
Bar Association, Dispute Resolution and Intellectual Property Law Sections.
MARK S. BIESTMAN, Director. Mr. Biestman has worked in the information
technology field for over 20 years in both sales and marketing management.
Mr. Biestman is currently Senior Vice President of Worldwide Sales at
CommerceOne, Inc., a public company based in Pleasanton, California,
co-founded by former CEO of Sybase, Mark Hoffman. CommerceOne develops,
licenses and markets the Commerce Chain Solution, the industry's only
real-time, electronic procurement and supplier management solution for
inter-business transactions. From May 1997 to November 1997, Mr. Biestman
served as Vice President of Commercial Applications & Business Development at
Actra Business Systems, a strategic venture between Netscape Communications
Corporation and General Electric Information Services focused on
Internet-based cross-commerce solutions. Mr. Biestman served as Netscape
Communications' Vice President of Sales, Western Region from June 1995 to May
1997, Vice President of Telecommunications Sales at Oracle Corporation from
1994 to 1995, and Vice President of Sales and Industry Marketing at Metaphor
from 1993 to 1994. In addition, Mr. Biestman has held various sales and
management positions at Tandem Computers and IBM Corporation. Mr. Biestman
holds a B.A. in Economics from the University of California at Berkeley and
has attended the Stanford Business School Executive program.
BRUCE CARLSMITH, Director Nominee. Mr. Carlsmith, 45, has worked in the
information technology field for over 20 years in various capacities, including
as an industry consultant, an analyst, and as executive management. Mr.
Carlsmith is currently Chief Operating Officer at MagNetPoint, a private company
based in Novato, California, where he oversees sales, business development,
strategic partnerships and business operations. A former MagNetPoint board
member, Mr. Carlsmith brings a strong technical background and years of
management experience over a broad range of disciplines. Before joining
MagNetPoint, Mr. Carlsmith was CEO and a member of the board of directors for
Registry Magic where he reshaped and redirected the NASDAQ-listed supplier of
voice-recognition auto-attendant products. Prior to that he was a
telecommunications analyst with Montgomery Securities, and prior to that he was
with Pacific Telesis and the Boston Consulting Group. Mr. Carlsmith has a B.S.
in Mechanical Engineering from Stanford and an MBA from Harvard.
HERBERT F. DAY, Director Nominee. Mr. Day, 61, previously served as
Director of the Company from 1995 to 1998, at which time he resigned for
personal reasons. Mr. Day has over thirty years of experience in the
computer industry with IBM Corporation. He has held professional and
management positions in sales, marketing, product management and product and
business planning. Mr. Day received his B.S. in Electrical Engineering from
the University of Maryland.
6
11
EDWIN G. HUBERT, Director Nominee. Mr. Hubert, 59, has over 30 years
financial management and business development experience. Mr. Hubert is both
a licensed CPA and a practicing attorney serving corporate clients. He is
also active in real estate development and, since 1993, has served as
Managing Partner of H30 Partners. Mr. Hubert has over 10 years experience
with IBM, and has held positions with companies such as Coopers & Lybrand and
Touche Ross & Co. (which subsequently merged internationally to form Deloitte
Touche Tohmatsu International). Mr. Hubert is also responsible for
negotiating sales of companies to McDonnell Douglas Data Services and Bank
One. Mr. Hubert holds a Juris Doctor degree from the University of Arizona,
as well as Bachelor and Masters degrees from the University of Michigan.
JOHN W. OLYNICK, Director Nominee. Mr. Olynick, 53, is Prologic's
Corporate Vice President of Sales & Strategic Business Development, and
President of Prologic's BASIS, Inc. subsidiary. Mr. Olynick, who joined
Prologic in September 1999, is responsible for the management and
coordination of sales and marketing resources, as well as strategic business
development. Mr. Olynick has had over 25 years of national sales, business
development and management experience in the technology industry. During his
20 years at Digital Equipment Corporation ("DEC"), Mr. Olynick was
responsible for successfully restructuring and increasing sales, and
developing business and sales growth strategies. Mr. Olynick had served as
DEC's North American Sales Manager of its OEM Storage Group, which was
acquired by Quantum Corporation in 1994, at which time Mr. Olynick became
Quantum's Corporate Distribution Sales Manager. Mr. Olynick attended the New
York University School of Engineering and Harvard Business School
Professional Development Program.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THESE NOMINEES.
BOARD INFORMATION
BOARD MEETINGS: During the fiscal year ended March 31, 2000, the board of
directors met on eight occasions. Each director of the Company attended 75% or
more of the meetings of the board and of its committees on which that director
served.
BOARD COMMITTEE MEETINGS: The board of directors maintains an audit committee,
compensation committee, and nominating committee. The audit committee makes
recommendations to the board concerning the selection of outside auditors,
reviews the Company's financial statements and considers such other matters in
relation to the internal and external audit of the Company's financial affairs
as may be necessary or appropriate to facilitate accurate and timely financial
reporting. One member of the audit committee, Mr. Biestman, is "independent" as
that term is defined by Rule 4200(a)(14) of the National Association of
Securities Dealers' marketplace rules. Prologic's board of directors has not
adopted a written charter for the audit committee. The audit committee held two
meetings
7
12
during the fiscal year ended March 31, 2000. The compensation committee reviews
all aspects of compensation of Prologic's officers, administers its stock option
and 401(k) plans, and makes recommendations on such matters to the full board of
directors. The compensation committee held three meetings during the year ended
March 31, 2000. The nominating committee makes recommendations to the board
concerning the selection of nominees to stand for election to the board. The
nominating committee does not consider nominees recommended by shareholders, nor
does it solicit the names of potential board nominees from shareholders. The
nominating committee did not meet during the fiscal year ended March 31, 2000.
BOARD COMPENSATION: Prologic compensates its outside directors for attendance at
board meetings at the rate of $500 per meeting and $150 per hour for committee
participation. Additionally, directors receive 10,000 options to purchase common
stock at a price not less than 100% of the current market price per share at the
time of grant, exercisable upon completion of their elected term. The options
are exercisable at the price determined by the board at the time of grant and
expire 5 years from the date of issuance. Directors who are also Prologic
employees receive no additional compensation for serving as a director. Prologic
reimburses its directors for travel and out-of-pocket expenses in connection
with their attendance at meetings of the board of directors.
REPORT OF AUDIT COMMITTEE
Prologic's audit committee has reviewed and discussed the financial statements
with management and discussed with the independent auditors the matters required
to be discussed by Statement on Accounting Standards 61 (as may be modified or
supplemented). Prologic's audit committee has received the written disclosures
and the letter from the independent accountants required by Independence
Standards Board Standard No. 1 (as may be modified or supplemented) and has
discussed with the independent accountant the independent accountant's
independence. Based on the review and discussions above, the audit committee
recommended to the Company's board of directors that the audited financial
statements be included in the Company's annual report on Form 10-KSB for the
last fiscal year for filing with the Securities and Exchange Commission.
Prologic's audit committee consists of Mr. Heim, Mr. Metz, and Mr. Biestman.
AUDITOR INDEPENDENCE
Category Aggregate Fees
-------- --------------
Audit Fees $ 75,661
Financial Information Systems Design $ 0
and Implementation Fees
All Other Fees $ 18,476
8
13
PROPOSAL 2
AMENDMENT AND RESTATEMENT OF THE
PROLOGIC 1994 STOCK OPTION PLAN
IN GENERAL
On December 20, 2000, the board of directors approved an amendment to the
Prologic 1994 Stock Option Plan (the "Plan"), subject to shareholder approval at
the Annual Meeting, increasing the number of shares of the Company's common
stock allocated to and reserved for issuance under the Plan from 500,000 to
3,500,000. The board directed that the amendment to the Plan be submitted to
shareholders for approval as required by the Plan and pursuant to Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"). In conjunction
with this amendment, the board has approved an additional amendment extending
the duration of the Plan to March 29, 2011. Again, the board directed that this
amendment be submitted to shareholders for approval as required by the Plan and
so that incentive stock options may be granted under the Plan. Unless otherwise
instructed on the proxy, properly executed proxies will be voted in favor of
approving the amendment and restatement of the 1994 Stock Option Plan. The
affirmative vote of a majority of the votes present in person or represented by
proxy at the Annual Meeting is required to approve Proposal 2.
The total number of shares of the Company's common stock reserved for
issuance upon exercise of options granted under the Plan is currently 500,000.
The Plan was originally adopted by the board of directors in October 1994 and
approved by shareholders at the 1994 Annual Shareholders Meeting. As of March
31, 2000, options to purchase an aggregate of 1,136,081 shares of common stock
had been granted under the Plan, and options to purchase 488,982 shares were
exercisable at a weighted-average exercise price of $0.91 per share. During the
fiscal year ended March 31, 2000, a total of 3,300 shares were issued upon
exercise of options granted under the Plan.
The purposes of the Plan are to attract and retain the best available
personnel for positions of substantial responsibility and to provide incentive
to, and to encourage ownership of, our stock by key management and other
employees. The board of directors believes that stock options are important to
attract and to encourage the continued employment and service of officers and
other employees by facilitating their purchase of a stock interest in Prologic.
The Plan will be administered by the compensation committee. Because the award
of options is completely within the discretion of the compensation committee, it
is not possible to determine at this time the awards that may be made to
officers or other employees. The Company does not presently intend to use shares
available under the amended and restated Plan for the purpose of any planned or
predetermined grants of options, should the amended and restated Plan be
approved by shareholders. On May 27, 1999, the Company granted options to
purchase shares, and that action resulted in options being granted for more than
the 500,000 shares available under the Plan. From May 27, 1999 to February 26,
2001, the Company granted 1,183,113 options to purchase shares in excess of the
Plan's provisions. Of the 1,183,113 shares, 250,000 were granted to Mr. Heim and
subsequently cancelled, 25,000 were granted to an officer of the Company and
were later cancelled when he resigned, 250,000 were granted to Mr. Olynick
pursuant to his employment agreement, 32,500 were granted to a director as
payment for past services, 25,000 were granted to a non-employee director, and
600,613 were granted to employees who are not officers or directors (and 6,000
of such options were cancelled when employment terminated).
9
14
As a result of such grants and cancellations, on February 26, 2001, a total of
902,113 shares (in excess of the 500,000 shares available under the Plan) were
subject to options granted and outstanding under the Plan and none of these
shares had been issued upon exercise of options granted under the Plan. Subject
to shareholder approval of the proposed amendments to the Plan, the Company
intends to reserve a portion of the additional shares which will be available
under the Plan for issuance upon exercise of options that to date have been
granted under the Plan. If outstanding options expire without being exercised
for any reason, the shares subject to those options will become available for
issuance under other options granted under the Plan.
OPTIONS GRANTED UNDER THE PROLOGIC 1994 STOCK OPTION PLAN
SINCE MAY 27, 1999
Number of
Securities Title of
Name and Principal Underlying Underlying Exercise Expiration
Position Options Granted Securities Price ($/Sh) Date
- -------- --------------- ---------- ------------ ----
James M. Heim 250,000 (1) Common Stock $0.50/share Cancelled
Chief Executive Officer
and Principal Financial
and Accounting Officer
Richard E. Metz 32,500 (2) Common Stock $0.50/share 06/2004
President and Chief
Administrative Officer
John W. Olynick 250,000 (3) Common Stock $0.50/share 12/2004
Vice President of Sales
and Strategic Business
Development
Mark S. Biestman, 25,000 Common Stock $1.375/share 03/2004
Director
Former Officer 25,000 Common Stock $0.50/share Cancelled
Non-Officer Employee 600,613 (4) Common Stock $0.50/share 2004
Group
(1) During the fiscal year ended March 31, 2000, a total of 250,000
nonqualified stock options were granted to Mr. Heim pursuant to his
Employment Agreement with Prologic as its President. In December 1999, all
250,000 stock options were cancelled in connection with the termination of
Mr. Heim's Employment Agreement. Mr. Heim received no value from the
cancellation of these options.
(2) During the fiscal year ended March 31, 2000, 32,500 nonqualified stock
options were granted to Mr. Metz as payment for past services.
10
15
(3) During the fiscal year ended March 31, 2000, a total of 250,000 stock
options were granted to Mr. Olynick pursuant to his Employment Agreement
with Prologic. 83,334 options vested in the second quarter of fiscal 2000,
and 83,333 optioned shares are scheduled to vest at August 31, 2000 and
2001.
(4) Includes 6,000 shares granted pursuant to options that were cancelled or
terminated as of December 31, 2000.
The board of directors believes that amendment of the Plan to increase the
number of shares reserved for issuance under the Plan and to extend the duration
of the Plan is in the best interests of Prologic and its shareholders. Amendment
and restatement of the existing Plan, as opposed to adoption of a new stock
option plan, will eliminate many of the burdens that would arise from the
administration of multiple stock option plans. Furthermore, amendment of the
existing Plan in the manner proposed by the board will be treated as the
adoption of a new stock option plan under the Federal Treasury Regulations.
Consequently, the Company will be able to continue to grant incentive stock
options under the Plan thus benefiting the recipients under the Plan who, as
discussed more fully below, may qualify for favorable federal income tax
treatment with respect to such options. Under the proposed amendments, the
maximum number of shares of stock that may be issued under the Plan shall be
3,500,000, and the Plan shall expire on March 29, 2011.
SECTION 162(m)
Section 162(m) of the Code generally limits the deductibility of
compensation paid to Prologic's Chief Executive Officer and next four most
highly compensated executive officers. Under Section 162(m), the annual
compensation paid to each of these executives may not be deductible to the
extent that it exceeds $1 million. However, Section 162(m) does not limit the
deductibility of "qualified performance-based compensation" that the Company
pays to these officers. Qualified performance-based compensation in general must
satisfy the following conditions: (1) the compensation must be paid solely
because the executive has attained one or more pre-established, objective
performance goals; (2) a compensation committee consisting solely of two or more
"outside directors" (as defined below) must establish the performance goal(s)
under which compensation is to be paid to the executive; (3) before the
compensation is paid to the executive, the material terms under which the
compensation is to be paid, including the performance goal(s), must be disclosed
to and subsequently approved by the corporation's shareholders; and (4) before
any payment of compensation, the compensation committee must certify in writing
that the performance goals and any other material terms were in fact satisfied.
In the case of compensation attributable to stock options, the performance
goal requirement is deemed satisfied, and the certification requirement is
inapplicable, if (1) the grant or award of stock options is made by the
compensation committee; (2) the plan under which the option is granted states
the maximum number of shares with respect to which options may be granted to an
employee during a specified period; and (3) under the terms of the option, the
amount of compensation the employee could receive is based solely on an increase
in the value of the stock after the date of grant or award. Under the Code, a
director is an "outside director" if he or she is not a current employee of the
corporation; is not a former employee who receives
11
16
compensation for prior services (other than benefits under a qualified
retirement plan); has not been an officer of the corporation; and does not
receive, directly or indirectly (including amounts paid to an entity that
employs the director or in which the director has at least a 5% ownership
interest), remuneration from the corporation in any capacity other than as a
director. The Federal Treasury Regulations provide that the material terms of a
performance goal will be approved by shareholders for purposes of the foregoing
rules if, in a separate vote, affirmative votes are cast by a majority of the
voting shares.
The following is a summary description of the material provisions of the
1994 Stock Option Plan. This summary is qualified in its entirety by the
complete text of the amended and restated Plan, which is included as Appendix A
to this proxy statement.
DESCRIPTION OF THE AMENDED AND RESTATED 1994 STOCK OPTION PLAN
Under the amended and restated 1994 Stock Option Plan, 3,500,000 shares of
Prologic's common stock shall be reserved and authorized for issuance upon the
exercise of options granted pursuant to the Plan. Options granted under the Plan
may either qualify as incentive stock options ("ISOs") under Section 422 of the
Code, or they may be non-qualified stock options ("NSOs"). The Plan authorizes
grants of ISOs and NSOs to officers, employees, and directors of Prologic and
its subsidiaries. The Plan also authorizes grants of NSOs to non-employee
directors, consultants, and independent contractors of the Company and its
subsidiaries. The Plan is administered by the compensation committee of the
board of directors which has the exclusive authority to determine those to whom
options shall be granted under the Plan, the type of options to be granted, and
the terms according to which such options shall be granted. The maximum number
of shares of common stock with respect to which options under the Plan may be
granted to any single person during any three year period is 50% of all shares
reserved for issuance pursuant to the Plan.
The option exercise price for NSOs granted under the 1994 Plan may not be
less than the fair market value of the Company's common stock on the date of
grant of the NSO. The option exercise price for ISOs granted under the Plan may
not be less than 100% of the fair market value of the Company's common stock on
the date of grant (or 110% in the case of an ISO granted to an optionee
beneficially owning more than 10% of the Company's outstanding common stock).
Options granted under the Plan expire 10 years after the date they are granted
(or five years in the case of an ISO granted to an optionee beneficially owning
more than 10% of the Company's outstanding common stock). The compensation
committee has absolute discretion to determine the vesting schedule of options
granted under the Plan.
Payment of the exercise price for shares of the Company's common stock
granted pursuant to options under the Plan may be made either in cash or, if
permitted by the particular option agreement, by delivery of shares of the
Company's common stock with a fair market value equal to the total option
exercise price (plus cash for any remaining difference). Options may, if
permitted by the particular option agreement, be exercised by directing that
certificates for the shares purchased be delivered to a licensed broker as agent
for the optionee, provided that the broker tenders to Prologic cash or cash
equivalents equal to the option exercise price.
12
17
The board of directors may terminate or suspend the Plan at any time.
Unless previously terminated, the Plan will terminate automatically on March 29,
2011, the tenth anniversary of the date the Plan was adopted by the Company's
shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The grant of an option is not a taxable event for the optionee or
Prologic.
Incentive Stock Options. ISOs are stock options that satisfy the
requirements specified in Section 422 of the Code. An optionee will not
recognize taxable income upon exercise of an ISO (except that the alternative
minimum tax may apply). Any gain realized upon a disposition of shares of common
stock received pursuant to the exercise of an ISO will be taxed as long-term
capital gain if the optionee holds the shares for at least two years after the
date of grant and for one year after the date of exercise. Prologic will not be
entitled to any business expense deduction with respect to the exercise of an
ISO, except as discussed below.
For the exercise of an ISO to qualify for the foregoing tax treatment, the
optionee generally must be a Prologic employee from the date the option is
granted through a date within three months before the date of exercise of the
option. In the case of an optionee who is disabled, the three-month period is
extended to one year. In the case of an employee who dies, the three-month
period and the holding period requirement for shares received pursuant to the
exercise of the option are waived.
If all of the requirements for incentive stock option treatment are met
except for the holding period requirement, the optionee will recognize ordinary
income upon the disposition of the shares received upon the exercise of an ISO
in an amount equal to the excess of the fair market value of the shares of
common stock at the time the option was exercised over the exercise price. The
balance of the realized gain, if any, will be taxed at applicable capital gain
tax rates. The Company will be allowed a business expense deduction to the
extent the optionee recognizes ordinary income, subject to Section 162(m) of the
Code as summarized below.
If an optionee exercises an ISO by tendering shares of common stock with a
fair market value equal to part or all of the option exercise price, the
exchange of shares will be treated as a nontaxable exchange (except that this
treatment would not apply if the optionee had acquired the shares being
transferred pursuant to the exercise of an ISO and had not satisfied the holding
period requirement summarized above). If the exercise is treated as a tax-free
exchange, the optionee would have no taxable income from the exchange and
exercise (other than alternative minimum taxable income as noted above) and the
tax basis of the shares exchanged would be treated as the substituted basis for
the shares received. If the optionee used shares received pursuant to the
exercise of an ISO as to which the optionee had not satisfied the holding period
requirement, the exchange would be treated as a taxable disqualifying
disposition of the exchanged shares, and the excess of the fair market value of
the shares tendered over the optionee's basis in the shares would be taxable.
Non-Qualified Stock Options. An NSO is any stock option other than an ISO.
Such options are referred to as "non-qualified" because they do not meet the
requirements of and are not eligible for the favorable tax treatment provided by
Section 422 of the Code. Upon exercising
13
18
an NSO, an optionee will recognize ordinary income in an amount equal to the
difference between the exercise price and the fair market value of the shares of
common stock underlying the NSO on the date of exercise. Upon a subsequent sale
or exchange of the shares acquired upon the exercise of an NSO, the optionee
will have taxable gain or loss, measured by the difference between the amount
realized on the disposition and the tax basis of the shares (generally, the
amount paid for the shares plus the amount treated as ordinary income at the
time the option was exercised).
If Prologic complies with applicable reporting requirements and with the
restrictions of Section 162(m) of the Code, it will be entitled to a business
expense deduction in the same amount and generally at the same time as the
optionee recognizes ordinary income. Under Section 162(m) of the Code, if the
optionee is one of certain specified executive officers, then, unless certain
exceptions apply, Prologic is not entitled to deduct compensation with respect
to the optionee, including compensation related to the exercise of stock
options, to the extent such compensation in the aggregate exceeds $1 million for
the taxable year. The options granted under the 1994 Stock Option Plan are
intended to comply with the exception to Section 162(m) for "qualified
performance-based compensation."
If the optionee surrenders shares of common stock in payment of part or
all of the exercise price for NSOs, no gain or loss will be recognized with
respect to the shares surrendered (regardless of whether the shares were
acquired pursuant to the exercise of an ISO) and the optionee will be treated as
receiving an equivalent number of shares of common stock upon the exercise of
the option in a nontaxable exchange. The basis of the shares surrendered will be
treated as the substituted tax basis for an equivalent number of shares received
and the new shares will be treated as having been held for the same holding
period as had expired with respect to the transferred shares. The difference
between the aggregate option exercise price and the aggregate fair market value
of the shares received pursuant to the exercise of the option will be taxed as
ordinary income. The optionee's basis in the additional shares will be equal to
the amount included in the optionee's income.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" THE AMENDMENTS TO THE 1994 STOCK OPTION PLAN.
14
19
PROPOSAL 3
AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED CAPITAL STOCK
IN GENERAL
At the Annual Meeting, we will seek shareholder approval of an amendment
to Article IV of Prologic's articles of incorporation. This amendment would
increase Prologic's authorized common stock from 10 million shares to 50 million
shares and would increase Prologic's authorized preferred stock from 1 million
shares to 5 million shares. As of March 31, 2000, 8,429,577 shares of common
stock and 163,667 shares of preferred stock were issued and outstanding.
3,500,000 shares of common stock have been reserved for issuance in accordance
with the 1994 Stock Option Plan. If approved by the shareholders, the amendment
will become effective when filed with the Arizona Corporation Commission after
the Annual Meeting. Unless otherwise instructed on the proxy, properly executed
proxies will be voted in favor of approving the amendment to Article IV. The
affirmative vote of a majority of the votes present in person or represented by
proxy at the Annual Meeting is required to approve Proposal 3. The text of the
amendment to Article IV is annexed as Appendix B.
REASONS FOR APPROVAL
The board of directors believes that an increase in the number of
authorized shares of common and preferred stock is in the best interests of
Prologic and its shareholders. The increase would assure sufficient authorized
common and preferred stock for issuance, as the need may arise, in connection
with possible acquisitions, financing transactions, and other corporate
purposes, including the 1994 Stock Option Plan described under Proposal 2 above.
All of the unissued and unreserved shares of common and preferred stock would be
issuable at any time or from time to time by action of the board of directors,
without the need for further shareholder authorization, except as may be
required by applicable law. The proposed increase in the number of authorized
shares of common and preferred stock affords the Company flexibility to take
advantage of business and financial opportunities without the delay and expense
of seeking shareholder approval for the authorization of additional stock.
To date, management of the Company has not formulated any program, nor
entered into any agreement or understanding, for issuance of any unissued and
unreserved shares of common and preferred stock, with the exception of issuances
pursuant to the exercise of stock options granted under the Company's 1994 Stock
Option Plan, common stock purchase warrants and convertible preferred stock.
OTHER CONSIDERATIONS
While not submitted for approval as such, the increase in the Company's
authorized preferred stock could theoretically be used as an anti-takeover
device. It is possible that, in the event of any attempted takeover of Prologic
through tender offer, merger, proxy contest or otherwise, the board could issue
additional shares of capital stock, common or preferred or both, to dilute the
voting power of existing shareholders. Moreover, since the board may fix the
voting powers, designations and preferences and other rights, qualifications,
limitations and restrictions on authorized but unissued preferred stock, any
preferred stock issued by the board could be
15
20
structured so as to impede or prevent any proposed takeover or other third party
transaction, even if such takeover or other transaction was at an above market
premium and favored by or beneficial to the interests of independent
shareholders. For these reasons, passage of this proposal could discourage
tender offers, mergers and other business combinations, proxy contests, and the
removal of incumbent management.
Pursuant to the provisions of the Arizona Business Corporation Act and
Prologic's Bylaws, shareholders are entitled to cumulative voting rights with
respect to the election of directors (see the discussion concerning cumulative
voting for directors on page 23 under "Voting Procedures/Revoking Your Proxy").
Furthermore, Arizona law allows a shareholder or shareholders holding ten
percent or more of the voting power of all shares of the Company to call a
special meeting of the shareholders for any purpose (except that twenty-five
percent of the voting power is needed for the purpose of considering any action
to facilitate or effect, directly or indirectly, a business combination).
Shareholders holding the requisite voting power may demand a special meeting by
delivering to the Company's President or Secretary written notice of such demand
containing the purposes of the meeting. Within thirty days of receipt of written
notice of demand, the Company's board shall cause a special meeting of
shareholders to be called and held on notice no later than ninety days after the
receipt of such written notice, all at the expense of the Company. If the board
fails to call and hold a special meeting, the shareholder(s) making the demand
may call the meeting by giving notice as required, all at the expense of the
Company.
Neither management nor the board is aware of any present efforts by any
person to accumulate Prologic stock or to obtain control of Prologic through
tender offer, merger or other business combination, proxy contest or otherwise.
As stated above, the Company is seeking shareholder approval of this proposal so
that it may be able to issue additional shares of common and preferred stock if
necessary for mergers or acquisitions, financing transactions, stock splits or
for other corporate purposes without first obtaining the approval of its
shareholders. Neither the Company's Articles of Incorporation nor its Bylaws
presently contain any provisions having an anti-takeover effect. Furthermore,
the Company is not presently a party to any agreements having material
anti-takeover consequences, nor does the Company presently intend to propose
other anti-takeover measures in future proxy solicitations.
It is not possible to state the actual effect of the authorization of the
preferred stock upon the rights of holders of the common stock until the
Company's board of directors determines the specific rights of the holders of
any series of preferred stock. The board's authority to issue preferred stock
provides a convenient vehicle in connection with possible acquisitions and other
corporate purposes, but could have the effect of making it more difficult for a
person or group to gain control of the Company. Under the Company's Articles of
Incorporation, additional shares of preferred stock may, without action by the
shareholders, be issued by the board from time to time in one or more series for
such consideration and with such relative rights, privileges and preferences as
the board may determine. Accordingly, the board has the power, without
shareholder approval, to fix the dividend rate and to establish the provisions,
if any, relating to voting rights, redemption rate, sinking fund, liquidation
preferences and conversion rights for any series of preferred stock issued in
the future, which could adversely affect the voting power or other rights of the
holders of the common stock. The Company has no present plans to issue any
additional shares of preferred stock.
16
21
On August 1, 2000, certain holders of the Series B Convertible Preferred
Stock filed an action in the Arizona Superior Court, Pima County. In the
complaint, Plaintiffs allege that certain conditions affecting the Series B
Preferred Stock conversion rate were not timely met, or not met at all,
resulting in rights to convert Series B Preferred shares into a substantially
greater number of shares of the Company's common stock than originally
specified. Although the exact number of shares of common stock is unspecified,
the Company believes that judgment in favor of the Plaintiffs might result in
conversion rights involving up to approximately 5,800,000 shares of common
stock. The Plaintiffs also request a judgment declaring whether the Company's
Series C Convertible Preferred Stock (which has conversion rights and conversion
rates identical to those of the Series B Preferred Stock) was validly issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
PROPOSED AMENDMENT TO ARTICLE IV OF THE ARTICLES OF INCORPORATION.
17
22
PROPOSAL 4
AMENDMENT TO ARTICLES OF INCORPORATION
TO PROVIDE FOR DIRECTOR INDEMNIFICATION
At the Annual Meeting, we will seek shareholder approval of an amendment
to Prologic's articles of incorporation which substantially reduces the personal
liability of directors (but not officers) to the Company or the shareholders for
monetary damages for any breach of fiduciary duty arising on or after the date
the amendment becomes effective. This amendment will effectively limit the
liability of directors to the fullest extent allowed by Arizona law. If approved
by the shareholders, the amendment will become effective when filed with the
Arizona Corporation Commission after the Annual Meeting. Unless otherwise
instructed on the proxy, properly executed proxies will be voted in favor of
approving Article X. The affirmative vote of a majority of the votes present in
person or represented by proxy at the Annual Meeting is required to approve
Proposal 4. The text of Article X is annexed as Appendix B.
The proposed amendment is intended to increase the protection provided to
directors and thus increase Prologic's ability to attract and retain the most
qualified persons as directors. Prologic has experienced difficulty in
attracting or retaining qualified persons to serve as directors. The Company
believes that this amendment will greatly facilitate the Company's search for
future directors. The Company believes that increases in the number of lawsuits
being threatened or filed against corporations and their directors and the
periodic unavailability of directors' liability insurance to provide protection
against the increased risks of personal liability resulting from such lawsuits
have combined to result in a growing reluctance on the part of capable persons
to serve as members of boards of directors of publicly-held corporations. The
Company also believes that the increased risk of personal liability without
adequate insurance or other indemnity protection for its directors could result
in overcautious and less effective direction and management of Prologic.
Although no directors have resigned or have threatened to resign as a result of
Prologic's failure to provide insurance or other indemnity protection from
liability, it is uncertain whether Prologic's directors will continue to serve
in their present capacities if improved protection from liability is not
provided.
The proposed amendment eliminates the personal liability of directors for
breach of fiduciary duty, i.e., the duty to administer corporate affairs for the
common benefit of all shareholders, and to exercise their best care, skill and
judgment in the management of Prologic's business. The proposed amendment does
not, however, eliminate or limit the liability of a director for failing to act
in good faith, for engaging in intentional misconduct or knowingly violating a
law, for authorizing the illegal payment of a dividend or repurchase of stock,
for obtaining an improper personal benefit, for breaching a director's duty of
loyalty, which is generally described as the duty not to engage in any
transaction which involves a conflict between the interest of the Company and
those of the director, or for violation of the federal securities laws.
Additionally, the proposed amendment does not eliminate or limit the liability
of a director for violations of any federal laws generally.
The proposed amendment would not abrogate a director's fiduciary duty to
the Company and the shareholders, but would eliminate personal liability for
monetary damages for breach of that duty. Further, it would not eliminate
personal liability for (i) any breach of the director's duty of loyalty to the
Company or the shareholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) authorizing
the illegal payment
18
23
of a dividend or repurchase of stock, or (iv) deriving any improper personal
benefit. Additionally, the proposed amendment does not and is not intended to
eliminate or limit remedies other than a director's personal liability for
monetary damages which may be available to the Company or shareholders, such as
injunction or rescission. Further, the proposed amendment does not eliminate or
limit liabilities for violations of the federal securities laws or federal laws
generally.
Finally, if approved by shareholders, the proposed amendment would be
effective under Arizona law from and after the date the amendment is filed with
the Arizona Corporation Commission and the amendment would not have retroactive
effect. As of the date of this proxy statement, the Company has no knowledge of
any proceeding, whether ongoing or pending, in which any director of the Company
is a named defendant.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF
ADDING ARTICLE X TO THE ARTICLES OF INCORPORATION.
19
24
PROPOSAL 5
RATIFICATION OF AUDITORS
The board of directors has chosen to appoint BDO Seidman LLP, independent
accountants, to audit the accounts of the Company for the fiscal year ending
March 31, 2001. BDO Seidman LLP has served as Prologic's auditors since April 2,
1999. We anticipate that a representative of BDO Seidman LLP will be present at
the Annual Meeting to make a statement if they desire to do so and to answer
appropriate questions.
Arthur Andersen LLP was engaged to audit the Company's financial
statements for its 1998 fiscal year. Arthur Andersen LLP declined to stand for
re-election in 1999.
Unless otherwise instructed on the proxy, properly executed proxies will
be voted in favor of approving the ratification of BDO Seidman LLP as the
Company's independent accountants.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF BDO
SEIDMAN LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
20
25
EXECUTIVE COMPENSATION
Information below sets forth certain information regarding business
experience and compensation paid or awarded by Prologic during the fiscal
year ended March 31, 2000 to the following executive officers: Mr. James M.
Heim, Prologic's Chief Executive Officer and Principal Financial and
Accounting Officer, Mr. Richard E. Metz, Prologic's President and Chief
Administrative Officer, and Mr. John W. Olynick, Prologic's Vice President of
Sales & Strategic Business Development and President of Prologic subsidiary,
BASIS, Inc.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
----------------------- ----------------------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus Options Compensation
- ------------------ ---- ------ ----- ----------- ------------
James M. Heim, 2000 $153,666 $68,694 250,000 0
Chief Executive Officer 1999 $72,000 0 0 0
and Principal Financial 1998 $62,000 0 0 0
and Accounting Officer
Richard E. Metz, 2000 $104,000 $59,471 32,500 0
President and Chief 1999 $5,000 0 0 0
Administrative Officer 1998 $27,500 0 0 0
John W. Olynick, 2000 $165,000 $94,926 250,000 $4,200 (1)
Vice President of Sales 1999 0 0 0 0
& Strategic Business 1998 0 0 0
Development
(1) During the fiscal year ended March 31, 2000, Mr. Olynick received a $4,200
car allowance.
OPTION GRANTS IN LAST FISCAL YEAR
Percent of
Number of Total Options
Securities Granted To
Underlying Employees in Exercise Or Base
Name Options Granted Fiscal Year Price ($/Sh) Expiration Date
---- --------------- ------------- ---------------- ---------------
James M. Heim 250,000 (1) 20.5% $0.50 Cancelled
Richard E. Metz 32,500 (2) 2.6% $0.50 June 15, 2004
John W. Olynick 250,000 (3) 20.5% $0.50 December 30, 2004
(1) During the fiscal year ended March 31, 2000, a total of 250,000 nonqualified
stock options were granted to Mr. Heim pursuant to his Employment Agreement with
Prologic as its President. In December 1999, all 250,000 stock options were
cancelled in connection with the termination of Mr. Heim's Employment Agreement.
Mr. Heim received no value from the cancellation of these options.
21
26
(2) During the fiscal year ended March 31, 2000, 32,500 nonqualified stock
options were granted to Mr. Metz as payment for past services.
(3) During the fiscal year ended March 31, 2000, a total of 250,000 stock
options were granted to Mr. Olynick pursuant to his Employment Agreement with
Prologic. 83,334 options vested in the second quarter of fiscal 2000, and 83,333
optioned shares are scheduled to vest at August 31, 2000 and 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value Of
Number Of In-The-Money
Shares Options Held Options At
Acquired On At FY-End (#) FY-Ended($)
Name Exercise (#) Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ -------------- ------------------------- -------------------------
James M. Heim 0 (1) N/A 0 0
Richard E. Metz 0 (1) N/A 32,500 $13,000
John W. Olynick 0 (1) N/A 83,334/166,666 $33,334/$66,667
(1) No director or executive officer of Prologic exercised any options during
the fiscal year ending March 31, 2000.
EMPLOYMENT AGREEMENTS
Mr. Heim had been under an employment agreement with Prologic as its
President commencing April 1, 1999. The employment agreement was terminated in
December 1999. Although the employment agreement has not been replaced, Mr. Heim
continues to serve as Prologic's Chairman of the Board and Chief Executive
Officer.
Prologic employs Mr. Olynick under an employment agreement that provides
for an annual salary of $150,000, and other compensation including (1) a first
year bonus plan of up to $50,000, (2) a bonus of up to $50,000 per year, based
on 1% of the total consolidated adjusted gross revenue of the Company, and (3)
participation in Prologic's Executive Bonus Plan. Additionally, Mr. Olynick is
entitled to participate in any and all Company plans or programs for which he is
eligible and which the Company generally makes available to or for the benefit
of its executives. Mr. Olynick's employment agreement expires on August 31,
2002. If, on or before September 1, 2000, Prologic terminates Mr. Olynick
without cause (as defined) or if Mr. Olynick terminates his employment for good
reason (as defined), Mr. Olynick is entitled to eighteen months severance
compensation. If such termination occurs after September 1, 2000, Mr. Olynick is
entitled to twelve months severance compensation. Mr. Olynick's employment
agreement may be renewed for one additional year upon the election of the
Company following its receipt of written notice from Mr. Olynick indicating his
interest in continued employment with the Company. Mr. Olynick's employment
agreement has previously been filed with the Securities and Exchange Commission.
22
27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 2000, certain
information concerning beneficial ownership of Prologic's common stock by (i)
each director and nominee, (ii) the Company's Chief Executive Officer, (iii)
each person known to the Company to own beneficially more than 5% of the
Company's outstanding common stock, and (iv) all of our directors, nominees and
executive officers as a group. On February 16, 2001, the Company signed a
settlement agreement with Sunburst Acquisitions IV, Inc., which resulted in
1,959,972 of our shares being cancelled. The "Percent of Class" in the table
below has been adjusted to reflect the cancellation of such shares. Except as
otherwise noted below, each person named has sole voting and investment power
with respect to all of the shares indicated, subject to applicable community
property law. The address of each person named is 3708 East Columbia Street,
Suite 110, Tucson, Arizona 85714, unless otherwise noted.
Shares
Title of Class Beneficially Percent
Name of Beneficial Owner of Stock Owned (1) of Class (2)
- ------------------------ -------- --------- ------------
James M. Heim & Marlene Heim (3) Common 1,092,601 16.70%
Richard E. Metz (4) Common 202,052 3.09%
Mark S. Biestman (5) Common 35,000 *
Bruce Carlsmith Common 0 *
Herbert F. Day (6) Common 20,000 *
Edwin G. Hubert Common 0 *
John W. Olynick (7) Common 180,667 2.76%
Sunburst Acquisitions IV, Inc.(8) Common 600,000 9.17%
HFG Properties Ltd. (9) Common 700,333 10.70%
All directors, nominees and executive
Officers as a group (7 persons) (10) Common 1,530,320 22.55%
* Less than 1%
(1) The inclusion herein of any shares of common stock does not constitute an
admission of beneficial ownership of such shares, but are included in
accordance with rules of the Securities and Exchange Commission ("SEC").
The shareholdings include, pursuant to rules of the SEC, shares of common
stock subject to options or warrants which are presently exercisable or
which may become exercisable within 60 days following December 31, 2000
("exercisable options").
(2) Percent of Class reflects the cancellation of shares pursuant to the
settlement agreement consummated on February 16, 2001 between the Company
and Sunburst Acquisitions IV, Inc. in full settlement of all claims under
the Stock Purchase and Merger Agreement between the two companies (see the
introductory paragraph to this table). The number of shares outstanding on
the record date reflects the cancellation of these 1,959,972 shares (see
page 1 of this proxy statement).
23
28
(3) Includes 700,333 shares owned by HFG Properties Ltd., an Arizona limited
partnership of which Mr. Heim is a general partner, and 528 shares owned
by Sonoita Resources, an Arizona limited liability company of which Mr.
Heim is a member. James M. Heim and Marlene Heim directly own an aggregate
of 391,740 shares of common stock.
(4) Comprised of 169,200 shares, 352 shares owned by Sonoita Resources, an
Arizona limited liability company of which Mr. Metz is a member, and
32,500 shares subject to exercisable options.
(5) Comprised of 35,000 shares subject to exercisable options.
(6) Comprised of 20,000 shares subject to exercisable options.
(7) Comprised of 14,000 shares and 166,667 shares subject to exercisable
options.
(8) The address of Sunburst Acquisitions IV, Inc. is 6363 Sunset Boulevard,
Hollywood, California 90028.
(9) HFG Properties Ltd. is an Arizona limited partnership of which Mr. James
M. Heim is a general partner.
(10) Comprised of 1,276,153 shares and 254,167 shares subject to exercisable
options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, requires Prologic
officers and directors, and persons who beneficially own more than ten percent
of a registered class of Prologic equity securities, to file reports of
ownership and change in ownership with the Securities and Exchange Commission.
Such reports are filed on Form 3, Form 4, and Form 5 under the Exchange Act.
Officers, directors and greater than ten-percent shareholders are required by
Exchange Act regulations to furnish Prologic with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 3, 4, or 5
were required for those persons, Prologic believes that all officers, directors,
and greater than ten-percent beneficial owners complied with the applicable
Section 16(a) filing requirements, with the exception of Mr. Olynick who
neglected to file a Form 3 when he became President of the Company's BASIS, Inc.
subsidiary, and Mr. Metz who neglected to file a Form 5 at the close of Fiscal
2000. As of the date of this proxy statement, both officers have complied with
the applicable Section 16(a) filing requirements.
24
29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, Prologic executed an agreement with HFG Properties, Ltd., an
Arizona limited partnership partly owned by Prologic's Chief Executive Officer,
Mr. Heim. The agreement was for the lease of office facilities occupied by
Prologic, located at 2030 East Speedway Boulevard, Tucson, Arizona. The terms of
the lease were from July 1996 through June 2001, with a monthly rent of 95% of
the market rate, as determined by an independent appraisal. During the fiscal
year ended March 31, 2000, the Company terminated this lease without penalty.
Prologic incurred obligations of $52,138 to HFG Properties, Ltd. under the lease
during the fiscal year ended March 31, 2000.
Prologic secured a new office space at 3708 East Columbia Street, Suite
110, Tucson, Arizona, and completed the move of its offices and facilities in
October 1999. The management company that leased this new property to Prologic
has no relationship with Mr. Heim or any other Company director.
The board of directors has adopted a policy that all transactions and/or
loans between Prologic and its officers, directors and/or 5% shareholders will
be on terms no less favorable than could be obtained from independent third
parties, and will be approved by a majority of the independent disinterested
directors.
On December 30, 1999, the Company authorized the sale of 75,000 shares of
the Series C Preferred Stock, including 37,500 shares to HFG Properties, Ltd.,
an Arizona limited partnership of which Mr. Heim is a general partner, and
37,500 shares to Sonoita Resources, an Arizona limited liability company of
which Mr. Heim and Mr. Metz are members, for an aggregate of $750,000, pursuant
to two subscription agreements.
VOTING PROCEDURES/REVOKING YOUR PROXY
VOTING
Pursuant to the provisions of the Arizona Business Corporation Act and
Prologic's Bylaws, in any election of directors, each shareholder is entitled to
cumulative voting at such election. Thus, each shareholder may cast, in person
or by proxy, as many votes in the aggregate as that shareholder is entitled to
vote, multiplied by the number of directors to be elected. Shareholders may cast
their votes for a single candidate or may distribute their votes among two or
more candidates. To be elected, directors must receive a plurality of the shares
present and voting in person or by proxy, provided a quorum exists. A plurality
means receiving the largest number of "for" votes, regardless of whether that is
a majority. A quorum is present if at least a majority of the outstanding shares
on the record date are present in person or by proxy. All matters submitted to
you at the meeting other than the election of directors will be decided by a
majority of the votes cast on the matter, provided a quorum exists, except as
otherwise provided by law or by the Company's articles of incorporation or
bylaws.
Those who fail to return a proxy or to attend the meeting will not count
towards determining any required plurality, majority or quorum. Shareholders and
brokers returning
25
30
proxies or attending the meeting who abstain from voting on a proposition will
count towards determining a quorum, plurality or majority for that proposition.
The enclosed proxies will be voted in accordance with the instructions you
place on the proxy card. Unless otherwise stated, all shares represented by your
returned, signed proxy will be voted "for" the proposals contained in this proxy
statement.
REVOCABILITY OF PROXIES
Proxies may be revoked if you:
- Deliver a signed, written revocation letter, dated later than the
proxy, to the secretary of the Company at the address set forth on
the first page of this proxy statement.
- Deliver a signed proxy, dated later than the first one to the
secretary of the Company at the address set forth on the first page
of this proxy statement; or
- Attend the meeting and vote in person or by proxy. Attending the
meeting alone will not revoke your proxy.
SOLICITATION
Prologic will bear the cost of this solicitation. In addition, it may
reimburse brokerage firms and other persons representing beneficial owners of
shares for expenses incurred in forwarding solicitation materials to such
beneficial owners. Proxies also may be solicited by certain of Prologic's
directors and officers, personally or by telephone or telegram, without
additional compensation. Prologic will reimburse brokerage firms, banks and
other custodians, nominees and fiduciaries for their expenses reasonably
incurred in forwarding solicitation material to the beneficial owners of
Prologic's common stock.
SUBMISSION OF SHAREHOLDER PROPOSALS
From time to time, shareholders seek to nominate directors or to present
proposals for inclusion in the proxy statement and form of proxy, or otherwise
for consideration at the annual meeting. To be included in the proxy statement
or considered at an annual meeting, you must timely submit nominations of
directors or other proposals to Prologic in addition to complying with certain
rules and regulations promulgated by the Securities and Exchange Commission. We
must receive proposals for the 2001 annual meeting of shareholders no later than
April 23, 2001, for possible inclusion in the proxy statement. Shareholders who
intend to present a proposal at the 2001 annual meeting of shareholders without
inclusion of such proposal in the Company's proxy statement are required to
provide notice of such proposal to the Company no later than July 6, 2001.
Direct any proposals, as well as related questions, to the Company's secretary
at the address set forth on the first page of this proxy statement.
26
31
ANNUAL REPORT
Prologic's 2000 annual report to shareholders has been mailed to
shareholders concurrently with the mailing of this proxy statement, but is not
incorporated into this proxy statement and is not to be considered to be a part
of these proxy solicitation materials.
Upon request, we will provide, without charge to each shareholder of
record as of the record date specified on the first page of this proxy
statement, a copy of Prologic's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 2000 as filed with the Securities and Exchange Commission. Any
exhibits listed in the Annual Report on Form 10-KSB also will be furnished upon
request at the actual expense incurred by Prologic in furnishing such exhibit.
Any such requests should be directed to the Company's secretary at the Company's
executive offices set forth on the first page of this proxy statement.
OTHER BUSINESS
The Annual Meeting is being held for the purposes set forth in the Notice
which accompanies this proxy statement. The board of directors is not presently
aware of business to be transacted at the Annual Meeting other than as set forth
in the Notice. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent as the Board may recommend.
By Order of the Board of Directors,
/s/ James M. Heim
Chairman of the Board of Directors
Tucson, Arizona
February 28, 2001
27
32
APPENDIX A
PROLOGIC MANAGEMENT SYSTEMS, INC.
1994 STOCK OPTION PLAN
(AS AMENDED THROUGH MARCH 29, 2001)
1. PURPOSE. The purpose of the Prologic Management Systems, Inc. 1994 Stock
Option Plan (the "Plan") is to provide to employees, officers, directors,
consultants and independent contractors of Prologic Management Systems, Inc., an
Arizona corporation ("Corporation"), or any of its subsidiaries (including
dealers, distributors, and other business entities or persons providing services
on behalf of the Corporation or any of its subsidiaries) added incentive for
high levels of performance and unusual efforts to increase the earnings of the
Corporation. The Plan seeks to accomplish this purpose by enabling specified
persons to purchase shares of the common stock of the Corporation, thereby
increasing their proprietary interest in the Corporation's success and
encouraging them to remain in the employ or service of the Corporation.
2. CERTAIN DEFINITIONS. As used in this Plan, the following words and phrases
shall have the respective meanings set forth below, unless the context clearly
indicates a contrary meaning:
2.1 "Board of Directors": The Board of Directors of the Corporation.
2.2 "Committee": The Committee which shall administer the Plan shall
consist of no fewer than two outside Directors of the Corporation, or,
alternatively, an independent, third-party Plan Administrator retained by the
Corporation.
2.3 "Fair Market Value Per Share": The fair market value per share of
the Shares as determined by the Committee in good faith. The Committee is
authorized to make its determination as to the fair market value per share of
the Shares on the following basis: (i) if the Shares are traded only otherwise
than on a securities exchange and are not quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ"), but are quoted in the
"pink sheets" published by the National Daily Quotation Bureau, the greater of
(a) the average of the mean between the average daily bid and average daily
asked prices of the Shares during the thirty (30) day period preceding the date
of grant of an Option, as quoted in the "pink sheets" published by the National
Daily Quotation Bureau, or (b) the mean between the average daily bid and
average daily asked prices of the Shares on the date of grant, as published in
such "pink sheets;" (ii) if the Shares are traded only otherwise than on a
securities exchange and are quoted on NASDAQ, the greater of (a) the average of
the mean between the closing bid and closing asked prices of the Shares during
the thirty (30) day period preceding the date of grant of an Option, as reported
by the Wall Street Journal and (b) the mean between the closing bid and closing
asked prices of the Shares on the date of grant of an Option, as reported by the
Wall Street Journal; (iii) if the Shares are admitted to trading on a securities
exchange, the greater of (a) the average of the daily closing prices of the
Shares during the ten (10) trading days preceding the date of grant of an
Option, as quoted in the Wall Street Journal, or (b) the daily closing price of
the Shares on the date of grant of an Option, as quoted in the Wall Street
Journal; or (iv) if the Shares are traded only otherwise than as described in
(i), (ii) or (iii) above, or if the Shares are not
33
publicly traded, the value determined by the Committee in good faith based upon
the fair market value as determined by completely independent and well qualified
experts.
2.4 "Option": A stock option granted under the Plan.
2.5 "Incentive Stock Option": An Option intended to qualify for
treatment as an incentive stock option under Code Sections 421 and 422, and
designated as an Incentive Stock Option.
2.6 "Nonqualified Option": An Option not qualifying as an Incentive
Stock Option.
2.7 "Optionee": The holder of an Option.
2.8 "Option Agreement": The document setting forth the terms and
conditions of each Option.
2.9 "Shares": The shares of common stock of the Corporation.
2.10 "Code": The Internal Revenue Code of 1986, as amended.
2.11 "Subsidiary": Any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation if, at the time of
the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain, or such other meaning as may be hereafter ascribed by Section 424
of the Code.
3. ADMINISTRATION OF PLAN.
3.1 In General. This Plan shall be administered by the Committee. Any
action of the Committee with respect to administration of the Plan shall be
taken pursuant to (i) a majority vote at a meeting of the Committee (to be
documented by minutes), or (ii) the unanimous written consent of its members.
3.2 Authority. Subject to the express provisions of this Plan, the
Committee shall have the authority to: (i) construe and interpret the Plan,
decide all questions and settle all controversies and disputes which may arise
in connection with the Plan and to define the terms used therein; (ii)
prescribe, amend and rescind rules and regulations relating to administration of
the Plan; (iii) determine the purchase price of the Shares covered by each
Option and the method of payment of such price, individuals to whom, and the
time or times at which, Options shall be granted and exercisable and the number
of Shares covered by each Option; (iv) determine the terms and provisions of the
respective Option Agreements (which need not be identical); (v) determine the
duration and purposes of leaves of absence which may be granted to participants
without constituting a termination of their employment for purposes of the Plan;
and (vi) make all other determinations necessary or advisable to the
administration of the Plan. Determinations of the Committee on matters referred
to in this Section 3 shall be conclusive and binding on all parties howsoever
concerned. With respect to Incentive Stock Options, the Committee shall
administer the Plan in compliance with the provisions of Code Section 422 as the
same may
A-2
34
hereafter be amended from lime to time. No member of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option.
4. ELIGIBILITY AND PARTICIPATION.
4.1 In General. Only officers, employees and directors who are also
employees of the Corporation or any Subsidiary of the Corporation shall be
eligible to receive grants of Incentive Stock Options. Officers, employees and
directors (whether or not they are also employees) of the Corporation or any
Subsidiary, as well as consultants, independent contractors or other service
providers of the Corporation or any Subsidiary shall be eligible to receive
grants of Nonqualified Options. Within the foregoing limits, the Committee, from
time to time, shall determine and designate persons to whom Options may be
granted. All such designations shall be made in the absolute discretion of the
Committee and shall not require the approval of the stockholders. In determining
(i) the number of Shares to be covered by each Option, (ii) the purchase price
for such Shares and the method of payment of such price (subject to the other
sections hereof), (iii) the individuals of the eligible class to whom Options
shall be granted, (iv) the terms and provisions of the respective Option
Agreements, and (v) the times at which such Options shall be granted, the
Committee shall take into account such factors as it shall deem relevant in
connection with accomplishing the purpose of the Plan as set forth in Section 1.
An individual who has been granted an Option may be granted an additional Option
or Options if the Committee shall so determine. No Option shall be granted under
the Plan after March 29, 2011, but Options granted before such date may be
exercisable after such date.
4.2 Certain Limitations. In no event shall Incentive Stock Options be
granted to an Optionee such that the sum of (i) aggregate fair market value
(determined at the time the Incentive Stock Options are granted) of the Shares
subject to all Options granted under the Plan which are exercisable for the
first time during the same calendar year, plus (ii) the aggregate fair market
value (determined at the time the options are granted) of all stock subject to
all other incentive stock options granted to such Optionee by the Corporation,
its parent and Subsidiaries which are exercisable for the first lime during such
calendar year, exceeds One Hundred Thousand Dollars ($100,000). For purposes of
the immediately preceding sentence, fair market value shall be determined as of
the date of grant based on the Fair Market Value Per Share as determined
pursuant to Section 2.3. The maximum number of Shares with respect to which
Options under the Plan may be granted to any single person during any three-year
period shall be 50% of all Shares reserved for issuance pursuant to the Plan.
5. AVAILABLE SHARES AND ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
5.1 Shares. Subject to adjustment as provided in Section 5.2 below, the
total number of Shares to be subject to Options granted pursuant to this Plan
shall not exceed 3,500,000 Shares. Shares subject to the Plan may be either
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Corporation; the Committee shall be empowered to take any
appropriate action required to make Shares available for Options granted under
this Plan. If any Option is surrendered before exercise or lapses without
exercise in full or for any other reason ceases to be exercisable, the Shares
reserved therefore shall continue to be available under the Plan.
A-3
35
5.2 Adjustments. As used herein, the term "Adjustment Event" means an
event pursuant to which the outstanding Shares of the Corporation arc increased,
decreased or changed into, or exchanged for a different number or kind of shares
or securities, without receipt of consideration by the Corporation, through
reorganization, merger, recapitalization, reclassification, stock split, reverse
stock split, stock dividend, stock consolidation or otherwise. Upon the
occurrence of an Adjustment Event, (i) appropriate and proportionate adjustments
shall be made to the number and kind of shares and exercise price for the shares
subject to the Options which may thereafter be granted under this Plan, (ii)
appropriate and proportionate adjustments shall be made to the number and kind
of and exercise price for the shares, subject to the then outstanding Options
granted under this Plan, and (iii) appropriate amendments to the Option
Agreements shall be executed by the Corporation and the Optionees if the
Committee determines that such an amendment is necessary or desirable to reflect
such adjustments. If determined by the Committee to be appropriate, in the event
of an Adjustment Event which involves the substitution of securities of a
corporation other than the Corporation, the Committee shall make arrangements
for the assumptions by such other corporation of any Options then or thereafter
outstanding under the Plan. Notwithstanding the foregoing, such adjustment in an
outstanding Option shall be made without change in the total exercise price
applicable to the unexercised portion of the Option, but with an appropriate
adjustment to the number of shares, kind of shares and exercise price for each
share subject to the Option. The determination by the Committee as to what
adjustments, amendments or arrangements shall be made pursuant to this Section
5.2, and the extent thereof, shall be final and conclusive. No fractional Shares
shall be issued under the Plan on account of any such adjustment or arrangement.
6. TERMS AND CONDITIONS OF OPTIONS.
6.1 Intended Treatment as Incentive Stock Options. Incentive Stock
Options granted pursuant to this Plan are intended to be "incentive stock
options" to which Code Sections 421 and 422 apply, and the Plan shall be
construed and administered to implement that intent. If all or any part of an
Incentive Stock Option shall not be an "incentive stock option" subject to
Sections 421 or 422 of the Code, such Option shall nevertheless be valid and
carried into effect. All Options granted under this Plan shall be subject to the
terms and conditions set forth in this Section 6 (except as provided in Section
5.2) and to such other terms and conditions as the Committee shall determine to
be appropriate to accomplish the purpose of the Plan as set forth in Section 1.
6.2 Amount and Payment of Exercise Price.
6.2.1 Exercise Price. The exercise price per Share for each
Share which the Optionee is entitled to purchase under a Nonqualified Option
shall be determined by the Committee but shall not be less than the Fair Market
Value Per Share on the date of the grant of the Nonqualified Option. The
exercise price per Share for each Share which the Optionee is entitled to
purchase under an Incentive Stock Option shall be determined by the Committee
but shall not be less than the Fair Market Value Per Share on the date of the
grant of the Incentive Stock Option; provided, however, that the exercise price
shall not be less than one hundred ten percent (110%) of the Fair Market Value
Per Share on the date of the grant of the Incentive Stock Option in the case of
an individual then owning (within the meaning of Code Section 424(d)) more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Corporation or of its parent or Subsidiaries.
A-4
36
6.2.2 Payment of Exercise Price. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Committee and may consist of promissory
notes, shares of the common stock of the Corporation or such other consideration
and method of payment for the Shares as may be permitted under applicable state
and federal laws.
6.3 Exercise of Options.
6.3.1 Each Option granted under this Plan shall be exercisable
at such times and under such conditions as may be determined by the Committee at
the time of the grant of the Option and as shall be permissible under the terms
of the Plan; provided, however, in no event shall an Option be exercisable after
the expiration of ten (10) years from the date it is granted, and in the case of
an Optionee owning (within the meaning of Code Section 424(d)), at the time an
Incentive Stock Option is granted, more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or of its
parent or Subsidiaries, such Incentive Stock Option shall not be exercisable
later than five (5) years after the date of grant.
6.3.2 An Optionee may purchase less than the total number of
Shares for which the Option is exercisable, provided that a partial exercise of
an Option may not be for less than One Hundred (100) Shares and shall not
include any fractional shares.
6.4 Nontransferability of Options. All Options granted under this Plan
shall be nontransferable, either voluntarily or by operation of law, otherwise
than by will or the laws of descent and distribution, and shall be exercisable
during the Optionee's lifetime only by such Optionee.
6.5 Effect of Termination of Employment or Other Relationship. Except
as otherwise determined by the Committee in connection with the grant of
Nonqualified Options, the effect of termination of an Optionee's employment or
other relationship with the Corporation on such Optionee's rights to acquire
Shares pursuant to the Plan shall be as follows:
6.5.1 Termination for Other than Disability, Cause or Death.
If an Optionee ceases to be employed by, or ceases to have a relationship with,
the Corporation for any reason other than for disability, cause, or death, such
Optionee's Options shall expire not later than three (3) months thereafter.
During such three (3) month period and prior to the expiration of the Option by
its terms, the Optionee may exercise any Option granted to him, but only to the
extent such Options were exercisable on the date of termination of his
employment or relationship and except as so exercised, such Options shall expire
at the end of such three (3) month period unless such Options by their terms
expire before such date. The decision as to whether a termination for a reason
other than disability, cause or death has occurred shall be made by the
Committee, whose decision shall be final and conclusive, except that employment
shall not be considered terminated in the case of sick leave or other bona fide
leave of absence approved by the Corporation.
6.5.2 Disability. If an Optionee ceases to be employed by, or
ceases to have a relationship with, the Corporation by reason of disability
(within the meaning of Code Section 22(e)(3)), such Optionee's Options shall
expire not later than one (1) year thereafter. During such one (1) year period
and prior to the expiration of the Option by its terms, the Optionee may
exercise any Option granted to him, but only to the extent such Options were
exercisable on the
A-5
37
date the Optionee ceased to be employed by, or ceased to have a relationship
with, the Corporation by reason of disability and except as so exercised, such
Options shall expire at the end of such one (1) year period unless such Options
by their terms expire before such date. The decision as to whether a termination
by reason of disability has occurred shall be made by the Committee, whose
decision shall be final and conclusive.
6.5.3 Termination for Cause. If an Optionee's employment by,
or relationship with, the Corporation is terminated for cause, such Optionee's
Option shall expire immediately; provided, however, the Committee may, in its
sole discretion, within thirty (30) days of such termination, waive the
expiration of the Option by giving written notice of such waiver to the Optionee
at such Optionee's last known address. In the event of such waiver, the Optionee
may exercise the Option only to such extent, for such time, and upon such terms
and conditions as if such Optionee had ceased to be employed by, or ceased to
have a relationship with, the Corporation upon the date of such termination for
a reason other than disability, cause, or death. Termination for cause shall
include termination for malfeasance or gross misfeasance in the performance of
duties or conviction of illegal activity in connection therewith or any conduct
detrimental to the interests of the Corporation. The determination of the
Committee with respect to whether a termination for cause has occurred shall be
final and conclusive.
6.5.4 Death of an Optionee. If the Optionee ceases to be
employed by, or ceases to have a relationship with, the Corporation by reason of
death, such Optionee's Options shall expire not later than six (6) months
thereafter. During such six (6) month period and prior to the expiration of the
Option by its terms, such Option may be exercised by his executor or
administrator or the person or persons to whom the Option is transferred by will
or the applicable laws of descent and distribution, but only to the extent such
Options were exercisable on the date Optionee ceased to be employed by, or
ceased to have a relationship with, the Corporation by reason of death.
6.6 Withholding of Taxes. As a condition to the exercise, in whole or
in part, of any Options, the Board of Directors may in its sole discretion
require the Optionee to pay, in addition to the purchase price of the Shares
covered by the Option, an amount equal to any Federal, state or local taxes that
may be required to be withheld in connection with the exercise of such Option.
6.7 No Rights to Continued Employment or Relationship. Nothing
contained in this Plan or in any Option Agreement shall obligate the Corporation
to employ or have another relationship with any Optionee for any period or
interfere in any way with the right of the Corporation to reduce such Optionee's
compensation or to terminate the employment of or relationship with any Optionee
at any time.
6.8 Time of Granting Options. The time an Option is granted, sometimes
referred to herein as the date of grant, shall be the day the Corporation
executes the Option Agreement; provided, however, that if appropriate
resolutions of the Committee indicate that an Option is to be granted as of and
on some prior or future date, the time such Option is granted shall be such
prior or future date.
6.9 Privileges of Stock Ownership. No Optionee shall be entitled to the
privileges of stock ownership as to any Shares not actually issued and delivered
to such Optionee. No Shares shall be purchased upon the exercise of any Option
unless and until, in the opinion of the
A-6
38
Corporation's counsel, any then applicable requirements of any laws or
governmental or regulatory agencies having jurisdiction and of any exchanges
upon which the stock of the Corporation may be listed shall have been fully
complied with.
6.10 Securities Laws Compliance. The Corporation will diligently
endeavor to comply with all applicable securities laws before any Options are
granted under the Plan and before any Shares are issued pursuant to Options.
Without limiting the generality of the foregoing, the Corporation may require
from the Optionee such investment representation or such agreement, if any, as
counsel for the Corporation may consider necessary or advisable in order to
comply with the Securities Act of 1933 as then in effect, and may require that
the Optionee agree that any sale of the Shares will be made only in such manner
as is permitted by the Committee. The Committee in its discretion may cause the
Shares underlying the Options to be registered under the Securities Act of 1933,
as amended, by the filing of a Form S-8 Registration Statement covering the
Options and Shares underlying such Options. Optionee shall take any action
reasonably requested by the Corporation in connection with registration or
qualification of the Shares under federal or state securities laws.
6.11 Option Agreement. Each Incentive Stock Option and Nonqualified
Option granted under this Plan shall be evidenced by the appropriate written
Stock Option Agreement ("Option Agreement") executed by the Corporation and the
Optionee in the form approved by the Committee from time to time and shall
contain each of the provisions and agreements specifically required to be
contained therein pursuant to this Section 6, and such other terms and
conditions as are deemed desirable by the Committee and are not inconsistent
with the purpose of the Plan as set forth in Section 1.
7. PLAN AMENDMENT AND TERMINATION.
7.1 Authority of Committee. The Committee may at any time discontinue
granting Options under the Plan or otherwise suspend, amend or terminate the
Plan and may, with the consent of an Optionee, make such modification of the
terms and conditions of such Optionee's Option as it shall deem advisable;
provided that, except as permitted under the provisions of Section 5.2, the
Committee shall have no authority to make any amendment or modification to this
Plan or any outstanding Option thereunder which would: (i) increase the maximum
number of shares which may be purchased pursuant to Options granted under the
Plan, either in the aggregate or by an Optionee (except pursuant to Section
5.2); (ii) change the designation of the class of the employees eligible to
receive Incentive Stock Options; (iii) extend the term of the Plan or the
maximum Option period thereunder; (iv) decrease the minimum Incentive Stock
Option price or permit reductions of the price at which shares may be purchased
for Incentive Stock Options granted under the Plan; or (v) cause Incentive Stock
Options issued under the Plan to fail to meet the requirements of incentive
stock options under Code Section 422. An amendment or modification made pursuant
to the provisions of this Section 7 shall be deemed adopted as of the date of
the action of the Committee effecting such amendment or modification and shall
be effective immediately, unless otherwise provided therein, subject to approval
thereof (1) within twelve (12) months before or after the effective date by
stockholders of the Corporation holding not less than a majority vote of the
voting power of the Corporation voting in person or by proxy at a duly held
stockholders meeting when required to maintain or satisfy the requirements of
Code Section 422 with respect to Incentive Stock Options, and (2) by any
appropriate governmental agency. No Option may be granted during any suspension
or after termination of the Plan.
A-7
39
7.2 Ten (10) Year Maximum Term. Unless previously terminated by the
Committee, this Plan shall terminate on March 29, 2011, and no Options shall be
granted under the Plan thereafter.
7.3 Effect on Outstanding Options. Amendment, suspension or termination
of this Plan shall not, without the consent of the Optionee, alter or impair any
rights or obligations under any Option theretofore granted.
8. EFFECTIVE DATE OF PLAN. This Plan shall be effective as of December 20, 2000,
the date the Plan was adopted by the Board of Directors, subject to the approval
of the Plan by the unanimous written consent of the stockholders or the
affirmative vote of a majority of the issued and outstanding Shares of common
stock of the Corporation represented and voting at a duly held meeting at which
a quorum is a present within twelve (12) months thereafter. The Committee shall
be authorized and empowered to make grants of Options pursuant to this Plan
prior to such approval of this Plan by the stockholders; provided, however, in
such event the Option grants shall be made subject to the approval of this Plan
and such Option grants by the stockholders in accordance with the provisions of
this Section 8.
9. MISCELLANEOUS PROVISIONS.
9.1 Exculpation and Indemnification. The Corporation shall indemnify
and hold harmless the Committee from and against any and all liabilities, costs
and expenses incurred by such persons as a result of any act, or omission to
act, in connection with the performance of such persons' duties,
responsibilities and obligations under the Plan, other than such liabilities,
costs and expenses as may result from the gross negligence, bad faith, willful
conduct and/or criminal acts of such persons.
9.2 Governing Law. The Plan shall be governed and construed in
accordance with the laws of the State of Arizona and the Code.
9.3 Compliance with Applicable Laws. The inability of the Corporation
to obtain from any regulatory body having jurisdiction authority deemed by the
Corporation's counsel to be necessary to the lawful issuance and sale of any
Shares upon the exercise of an Option shall relieve the Corporation of any
liability in respect of the non-issuance or sale of such Shares as to which such
requisite authority shall not have been obtained.
A-8
40
APPENDIX B
REVISED ARTICLE IV OF COMPANY'S ARTICLES OF INCORPORATION AND
ARTICLE X OF COMPANY'S ARTICLES OF INCORPORATION
A-9
41
STATE OF ARIZONA
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
PROLOGIC MANAGEMENT SYSTEMS, INC.
Pursuant to the provisions of Section 10-1006, Arizona Revised
Statutes, the undersigned Corporation adopts these Articles of Amendment to the
Articles of Incorporation:
1. The name of the Corporation is Prologic Management Systems,
Inc.
2. The Corporation adopts the following amendments to its
Articles of Incorporation:
Article IV of the Articles of Incorporation is amended in its entirety
to read as follows:
"Article IV. Authorized Capital. The Corporation
shall have authority to issue Fifty Million (50,000,000)
shares of common stock and Five Million (5,000,000) shares of
preferred stock. The preferred stock shall be issued in such
series with such designations, preferences, limitations,
voting rights, privileges and relative rights as the Board of
Directors may by resolution establish."
The following is added as Article X:
"Article X. Limitation of Liability: No director of
the Corporation shall be personally liable to the Corporation
or its shareholders for money damages for any action taken or
any failure to take any action as a director, except liability
for any of the following: (a) the amount of a financial
benefit received by a director to which the director is not
entitled; (b) an intentional infliction of harm on the
Corporation or the shareholders; (c) a violation of section
10-833 of the Arizona Revised Statutes or any successor
statute; or (d) an intentional violation of criminal law. The
limitation of liability provided herein shall continue after a
director has ceased to occupy such position as to acts or
omissions occurring during such director's term or terms of
office, and no amendment or repeal of this Article X shall
apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring
prior to such amendment or repeal."
3. The aforesaid amendment was adopted by a majority of the
shareholders of the Corporation on , 2001, in the manner
prescribed by the Arizona Revised Statutes.
A-10
42
4. The number of shares of the Corporation outstanding and
entitled to vote at the time of such adoption was 6,543,970
shares of Common Stock. The number of preferred shares
outstanding and entitled to vote was 0 shares of Series A, B
and C Preferred Stock. All the issued and outstanding shares
were voted for the amendment.
DATED: ___________, 2001.
PROLOGIC MANAGEMENT SYSTEMS, INC.
By
---------------------------------
----------------------------
A-11
43
PROLOGIC MANAGEMENT SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
The undersigned, having received the Notice of Annual Meeting and Proxy
Statement dated February 28, 2001, appoints James M. Heim, Richard E. Metz, Mark
S. Biestman, Bruce Carlsmith, Herbert F. Day, Edwin G. Hubert, and John W.
Olynick, and each of them as Proxies with full power of substitution to
represent the undersigned and to vote all shares of common stock of Prologic
Management Systems, Inc., which the undersigned is entitled to vote at the
Annual Meeting of shareholders to be held March 29, 2001 and at any adjournment
or postponement thereof.
Your vote is important. Please sign and date on the reverse and return
promptly to American Stock Transfer & Trust in the enclosed envelope, so that
your shares can be represented at the meeting.
(Continued and to be signed on reverse)
44
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE
VOTED "FOR" THE PROPOSALS SET FORTH BELOW.
The undersigned hereby directs this Proxy to be voted as follows:
PLEASE MARK YOUR VOTES IN THE FOLLOWING MANNER,
USING DARK INK ONLY: /X/
FOR ALL NOMINEES WITHHOLD
(except as marked to ALL NOMINEES
the contrary below)
1. Election of seven (7) Directors to serve until their successors are / / / /
elected and shall duly qualify. Nominees: James M. Heim, Richard E.
Metz, Mark S. Biestman, Bruce Carlsmith, Herbert F. Day, Edwin G.
Hubert, and John W. Olynick;
FOR, except vote withheld from the following nominee(s):
---------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Cumulative Votes for one or more Nominees as follows:
James M. Heim Richard E. Metz
------- --------
Mark S. Biestman Bruce Carlsmith
------- --------
Herbert F. Day Edwin G. Hubert
------- --------
John W. Olynick
-------
FOR AGAINST ABSTAIN
2. A proposal to amend and restate the Prologic 1994 Stock Option Plan. / / / / / /
3. A proposal to approve and adopt an amendment to the Company's / / / / / /
Articles of Incorporation increasing the number of authorized shares.
4. A proposal to approve and adopt an amendment to the Company's / / / / / /
Articles of Incorporation to limit the liability of the Company's
directors.
5. A proposal to ratify selection of BDO Seidman LLP as independent / / / / / /
auditors for the 2001 fiscal year.
6. Any other matter or matters which may properly come before the meeting or / / / / / /
any adjournment or adjournments thereof in the discretion of the proxy
holders.
Dated: , 2001
------------------------
-------------------------------------------
Signature
-------------------------------------------
Signature
Please sign exactly as name appears hereon.
Joint owners should each sign. When signing
as a fiduciary or for an estate, trust,
corporation or partnership, your title or
capacity should be stated.