SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2)
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
NetCurrents, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
[ ] 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:
- --------------------------------------------------------------------------------
NETCURRENTS, INC.
9720 WILSHIRE BOULEVARD, SUITE 700
BEVERLY HILLS, CALIFORNIA 90212
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 2001
-----------
TO OUR STOCKHOLDERS:
Notice is hereby given that the 2000 Annual Meeting of Stockholders of
NetCurrents, Inc., a Delaware corporation (the "Company") will be held at the
Beverly Hilton, located at 9876 Wilshire Boulevard, Beverly Hills, California
90210, on May 17, 2001 at 10:00 a.m., local time, for the following purposes:
1. To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase the aggregate number of shares
of common stock authorized for issuance from 50,000,000 shares to
100,000,000 shares.
3. To approve the Company's 2001 Stock Incentive Plan.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
Only stockholders of record of the Common Stock of the Company at the close
of business on MARCH 27, 2001, are entitled to notice of and to vote at the
Annual Meeting and at any adjournments or postponements thereof.
BY ORDER OF THE BOARD OF DIRECTORS
------------------------------------
Irwin Meyer
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
OF THE BOARD OF DIRECTORS
Beverly Hills, California
March __, 2001
- --------------------------------------------------------------------------------
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
- --------------------------------------------------------------------------------
NETCURRENTS, INC.
9720 WILSHIRE BOULEVARD, SUITE 700
BEVERLY HILLS, CALIFORNIA 90212
----------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2001
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of NetCurrents, Inc., a Delaware
corporation (the "Company"), for use at the 2000 Annual Meeting of Stockholders
(the "Annual Meeting") to be held at the Beverly Hilton, 9876 Wilshire
Boulevard, Beverly Hills, California 90210, on May 17, 2001 at 10:00 a.m., local
time, and at any adjournments or postponements thereof, for the purposes set
forth herein and in the attached Notice of Annual Meeting of Stockholders.
Accompanying this Proxy Statement is the Board's Proxy for the Annual Meeting,
which you may use to indicate your vote on the proposals described in this Proxy
Statement.
All Proxies which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will
unless otherwise directed by the stockholder be voted in accordance with the
recommendations of the Board set forth in this Proxy Statement. A stockholder
may revoke his or her Proxy at any time before it is voted either by filing with
the Secretary of the Company, at its principal executive offices, a written
notice of revocation or a duly executed proxy bearing a later date, or by
attending the Annual Meeting and expressing a desire to vote his or her shares
in person.
The close of business on MARCH 27, 2001 has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting or at any adjournments or postponements of the Annual Meeting. A
stockholder is entitled to cast one vote for each share held of record on the
record date on all matters to be considered at the Annual Meeting.
As of March 27, 2001, the Company had [_________] shares of its common
stock, par value $0.001 per share (the "Common Stock") outstanding, and the
Company had approximately [____] stockholders of record. The Common Stock is the
only outstanding class of securities of the Company entitled to vote at the
Annual Meeting.
This Proxy Statement and the accompanying Proxy were mailed to stockholders
on or about March __, 2001.
Page 1
PROPOSAL 1
ELECTION OF DIRECTORS
In accordance with the Bylaws of the Company (the "Bylaws"), the Company's
directors are elected at each Annual Meeting of Stockholders and hold office
until the next election of directors and until their successors are duly
elected. The Bylaws provide that the Board shall consist of no fewer than two
and no more than nine directors as determined from time to time by the Board.
The Board currently consists of six directors.
The Board has nominated Messrs. Ivan Berkowitz, Arthur H. Bernstein, Evan
M. Levine, Stanley Graham, Michael Iscove and Irwin Meyer to serve as directors
of the Company for a one-year term. Unless otherwise instructed, the Proxy
holders will vote the Proxies received by them for the nominees. Each nominee,
if elected, will hold office until the 2001 Annual Meeting of Stockholders at
which time his term of office expires, and until his successor is elected and
qualified, unless he resigns or his seat on the Board becomes vacant due to his
death, removal or other cause in accordance with the Bylaws of the Company.
Management knows of no reason why any of these nominees would be unable or
unwilling to serve, but if any nominee should be unable or unwilling to serve,
the proxies will be voted for the election of other persons for the office of
director as the Board may recommend in the place of the nominee.
The six nominees for election as directors at the Annual Meeting who
receive the highest number of affirmative votes will be elected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE SIX NOMINEES
NAMED BELOW, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
NOMINEES
The names of the nominees and certain information about them, as of March 1,
2001, is set forth below.
NAME AGE POSITION
Irwin Meyer 65 Chief Executive Officer, Chairman of
the Board of Directors
Arthur H. Bernstein 38 Executive Vice President, Secretary,
and Director
Michael Iscove (1)(2) 50 Chief Financial Officer, Director
Evan M. Levine 35 Director
Ivan Berkowitz (1)(2) 54 Director
Stanley Graham(1)(2) 55 Director
<FN>
(1) Audit Committee Member
(2) Compensation Committee Member
</FN>
IRWIN MEYER has been a director of our Company since its inception in 1989 and
has served as our Chief Executive Officer since February 1995. Since October
1997, Mr. Meyer has been Chairman of the Board of Directors. At various times
prior to October 1997, Mr. Meyer has served as our Chairman of the Board (April
1996-October 1997; January 1991-June 1992); Co-Chairman of the Board (February
1990-December 1990) and President (February 1995-October 1997). From 1988 to
July 1994, Mr. Meyer was a director of Ventura Entertainment Group Ltd., our
former parent company ("Ventura"), and from May 1988 to December 1990, Mr. Meyer
was President of Ventura. Mr. Meyer was an executive producer of seven of our
made-for-television movies. In 1995, he was nominated for Producer of the Year
by the Producers Guild of America. Mr. Meyer received the Antoinette Perry
("Tony") Award, the New York Drama Critics Circle Award, the Drama Desk Award,
the Outer Critics Circle Award and the Cue Magazine Golden Apple Award for his
1977 production of the musical "Annie." Mr. Meyer is a member of the Academy of
Motion Picture Arts and Sciences and the Academy of Television Arts and
Sciences. He holds a B.S. from New York University.
Page 2
ARTHUR H. BERNSTEIN has been a director of our Company since February 1995 and
has served as the Executive Vice President of our Company since October 1997 as
well as our Secretary since March 1995. Between June 1992 and October 1997, Mr.
Bernstein served as a Senior Vice President of our Company and was our Vice
President-Business and Legal Affairs from September 1991 to June 1992. Prior to
this, Mr. Bernstein was a Director of Legal and Business Affairs for New World
Entertainment Ltd. from July 1989 to August 1991. From 1987 to June 1989, he was
Assistant General Counsel of Four Star International, Inc. Mr. Bernstein
received a B.S. in finance and marketing from Philadelphia College of Textiles
and Sciences in 1984 and his law degree from Temple University in 1987.
MICHAEL ISCOVE has been a director of our Company since October 1997 and our
Chief Financial Officer since March 1, 2000. From June 1995 to date, Mr. Iscove
has served as the Chairman, President and Chief Executive Officer of Sirius
Corporate Finance Inc. Prior to that, Mr. Iscove was the President of Creative
Fusion Limited from April 1989 to June 1995. In 1978, Mr. Iscove received a
Chartered Accountants designation in accounting from The Canadian Institute of
Chartered Accountants. In 1972, Mr. Iscove received a B.A. degree in English
from York University, Toronto, Canada.
EVAN M. LEVINE is a new nominee for the Board of Directors of our Company. Since
September 1997, Mr. Levine has served as the Managing Principal and Director of
Portfolio Management of Brown Simpson Asset Management. Prior to his current
position, Mr. Levine served as Senior Vice President for Convertible Sales and
Trading at Dillon Read & Company. From 1993 to 1996, Mr. Levine served as Vice
President of Convertible Sales and Trading at Hambrecht & Quist. Mr. Levine also
has extensive experience in arbitrage trading. Throughout his experience he has
managed numerous convertible trading activities and currently focuses on deal
origination, investment structuring and portfolio management at Brown Simpson.
Mr. Levine holds an MBA from the New York University Stern School of Business
and a B.A. in Economics and Finance from Rutgers University.
IVAN BERKOWITZ has been a director of our Company since February 1999. Since
1993, Mr. Berkowitz has served as managing General Partner of Steib & Company, a
privately held New York based investment company. Between 1995 and 1997, Mr.
Berkowitz served as Chief Executive Officer of PolyVision Corporation. Between
1990 and 1994, Mr. Berkowitz served as Chairman of the Board of Directors of
Migdalei Shekel. Currently, Mr. Berkowitz serves on the Board of Directors of
the following public companies: Propierre, a real estate fund, HMG WorldWide, a
manufacturer of point of purchase displays, PolyVision Corporation, a
manufacturer of school products and displays, and Migdalei Shekel, a real estate
company based in Tel Aviv, Israel. Since 1989, Mr. Berkowitz has served as
President of Great Court Holdings Corporation, a privately held New York based
investment company. Mr. Berkowitz holds a B.A. from Brooklyn College, an MBA in
Finance from Baruch College, City University of New York, and a Ph.D. in
International Law from Cambridge University, England.
STANLEY GRAHAM has been a director of our Company since April 2000. Prior to
being appointed an outside director, Mr. Graham worked closely with the Company
as an operations consultant and was integrally involved in the establishment of
our Burlingame office. Mr. Graham was recently appointed Vice President,
Corporate Development at Digimarc, the worldwide leader in digital watermark
technology. Previously, he was Vice President of the New Enterprises division of
Supra Products, a subsidiary of SLC Technologies, manufacturers of electronic
security and access control products. Prior to Supra, Mr. Graham served as
President and COO of Sunflex L.P. and Managing Director of Sunflex, Ireland,
which he developed into one of the world's leading suppliers of computer glare
screens and other computer accessories with operations in the United States,
Ireland and Germany. Before Sunflex, Mr. Graham spent 10 years at Xidex, a
manufacturer of data storage products, where he served in numerous executive
positions. As Vice President of New Enterprises he played a significant role in
increasing revenues from $50 million to over $600 million through marketing
programs, acquisitions, equity investments, joint ventures, licenses, technology
partnerships and internal start-ups. In addition to his corporate
responsibilities, Mr. Graham was President or General Manager of several Xidex
subsidiaries, Sunflex, Xidex Data Disk and Oktel. Mr. Graham holds an MBA degree
from Samford University Graduate School and a B.S. in chemistry from the
University of Alabama.
BOARD MEETINGS AND COMMITTEES
The Board has an Audit Committee and a Compensation Committee. The full
Board performs the functions of a Nominating Committee. The Audit Committee
currently consists of Ivan Berkowitz, Michael Iscove and Stanley Graham.
Responsibilities of the Audit Committee include (i) reviewing financial
statements and consulting with the independent auditors concerning the Company's
financial statements, accounting and financial policies and internal controls,
(ii) reviewing the scope of the independent auditors' activities and the fees of
the independent auditors and (iii)
Page 3
maintaining good communications among the Audit Committee, the Company's
independent auditors and the Company's management on accounting matters. Three
meetings of the Audit Committee were held during the fiscal year ended December
31, 2000.
The Compensation Committee currently consists of Ivan Berkowitz, Michael
Iscove and Stanley Graham. The Compensation Committee is responsible for
considering and making recommendations to the Board regarding executive
compensation. Three meetings of the Compensation Committee were held during the
fiscal year ended December 31, 2000.
The Board held six meetings and acted by written consent on ten occasions
during the fiscal year ended December 31, 2000. No director attended less than
75% of all the meetings of the Board and those committees on which he served in
2000.
Page 4
PROPOSAL 2
AMENDMENT OF RESTATED
CERTIFICATE OF INCORPORATION
THE AMENDMENT
The Board has approved, subject to stockholder approval, an amendment to
its Restated Certificate of Incorporation, as amended (the "Amendment"), that
will increase the aggregate number of shares of common stock authorized for
issuance from 50,000,000 shares to 100,000,000 shares (the "Authorized Share
Increase"). The complete text of the Amendment is set forth as EXHIBIT A to this
Proxy Statement.
At March 13, 2001, the Company had 31,706,729 shares of Common Stock issued
and outstanding. In addition, the Company has reserved: (i) 9,246,719 shares of
Common Stock for issuance pursuant to options and warrants and (ii) 5,550,000
shares of Common Stock for issuance upon conversion of outstanding shares of
Preferred Stock. Thus, at March 13, 2001, there were 3,496,552 authorized shares
of Common Stock unissued and not reserved for issuance.
The Board believes the Company is competing in a dynamic and rapidly
evolving technology marketplace. The competitive pressures are very high and
companies with good access to capital and the ability to move quickly to acquire
emerging technologies or synergistic businesses have greater opportunities for
corporate growth. Our pending acquisition of MindfulEye, Inc., and its
underlying artificial intelligence technology, is an example of the type of
opportunities of which the Company has become aware. The proposed increase in
the authorized Common Stock has been recommended by the Board to assure that an
adequate supply of authorized unissued shares is available for use primarily in
connection with corporate acquisitions, raising additional capital for
operations and the issuance of shares under the Company's 2001 Stock Incentive
Plan. The shares may also be used for general corporate needs, such as future
stock dividends or stock splits. There currently are no plans or arrangements
relating to the issuance of any of the additional shares of Common Stock
proposed to be authorized.
If the Proposal is adopted, the first full sentence of Article VII of the
Company's Restated Certificate of Incorporation, as amended, will read as
follows:
"Article VII
The Corporation shall be authorized to issue a total of One
Hundred Twenty Million (120,000,000) shares of all classes of stock. Of
such total number of shares of stock, One Hundred Million (100,000,000)
shares are authorized to be Common Stock, each of which shares shall
have a par value of $0.001 per share, and Twenty Million (20,000,000)
shares are authorized to be Preferred Stock, each of which shares shall
have a par value of $0.001 per share, as described below."
CERTAIN EFFECTS OF THE PROPOSED AMENDMENT
The Board believes that approval of the Proposal is essential for the
growth and development of the Company. However, the following should be
considered by a stockholder in deciding how to vote upon this Proposal.
The Proposal, if approved, would strengthen the position of the Board and
might make the removal of the Board more difficult, even if the removal would be
generally beneficial to the Company's stockholders. The authorization to issue
the additional shares of Common Stock would provide the Board with a capacity to
negate the efforts of unfriendly tender offerors through the issuance of
securities to others who are friendly or desirable to the Board.
The additional shares which the Board would be authorized to issue upon
approval of the Proposal, if so issued, would have a dilutive effect upon the
percentage of equity of the Company owned by present stockholders. The issuance
of the additional shares might be disadvantageous to current stockholders in
that any additional issuances would potentially reduce per share dividends, if
any. Stockholders should consider, however, that the possible impact upon
dividends is likely to be minimal in view of the fact that the Company has never
paid dividends on shares of its Common Stock and does not intend to pay any cash
dividends in the foreseeable future except to the extent required to satisfy the
Page 5
Company's obligations with respect to certain of the outstanding Preferred
Stock. The Company instead intends to retain earnings, if any, for investment
and use in business operations.
If the Amendment is approved by the requisite vote of the Company's
stockholders, the Authorized Share Increase will be effective upon the close of
business on the date of filing of the Amendment with the Delaware Secretary
of State, which filing is expected to take place shortly after the Annual
Meeting. If this proposal is not approved by the stockholders, then the
Amendment will not be filed.
RECOMMENDATION AND REQUIRED VOTE
The Board has unanimously approved the Amendment. The affirmative vote of a
majority of the outstanding shares of Common Stock of the Company is required to
approve the Amendment. For purposes of the vote to amend the Restated
Certificate of Incorporation, as amended, abstentions and broker non-votes will
have the same effect as a vote against approval of the Amendment. The Board is
of the opinion that the Amendment is advisable and in the best interests of the
Company and recommends a vote "FOR" the approval of the Amendment. All proxies
will be voted to approve the Amendment unless a contrary vote is indicated on
the enclosed proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS PLACE A
VOTE "FOR" PROPOSAL 2, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
Page 6
PROPOSAL 3
APPROVAL OF THE 2001 STOCK INCENTIVE PLAN
INTRODUCTION
The proposed NetCurrents, Inc. 2001 Stock Incentive Plan (the "2001 Plan")
was adopted by the Board effective as of [________], subject to the approval of
the 2001 Plan by the stockholders. The 2001 Plan provides for the issuance of
restricted stock and/or options to purchase shares of the Common Stock
("Shares") to selected officers, directors, employees and consultants of the
Company. Subject to adjustment for stock splits, stock dividends and other
similar events, the total number of Shares reserved for issuance under the 2001
Plan is 3,000,000. As of the Record Date, no options had been granted to
eligible employees of the Company pursuant to the terms of the 2001 Plan.
The following sections summarize the principal features of the 2001 Plan, a
copy of which is attached as EXHIBIT B to this Proxy Statement. Although this
Proxy Statement contains a summary of the principal features of the 2001 Plan,
this summary is not intended to be complete and reference should be made to
EXHIBIT B to this Proxy Statement for the complete text of the 2001 Plan.
PURPOSE
The 2001 Plan was adopted to provide a means by which selected officers,
directors and employees of and consultants to the Company or any parent or
subsidiary of the Company (together referred to as "affiliates") could be given
an opportunity to purchase stock in the Company, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of persons capable of filling those positions and to provide incentives for
those persons to exert maximum efforts for the success of the Company.
ADMINISTRATION
The 2001 Plan is administered by the Board of Directors of the Company,
unless otherwise delegated to a committee (the "Plan Administrator"). The Plan
Administrator has the power to construe and interpret the 2001 Plan and, subject
to the provisions of the 2001 Plan, to determine the persons to whom and the
dates on which restricted stock and/or options will be granted, the number of
shares to be subject to each grant, the time or times during the term of each
grant within which all or a portion of the option may be exercised or the
restricted stock restrictions shall lapse, the exercise or purchase price, the
type of consideration and other terms of the exercise or purchase price. In
accordance with the terms of the 2001 Plan, the Board has delegated all other
powers of administration of the 2001 Plan to the Compensation Committee of the
Board all of whose members are "non-employee directors" as defined in Rule
6-3(b)(3)(i) promulgated by the Securities and Exchange Act and "outside
directors" as defined in Treasury Regulation Section 1.62-27(e)(3).
ELIGIBILITY
Incentive stock options (which are intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code")) may be granted under
the 2001 Plan only to employees (including officers) of the Company and its
affiliates. Employees (including officers), directors and consultants are
eligible to receive non-statutory stock options and/or restricted stock under
the 2001 Plan. Stock options and restricted stock granted under the 2001 Plan
may be referred to together as "Awards" and individually as an "Award."
No incentive stock option may be granted under the 2001 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company, unless the option exercise price is at least 110% of the fair
market value of the stock subject to the option on the date of grant, and the
term of the option does not exceed five (5) years from the date of grant. In
addition, with respect to incentive stock options granted under the 2001 Plan,
the aggregate fair market value, determined at the time of grant, of the Shares
with respect to which the options are exercisable for the first time by an
optionee during any calendar year (under all the plans of the Company and its
affiliates) may not exceed $100,000.
Page 7
The 2001 Plan includes a per-employee, per-fiscal year grant limitation
equal to 500,000 shares of Common Stock.
STOCK SUBJECT TO THE 2001 PLAN
If Awards granted under the 2001 Plan expire or otherwise terminate without
being exercised, the Shares not purchased pursuant to those options again become
available for issuance under the 2001 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 2001 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
EXERCISE PRICE; PAYMENT
The exercise price of incentive stock options under the 2001 Plan may not
be less than the fair market value of the Common Stock subject to the option on
the date of the option grant, and in some cases (see "Eligibility" above), may
not be less than 110% of the fair market value. The exercise price of
nonstatutory options and the purchase price of restricted stock under the 2001
Plan may not be less than 85% of the fair market value of the underlying Common
Stock on the date of the option grant. However, if Awards are granted with
exercise or purchase prices below market value, deductions for compensation
attributable to those Awards could be limited by Section 162(m) of the Code. See
"Federal Income Tax Information."
The exercise or purchase price of an Award shall be paid, to the extent
permitted by applicable statutes and regulations in cash or check at the time
the option is exercised. In the alternative, in the discretion of the Plan
Administrator, upon those terms as the Plan Administrator shall approve, the
exercise or purchase price of an Award may be paid in one of the following ways:
(i) in the case of an option, by a copy of instructions to a broker directing
that broker to sell the shares for which the option is exercised, and to remit
to the Company the aggregate exercise price of the option (a "cashless
exercise"), (ii) by paying all or a portion of the option exercise price or
stock purchase price for the number of shares being purchased by tendering
shares owned by the optionee, duly endorsed for transfer to the Company, with a
fair market value on the date of delivery equal to the aggregate purchase price
of the shares with respect to which the option or portion thereof is thereby
exercised (a "stock-for-stock exercise"), (iii) by a stock for stock exercise by
means of attestation whereby the optionee identifies for delivery specific
shares already owned by optionee and receives a number of shares equal to the
difference between the option shares thereby exercised and the identified
attestation shares (an "attestation exercise"), or (iv) with a full-recourse
promissory note.
Notwithstanding the above, the par value of the shares, if newly issued,
shall be paid in cash or cash equivalents. If the exercise or purchase price of
an Award is paid with a promissory note, the shares shall be pledged as security
for payment of the principal amount of the promissory note and interest thereon.
The interest rate payable under the terms of any promissory note shall not be
less than the minimum rate (if any) required to avoid the imputation of
additional interest under the Code. Subject to the foregoing, the Plan
Administrator (at its sole discretion) shall specify the term, interest rate,
amortization requirements (if any) and other provisions of any promissory note
used to pay the exercise or purchase price of an Award.
VESTING SCHEDULE
Options granted under the 2001 Plan may become exercisable in and
restricted stock typically vest in cumulative installments ("vest") as
determined by the Plan Administrator. The Plan Administrator has the power to
accelerate the time during which an option may be exercised or a stock purchase
right may vest. In addition, options granted under the 2001 Plan may permit
exercise prior to vesting, but in that event the optionee may be required to
enter into an early exercise stock purchase agreement that allows the Company to
repurchase shares not yet vested should the optionee leave the employ of the
Company prior to vesting. To the extent provided by the terms of an Award, an
optionee may satisfy any federal, state or local tax withholding obligation
relating to the Award by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned stock of the Company or by a combination of these
means.
Page 8
TERM
The maximum term of Awards under the 2001 Plan is ten (10) years, except
that in certain cases (see "Eligibility") the maximum term is five (5) years.
Options under the 2001 Plan terminate three (3) months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless (a) the termination is due to that
optionee's permanent and total disability (as defined in the Code), in which
case the option may be exercised at any time within one year of the termination;
(b) the optionee dies while employed by or serving as a consultant or director
of the Company or any affiliate of the Company, or within three (3) months after
termination of optionee's consulting services or directorship, whichever is
applicable, in which case the option may be exercised (to the extent the option
was exercisable at the time of the optionee's death) within one year of the
optionee's death by the person or persons to whom the rights to the option pass
by will or by the laws of descent and distribution; or (c) the option by its
terms specifically provides otherwise. Individual options by their terms may
provide for exercise within a longer or shorter period of time following
termination of employment or the consulting relationship.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 2001 Plan or subject to
any option granted under the 2001 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 2001 Plan and options
and restricted stock outstanding thereunder will be appropriately adjusted as to
(i) the class and the maximum number of shares subject to the 2001 Plan, (ii)
the maximum number of shares which may be granted to an individual during a
fiscal year, and (iii) the class, number of shares and price per share of stock
subject to the outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 2001 Plan provides that, in the event of a complete liquidation of the
Company or a specified type of merger or corporate reorganization ("Corporate
Event"), any outstanding Awards shall be continued, assumed by the surviving
corporation, substituted for similar rights or cancelled. In the event of an
option, the Plan Administrator shall notify the optionee in writing or
electronically that the option shall be fully exercisable notwithstanding any
vesting schedule providing otherwise for a period of ten (10) days ending on the
later of the fifth day prior to the Corporate Event or ten (10) days after
notice of the Corporate Event, and the option shall terminate upon the
expiration of that period.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 2001 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 2001 Plan will terminate on ________________, 2011.
The Board may also amend the 2001 Plan at any time or from time to time.
The 2001 Plan may be terminated or amended by the Board as it shall deem
advisable. Without the authorization and approval of the stockholders, however,
the Board may not make any amendments which would (i) increase the total number
of shares covered by the 2001 Plan, (ii) change the class of persons eligible to
participate, or (iii) extend the term of the 2001 Plan beyond ten years from the
date of adoption.
RESTRICTIONS ON TRANSFER
Under the 2001 Plan, an option may be transferred by the optionee in
limited circumstances only as provided in the optionee's option agreement or
pursuant to a will or by the laws of descent and distribution and, during the
lifetime of the optionee, may be exercised only by the optionee. In addition,
stock purchase rights may be subject to the Company's repurchase right and/or
right of first refusal.
Page 9
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS
Incentive stock options under the 2001 Plan are intended to be eligible for
the favorable federal income tax treatment accorded "incentive stock options"
under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two (2) years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of the
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term or short-term depending on how long the optionee held
the stock. Slightly different rules may apply to optionees who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Upon exercise of an incentive stock option, the excess of the stock's fair
market value on the date of exercise over the option exercise price is treated
as an adjustment in computing alternative minimum taxable income ("AMTI") for
the year of exercise. If the optionee's AMTI exceeds an exemption amount equal
to $45,000 in the case of a married individual filing a joint return ($33,750 in
the case of a single taxpayer), then the alternative minimum tax equals 26% of
the first $175,000 of the excess and 28% of the taxable excess that exceeds
$175,000, reduced by the amount of the regular federal income tax paid for the
same taxable year. The exemption amount is subject to reduction in an amount
equal to 25% of the amount by which AMTI exceeds $150,000 in the case of a
married individual filing a joint return ($112,500 in the case of a single
taxpayer). A subsequent disqualifying disposition of shares acquired upon
exercise of an incentive stock option will eliminate the AMTI adjustment if the
disposition occurs in the same taxable year as the exercise. A disqualifying
disposition in a subsequent taxable year will not affect the alternative minimum
tax computation in the earlier year.
NONSTATUTORY STOCK OPTIONS
Nonstatutory stock options granted under the 2001 Plan generally have the
following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for the stock plus any amount recognized as
ordinary income upon exercise of the option. The gain or loss will be long or
short-term depending on how long the optionee held the stock. Slightly different
rules may apply to optionees
Page 10
who acquire stock subject to restrictions, repurchase options or who are subject
to Section 16(b) of the Exchange Act.
RESTRICTED STOCK
Restricted stock granted under the 2001 Plan may, in the determination of
the Plan Administrator, be subject to rights of repurchase and other transfer
restrictions. The tax consequences of restricted stock granted under the 2001
Plan depends on whether the restrictions are deemed to create a "substantial
risk of forfeiture" under Code Section 83 (e.g., stock granted under the plan
which is subject to the Company's right to repurchase the stock at a price that
is less than fair market value which right lapses over a period of continued
employment is considered a "substantial risk of forfeiture" under Code Section
83).
If restricted stock is not subject to a "substantial risk of forfeiture,"
the recipient normally will recognize taxable ordinary income equal to the value
of the stock in the year in which the stock is granted. If the restricted stock
is subject to a "substantial risk of forfeiture," the recipient normally will
recognize taxable ordinary income as and when such "substantial risk of
forfeiture" lapses in the amount of the fair market value of the shares no
longer subject to the "substantial risk of forfeiture." Upon disposition of the
stock, the recipient will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon grant or vesting of the
stock. Such gain or loss will be long or short-term depending on how long the
recipient held the stock.
A recipient of restricted stock may make an election under Section 83(b) to
recognize ordinary income in the year the recipient purchases the restricted
stock, rather than waiting until it vests. If the restricted stock recipient
makes a Section 83(b) election, the recipient will be required to recognize as
ordinary income in the year the recipient purchases the restricted stock the
difference, if any, between the fair market value of the stock on the purchase
date and the purchase price paid. If the restricted stock recipient makes a
Section 83(b) election, the recipient will not be required to recognize any
income when the restricted stock vest.
Generally, with respect to employees, the Company is required to withhold
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, the provisions
of Section 162(m) of the Code and the satisfaction of a tax reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the restricted stock
recipient.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS
In 1993, the Code was amended to add Section 162(m), which denies a
deduction to any publicly-held corporation for compensation paid to certain
employees in a taxable year to the extent that compensation exceeds $1,000,000
for a covered employee, as that term is defined in Section 162(m) and the
regulations thereunder. It is possible that compensation attributable to stock
options, when combined with all other types of compensation received by a
covered employee from the Company, may cause this limitation to be exceeded in
any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options and restricted stock will qualify as
performance-based compensation, provided that the option is granted by a
compensation committee comprised solely of "outside directors" and either: (i)
the plan contains a per-employee limitation on the number of shares for which
options may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the option is no less
than the fair market value of the stock on the date of grant; or (ii) the award
is granted (or exercisable) only upon the achievement (as certified in writing
by the compensation committee) of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain, and the option is approved by stockholders.
RECOMMENDATION AND REQUIRED VOTE
The Board has unanimously approved the adoption of the 2001 Plan. The
affirmative vote of a majority of the outstanding shares of the Common Stock of
the Company present in person or represented by proxy at the Annual Meeting and
voting on the approval of the adoption of the 2001 Plan is required for the
approval of the adoption of the
Page 11
2001 Plan. For purposes of the vote to adopt the 2001 Plan, abstentions will
have the same effect as a vote against approval of the adoption of the 2001
Plan. Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved. The Board is of
the opinion that the adoption of the 2001 Plan is advisable and in the best
interests of the Company and recommends a vote "FOR" the approval of the 2001
Plan. All proxies will be voted to approve the 2001 Plan unless a contrary vote
is indicated on the enclosed proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS PLACE A
VOTE "FOR" PROPOSAL 3, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
Page 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 1, 2001, relating to
the ownership of our common stock by (i) each person known by us to be the
beneficial owner of more than five percent of the outstanding shares of our
common stock, (ii) each of our directors and nominees, (iii) each of the Named
Executive Officers, and (iv) all of our executive officers and directors as a
group. Except as may be indicated in the footnotes to the table and subject to
applicable community property laws, each person has the sole voting and
investment power with respect to the shares owned. The address of each person
listed is in care of us, 9720 Wilshire Boulevard, Suite 700, Los Angeles,
California 90212, unless otherwise set forth below.
Number of Shares
of common stock Percent
Beneficially of class
Name and Address Owned (1) (1)
- ----------------------------------------- ---------------- --------
Alison Meyer (2)........................ 1,512,834 4.8%
Patricia Meyer (2)...................... 1,513,333 4.8%
Arthur H. Bernstein (3)................. 335,000 1.1%
Salvatore Grosso (4).................... 400,000 1.3%
Lawrence S. Jacobson (4)................ 400,000 1.3%
Irwin Meyer............................. 0 0.0%
Ivan Berkowitz (5)...................... 356,250 1.1%
Michael Iscove (6)...................... 535,000 1.7%
Thomas A. Daniels (7)................... 1,021,852 3.2%
Evan M. Levine.......................... 0 0%
Victor A. Holtorf....................... 2,397,433 7.6%
Stanley Graham (8)...................... 45,000 0.1%
Joseph Stephens & Company, Inc. (9)..... 400,266 1.3%
Directors and Executive Officers
as a Group (6 persons) (10)............. 2,293,102 7.2%
<FN>
(1) Under Rule 13d-3 under the Exchange Act, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share
the power to vote or the power to dispose of the shares). In addition,
shares are deemed to be beneficially owned by a person if the person has
the right to acquire the shares (for example, upon exercise of an option)
within 60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned by
that person (and only that person) by reason of these acquisition rights.
As a result, the percentage of outstanding shares of any person as shown in
this table does not necessarily reflect the person's actual ownership or
voting power with respect to the number of shares of common stock actually
outstanding at March 1, 2001.
(2) Alison Meyer and Patricia Meyer are the adult children of Irwin Meyer, the
Company's Chief Executive Officer. They each beneficially own the shares
stated.
(3) Represents shares that have been or may be acquired upon exercise of
options.
(4) Represents shares that may be acquired upon exercise of options by each of
Mr. Grosso and Mr. Jacobson.
(5) Represents shares that may be acquired upon exercise of options.
(6) Represents options to purchase 535,000 shares of common stock held by Mr.
Iscove.
Page 13
(7) Includes 400,000 shares which may be acquired upon exercise of options.
(8) Represents shares which may be acquired upon exercise of options.
(9) According to a Schedule 13G filed by Joseph Stevens & Company, Joseph
Sobara and Steven Markowitz on February 14, 2000, Joseph Stevens & Company,
Inc. owned as of December 31, 1999, warrants ("JSC Warrants") to purchase
200,000 units, each unit consisting of one and one-third shares of common
stock and two-thirds of a redeemable common stock purchase warrant
("Redeemable Warrants"). Each Redeemable Warrant entitles the holder to
purchase an additional share of common stock. The JSC Warrants were
exercisable commencing on September 12, 1997. Additionally, Joseph Stevens
& Company, Inc. held as of December 31, 1999, 266 shares of common stock in
its market making account.
As of December 31, 2000, Mr. Joseph Sorbara owned 24,000 Redeemable
Warrants held with his spouse as joint tenants. Each Redeemable Warrant
entitled the holder to purchase an additional share of common stock.
Additionally, Mr. Sorbara was a controlling shareholder, director and
officer of Joseph Stevens & Company, Inc. as of December 31, 1999. Based
upon the foregoing, as of December 31, 2000, Mr. Sorbara beneficially owned
424,266 shares of common stock within the meaning of Rule 13d-3 of the Act.
As of December 31, 2000, Mr. Steven Markowitz owned 10,000 Redeemable
Warrants. Each Redeemable Warrant entitled the holder to purchase an
additional share of common stock. Additionally, Mr. Markowitz was a
controlling shareholder, director and officer of Joseph Stevens & Company,
Inc. as of December 31, 1999. Based upon the foregoing, as of December 31,
1999, Mr. Markowitz beneficially owned 410,266 shares of common stock
within the meaning of Rule13d-3 of the Act.
(10) Includes options to purchase 1,936,250 shares of common stock. There are no
issued and outstanding shares of Series B Preferred Stock, Series E
Preferred Stock or Series G Preferred Stock. There are no 5% beneficial
owners of Series A Preferred Stock.
</FN>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the "Commission" or "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent stockholders
are required by the Commission regulations to furnish the Company with copies of
Section 16(a) forms they file.
To our knowledge, based solely on review of the copies of those reports
furnished to us and written representations that no other reports were required
during the fiscal year ended December 31, 2000, the Company believes that,
during the year ended December 31, 2000, all of the Company's executive
officers, directors and greater-than-ten percent stockholders complied with all
Section 16(a) filing requirements other than one late report on Form 5 filed by
Arthur Bernstein with respect to the exercise of options and sale of common
stock that occurred in fiscal 2000.
Page 14
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Employee directors of the Company do not receive any compensation for
attending Board or Committee meetings. Non-employee directors of the Company
each receive an annual grant of stock options to purchase 25,000 shares of the
Common Stock of the Company. When requested by the Company to attend Board
meetings in person, it is the policy of the Company to reimburse directors for
reasonable travel and lodging expenses incurred in attending these Board
meetings.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities rendered to us for the
fiscal years ended June 30, 1998 and 1999, the six months ended December 31,
1999, and the fiscal year ended December 31, 2000 of those persons who were (i)
at December 31, 2000, the Chief Executive Officer and (ii) each of the other
executive officers of our Company whose annual compensation exceeded $100,000
(the "Named Executive Officers") in these fiscal periods:
LONG TERM
COMPENSATION
NUMBER OF
FISCAL ANNUAL COMPENSATION SECURITIES ALL OTHER
YEAR ENDED ------------------- UNDERLYING COMPENSA-
JUNE 30 SALARY BONUS OPTIONS TION
----------- ---------- --------- ------------- ---------
Irwin Meyer.................... 2000 ** $ 312,000 0 0 18,000(1)
Chief Executive Officer (2) Stub 1999 * 156,000 0 0 9,000
1999 312,000 0 3,000,000(3) 18,000(1)
1998 312,000 0 0 18,000(1)
68,016(4)
Arthur H. Bernstein............ 2000 ** $ 175,000 0 0 12,000(1)
Executive Vice President Stub 1999 * 87,500 0 300,000 6,000
And Secretary 1999 175,000 0 600,000 12,000(1)
1998 175,000 0 0 12,000(1)
Thomas A. Daniels.............. 2000 ** $ 188,482 0 0 9,000(1)
Director and President Stub 1999 * 93,000 0 0 4,500
of MediaWorks, a wholly 1999 188,482 0 500,000 11,500(1)
Owned subsidiary of the 1998 0 0 0 0
Company (5)
Michael Iscove................. 2000 ** $ 135,000 0 230,000 0
Chief Financial Officer (6) Stub 1999 * 0 0 50,000 0
1999 0 0 325,000 0
1998 0 0 0 0
<FN>
(1) Automobile reimbursement.
(2) Includes amounts paid to Mountaingate which provides us with the service of
Mr. Meyer and others.
(3) Included 1,300,000 of Convertible Series C Stock and options to purchase
1,700,000 shares of common stock.
(4) Forgiveness of note receivable due from Mountaingate.
(5) Mr. Daniels began employment with us on July 15, 1998.
Page 15
(6) Includes amounts paid to Sirius Corporate Finance Inc. that provides us
with the services of Mr. Iscove and others.
* Stub 1999 refers to the six month period July 1, 1999 through December 31,
1999.
** As of February 2, 2000, the Company changed its fiscal year to December 31.
Accordingly, Fiscal 2000 represents the period from January 1, 2000 through
December 31, 2000.
</FN>
OPTION GRANTS IN FISCAL 2000
The following table sets forth certain information regarding the grant
of stock options made during fiscal 2000 to the Named Executive Officers.
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED FISCAL YEAR(1) PRICE DATE
--------------------- ---------- ------------- -------- ----------
Irwin Meyer - - - -
Arthur H. Bernstein - - - -
Thomas A. Daniels - - - -
Michael Iscove(2) 230,000 8.9% $2.15 3/1/04
<FN>
(1) Options covering an aggregate of 1,447,704 shares were granted to employees
during fiscal 2000.
(2) This option grant vested 90,000 shares upon issuance, with 70,000 shares
vested on March 1, 2001 and the remaining shares to vest on March 1, 2002;
the option expires on February 28, 2004.
</FN>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive
Officers, certain information regarding the exercise of stock options during
fiscal 2000, the number of shares of common stock underlying stock options held
at fiscal year-end and the value of options held at fiscal year-end based upon
the last reported sales price of the common stock on the Nasdaq Stock Market's
SmallCap Market on December 31, 2000 ($0.31 per share).
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 2000 DECEMBER 31, 2000
ON VALUE --------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------- ----------- ---------- ----------- ------------- ----------- -------------
Irwin Meyer - - - - - -
Arthur H. Bernstein 65,000 $ 239,200 200,000 - - -
Thomas A. Daniels - - 400,000 - - -
Michael Iscove - - 535,000 70,000 - -
Page 16
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Irwin Meyer for his
services as Chief Executive Officer of our Company and a production agreement
with Mountaingate for the services of Mr. Meyer and others to perform corporate
duties as specified by the Board of Directors. Mountaingate is a California
limited liability company of which Alison Meyer and Patricia Meyer, the adult
children of Mr. Meyer, are the sole members. The production agreement with
Mountaingate provides for annual compensation of $262,000, plus a $1,500 monthly
automobile reimbursement. The employment agreement with Mr. Meyer provides for
annual compensation of $50,000. Both of these agreements expire on June 30,
2002. Both agreements are terminable by us in the event of Mr. Meyer's death or
disability. In that event, we shall pay Mountaingate a guaranteed fee of
$262,000 for one year. We may also terminate these agreements "for cause" (as
defined in the agreements). Mountaingate and Mr. Meyer may terminate their
respective agreements in the event of a material breach thereof by us or for
"good reason" (as defined in the agreements). In that event, we shall be
obligated to pay all amounts due thereunder for the balance of their respective
terms. In the event that we materially breach either agreement after a "change
in control" (as defined in the agreements), Mountaingate and Mr. Meyer,
respectively, shall be entitled to a lump sum payment equal to three times their
then current total annual compensation.
Arthur Bernstein is employed as Executive Vice President of our Company
pursuant to an employment agreement, as amended, which expires on June 30, 2002.
Mr. Bernstein's annual compensation is $175,000 plus a $1,000 monthly automobile
reimbursement. The employment agreement is terminable by us in the event of Mr.
Bernstein's death or disability. In that event, we are obligated to pay Mr.
Bernstein's compensation for one year. We may also terminate the employment
agreement "for cause" (as defined in the agreement). Mr. Bernstein may terminate
this Employment Agreement in the event of a material breach by us or for "good
reason" (as defined in the agreement). In that event, we will be obligated to
pay him all amounts due thereunder for the balance of its term and all unvested
stock options held by him shall vest. In the event of a "change in control" (as
defined in this agreement) of our Company, all stock options issued to Mr.
Bernstein shall vest and we shall, at Mr. Bernstein's option, purchase shares of
common stock owned by him at the then market price and shall acquire all of his
stock options for the difference between the exercise price of those options and
the greater of the price at which the new controlling entity acquired its
interest in our Company or the then market price of the common stock.
Thomas Daniels is employed as Chief Executive Officer of our subsidiary,
MWI Distribution, Inc. d/b/a MediaWorks International pursuant to an employment
agreement, as amended, which will terminate on June 30, 2001. Mr. Daniel's
annual compensation is $186,000. The employment agreement is terminable by us in
the event of Mr. Daniel's death or disability. We may also terminate the
employment agreement "for cause" (as defined in the agreement). Mr. Daniels may
terminate this Employment Agreement in the event of a material breach by us or
for "good reason" (as defined in the agreement). In that event, we will be
obligated to pay him all amounts due thereunder for the balance of its term.
We have entered into an employment agreement with Michael Iscove for his
services as Chief Financial Officer of our Company and a consulting agreement
with Sirius Corporate Finance Inc. ("Sirius") for the services of Mr. Iscove and
others to perform corporate duties as specified by the Board of Directors. The
consulting agreement provides for $130,000 per annum. The employment agreement
with Mr. Iscove provides for compensation of $50,000 per year for the first year
of the agreement and $70,000 per annum thereafter. These employment agreements
will terminate on February 28, 2003. Both agreements are terminable by us in the
event of Mr. Iscove's death or disability. In that event, all Accrued
Obligations (as defined in the agreement) shall be payable by the Company. We
may also terminate the employment agreement "for cause" (as defined in the
agreement). Mr. Iscove may terminate this Employment Agreement in the event of a
material breach by us or for "good reason" (as defined in the agreement). In
that event, we will be obligated to pay him all amounts due thereunder for the
balance of its term and all unvested stock options held by him shall vest. In
the event of a "change in control" (as defined in this agreement) of our
Company, all stock options issued to Mr. Iscove shall vest and we shall, at Mr.
Iscove's option, purchase shares of common stock owned by him at the then market
price and shall acquire all of his stock options for the difference between the
exercise price of those options and the greater of the price at which the new
controlling entity acquired its interest in our Company or the then market price
of the common stock.
Page 17
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
We have entered into an agreement with Mountaingate for the services of a
key officer and others as producer and to perform other duties. This agreement
expires on June 30, 2002 and provides for an approximate annual payment of
$262,000, plus a $1,500 monthly automobile reimbursement.
During the year ended June 30, 1999, we issued a promissory note to
Mountaingate for the sum of $44,046, which represents amounts we owed under our
production agreement. The promissory note bears interest at the rate of 10% per
annum and was due in December 1999. During the six months ended December 31,
2000, the due date of the note was extended to February 2000 and paid in full
subsequent to the year ended December 31, 1999.
During the year ended June 30, 1999, we entered into a Securities Purchase
Agreement with Mountaingate. Mountaingate purchased 1,300,000 shares of Series C
convertible preferred stock, par value $0.001 per share, for a purchase price of
$0.001 per share.
During the year ended June 30, 1999, we had a related party receivable of
$99,891 from Irwin Meyer, our CEO, which was rescinded due to a contract
cancellation. The receivable was written off as of December 31, 1999.
We receive financial consulting services from Michael Iscove, our CFO.
During the six months ended December 31, 1999 and the year ended June 30, 1999,
we paid $35,000 and $81,000, respectively, for consulting services. In addition,
during the six months ended December 31, 1999, we issued 50,000 options at an
exercise price of $1. During the year ended June 30, 1999, we issued 300,000 and
25,000 options at an exercise price of $0.82 and $2.35, respectively. All
options are exercisable and outstanding at December 31, 2000. For the year ended
December 31, 2000, the Mr. Iscove was an employee of ours.
During the year ended June 30, 1999, we granted 50,000 options to a former
executive at an exercise price of $1.75 per share. These options are exercisable
and outstanding at December 31, 2000.
During the year ended June 30, 1999, we granted 150,000 options to another
former executive at an exercise price of $1.50 per share. These options are
exercisable and outstanding at December 31, 2000.
During the year ended June 30, 1999, we granted 25,000 and 500,000 options
to Ivan Berkowitz, one of our directors, at exercise prices of $2.35 and $1.35,
respectively. These options are exercisable and outstanding at December 31,
2000.
During the six months ended December 31, 1999, we issued 128,709 shares of
common stock valued at $261,278 for a finder's fee to Jeffrey Marcus, a relative
of Irwin Meyer. This was paid in connection with the Company's merger with
Infolocity, Inc.
Related party amounts due for the year ended June 30, 1999 aggregated to
$69,046. These amounts due were non-interest-bearing and were payable on
December 31, 2000. The loans were due to Mountaingate, of which $25,000 was paid
in July 1999, and the remaining balance of $44,046 was paid as of December 31,
2000.
On January 19, 2000, we entered into three promissory note agreements with
Victor Holtorf, one of our former officers and directors, for a total of
$1,050,000. The notes are in connection with a Stock Purchase Agreement for the
exercise of the option to purchase 600,000 shares of our common stock at $1.75
per share. Interest shall accrue at 5% per annum and shall be due and payable at
the same time as principal payments on or before December 31, 2001, 2002, and
2003 per promissory note.
On March 2, 2000, we entered into a promissory agreement with Arthur
Bernstein, our Executive VP, for the principal sum of $161,500, of which $61,500
was paid in March 2000. The note is in connection with the issuance of common
stock for the exercise of the option to purchase 175,000 shares of common stock
at $0.82 per share. Interest shall accrue at 5% per annum and shall be due and
payable on or before February 28th of each year. All outstanding principal shall
be due and payable on or before February 28, 2002. As of December 31, 2000, the
balance of the Promissory Note was $104,957.
Page 18
During the fiscal year ended June 30, 1999, we entered into a Securities
Purchase Agreement with Mountaingate pursuant to which Mountaingate purchased
1,300,000 shares of the Series C Convertible Preferred Stock in exchange for
$1,300,000.00. Mountaingate transferred the 1,300,000 shares of Series C
Preferred Stock to Alison Meyer and Patricia Meyer. On January 7, 2000, Alison
Meyer and Patricia Meyer each converted 650,000 shares of Series C Preferred
Stock to common stock at a price of $0.50 per share and each exercised 750,000
options at $1.20 per share and executed two Promissory Notes (which have been
subsequently amended), each in the amount of $1,225,000. As of December 31,
2000, the balance of each of the Promissory Notes are $1,286,427, including
accrued interest.
During the year ended December 31, 2000, we purchased approximately
$251,000 of marketing communications services from Strategic/Ampersand Inc., a
company owned partially by Mr. Iscove's wife.
AUDIT COMMITTEE REPORT (1)
The Audit Committee currently consists of Messrs. Berkowitz, Iscove, and
Graham. Responsibilities of the Audit Committee include (i) reviewing financial
statements and consulting with the independent auditors concerning the Company's
financial statements, accounting and financial policies and internal controls,
(ii) reviewing the scope of the independent auditors' activities and the fees of
the independent auditors and (iii) maintaining good communications among the
Audit Committee, the Company's independent auditors and the Company's management
on accounting matters. Three meetings of the Audit Committee were held during
the fiscal year ended December 31, 2000. Messrs. Berkowitz and Graham are
independent directors (as that term is defined in Rule 4200 (a)(14) of the
National Association of Securities Dealers' Marketplace Rules). Mr. Iscove is
not considered an independent director under that rule as he is employed by the
Company. A copy of the Audit Committee Charter is attached to this Proxy
Statement as APPENDIX A.
In fulfilling its responsibilities for the financial statements for fiscal
year 2000, the Audit Committee:
- Reviewed and discussed the audited financial statements for the fiscal
year ended December 31, 2000, with management and Singer Lewak
Greenbaum & Goldstein LLP ("Singer Lewak"), the Company's independent
accountants;
- Discussed with Singer Lewak the matters required to be discussed by
Statement on Auditing Standards No. 61 relating to the conduct of the
audit; and
- Received written disclosures and the letter from Singer Lewak
regarding its independence as required by Independence Standards Board
Standard No. 1. The Audit Committee discussed with Singer Lewak their
independence.
The Audit Committee approved the engagement of Singer Lewak as the
Company's independent auditors for the year ended December 31, 2000. The Audit
Committee has also approved the engagement of Singer Lewak as the Company's
independent auditors for the year ended December 31, 2001. Representatives of
Singer Lewak are expected to be present at the Annual Meeting of Stockholders.
They will have the opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions.
AUDIT FEES
The aggregate fees billed by Singer Lewak for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended December 31, 2000, were approximately $43,000.
- --------
(1) The material in this report is not "soliciting material," is not deemed to
be filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended or the Securities
Exchange Act of 1934, as amended whether made before the date hereof and
irrespective of any general incorporation in any such filing.
Page 19
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The Company did not pay any fees for professional services rendered for
information technology services relating to financial information systems design
and implementation for the fiscal year ended December 31, 2000.
ALL OTHER FEES
The aggregate fees billed by Singer Lewak for services rendered to the
Company other than the services described above under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees," for the fiscal
year ended December 31, 2000, were $10,170.
The Audit Committee has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.
Based on the Audit Committee's review of the audited financial statements
and discussions with management and Singer Lewak, the Audit Committee
recommended to the Board that the audited financial statements be included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2000, for filing with the SEC.
Ivan Berkowitz
Stanley Graham
Michael Iscove
Page 20
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any stockholder who intends to present a proposal at the next Annual
Meeting of stockholders for inclusion in the Company's Proxy Statement and Proxy
form relating to that Annual Meeting must submit that proposal to the Company at
its principal executive offices by December 31, 2001.
SOLICITATION OF PROXIES
It is expected that the solicitation of proxies will be primarily by mail.
The cost of solicitation by management will be borne by the Company. The Company
will reimburse brokerage firms and other persons representing beneficial owners
of shares for their reasonable disbursements in forwarding solicitation material
to those beneficial owners. Proxies may also be solicited by certain of the
Company's directors and officers, without additional compensation, personally or
by mail, telephone, telegram or otherwise for the purpose of soliciting the
proxies.
ANNUAL REPORT ON FORM 10-KSB
THE COMPANY INCORPORATES HEREIN BY REFERENCE INFORMATION SET FORTH IN THE
ANNUAL REPORT ON FORM 10-KSB, WHICH HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000. THE COMPANY IS
PROVIDING TO STOCKHOLDERS ALONG WITH THIS PROXY STATEMENT THE ANNUAL REPORT ON
FORM 10-KSB.
ON BEHALF OF THE BOARD OF DIRECTORS
------------------------------------
IRWIN MEYER
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
OF THE BOARD OF DIRECTORS
BEVERLY HILLS, CALIFORNIA
MARCH __, 2001
Page 21
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NETCURRENTS, INC.
THE UNDERSIGNED, BEING THE PRESIDENT AND SECRETARY, RESPECTIVELY, OF
NETCURRENTS, INC. (THE "CORPORATION") DO HEREBY CERTIFY AS FOLLOWS:
1. THE CORPORATION IS A CORPORATION ORGANIZED AND EXISTING UNDER AND BY VIRTUE
OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE.
2. THE FIRST FULL SENTENCE OF ARTICLE VII OF THE RESTATED CERTIFICATE OF
INCORPORATION OF THE CORPORATION, AS AMENDED, IS HEREBY AMENDED AND RESTATED TO
READ IN ITS ENTIRETY AS FOLLOWS:
"ARTICLE VII
THE CORPORATION SHALL BE AUTHORIZED TO ISSUE A TOTAL OF ONE
HUNDRED TWENTY MILLION (120,000,000) SHARES OF ALL CLASSES OF STOCK. OF
SUCH TOTAL NUMBER OF SHARES OF STOCK, ONE HUNDRED MILLION (100,000,000)
SHARES ARE AUTHORIZED TO BE COMMON STOCK, EACH OF WHICH SHARES SHALL
HAVE A PAR VALUE OF $0.001 PER SHARE, AND TWENTY MILLION (20,000,000)
SHARES ARE AUTHORIZED TO BE PREFERRED STOCK, EACH OF WHICH SHARES SHALL
HAVE A PAR VALUE OF $0.001 PER SHARE, AS DESCRIBED BELOW."
3. THE FOREGOING AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION, AS AMENDED, HAS BEEN DULY ADOPTED BY THE CORPORATION'S BOARD OF
DIRECTORS AND STOCKHOLDERS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 242 OF
THE DELAWARE GENERAL CORPORATION LAW.
IN WITNESS WHEREOF, THE UNDERSIGNED HAVE SUBSCRIBED THIS DOCUMENT ON THE DATE
SET FORTH BELOW.
DATED: ATTESTED:
- ------------------------------------ -----------------------------------
IRWIN MEYER, CHIEF EXECUTIVE OFFICER ARTHUR BERNSTEIN, SECRETARY
Page 22
EXHIBIT B
2001 STOCK INCENTIVE PLAN
OF
NETCURRENTS, INC.
Page 1
SECTION 1 : GENERAL PURPOSE OF PLAN
The name of this plan is the NetCurrents, Inc. 2001 Stock Incentive Plan
(the "Plan"). The purpose of the Plan is to enable NetCurrents, Inc., a Delaware
corporation (the "Company"), and any Parent or any Subsidiary to obtain and
retain the services of the types of employees, consultants, officers and
Directors who will contribute to the Company's long range success and to provide
incentives which are linked directly to increases in share value which will
inure to the benefit of all shareholders of the Company.
SECTION 2 : DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"Administrator" shall have the meaning as set forth in Section 3, hereof.
"Board" means the Board of Directors of the Company.
"Cause" means (i) failure by an Eligible Person to substantially perform
his or her duties and obligations to the Company (other than any such failure
resulting from his or her incapacity due to physical or mental illness); (ii)
engaging in misconduct or a fiduciary breach which is or potentially is
materially injurious to the Company or its shareholders; (iii) commission of a
felony; (iv) the commission of a crime against the Company which is or
potentially is materially injurious to the Company; or (v) as otherwise provided
in the Stock Option Agreement or Stock Purchase Agreement. For purposes of this
Plan, the existence of Cause shall be determined by the Administrator in its
sole discretion.
"Change in Control" shall mean:
(1) The consummation of a merger or consolidation of the Company with or
into another entity or any other corporate reorganization, if more than 50% of
the combined voting power (which voting power shall be calculated by assuming
the conversion of all equity securities convertible (immediately or at some
future time) into shares entitled to vote, but not assuming the exercise of any
warrant or right to subscribe to or purchase those shares) of the continuing or
Surviving Entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned, directly or indirectly, by
persons who were not shareholders of the Company immediately prior to such
merger, consolidation or other reorganization; provided, however, that in making
the determination of ownership by the shareholders of the Company, immediately
after the reorganization, equity securities which persons own immediately before
the reorganization as shareholders of another party to the transaction shall be
disregarded; or
(2) The sale, transfer or other disposition of all or substantially all of
the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
Page 2
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means a committee of the Board designated by the Board to
administer the Plan.
"Company" means NetCurrents, Inc., a corporation organized under the laws
of the State of Delaware (or any successor corporation).
"Date of Grant" means the date on which the Administrator adopts a
resolution expressly granting a Right to a Participant or, if a different date
is set forth in such resolution as the Date of Grant, then such date as is set
forth in such resolution.
"Director" means a member of the Board.
"Disability" means that the Optionee is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment. For purposes of determining the term of an ISO pursuant to Section
6.6 hereof, the Disability must be expected to result in death or to have lasted
or be expected to last for a continuous period of not less than 12 months. The
determination of whether an individual has a Disability shall be determined
under procedures established by the Plan Administrator.
"Eligible Person" means an employee, officer, consultant or Director of the
Company, any Parent or any Subsidiary.
"Employee" shall mean any individual who is a common-law employee of the
Company, a Parent or a Subsidiary.
"Exercise Price" shall have the meaning set forth in Section 6.3 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the fair market value of a Share, determined
as follows:
(1) If the Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market, the Fair
Market Value of a share of Stock shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in the Stock) on
the last market trading day prior to the day of determination, as reported in
the Wall Street Journal or such other source as the Administrator deems
reliable;
(2) If the Stock is quoted on the Nasdaq System (but not on the Nasdaq
National Market) or is regularly quoted by a recognized securities dealer but
closing sale prices are not reported, the Fair Market Value of a share of Stock
shall be the mean between the bid and asked prices for the Stock on the last
market trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Administrator deems reliable;
Page 3
(1) In the absence of an established market for the Stock, the Fair Market
Value shall be determined in good faith by the Administrator. Such determination
shall be conclusive and binding on all persons.
"First Refusal Right" shall have the meaning set forth in Section 8.7
hereof.
"ISO" means a Stock Option intended to qualify as an "incentive stock
option" as that term is defined in Section 422(b) of the Code.
"Non-Employee Director" means a member of the Board who is not an Employee
of the Company, a Parent or Subsidiary, who satisfies the requirements of such
term as defined in Rule 16b-3(b)(3)(i) promulgated by the Securities and
Exchange Commission.
"Non-Qualified Stock Option" means a Stock Option not described in Section
422(b) of the Code.
"Offeree" means a Participant who is granted a Purchase Right pursuant to
the Plan.
"Optionee" means a Participant who is granted a Stock Option pursuant to
the Plan.
"Outside Director" means a member of the Board who is not an Employee of
the Company, a Parent or Subsidiary, who satisfies the requirements of such term
as defined in Treasury Regulations (26 Code of Federal Regulation Section
1.162-27(e)(3)).
"Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if each of the corporations other
than the Company 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. A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be considered a Parent commencing as of such date.
"Participant" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority in Section 3, to receive grants of
Rights.
"Plan" means this NetCurrents, Inc. 2001 Stock Incentive Plan, as the same
may be amended or supplemented from time to time.
"Purchase Price" shall have the meaning set forth in Section 7.3.
"Purchase Right" means the right to purchase Stock granted pursuant to
Section 7.
"Rights" means Stock Options and Purchase Rights.
"Repurchase Right" shall have the meaning set forth in Section 8.8 of the
Plan.
"Service" shall mean service as an Employee, Director or consultant.
"Stock" means Common Stock of the Company.
Page 4
"Stock Option" means an option to purchase shares of Stock granted pursuant
to Section 6.
"Stock Option Agreement" shall have the meaning set forth in Section 6.1.
"Stock Purchase Agreement" shall have the meaning set forth in Section 7.1.
"Subsidiary" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company, if 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. A corporation that attains the status of a
Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.
"Surviving Entity" means the Company if immediately following any merger,
consolidation or similar transaction, the holders of outstanding voting
securities of the Company immediately prior to the merger or consolidation own
equity securities possessing more than 50% of the voting power of the
corporation existing following the merger, consolidation or similar transaction.
In all other cases, the other entity to the transaction and not the Company
shall be the Surviving Entity. In making the determination of ownership by the
stockholders of a entity immediately after the merger, consolidation or similar
transaction, equity securities which the stockholders owned immediately before
the merger, consolidation or similar transaction as stockholders of another
party to the transaction shall be disregarded. Further, outstanding voting
securities of an entity shall be calculated by assuming the conversion of all
equity securities convertible (immediately or at some future time) into shares
entitled to vote.
"Ten Percent Shareholder" means a person who on the Date of Grant owns,
either directly or through attribution as provided in Section 424 of the Code,
Stock constituting more than 10% of the total combined voting power of all
classes of stock of his or her employer corporation or of any Parent or
Subsidiary.
SECTION 3 : ADMINISTRATION
3.1 Administrator. The Plan shall be administered by either (i) the Board
or (ii) the Committee (the group that administers the Plan is referred to as the
"Administrator").
3.2 Powers in General. The Administrator shall have the power and authority
to grant to Eligible Persons, pursuant to the terms of the Plan, (i) Stock
Options, (ii) Purchase Rights or (iii) any combination of the foregoing.
3.3 Specific Powers. In particular, the Administrator shall have the
authority: (i) to construe and interpret the Plan and apply its provisions; (ii)
to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on behalf
of the Company, any instrument required to carry out the purposes of the Plan;
(iv) to determine when Rights are to be granted under the Plan; (v) from time to
time to select, subject to the limitations set forth in this Plan, those
Eligible Persons to whom Rights shall be granted; (vi) to determine the number
of shares of Stock to be made subject to each Right; (vii) to determine whether
each Stock Option is to be an ISO or a Non-Qualified Stock Option; (viii) to
prescribe the terms and conditions of each Stock Option and Purchase Right,
including, without limitation, the
Page 5
Purchase Price and medium of payment, vesting provisions and repurchase
provisions, and to specify the provisions of the Stock Option Agreement or Stock
Purchase Agreement relating to such grant or sale; (ix) to amend any outstanding
Rights for the purpose of modifying the time or manner of vesting, the Purchase
Price or Exercise Price, as the case may be, subject to applicable legal
restrictions and to the consent of the other party to such agreement; (x) to
determine the duration and purpose of leaves of absences which may be granted to
a Participant without constituting termination of their employment for purposes
of the Plan; (xi) to make decisions with respect to outstanding Stock Options
that may become necessary upon a change in corporate control or an event that
triggers anti-dilution adjustments; and (xii) to make any and all other
determinations which it determines to be necessary or advisable for
administration of the Plan.
3.4 Decisions Final. All decisions made by the Administrator pursuant to
the provisions of the Plan shall be final and binding on the Company and the
Participants.
3.5 The Committee. The Board may, in its sole and absolute discretion, from
time to time, and at any period of time during which the Company's Stock is
registered pursuant to Section 12 of the Exchange Act shall, delegate any or all
of its duties and authority with respect to the Plan to the Committee whose
members are to be appointed by and to serve at the pleasure of the Board. From
time to time, the Board may increase or decrease the size of the Committee, add
additional members to, remove members (with or without cause) from, appoint new
members in substitution therefor, and fill vacancies, however caused, in the
Committee. The Committee shall act pursuant to a vote of the majority of its
members or, in the case of a committee comprised of only two members, the
unanimous consent of its members, whether present or not, or by the written
consent of the majority of its members or, in the case of a Committee comprised
of only two members, the unanimous written consent of its members, and minutes
shall be kept of all of its meetings and copies thereof shall be provided to the
Board. Subject to the limitations prescribed by the Plan and the Board, the
Committee may establish and follow such rules and regulations for the conduct of
its business as it may determine to be advisable. During any period of time
during which the Company's Stock is registered pursuant to Section 12 of the
Exchange Act, all members of the Committee shall be Non-Employee Directors and
Outside Directors.
3.6 Indemnification. In addition to such other rights of indemnification as
they may have as Directors or members of the Committee, and to the extent
allowed by applicable law, the Administrator and each of the Administrator's
consultants shall be indemnified by the Company against the reasonable expenses,
including attorney's fees, actually incurred in connection with any action, suit
or proceeding or in connection with any appeal therein, to which the
Administrator or any of its consultants may be party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted under the Plan, and against all amounts paid by the Administrator or any
of its consultants in settlement thereof (provided that the settlement has been
approved by the Company, which approval shall not be unreasonably withheld) or
paid by the Administrator or any of its consultants in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Administrator or any of its consultants did not act in good faith and in a
manner which such person reasonably believed to be in the best interests of the
Company, and in the case of a criminal proceeding, had no reason to believe that
the conduct complained of was unlawful; provided, however, that within 60 days
after institution of any such action, suit or
Page 6
proceeding, such Administrator or any of its consultants shall, in writing,
offer the Company the opportunity at its own expense to handle and defend such
action, suit or proceeding.
SECTION 4 : STOCK SUBJECT TO THE PLAN
4.1 Stock Subject to the Plan. Subject to adjustment as provided in Section
9, 3,000,000 shares of Common Stock shall be reserved and available for issuance
under the Plan. Stock reserved hereunder may consist, in whole or in part, of
authorized and unissued shares or treasury shares.
4.2 Basic Limitation. The maximum number of shares with respect to which
Options, awards or sales of Stock may be granted under the Plan to any
Participant in any one calendar year shall be 1,500,000 shares. The number of
shares that are subject to Rights under the Plan shall not exceed the number of
shares that then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available a
sufficient number of shares to satisfy the requirements of the Plan.
4.3 Additional shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that shares issued under
the Plan are reacquired by the Company pursuant to the terms of any forfeiture
provision, right of repurchase or right of first refusal, such shares shall
again be available for the purposes of the Plan.
SECTION 5 : ELIGIBILITY
Eligible Persons who are selected by the Administrator shall be eligible to
be granted Rights hereunder subject to limitations set forth in this Plan;
provided, however, that only employees shall be eligible to be granted ISOs
hereunder.
SECTION 6 : TERMS AND CONDITIONS OF OPTIONS.
6.1 Stock Option Agreement. Each grant of an Option under the Plan shall be
evidenced by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Administrator deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.
6.2 Number of shares. Each Stock Option Agreement shall specify the number
of shares of Stock that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 9, hereof. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Non-Qualified
Stock Option.
6.3 Exercise Price.
6.3.1 In General. Each Stock Option Agreement shall state the price at
which shares subject to the Stock Option may be purchased (the "Exercise
Price"), which shall, with
Page 7
respect to Incentive Stock Options, be not less than 100% of the Fair Market
Value of the Stock on the Date of Grant. In the case of Non-Qualified Stock
Options, the Exercise Price shall be determined in the sole discretion of the
Administrator; provided, however, that the Exercise Price shall be no less than
85% of the Fair Market Value of the shares of Stock on the Date of Grant of the
Non-Qualified Stock Option.
6.3.2 Ten Percent Shareholder. A Ten Percent Shareholder shall not be
eligible for designation as an Optionee or Purchaser, unless (i) the Exercise
Price of a Non-Qualified Stock Option is at least 110% of the Fair Market Value
of a Share on the Date of Grant, or (ii) in the case of an ISO, the Exercise
Price is at least 110% of the Fair Market Value of a Share on the Date of Grant
and such ISO by its terms is not exercisable after the expiration of five years
from the Date of Grant.
6.3.3 Non-Applicability. The Exercise Price restriction applicable to
Non-Qualified Stock Options required by Sections 6.3.1 and 6.3.2(i) shall be
inoperative if (i) the shares to be issued upon payment of the Exercise Price
have been registered under a then currently effective registration statement
under applicable federal securities laws and the issuer is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act or becomes an
investment company registered or required to be registered under the Investment
Company Act of 1940, or (ii) a determination is made by counsel for the Company
that such Exercise Price restrictions are not required in the circumstances
under applicable federal or state securities laws.
The Exercise Price shall be payable in a form described in Section 8
hereof.
6.4 Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise or with the disposition of
shares acquired by exercising an Option.
6.5 Exercisability. Each Stock Option Agreement shall specify the date when
all or any installment of the Option becomes exercisable. In the case of an
Optionee who is not an officer of the Company, a Director or a consultant, an
Option shall become exercisable at least as rapidly as 20% per year over the
five-year period commencing on the Date of Grant until such time as when the
Company's securities become publicly traded. Subject to the preceding sentence,
the exercise provisions of any Stock Option Agreement shall be determined by the
Board, in its sole discretion.
6.6 Term. The Stock Option Agreement shall specify the term of the Option.
No Option shall be exercised after the expiration of ten years after the date
the Option is granted. In addition, no option may be exercised (i) three months
after the date the Optionee's Service with the Company, its Parent or its
Subsidiaries terminates if such termination is for any reason other than death,
Disability or Cause, (ii) one year after the date the Optionee's Service with
the Company and its subsidiaries terminates if such termination is a result of
death or Disability, and (iii) if the Optionee's Service with the Company and
its Subsidiaries terminates for Cause, all outstanding Options granted to such
Optionee shall expire as of the commencement of business on the date of such
termination; provided, however, that the Stock Option Agreement for any Option
may provide for longer or shorter periods, and the Administrator may, in its
sole discretion, waive the accelerated expiration provided for in (i) or (ii).
Outstanding Options that are not exercisable at the time of
Page 8
termination of employment for any reason shall expire at the close of business
on the date of such termination. In the case of an ISO granted to an employee
who owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any of its Parent or Subsidiary
corporations, the term set forth in (i), above, shall not be more than five
years after the date the Option is granted.
6.7 Leaves of Absence. For purposes of Section 6.6 above, Service shall be
deemed to continue while the Optionee is on a bona fide leave of absence, if
such leave was approved by the Company in writing and if continued crediting of
Service for this purpose is expressly required by the terms of such leave or by
applicable law (as determined by the Administrator).
6.8 Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Administrator may modify, extend or assume
outstanding Options (whether granted by the Company or another issuer) or may
accept the cancellation of outstanding Options (whether granted by the Company
or another issuer) in return for the grant of new Options for the same or a
different number of shares and at the same or a different Exercise Price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, impair the Optionee's rights or increase the Optionee's
obligations under such Option. However, a termination of the Option in which the
Optionee receives a cash payment equal to the difference between the Fair Market
Value and the Exercise Price for all shares subject to exercise under any
outstanding Option shall not be deemed to impair any rights of the Optionee or
increase the Optionee's obligations under such Option.
SECTION 7 : TERMS AND CONDITIONS OF AWARDS OR SALES
7.1 Stock Purchase Agreement. Each award or sale of shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Purchaser and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Board deems appropriate for inclusion in a Stock Purchase Agreement.
The provisions of the various Stock Purchase Agreements entered into under the
Plan need not be identical.
7.2 Duration of Offers. Any right to acquire shares under the Plan (other
than an Option) shall automatically expire if not exercised by the Purchaser
within 30 days after the grant of such right was communicated to the Purchaser
by the Company.
7.3 Purchase Price.
7.3.1 In General. Each Stock Purchase Agreement shall state the price
at which the Stock subject to such Stock Purchase Agreement may be purchased
(the "Purchase Price"), which, with respect to Stock Purchase Rights, shall be
determined in the sole discretion of the Administrator; provided, however, that
the Purchase Price shall be no less than 85% of the Fair Market Value of the
shares of Stock on either the Date of Grant or the date of purchase of the
Purchase Right.
Page 9
7.3.2 Ten Percent Shareholders. A Ten Percent Shareholder shall not be
eligible for designation as a Purchaser unless the Purchase Price (if any) is at
least 100% of the Fair Market Value of a Share.
7.3.3 Non Applicability. The Purchase Price restrictions required by
Sections 7.3.1 and 7.3.2 shall be inoperative if (i) the shares to be issued
upon payment of the Purchase Price have been registered under a then currently
effective registration statement under applicable federal securities laws and
the issuer is subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act or becomes an investment company registered or required to be
registered under the Investment Company Act of 1940, or (ii) a determination is
made by counsel for the Company that such Purchase Price restrictions are not
required in the circumstances under applicable federal or state securities laws.
7.3.4 Payment of Purchase Price. The Purchase Price shall be payable in
a form described in Section 8.
7.4 Withholding Taxes. As a condition to the purchase of shares, the
Purchaser shall make such arrangements as the Board may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such purchase.
SECTION 8 : PAYMENT; RESTRICTIONS
8.1 General Rule. The entire Purchase Price or Exercise Price of shares
issued under the Plan shall be payable in full by, as applicable, cash or check
for an amount equal to the aggregate Purchase Price or Exercise Price for the
number of shares being purchased, or in the discretion of the Administrator,
upon such terms as the Administrator shall approve, (i) in the case of an
Option, by a copy of instructions to a broker directing such broker to sell the
Stock for which such Option is exercised, and to remit to the Company the
aggregate Exercise Price of such Options (a "cashless exercise"), (ii) in the
case of an Option or a sale of Stock, by paying all or a portion of the Exercise
Price or Purchase Price for the number of shares being purchased by tendering
Stock owned by the Optionee, duly endorsed for transfer to the Company, with a
Fair Market Value on the date of delivery equal to the aggregate Purchase Price
of the Stock with respect to which such Option or portion thereof is thereby
exercised or Stock acquired (a "stock-for-stock exercise") or (iii) by a
stock-for-stock exercise by means of attestation whereby the Optionee identifies
for delivery specific shares of Stock already owned by Optionee and receives a
number of shares of Stock equal to the difference between the Option shares
thereby exercised and the identified attestation shares of Stock (an
"attestation exercise").
8.2 Withholding Payment. The Purchase Price or Exercise Price shall include
payment of the amount of all federal, state, local or other income, excise or
employment taxes subject to withholding (if any) by the Company or any parent or
subsidiary corporation as a result of the exercise of a Stock Option. The
Optionee may pay all or a portion of the tax withholding by cash or check
payable to the Company, or, at the discretion of the Administrator, upon such
terms as the Administrator shall approve, by (i) cashless exercise or
attestation exercise; (ii) stock-for-stock exercise; (iii) in the case of an
Option, by paying all or a portion of the tax withholding for the number of
shares being purchased by withholding shares from any transfer or payment to the
Optionee ("Stock withholding"); or (iv) a combination of one or more of the
foregoing payment
Page 10
methods. Any shares issued pursuant to the exercise of an Option and transferred
by the Optionee to the Company for the purpose of satisfying any withholding
obligation shall not again be available for purposes of the Plan. The Fair
Market Value of the number of shares subject to Stock withholding shall not
exceed an amount equal to the applicable minimum required tax withholding rates.
8.3 Services Rendered. At the discretion of the Administrator, shares may
be awarded under the Plan in consideration of services rendered to the Company,
a Parent or a Subsidiary prior to the award.
8.4 Promissory Note. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so provides, in the discretion of the Administrator, upon
such terms as the Administrator shall approve, all or a portion of the Exercise
Price or Purchase Price (as the case may be) of shares issued under the Plan may
be paid with a full-recourse promissory note. However, in the event there is a
stated par value of the shares and applicable law requires, the par value of the
shares, if newly issued, shall be paid in cash or cash equivalents. The shares
shall be pledged as security for payment of the principal amount of the
promissory note and interest thereon. The interest rate payable under the terms
of the promissory note shall not be less than the minimum rate (if any) required
to avoid the imputation of additional interest under the Code. Subject to the
foregoing, the Administrator (at its sole discretion) shall specify the term,
interest rate, amortization requirements (if any) and other provisions of such
note. Unless the Administrator determines otherwise, shares of Stock having a
Fair Market Value at least equal to the principal amount of the loan shall be
pledged by the holder to the Company as security for payment of the unpaid
balance of the loan and such pledge shall be evidenced by a pledge agreement,
the terms of which shall be determined by the Administrator, in its discretion;
provided, however, that each loan shall comply with all applicable laws,
regulations and rules of the Board of Governors of the Federal Reserve System
and any other governmental agency having jurisdiction.
8.5 Exercise/Pledge. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so allows and if Stock is publicly traded, in the discretion
of the Administrator, upon such terms as the Administrator shall approve,
payment may be made all or in part by the delivery (on a form prescribed by the
Administrator) of an irrevocable direction to pledge shares to a securities
broker or lender approved by the Company, as security for a loan, and to deliver
all or part of the loan proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
8.6 Written Notice. The purchaser shall deliver a written notice to the
Administrator requesting that the Company direct the transfer agent to issue to
the purchaser (or to his designee) a certificate for the number of shares of
Common Stock being exercised or purchased or, in the case of a cashless exercise
or share withholding exercise, for any shares that were not sold in the cashless
exercise or withheld.
8.7 First Refusal Right. Each Stock Option Agreement and Stock Purchase
Agreement may provide that the Company shall have the right of first refusal
(the "First Refusal Right"), exercisable in connection with any proposed sale,
hypothecation or other disposition of the Stock purchased by the Optionee or
Offeree pursuant to a Stock Option Agreement or Stock Purchase Agreement; and in
the event the holder of such Stock desires to accept a bona fide third-
Page 11
party offer for any or all of such Stock, the Stock shall first be offered to
the Company upon the same terms and conditions as are set forth in the bona fide
offer.
8.8 Repurchase Rights. Following a termination of the Participant's Service
the Company may repurchase the Participant's Rights as provided in this Section
8.8 (the "Repurchase Right")
8.8.1 Repurchase Price. Following a termination of the Participant's
Service the Repurchase Right shall be exercisable at a price equal to (i) the
Fair Market Value of vested Stock or, in the case of exercisable options, the
Fair Market Value of the Stock underlying such unexercised options less the
Exercise Price or (ii) the Purchase Price or Exercise Price, as the case may be,
of unvested Stock; provided, however, the right to repurchase unvested stock as
described in Section 8.8.1(ii) shall lapse at a rate of at least 20% per year
over five years from the date the Right is granted.
8.8.2 Exercise of Repurchase Right. A Repurchase Right may be exercised
only within 90 days after the termination of the Participant's Service for cash
or for cancellation of indebtedness incurred in purchasing the shares.
8.9 Termination of Repurchase and First Refusal Rights. Each Stock Option
Agreement and Stock Purchase Agreement shall provide that the Repurchase Rights
and First Refusal Rights shall have no effect with respect to, or shall lapse
and cease to have effect when the issuer's securities become publicly traded or
a determination is made by counsel for the Company that such Repurchase Rights
and First Refusal Rights are not permitted under applicable federal or state
securities laws.
8.10 No Transferability. Except as provided herein, a Participant may not
assign, sell or transfer Rights, in whole or in part, other than by will or by
operation of the laws of descent and distribution.
8.10.1 Permitted Transfer of Non-Qualified Option. The Administrator,
in its sole discretion may permit the transfer of a Non-Qualified Option (but
not an ISO or Stock Purchase Right) as follows: (i) by gift to a member of the
Participant's immediate family or (ii) by transfer by instrument to a trust
providing that the Option is to be passed to beneficiaries upon death of the
trustor (either or both (i) or (ii) referred to as a "Permitted Transferee").
For purposes of this Section 8.10.1, "immediate family" shall mean the
Optionee's spouse (including a former spouse subject to terms of a domestic
relations order); child, stepchild, grandchild, child-in-law; parent,
stepparent, grandparent, parent-in-law; sibling and sibling-in-law, and shall
include adoptive relationships.
8.10.2 Conditions of Permitted Transfer. A transfer permitted under
this Section 8.10 hereof may be made only upon written notice to and approval
thereof by Administrator. A Permitted Transferee may not further assign, sell or
transfer the transferred Option, in whole or in part, other than by will or by
operation of the laws of descent and distribution. A Permitted Transferee shall
agree in writing to be bound by the provisions of this Plan.
Page 12
SECTION 9 : ADJUSTMENTS; MARKET STAND-OFF
9.1 Effect of Certain Changes.
9.1.1 Stock Dividends, Splits, Etc. If there is any change in the
number of outstanding shares of Stock by reason of a stock split, reverse stock
split, stock dividend, recapitalization, combination or reclassification, then
(i) the number of shares of Stock available for Rights, (ii) the number of
shares of Stock covered by outstanding Rights and (iii) the Exercise Price or
Purchase Price of any Stock Option or Purchase Right, in effect prior to such
change, shall be proportionately adjusted by the Administrator to reflect any
increase or decrease in the number of issued shares of Stock; provided, however,
that any fractional shares resulting from the adjustment shall be eliminated.
9.1.2 Liquidation, Dissolution, Merger or Consolidation. In the event
of: a dissolution or liquidation of the Company, or any corporate separation or
division, including, but not limited to, a split-up, a split-off or a spin-off,
or a sale of substantially all of the assets of the Company; a merger or
consolidation in which the Company is not the Surviving Entity; or a reverse
merger in which the Company is the Surviving Entity, but the shares of Company
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then, the Company, to the extent permitted by applicable law, but
otherwise in its sole discretion may provide for: (i) the continuation of
outstanding Rights by the Company (if the Company is the Surviving Entity); (ii)
the assumption of the Plan and such outstanding Rights by the Surviving Entity
or its parent; (iii) the substitution by the Surviving Entity or its parent of
Rights with substantially the same terms for such outstanding Rights; or (iv)
the cancellation of such outstanding Rights without payment of any
consideration, provided that if such Rights would be canceled in accordance with
the foregoing, the Participant shall have the right, exercisable during the
later of the ten-day period ending on the fifth day prior to such merger or
consolidation or ten days after the Administrator provides the Rights holder a
notice of cancellation, to exercise such Right in whole or in part without
regard to any installment exercise provisions in the Right agreement.
9.1.3 Accelerated Vesting and Exercisability. Unless the applicable
Stock Purchase Agreement or Stock Option Agreement provides otherwise, any right
to repurchase a Purchaser's shares at the original Purchase Price (if any) upon
termination of the Purchaser's Service without Cause shall lapse and all of such
Stock shall become vested and all of such Options shall become exercisable in
full if (i) a Change in Control occurs before the Purchaser's Service terminates
and (ii) the options are not assumed by, or Repurchase Right is not assigned to,
the entity that employs the Participant immediately after the Change in Control
or to its parent or subsidiary.
9.1.4 Par Value Changes. In the event of a change in the Stock of the
Company as presently constituted which is limited to a change of all of its
authorized shares with par value, into the same number of shares without par
value, or a change in the par value, the shares resulting from any such change
shall be "Stock" within the meaning of the Plan.
9.2 Decision of Administrator Final. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Administrator, whose determination in that respect shall be
final, binding and conclusive; provided, however, that
Page 13
each ISO granted pursuant to the Plan shall not be adjusted in a manner that
causes such Stock Option to fail to continue to qualify as an ISO without the
prior consent of the Optionee thereof.
9.3 No Other Rights. Except as hereinbefore expressly provided in this
Section 9, no Participant shall have any rights by reason of any subdivision or
consolidation of shares of Company stock or the payment of any dividend or any
other increase or decrease in the number of shares of Company stock of any class
or by reason of any of the events described in Section 9.1, above, or any other
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class; and, except as provided in this Section 9,
none of the foregoing events shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Stock subject to
Rights. The grant of a Right pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structures or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or part of its
business or assets.
9.4 Market Stand-Off. Each Stock Option Agreement and Stock Purchase
Agreement shall provide that, in connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended,
including any public offering, while the Participant holds Stock acquired
pursuant to the Plan, the Participant shall agree not to sell, make any short
sale of, loan, hypothecate, pledge, grant any option for the repurchase of, or
otherwise dispose or transfer for value or otherwise agree to engage in any of
the foregoing transactions with respect to any Stock without the prior written
consent of the Company or its underwriters, for such period of time from and
after the effective date of such registration statement as may be requested by
the Company or such underwriters (the "Market Stand-Off").
SECTION 10 : AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the Plan at any time and for any
reason. At the time of such amendment, the Board shall determine, upon advice
from counsel, whether such amendment will be contingent on shareholder approval.
SECTION 11 : GENERAL PROVISIONS
11.1 General Restrictions.
11.1.1 No View to Distribute. The Administrator may require each person
acquiring shares of Stock pursuant to the Plan to represent to and agree with
the Company in writing that such person is acquiring the shares without a view
towards distribution thereof. The certificates for such shares may include any
legend that the Administrator deems appropriate to reflect any restrictions on
transfer.
11.1.2 Legends. All certificates for shares of Stock delivered under
the Plan shall be subject to such stop transfer orders and other restrictions as
the Administrator may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or state securities
Page 14
laws, and the Administrator may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
11.1.3 No Rights as Shareholder. Except as specifically provided in
this Plan, a Participant or a transferee of a Right shall have no rights as a
shareholder with respect to any shares covered by the Rights until the date of
the issuance of a Stock certificate to him or her for such shares, and no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions of other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in Section 9.1, hereof.
11.2 Other Compensation Arrangements. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
11.3 Disqualifying Dispositions. Any Participant who shall make a
"disposition" (as defined in Section 424 of the Code) of all or any portion of
an ISO within two years from the date of grant of such ISO or within one year
after the issuance of the shares of Stock acquired upon exercise of such ISO
shall be required to immediately advise the Company in writing as to the
occurrence of the sale and the price realized upon the sale of such shares of
Stock.
11.4 Regulatory Matters. Each Stock Option Agreement and Stock Purchase
Agreement shall provide that no shares shall be purchased or sold thereunder
unless and until (i) any then applicable requirements of state or federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel and (ii) if required to do so by the Company, the
Optionee or Offeree shall have executed and delivered to the Company a letter of
investment intent in such form and containing such provisions as the Board or
Committee may require.
11.5 Recapitalizations. Each Stock Option Agreement and Stock Purchase
Agreement shall contain provisions required to reflect the provisions of
Section 9.
11.6 Delivery. Upon exercise of a Right granted under this Plan, the
Company shall issue Stock or pay any amounts due within a reasonable period of
time thereafter. Subject to any statutory obligations the Company may otherwise
have, for purposes of this Plan, thirty days shall be considered a reasonable
period of time.
11.7 Other Provisions. The Stock Option Agreements and Stock Purchase
Agreements authorized under the Plan may contain such other provisions not
inconsistent with this Plan, including, without limitation, restrictions upon
the exercise of the Rights, as the Administrator may deem advisable.
SECTION 12 : INFORMATION TO PARTICIPANTS
To the extent necessary to comply with California law, the Company each
year shall furnish to Participants its balance sheet and income statement unless
such Participants are limited to key Employees whose duties with the Company
assure them access to equivalent information.
Page 15
SECTION 13 : EFFECTIVE DATE OF PLAN
The effective date of this Plan is _____________, 2001. The adoption of the
Plan is subject to approval by the Company's shareholders, which approval must
be obtained within 12 months from the date the Plan is adopted by the Board. In
the event that the shareholders fail to approve the Plan within 12 months after
its adoption by the Board, any grants of Options or sales or awards of shares
that have already occurred shall be rescinded, and no additional grants, sales
or awards shall be made thereafter under the Plan.
SECTION 14 : TERM OF PLAN
The Plan shall terminate automatically on ______________, but no later then
prior to the 10th anniversary of the effective date. No Right shall be granted
pursuant to the Plan after such date, but Rights theretofore granted may extend
beyond that date. The Plan may be terminated on any earlier date pursuant to
Section 10 hereof.
SECTION 15 : EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused its
authorized officer to execute the same as of ________________, 2001.
NetCurrents, Inc.
By: ______________________________
Page 16
APPENDIX A
AUDIT COMMITTEE CHARTER
OF
NETCURRENTS, INC.
1. ORGANIZATION
This charter (the "CHARTER") governs the operations of the audit committee
(the "AUDIT Committee") of the Board of Directors (the "BOARD") of NetCurrents,
Inc. (the "COMPANY"). The Audit Committee shall review and reassess the Charter
at least annually and will amend the charter, if appropriate, with the approval
of the Board.
o COMPOSITION. The Committee shall be appointed by the Board and shall
be comprised of at least three directors, each of whom must be
independent of management and the Company. The Board will also select
a chairman for the Audit Committee. Each member of the Audit Committee
shall be considered independent if they have no relationship that may
interfere with the exercise of their independence from management and
the Company. In addition, each member of the Audit Committee must be
independent as defined by the National Association of Securities
Dealers. A member of the Audit Committee will not be considered
independent if the member (i) is employed by the Company or any of its
affiliates for the current year or any of the past three years; (ii)
accepts compensation from the Company or any of its affiliates in
excess of $60,000 during the previous year, other than compensation
for board service, benefits under a tax-qualified retirement plan, or
non-discretionary compensation; (iii) is a member of the immediate
family of an individual who is, or has been in any of the past three
years, employed by the Company or any of its affiliates as an
executive officer; (iv) is a partner in, or a controlling shareholder
or executive officer of, any for-profit business organization to which
the Company made, or from which the Company received, payments (other
than those arising solely from investments in the Company's
securities) that exceed 5% of the Company's or business organization's
consolidated gross revenues for that year, or $200,000, whichever is
more, in any of the past three years; or (v) is employed as an
executive of another entity where any of the Company's executives
serve on that entity's compensation committee.
o QUALIFICATIONS OF MEMBERS. All Audit Committee members shall be
financially literate and experienced in reading and understanding
financial statements, including the Company's balance sheet, income
statement and statement of cash flow (or will become able to do so
within a reasonable period of time after his or her appointment to the
Audit Committee). At least one member of the Company's Audit Committee
shall have past employment experience in finance or accounting or have
a professional certification in accounting or other comparable
experience.
2. STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board in fulfilling
their oversight responsibility to the shareholders, potential shareholders, the
investment community, and others relating to the Company's financial statements
and the financial reporting process, the systems of internal accounting and
financial controls, the internal audit function, the annual independent audit of
the Company's financial statements and the legal compliance and ethics programs
as established by management and the Board. In so doing, it is the
responsibility of the Audit Committee to maintain free and open communication
between the Audit Committee, the independent auditors, the internal auditors and
the management of the Company. In discharging its oversight role, the Audit
Committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities and personnel of the Company and
the power to retain outside counsel, or the other experts for this purpose.
Page 1
3. RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and report the
results of its activities to the Board. Management is responsible for preparing
the Company's financial statements, and the independent auditors are responsible
for auditing those financial statements. The Audit Committee in carrying out its
responsibilities believes its policies and procedures should remain flexible in
order to best react to changing conditions and circumstances. The Audit
Committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices and
ethical behavior.
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the Audit Committee may supplement
them as appropriate.
o The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate.
o The Audit Committee shall have a clear understanding with management
and the independent auditors that the independent auditors are
ultimately accountable to the Board and the Audit Committee, as
representatives of the Company's shareholders.
o The Audit Committee shall have the ultimate authority and
responsibility to evaluate and, where appropriate, replace the
independent auditors. Annually, the Audit Committee shall review and
recommend to the board the selection of the Company's independent
auditors.
o The Audit Committee shall discuss with the auditors their independence
from management and the Company including any relationships that may
potentially impair their independence, as required by Independence
Standards Board Statement No. 1. The Audit Committee is responsible
for ensuring that the independent auditors submit on a periodic basis
to the Audit Committee a formal written statement delineating all
relationships between the independent auditors and the Company.
o The Audit Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation.
o The Audit Committee shall discuss with management, the internal
auditors and the independent auditors the adequacy and effectiveness
of the accounting and financial controls, including the Company's
system to monitor and manage business risk and legal and ethical
compliance programs.
o The Audit Committee shall meet separately with the internal auditors
and the independent auditors, with and without management present, to
discuss the results of their examinations.
o The Audit Committee shall review with financial management and the
independent auditors the Company's quarterly financial results and any
related press releases prior to the release of earnings.
o The Audit Committee shall meet with management and the independent
auditors and review and approve the interim financial statements and
quarterly report on Form 10-Q prior to the filing or distribution of
the quarterly report. In addition, the Audit Committee shall discuss
the results of the quarterly review and any other matters required to
be communicated to the Audit Committee by the independent auditors
under generally accepted auditing standards. The chair of the Audit
Committee may represent the entire Audit Committee for the purposes of
this review.
Page 2
o The Audit Committee shall meet with management and the independent
auditors and review the financial statements to be included in the
Company's Annual Report on Form 10-KSB (or the annual report to
shareholders if distributed prior to the filing of Form 10-KSB),
including their judgment about the quality, not just acceptability, of
accounting principles, the reasonableness of significant judgments and
the clarity of the disclosures in the financial statements. In
addition, the Audit Committee shall review and formally approve the
Company's Annual Report on Form 10-KSB prior to filing or
distribution. The Audit Committee shall discuss the results of the
annual audit and any other matters required to be communicated to the
Audit Committee by the independent auditors under generally accepted
auditing standards, including the matters required to be communicated
to audit committees pursuant to Statement of Accounting Standards No.
61.
o The Audit Committee shall prepare an annual report to the Company's
shareholders as required by the Securities and Exchange Commission.
The report should be included in the Company's annual proxy statement.
Page 3
NETCURRENTS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THE UNDERSIGNED, A STOCKHOLDER OF NETCURRENTS INC., A DELAWARE CORPORATION,
(THE "COMPANY") HEREBY APPOINTS IRWIN MEYER AND ARTHUR BERNSTEIN, AND EACH OF
THEM, THE PROXY OF THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, TO ATTEND,
VOTE AND ACT FOR THE UNDERSIGNED AT THE COMPANY'S ANNUAL MEETING OF STOCKHOLDERS
(THE "ANNUAL MEETING"), TO BE HELD ON MAY 17, 2001, AND AT ANY OF ITS
POSTPONEMENTS OR ADJOURNMENTS, TO VOTE AND REPRESENT ALL OF THE SHARES OF THE
COMPANY WHICH THE UNDERSIGNED WOULD BE ENTITLED TO VOTE, AS FOLLOWS:
THE BOARD OF DIRECTORS RECOMMENDS A FOR VOTE ON PROPOSAL 1, A FOR VOTE ON
PROPOSAL 2, AND A FOR VOTE ON PROPOSAL 3.
1. TO ELECT DIRECTORS TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OF
STOCKHOLDERS AND UNTIL THEIR SUCCESSORS ARE ELECTED, AS PROVIDED IN
THE PROXY STATEMENT.
____ FOR ____ AGAINST ____ ABSTAIN
(INSTRUCTIONS: A "FOR" VOTE GRANTS AUTHORITY TO VOTE YOUR PROXY FOR
ALL THE NOMINEES LISTED BELOW. TO WITHHOLD AUTHORITY FOR A NOMINEE,
LINE THROUGH OR OTHERWISE STRIKE OUT A NAME BELOW.)
Irwin Mayer Arthur H. Bernstein Michael Iscove
Evan M. Levine Ivan Berkowitz Stanley Graham
2. TO APPROVE AN AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION, AS AMENDED, TO INCREASE THE AGGREGATE NUMBER OF SHARES
OF COMMON STOCK AUTHORIZED FOR ISSUANCE FROM 50,000,000 SHARES TO
100,000,000 SHARES.
____ FOR ____ AGAINST ____ ABSTAIN
3. TO APPROVE THE COMPANY'S 2001 STOCK INCENTIVE PLAN.
____ FOR ____ AGAINST ____ ABSTAIN
THE UNDERSIGNED HEREBY REVOKES ANY OTHER PROXY TO VOTE AT THE ANNUAL
MEETING, AND HEREBY RATIFIES AND CONFIRMS ALL THAT THE PROXY HOLDER MAY LAWFULLY
DO BY VIRTUE HEREOF. AS TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
ANNUAL MEETING AND ANY OF ITS POSTPONEMENTS OR ADJOURNMENTS, THE PROXY HOLDER IS
AUTHORIZED TO VOTE IN ACCORDANCE WITH ITS BEST JUDGMENT.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH
ABOVE. THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE
APPROVAL OF: THE ELECTION OF DIRECTORS TO HOLD OFFICE UNTIL THE NEXT ANNUAL
MEETING OF STOCKHOLDERS AND UNTIL THEIR SUCCESSORS ARE ELECTED, AN AMENDMENT TO
THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, TO INCREASE THE
AGGREGATE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE FROM
50,000,000 SHARES TO 100,000,000 SHARES, THE COMPANY'S 2001 STOCK OPTION PLAN,
AND AS THE PROXY HOLDER SHALL DEEM ADVISABLE ON THE TRANSACTION OF SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF, UNLESS OTHERWISE DIRECTED.
Page 1
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTICE OF ANNUAL MEETING
AND ACCOMPANYING PROXY STATEMENT DATED MARCH __, 2001 RELATING TO THE ANNUAL
MEETING.
DATE: __________________________, ____
----------------------------------------
----------------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
(SEE INSTRUCTIONS BELOW)
THE SIGNATURE(S) HEREON SHOULD CORRESPOND
EXACTLY WITH THE NAME(S) OF THE
STOCKHOLDER(S) APPEARING ON THE STOCK
CERTIFICATE. IF STOCK IS JOINTLY HELD, ALL
JOINT OWNERS SHOULD SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
IF SIGNER IS A CORPORATION, PLEASE SIGN THE
FULL CORPORATION NAME, AND GIVE TITLE OF
SIGNING OFFICER.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF
NETCURRENTS, INC.
Page 2