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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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PROSOFT I-NET SOLUTIONS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notes:
PROSOFT I-NET SOLUTIONS, INC.
2333 North Broadway, Suite 300
Santa Ana, California 92706
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held December 18, 1997
To the Stockholders of Prosoft I-Net Solutions, Inc.:
Please take notice that the Annual Meeting of Stockholders of Prosoft I-Net
Solutions, Inc. (the "Company") will be held at The Hartman Building, located at
333 N. Wilshire Avenue, Anaheim, California on Thursday, December 18, 1997, at
10:00 a.m. local time, for the following purposes:
1. To elect to the Board of Directors, two Class I Directors to serve for
terms of three years, one Class III Director to serve for a term of
two years, and one Class II Director to serve for a term of one year;
2. To consider and act upon a proposal to amend the Company's 1996 Stock
Option Plan (the "Plan") to increase the maximum aggregate number of
shares of Company Common Stock available for grant of stock options
under the Plan from 750,000 to 2,500,000 shares; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
At the Annual Meeting, the Board of Directors intends to present Jerrell M.
Baird, Richard J. Groeneweg, Jeffrey G. Korn, and Andrew Stallman, as nominees
for election to the Board of Directors.
Only stockholders of record on the books of the Company at the close of
business on November 18, 1997 will be entitled to notice of and to vote at the
Annual Meeting or any adjournment thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. A majority of the outstanding shares must be represented at the meeting
in order to transact business. Consequently, if you are unable to attend in
person, please execute the enclosed proxy and return it in the enclosed
addressed envelope. Your promptness in returning the proxy will assist in the
expeditious and orderly processing of the proxies. If you return your proxy,
you may nevertheless attend the meeting and vote your shares in person, if you
wish.
By Order of the Board of Directors,
PROSOFT I-NET SOLUTIONS, INC.
KEITH D. FREADHOFF
Chairman of the Board
Santa Ana, California
November 20, 1997
PROSOFT I-NET SOLUTIONS, INC.
2333 North Broadway, Suite 300
Santa Ana, California 92706
ANNUAL MEETING OF STOCKHOLDERS
To Be Held December 18, 1997
PROXY STATEMENT
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Prosoft I-
Net Solutions, Inc. (the "Company") for use at the Company's Annual Meeting of
Stockholders to be held at The Hartman Building, located at 333 N. Wilshire
Avenue, Anaheim, California, on Thursday, December 18, 1997, at 10:00 a.m. local
time, and any and all adjournments or postponements thereof. All shares
represented by each properly executed, unrevoked proxy received in time for the
Annual Meeting will be voted in the manner specified therein. If the manner of
voting is not specified in an executed proxy received by the Company, the proxy
holders will vote for the election of the nominees for election to the Board of
Directors listed in the proxy, for amendment of the Company's 1996 Stock Option
Plan and, as to any other business which may properly come before the meeting,
in accordance with their best judgment. Any stockholder has the power to revoke
his or her proxy at any time before it is voted. A proxy may be revoked by
delivering a written notice of revocation to the Secretary of the Company, by
presenting at the meeting a later-dated proxy executed by the person who
executed the prior proxy, or by attendance at the meeting and voting in person
by the person who executed the prior proxy. This Proxy Statement and form of
Proxy are being mailed to the Company's stockholders on or about November 20,
1997.
The Bylaws of the Company provide that the holders of a majority of the
shares of stock of the Company issued and outstanding and entitled to vote at
the Annual Meeting, present in person or represented by proxy, shall constitute
a quorum and that, except as otherwise provided by statute, the Articles of
Incorporation of the Company or the Bylaws, all other matters coming before the
Annual Meeting shall be decided by the vote of the holders of a majority of the
stock present in person or represented by proxy at the Annual Meeting and
entitled to vote thereat. Votes cast at the Annual Meeting will be tabulated by
the persons appointed by the Company to act as inspectors of election for the
Annual Meeting. The inspectors of election will treat shares of voting stock
represented by a properly signed and returned proxy as present at the Annual
Meeting for purposes of determining a quorum, without regard to whether the
proxy is marked as casting a vote or abstaining. Likewise, the inspectors of
election will treat shares of voting stock represented by "broker non-votes"
(i.e., shares of voting stock held in record name by brokers or nominees as to
which (i) instructions have not been received from the beneficial owners or
persons entitled to vote; (ii) the broker or nominee does not have discretionary
voting power under applicable rules or the instrument under which it serves in
such capacity; or (iii) the recordholder has indicated on the proxy card or has
executed a proxy and otherwise notified the Company that it does not have
authority to vote such shares on that matter) as present for purposes of
determining a quorum. Directors will be elected by a favorable vote of a
plurality of the shares of voting stock present and entitled to vote, in person
or by proxy, at the Annual Meeting. Accordingly, abstentions or broker non-
votes as to the election of Directors will not affect the election of the
candidates receiving the plurality of votes. Proposal 2 requires the approval
of a majority of the shares of voting stock present and entitled to vote
thereat. Therefore, abstentions as to this proposal will have the same effect
as votes against such proposal. Broker non-votes as to this proposal, however,
will be deemed shares not entitled to vote on such proposal, and will not be
counted as votes for or against such proposal, and will not be included in
calculating the number of votes necessary for approval of such proposal.
The cost of soliciting proxies will be borne by the Company. The
solicitation will be by mail. Expenses will include reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the meeting to beneficial owners of the
Company's Common Stock. Further solicitation of proxies may be made by
telephone or oral communication with some stockholders by the Company's regular
employees who will not receive additional compensation for the solicitation.
The Company has no plans to hire special employees or paid solicitors to assist
in obtaining proxies.
2
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 10,432,884 shares of the Company's Common
Stock outstanding at the close of business on November 18, 1997 will be entitled
to notice of and to vote at the meeting or any adjournment or postponement
thereof. On each matter to be considered at the Annual Meeting, stockholders
will be entitled to cast one vote for each share held of record on November 18,
1997.
CERTAIN STOCKHOLDERS
Certain information with respect to (i) each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each of the current Directors and nominees for election as
Directors, (iii) each of the Executive Officers listed in the compensation
tables herein, and (iv) all current Directors and Executive Officers as a group,
including the number of shares of the Company's Common Stock beneficially owned
by each of them as of November 1, 1997, is set forth below:
Percent of
Shares of Outstanding
Name of Individual Common Stock Common Stock
or Identity of Group(1) Beneficially Owned Beneficially Owned
- --------------------------------------- ------------------ ------------------
J.P. Morgan, Incorporated
522 Fifth Ave., New York, NY 10036.. 1,031,244 8.4%
Jerrell M. Baird....................... 31,100 (3) *
Keith D. Freadhoff..................... 715,000 5.9%
Richard J. Groeneweg................... - -
Douglas Hartman........................ 710,000 5.9%
Donald L. Danks........................ 706,500 5.8%
Andrew Stallman........................ 63,500 (4) *
Jeffrey G. Korn........................ 11,000 (5) *
All Executive Officers and Directors
As a Group (7 persons).............. 1,821,533 (6) 15.1%
_______________
* Less than 1% of the outstanding shares of Common Stock.
(1) The address for each of the named individuals is c/o Prosoft I-Net
Solutions, Inc., 2333 North Broadway, Suite 300, Santa Ana, California
92706. Unless otherwise indicated, the named persons possess sole voting
and investment power with respect to the shares listed (except to the
extent such authority is shared with spouses under applicable law).
(2) J.P. Morgan & Co., Incorporated is the ultimate parent of the trustee of
four record stockholders, none of which individually own greater than 5% of
the Common Stock of the Company.
(3) Includes 30,000 options exercisable within 60 days of November 1, 1997.
(4) Includes 60,000 shares subject to a currently exercisable warrant.
(5) Includes 10,000 options exercisable within 60 days of November 1, 1997.
(6) Includes 295,833 shares issuable pursuant to options and warrants
exercisable within 60 days of November 1, 1997.
3
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Bylaws provide for a Board of Directors of not less than
three nor more than twenty-five Directors, the exact number to be fixed by the
Board. The Board has currently fixed that number at six. The Board is divided
into three classes, with one class elected at each Annual Meeting to serve for a
term of three years. The Board of Directors has nominated two individuals to be
elected in 1997, as Class I Directors, each to serve until the Annual Meeting to
be held in 2000 and until the respective successors have been duly elected and
qualified. Both of the nominees are currently Directors of the Company. In
addition, the Board has nominated one individual to be elected in 1997 as a
Class III Director and one individual to be elected in 1997 as a Class II
Director. They will serve until the Annual Meeting to be held in 1999 and 1998,
respectively, and until their respective successors have been duly elected and
qualified.
Unless instructed to the contrary, the shares represented by the proxies
will be voted in favor of the election of the nominees named below. Although it
is anticipated that each nominee will be able to serve as a Director, should any
nominee become unavailable to serve, the proxies will be voted for such other
person or persons as may be designated by the Company's Board of Directors. The
nominees receiving the highest number of votes, up to the number of Directors to
be elected, will be elected as Directors.
NOMINEES
The following table sets forth information for each of the Class I, Class
II, and Class III Director nominees.
Director
Name Age Position Since
---- --- -------- --------
Class I Director Nominees Whose Terms
of Office Will Continue Until 2000 if
Elected:
Jerrell M. Baird 41 President and Chief Operating Officer -
Richard J. Groeneweg 51 Nominee -
Class III Director Nominee Whose Term
of Office Will Continue Until 1999 if
Elected:
Andrew Stallman 40 Director 1997
Class II Director Nominee Whose Term
of Office Will Continue Until 1998 if
Elected:
Jeffrey G. Korn 40 Director 1997
Jerrell M. Baird. Mr. Baird joined the Company as Chief Operating Officer
in June 1997. Prior thereto, Mr. Baird served as the Chief Information Officer
of IBM's Consumer Product Division from 1996 to 1997. In 1992, Mr. Baird
founded Baird Information Systems, an information technology outsourcing company
where he served as President until 1994. From 1978 to 1992 and from 1994 to
1996, Mr. Baird served in a variety of postitions at Mrs. Baird's Bakeries, a
wholesale baking company, including Plant Manager, Director of Information
Technology and Vice President of Marketing. Mr. Baird graduated from Washington
and Lee University with a B.S. in Business Administration in 1978, and earned an
M.B.A. from Harvard University in 1982.
4
Richard J. Groeneweg. Mr. Groeneweg has served as President of Residential
Resources, Inc., an issuer of asset backed securities since 1991. Prior to
that, he served as President of Mid Valley Mortgage Corp. from 1986 to 1991 and
Senior Vice President, Field Operations and Secondary Market, of Lion Funding
Corporation from 1982 to 1986. From 1968 to 1984, Mr. Groeneweg served in
various capacities, first with Beneficial Management Corporation and then with
Granite Financial Corporation. He also served in the United States Navy from
1966 to 1968.
Andrew Stallman. Mr. Stallman has served as a Director of the Company
since June 1997. Mr. Stallman is a full-time private investor and has been
investing his own capital in hedge fund trading and technology company deals
since 1991. Prior to becoming a full-time private investor, Mr. Stallman was a
portfolio manager at Soros Fund Management and at Steinhardt Partners. Mr.
Stallman has also been a research analyst in Transportation and Technology at
Lehman Brothers Asset Management and an analyst in the Corporate Finance
Department of E.F. Hutton. Mr. Stallman graduated from the State University of
New York at New Palz with a B.A. in History in 1979, and earned an M.B.A. in
Finance from Harvard University in 1982.
Jeffrey G. Korn. Mr. Korn has served as a Director of the Company since
June 1997. Mr. Korn is a partner in the law firm of Kosto & Rotella, P.A. in
Jacksonville, Florida, which he joined in 1983. Mr. Korn specializes in
corporate law, commercial litigation and bankruptcy. He graduated from the
State University of New York at New Paltz with a B.A. in Political Science in
1979, and received his J.D. degree from Stetson University in 1982.
CONTINUING DIRECTORS
The following table sets forth information for each Class II and Class III
Director continuing in office.
Director
Name Age Position Since
---- --- -------- --------
Class III Director Whose Terms of
Office Will Continue Until 1999:
Keith D. Freadhoff 39 Chairman of the Board and 1996
Chief Executive Officer
Class II Director Whose Term of
Office Will Continue Until 1998:
Donald L. Danks 40 Director and Vice Chairman 1996
Keith D. Freadhoff. Mr. Freadhoff has served as a Director, Chairman of
the Board and Chief Executive Officer of the Company since the 1996
reorganization (the "Reorganization") of the Company and Pro-Soft Development
Corp., a California corporation ("Old ProSoft") in March 1996 and prior to that
served in the same capacities with Old ProSoft from its inception in December
1995. From February 1995 to December 1995, Mr. Freadhoff operated the business
of the Company while it was owned as a proprietorship. From 1994 through 1995,
Mr. Freadhoff served as Executive Director for the Career Planning Center, a
community based non-profit organization. From 1993 through 1994, Mr. Freadhoff
served as President of The Focus Institute, a company specializing in computer
based, classroom training. Mr. Freadhoff headed a new government training
program division for Frojen Advertising Company between 1991 and 1993. Mr.
Freadhoff began his training background by forming Oasis Corporate Education and
Training in 1987. Oasis was a customized training company that developed
courseware for manufacturing, financial, service and public organizations. Mr.
Freadhoff completed graduate level coursework at the University of Southern
California School in Communications and Business. His undergraduate degree is
from the University of Nebraska-Lincoln.
5
Donald L. Danks. Mr. Danks has served as a Director of the Company since
the Reorganization and also served as President of the Company from the
Reorganization until September 1997 when he resigned as President and was
appointed Vice Chairman. Prior to the Reorganization, he served as a Director
and President of Old ProSoft from its inception. From 1991 through 1995, Mr.
Danks was President and Chief Executive Officer of Advantage Life Products, Inc.
("Advantage"), a publicly traded consumer products company. From 1989 to 1991,
Mr. Danks was the Chief Operating Officer for Advantage. Mr. Danks has
extensive experience in strategic planning, capital formation and the
development and implementation of national marketing strategies. Mr. Danks
graduated from the University of California, Los Angeles, in 1979.
The Board of Directors held five meetings during the fiscal year ended July
31, 1997. Each incumbent Director attended at least 75% of the total number of
meetings of the Board of Directors and of Board of Director Committees on which
that Director served which were held during the period for which he was a
Director. Directors, other than employees or officers of the Company, receive
$500 per Board meeting attended and $250 per committee meeting attended, other
than committee meetings held in conjunction with meetings of the Board of
Directors. Directors are reimbursed for expenses incurred in connection with
attendance at Board and committee meetings. Directors who are officers or
employees of the Company are not compensated separately for service on the Board
of Directors.
The Board of Directors has standing Compensation and Audit Committees which
were established in June 1997, but does not have a Nominating Committee.
The Compensation Committee is responsible for reviewing the structure,
performance and compensation of the Company's senior executives and determining
awards under the Company's Stock Option Plan. The Compensation Committee is
comprised of Messrs. Stallman and Korn. The Compensation Committee did not meet
during the fiscal year ended July 31, 1997.
The Audit Committee is responsible for making recommendations concerning
the engagement of independent public accountants, reviewing with the independent
public accountants the plans and results of the audit engagement, considering
the range of audit and non-audit fees and reviewing the adequacy of the
Company's internal accounting controls. The Audit Committee is comprised of
Messrs. Stallman and Korn. The Audit Committee did not meet during the fiscal
year ended July 31, 1997.
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 initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Directors, Executive Officers and greater-than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended July 31, 1997 all Section
16(a) filing requirements applicable to its Directors, Executive Officers and
greater-than ten percent beneficial owners were satisfied.
6
EXECUTIVE OFFICERS
The current Executive Officers of the Company are as follows:
Name Age Position
---- --- --------
Keith D. Freadhoff 39 Chairman and Chief Executive Officer
Donald L. Danks 40 Vice Chairman
Jerrell M. Baird 41 President and Chief Operating Officer
John J. Buckley 44 Chief Technology Officer
Brooks A. Corbin 37 Chief Financial Officer
For additional information with respect to Messrs. Baird, Freadhoff, and
Danks, who are also Nominees for or Directors of the Company, see "Proposal 1 --
Election of Directors."
John J. Buckley. Mr. Buckley has served as the Chief Technology Officer of
the Company since the Reorganization and prior to that served in the same
capacities with Old ProSoft which he joined in February 1996. Mr. Buckley was
Vice President of Business Development for Gestalt Systems, Inc., an Internet
training company, from July 1993 through January 1996. From May 1992 through
June 1993, Mr. Buckley was an Information Technology Consultant to corporations
in the Washington, D.C. metropolitan area, where he specialized in the design
and implementation of Novell LANs. From October 1987 through April 1992, Mr.
Buckley served as President of Communication Services International, a company
specializing in LAN consulting and implementation services for corporations in
the Mid-Atlantic U.S. Mr. Buckley graduated from the University of Maryland at
College Park with a BA in Political Science in 1974, and earned an MBA in 1976
from the same institution.
Brooks A. Corbin. Mr. Corbin has served as Chief Financial Officer since
he joined the Company in May 1996. From 1995 through 1996, Mr. Corbin was Chief
Financial Officer for Hastl Acquisitions, Inc., an import-export company. In
February 1996, Hastl's subsidiary, ITM Automotive Parts, filed for Chapter 11
bankruptcy protection. Prior to 1995, Mr. Corbin worked for six years as a
business consultant to start-up and troubled companies. He started his career
with Price Waterhouse in 1982. Mr. Corbin graduated from Stanford University
with BAs in Economics and International Relations in 1982, and from the
University of California, Los Angeles with an MBA in Finance and Real Estate in
1987. Mr. Corbin is a member of the AICPA.
7
SUMMARY COMPENSATION TABLE
The following sets forth certain summary compensation information
concerning the Chief Executive Officer of the Company for each of the Company's
last two fiscal years. No Executive Officer of the Company received more than
$100,000 in compensation during fiscal 1997.
Annual Compensation
----------------------------------
Fiscal Other Annual
Name and Principal Position Year Salary Compensation
--------------------------- ------ ------ ------------
Keith D. Freadhoff(1)
Chairman of the Board and 1997 $60,000 --
Chief Executive Officer................ 1996 35,000 $190,500(2)
____________________
(1) Mr. Freadhoff became Chief Executive Officer of the Company in March 1996
upon completion of the Reorganization. The amounts disclosed include
compensation received as an executive officer of Old ProSoft prior to the
Reorganization, as well as compensation received as an executive officer of
the Company.
(2) Upon the formation of Old ProSoft, Mr. Freadhoff received 1,000,000 shares
of Old ProSoft Common Stock in exchange for $9,500. For financial
statement purposes, these shares were valued at $.20 per share and the
receipt thereof was treated as compensation of $190,500 to Mr. Freadhoff.
8
BOARD OF DIRECTORS COMPENSATION REPORT
The functions of the Compensation Committee were performed by the full
Board of Directors during the fiscal year ended July 31, 1997. The report of
the Board of Directors which follows shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference.
Due to the start-up nature of the Company's business during fiscal 1997 and
the significant equity interest that the Chief Executive Officer and other
senior executives of the Company had in the Company, the Board established base
salaries for its senior officers which it believed were significantly below
market and did not attempt to further tie executive compensation to corporate
performance.
The Compensation Committee of the Board, which was established in June
1997, is currently in the process of developing an executive compensation
structure for the Company in light of the Company's maturing business and the
hiring of additional senior executives.
The Board of Directors
Keith D. Freadhoff
Donald L. Danks
Andrew Stallman
Jeffrey G. Korn
November 5, 1997
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In June 1997, the Board of Directors of the Company established a
Compensation Committee consisting of Messrs. Stallman and Korn. Prior to June
1997, the Company did not have a Compensation Committee or other committee of
the Board of Directors performing similar functions. Messrs. Freadhoff and
Danks are officers of the Company and, as members of the Board of Directors,
participated in the deliberations of the Board concerning executive officer
compensation.
During the period January 1996 through April 1997, the Company loaned
approximately $206,350 to Mr. Freadhoff at an interest rate of 10%. The balance
which remained outstanding at November 1, 1997 was $73,292. Principal and
interest on this loan is due and payable on demand.
COMPANY STOCK PRICE PERFORMANCE
The following chart shows a comparison of the cumulative total return of
the Company's Common Stock, the CRSP Total Return Index for The Nasdaq Stock
Market (U.S. Index) ("Nasdaq Index") and the Hambrecht & Quist Internet Index
("H&Q Internet Index") for the period commencing on November 27, 1996 and ending
on July 31, 1997. The historical stock performance shown on the chart is not
intended to and may not be indicative of future stock performance.
9
Comparison of Cumulative Total Return from November 27, 1996 through
July 31, 1997
[CHART OF TOTAL RETURN]
November 27, 1996 July 31, 1997
----------------- -------------
Nasdaq Index $100 $124
H&Q Internet Index $100 $108
Prosoft I-Net Solutions, Inc. $100 $ 55
_______________
(1) Assumes that $100 was invested on November 27, 1996 in the Company's Common
Stock at $18.25 per share, the closing price for the Company's Common Stock
on that date, and at the closing price for each Index on that date, and
that all dividends were reinvested. No cash dividends have been declared
on the Company's Common Stock.
CERTAIN TRANSACTIONS
The Company has agreed to include in a registration statement filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, an aggregate of 60,000, 10,666 and 9,333 shares of Common Stock,
including 25,000, 2,666 and 2,333 shares of Common Stock issuable upon exercise
of warrants, owned by Mr. William Richardson (a former Director of the Company),
Mr. Eric Richardson (an officer of the Company and formerly an executive
officer) and Mr. Brooks Corbin, respectively. The Company has entered into a
registration agreement with these three individuals and certain other
stockholders in connection with such registration of their shares.
All transactions between the Company and its officers, directors and
principal stockholders have been on terms no less favorable to the Company than
could have been obtained from unaffiliated third parties.
10
PROPOSAL 2
APPROVAL OF AMENDMENT TO PROSOFT I-NET SOLUTIONS, INC.
1996 STOCK OPTION PLAN
The Board has approved, subject to stockholder approval, an amendment of
the Prosoft I-Net Solutions, Inc. 1996 Stock Option Plan (the "Plan"), which
would increase the maximum aggregate number of shares of Company Common Stock
available for the grant of stock options under the Plan from 750,000 shares to
2,500,000 shares.
The following is a brief summary of the material features of the Plan and
is qualified in its entirety by express reference to the Plan, a copy of which
will be sent without charge prior to the Annual Meeting to any stockholder
requesting it from the Secretary of the Company.
The Plan currently permits the granting of options to purchase up to a
maximum of 750,000 shares of the Company's Common Stock. If the proposed
amendment is approved by the stockholders, the maximum number of shares covered
by the Plan would increase from 750,000 shares to 2,500,000 shares. No employee
or consultant may be granted options to acquire more than 250,000 shares during
any one-year period under the Plan. Shares covered by options which terminate
without exercise are available for issuance upon the grant of additional
options. The number and kind of shares subject to the Plan and any outstanding
options under the Plan will be appropriately adjusted in the event of a stock
split, stock dividend, reorganization or other specified changes in the
capitalization of the Company. The Plan allows for the grant of either
incentive stock options or nonstatutory stock options.
As of November 1, 1997, options to purchase 748,750 shares of the Company's
Stock had been granted under the Plan, of which 588,765 were still outstanding
at exercise prices ranging from $3.50 to $19.75 per share, including 489,244 of
which were currently exercisable. As of the same date, options to purchase
95,836 shares had been exercised. The expiration date for these outstanding
options is March 30, 2001. In addition, the Board has granted, subject to
stockholder approval of the amendment of the Plan to increase the authorized
number of shares to 2,500,000 shares and obtaining a permit from the California
Department of Corporations with respect thereto, options to purchase 766,500
shares of the Company's Common Stock at exercise prices ranging from $6.75 to
$18.00 per share, 216,161 of which will be immediately exercisable upon
obtaining stockholder approval of this amendment. The expiration date for these
options is March 30, 2001.
The Plan is administered by the Company's Board of Directors, which has the
sole authority to determine which eligible persons shall receive options and the
terms and provisions of the options. The Board also has the full power and
authority to interpret the provisions of the Plan and any option granted under
the Plan. The Board may delegate administration of the Plan to a committee of
not less than two members of the Board. The Board has delegated administration
of the Plan to the Compensation Committee of the Board.
Employees, directors, and consultants of the Company and any subsidiary of
the Company are eligible to receive options under the Plan, with only employees
eligible to receive incentive stock options. At November 1, 1997, approximately
200 persons were eligible to participate in the Plan. The Board has the
discretion to set the exercise price for options granted under the Plan,
provided that the exercise price per share for each incentive stock options
granted under the Plan, provided that the exercise price per share for each
incentive stock option cannot be less than the fair market value on the date of
the grant. The Board also has broad discretion as to the other terms and
conditions upon which options granted shall be exercisable, but under no
circumstances will an option have a term exceeding ten years from the date of
grant. On November 18, 1997, the closing price of the Company's Common Stock on
the NASDAQ -- SmallCap was $12.94 per share.
The purchase price for shares issued under the Plan may be paid by cash or
such other means deemed acceptable by the Board, including the payment of all or
part of the exercise price with shares previously acquired by the optionee. The
Company will also facilitate the cashless exercise of options through customary
brokerage arrangements.
11
Each option will expire on the date established by the Board for that
option, except that no option may be exercised later than ten years after the
date of grant and no incentive stock option granted to a person owning greater
than 10% of the total combined voting power of all classes of stock of the
Company may be exercised later than five years after the date of grant. Options
generally terminate upon the termination of the optionee's employment, except
that the Board may provide in the option agreement that the vested portion of
the option at the time of termination may be exercisable for up to three months
after termination for any reasons other than death or disability, and for up to
one year after termination in the event of death or disability. The Board also
has the authority to extend the post-termination exercise period, although not
beyond the original option expiration date, and to accelerate unvested portions
of an option upon the termination of employment. Options are not transferable
by the optionee other than by will or the laws of descent and distribution.
The Plan provides that in the case of certain reorganizations, mergers or
consolidations of the Company with one or more corporations, or the sale of
substantially all of the Company's assets, all outstanding options, including
unvested installments, shall be accelerated and be exercisable in full beginning
immediately prior to the consummation of the transaction unless such options are
assumed in some manner as part of the transaction or new options or securities
are substituted for them.
The Plan provides that the Board may at any time amend or terminate the
Plan, although no amendment or termination may adversely affect any previously
granted option without the consent of the holder of the option. Unless sooner
terminated by the Board, the Plan will terminate on March 25, 2006.
Under currently applicable provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), an optionee will not be deemed to receive any income
for federal tax purposes upon the grant of an option under the Plan, nor will
the Company be entitled to a tax deduction at that time. However, upon the
exercise of an option the tax consequences are as follows:
1. Upon the exercise of a nonstatutory option, the optionee will be
deemed to have received ordinary income in an amount equal to the difference
between the option price and the market price of the shares on the exercise
date. The Company will be allowed an income tax deduction equal to the excess
of the market value of the shares on the date of exercise over the cost of such
shares to the optionee subject in certain circumstances, to a $1 million ceiling
on the deductibility by the Company of certain executive officers' compensation
during any year; and
2. Upon the exercise of an incentive stock option, there is no income
recognized by the optionee at the time of exercise. If the stock is held at
least one year following the exercise date and at least two years from the date
of grant of the option, the optionee will realize a long-term capital gain or
loss upon sale, measured as the difference between the option exercise price and
the sale price. If both of these holding period requirements are not satisfied,
ordinary income tax treatment will apply to the amount of gain at sale or
exercise, whichever is less. If the actual gain exceeds the amount of ordinary
income, the excess will be considered short-term or long-term capital gain
depending on how long the shares are actually held. No income tax deduction
will be allowed the Company with respect to shares purchased by an optionee upon
the exercise of an incentive stock option, provided such shares are held for the
required periods as described above.
There is no charge against income required by the Company in connection
with the grant of an option or the exercise of an option for cash.
Under the Code, an option will generally be disqualified from receiving
incentive stock option treatment if it is exercised more than three months
following termination of employment. However, if the optionee is disabled, such
statutory treatment is available for one year following termination. If the
optionee dies while employed by the Company or within three months thereafter,
the statutory time limit is waived altogether. In no even do these statutory
provisions extend the optionee's right to exercise an option beyond its term.
12
Proposal
At the Annual Meeting, stockholders will be asked to approve the amendment
of the Plan. Such approval will require the affirmative vote of a majority of
the voting power of all outstanding shares of the Company's Common Stock present
or represented and entitled to vote at the Annual Meeting. The Board of
Directors recommends a vote "FOR" the proposal.
APPOINTMENT OF INDEPENDENT AUDITORS
The Company has not yet selected its independent public auditors for the
fiscal year ending July 31, 1998. The Audit Committee is expected to make a
decision in the near future. Ernst & Young LLP were the independent auditors for
the Company for the fiscal year ended July 31, 1997. Representatives of Ernst &
Young LLP are expected to be present at the Annual Meeting and will be available
to respond to appropriate questions and to make such statements as they may
desire.
NOMINATIONS AND STOCKHOLDER PROPOSALS
The Bylaws of the Company require that all nominations for persons to be
elected to the Board of Directors, other than those made by the Board of
Directors, be made pursuant to written notice to the Secretary of the Company.
The notice must be received not less than 35 days prior to the meeting at which
the election will take place (or not later than 10 days after public disclosure
of such meeting date is given or made to stockholders if such disclosure occurs
less than 50 days prior to the date of such meeting). Notice must set forth the
name, age, business address and residence address of each nominee, their
principal occupation or employment, the class and number of shares of stock
which they beneficially own, their citizenship and any other information that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to the Securities Exchange Act of 1934, as amended. The notice must
also include the nominating stockholder's name and address as they appear on the
Company's books and the class and number of shares of stock beneficially owned
by such stockholder.
In addition, the Bylaws require that for business to be properly brought
before an annual meeting by a stockholder, the Secretary of the Company must
have received written notice thereof (i) in the case of an annual meeting that
is called for a date that is within 30 days before or after the anniversary date
of the immediately preceding annual meeting, not less than 120 days in advance
of the anniversary date of the Company's proxy statement for the previous year's
annual meeting, nor more than 150 days prior to such anniversary date and (ii)
in the case of an annual meeting that is called for a date that is not within 30
days before or after the anniversary date of the immediately preceding annual
meeting, not later than the close of business on the 10th day following the day
on which notice of the date of the meeting was mailed or public disclosure of
the date of the meeting was made, whichever occurs first. The notice must set
forth the name and address of the stockholder who intends to bring business
before the meeting, the general nature of the business which he or she seeks to
bring before the meeting and a representation that the stockholder is a holder
of record of shares entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to bring the business specified in the notice
before the meeting.
Any proposal of a stockholder intended to be presented at the Company's
1998 Annual Meeting of Stockholders and included in the proxy statement and form
of proxy for that meeting must be received by the Company no later than July 24,
1998.
13
ANNUAL REPORT
The Company's Annual Report containing audited financial statements for the
fiscal year ended July 31, 1997 accompanies this Proxy Statement. THE COMPANY
WILL SEND A STOCKHOLDER UPON REQUEST, WITHOUT CHARGE, A COPY OF THE ANNUAL
REPORT ON FORM 10-K (WITHOUT EXHIBITS) FOR THE YEAR ENDED JULY 31, 1997,
INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY HAS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE REQUEST MUST BE DIRECTED
TO THE ATTENTION OF CORPORATE SECRETARY, AT THE ADDRESS OF THE COMPANY SET FORTH
ON THE FIRST PAGE OF THIS PROXY STATEMENT.
OTHER MATTERS
At the time of the preparation of this Proxy Statement, the Board of
Directors knows of no other matter which will be acted upon at the Annual
Meeting. If any other matter is presented properly for action at the Annual
Meeting or at any adjournment or postponement thereof, it is intended that the
proxies will be voted with respect thereto in accordance with the best judgment
and in the discretion of the proxy holders.
By Order of the Board of Directors,
PROSOFT I-NET SOLUTIONS, INC.
KEITH D. FREADHOFF
Chairman of the Board
Santa Ana, California
November 20, 1997
14
PROSOFT I-NET SOLUTIONS, INC.
2333 North Broadway, Suite 300
Santa Ana, California 92706
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominates, constitutes and appoints Jerrell M. Baird
and Donald L. Danks, and each of them individually, the attorney, agent and
proxy of the undersigned, with full power of substitution, to vote all stock of
PROSOFT I-NET SOLUTIONS, INC., which the undersigned is entitled to represent
and vote at the 1997 Annual Meeting of Stockholders of the Company to be held at
333 N. Wilshire Avenue, Anaheim, California on December 18, 1997, at 10:00 a.m.,
and at any and all adjournments or postponements thereof, as fully as if the
undersigned were present and voting at the meeting, as follows:
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1 AND 2.
1. Election of Directors:
[_] FOR the nominees listed [_] WITHHOLD AUTHORITY
below to vote for the nominees listed below
Class I - Jerrell M. Baird and Richard J. Groeneweg, Class II - Jeffrey G.
Korn, and Class III - Andrew Stallman
INSTRUCTION: To withhold authority to vote for an individual nominee, write
that nominee's name in the space provided below:
________________________________________________________________________________
2. Approval of the amendment of the Company's 1996 Stock Option Plan as
described in the accompanying proxy statement.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournment
or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
IMPORTANT -- PLEASE SIGN AND DATE ON THE OTHER SIDE AND RETURN PROMPTLY
Dated:_______________, 1997
_________________________________
(Signature)
Please sign your name exactly as
it appears hereon. Executors,
administrators, guardians,
officers of corporations and
others signing in a fiduciary
capacity should state their full
titles as such.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE. IF YOUR ADDRESS IS INCORRECTLY SHOWN, PLEASE
PRINT CHANGES. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
URGED TO SIGN AND RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY
TIME PRIOR TO ITS USE.