SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
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MRI Medical Diagnostics, Inc.
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(Name of Registrant as Specified In Its Charter)
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MRI MEDICAL DIAGNOSTICS, INC.
3 Hutton Centre Drive
Suite 150
Santa Ana, California 92707
INFORMATION STATEMENT
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INTRODUCTION
We are furnishing this information statement in connection with a
special meeting of the shareholders of MRI Medical Diagnostics, Inc. The meeting
will be held at 10:00 am on September 5, 2000 at 3 Hutton Centre Drive, Suite
150, Santa Ana, California 92707.
We are sending this information to our shareholders on or about August
15, 2000. Our board of directors has fixed the close of business on August 14,
2000 as the record date for the determination of MRI shareholders entitled to
notice of and to vote at the meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
MATTERS TO BE CONSIDERED AT THE MEETING
At the meeting, and at any adjournment or postponement of the
meeting, we will ask our Shareholders:
1. To authorize an amendment to our Articles of
Incorporation to:
(a) Reverse split our common stock on a 1 for
18.85077263 basis, as described in more detail below;
and
(b) To change our corporate name to HomeZipR Corp.;
2. To approve our 2000 Stock Option Plan;
3. To ratify the appointment of Lesley, Thomas, Schwarz &
Postma, Inc. as our independent public accountants; and
4. To transact any other business that may properly come
before the meeting.
VOTES REQUIRED AND QUORUM
Approval of the matters brought before the meeting requires the
affirmative vote of the holders of a majority of the shares entitled to vote on
such matters. As of August 14, 2000, there were 38,416,828 shares of our common
stock outstanding and 5,320,463 shares of our Series A Preferred Stock
outstanding. Holders of our common stock are entitled to one vote per share.
Holders of our Series A Preferred Stock are entitled to 50 votes per share.
Accordingly, there are the equivalent of 304,439,988 votes outstanding, so the
proposals will pass if holders of at least 152,219,995 such votes cast their
vote in favor.
A quorum of the shareholders is necessary to take action at the
meeting. A quorum is present if shareholders holding shares which represent a
majority of the outstanding votes are present at the meeting. Accordingly, as
described above, shareholders entitled to a total of at least 152,219,995 votes
will need to be present in order to hold a valid meeting.
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BOARD RECOMMENDATIONS - INSIDERS' INTENT TO VOTE IN FAVOR
Our board of directors has determined that approval of the reverse
split, name change and stock option plan, and ratification of the appointment of
our independent public accountants are in the best interests of the company and
our shareholders. Accordingly, the board has unanimously approved the proposals
and recommends that the shareholders who choose to attend the meeting vote in
favor of these matters as well.
Certain officers, directors and affiliates of the company who
beneficially own an aggregate of approximately 62% of the outstanding votes have
indicated that they intend to vote in favor of each of the proposals discussed
herein.
THE REVERSE SPLIT
(Proposal 1(a))
INTRODUCTION
On July 31, 2000, our board of directors approved a proposal to effect
a reverse split of our common stock, subject to the approval of our
shareholders. The reverse split, if approved, would combine our outstanding
common stock on 1 for 18.85077263 basis. In other words, once the reverse split
takes place, every 18.85077263 shares of common stock that you hold will be
combined into 1 share. Your percentage ownership in the company and relative
voting power will remain essentially unchanged. The number of authorized shares
of common stock will remain unchanged at 50,000,000 following the reverse split.
The reverse split will not affect the number of shares of preferred
stock outstanding, but the terms of our Series A Preferred Stock provide for a
reduction in the conversion ratio in proportion to the reverse split ratio.
Accordingly, shares of Series A Preferred Stock which are currently convertible
into 50 shares of common stock each, will be convertible into approximately
2.652411176 shares of common stock following the reverse split. Each Series A
Preferred Stock holder's conversion rights and proportional voting power will
remain effectively unchanged.
REASONS FOR THE REVERSE SPLIT
We expect that we will have to raise additional equity capital in the
near future in order to finance the development and growth of our business. We
cannot promise that any offering of our securities will take place or will be
successful, but we believe that reducing the number of outstanding shares and
increasing the number of authorized and unissued shares will make our capital
structure more attractive to potential investors and provide us with greater
flexibility in structuring financings and pursuing other corporate development
opportunities.
Further, we believe that our current low stock price negatively affects
the marketability of our existing shares and our ability to raise additional
capital. Although we cannot guarantee it, we assume that the reverse split will
increase the market price of our stock in a direct inverse proportion to the
reverse split ratio. In other words, with a reverse split ratio of 1 to
18.85077263, the assumption is that the market price of our stock should
increase by 18.85077263 times following the reverse split. Based upon our
stock's closing bid price of $0.25 on August 1, 2000, then, if every 18.85077263
shares of common stock were combined into one share, the initial adjusted market
value would be expected to increase to approximately $4.71 per share.
Finally, we are hopeful that the reverse split and the resulting
anticipated increased price level will encourage interest in our common stock
and possibly promote greater liquidity for our shareholders. Again, however, we
cannot guarantee that this will be the case or, indeed, that any of the
foregoing hoped-for effects will result from the reverse split.
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CERTAIN EFFECTS OF THE REVERSE SPLIT
The following table illustrates the principal effects of the reverse
split on our common and preferred stock based on the number of shares
authorized, issued and outstanding as of August 14, 2000.
Prior to the After the
Number of Shares Reverse Split Reverse Split
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Authorized Common Stock 50,000,000 50,000,000
Issued and Outstanding
Common Stock 38,416,828 2,037,945
Common Stock Available
for Issuance 11,583,172 47,962,055
Series A Preferred Stock
Outstanding 5,320,463 5,320,463
Common Stock Issuable upon
Conversion of Series A
Preferred Stock 266,023,150 14,112,055
Issued and Outstanding Common
Stock Assuming Conversion of
all Outstanding Preferred Stock 304,439,978 16,150,000
Shares of common stock issued pursuant to the reverse split will be
fully paid and nonassessable. The relative voting and other rights of holders of
the common stock will not be altered by the reverse split, and each share of
common stock will continue to entitle its owner to one vote.
As a result of the reverse split, the number of shares of common stock
presently outstanding will be consolidated but the number of shares authorized
for issuance will remain unchanged at 50,000,000. Accordingly, we will have the
ability to issue more shares of common stock than is presently the case and
without additional shareholder approval. Doing so may have a dilutive effect on
the equity and voting power of our existing shareholders.
No fractional shares will be issued in connection with the reverse
split. Instead, fractional shares will be rounded up and one whole share will be
issued. We expect that most shareholders will receive one additional share of
common stock, but we do not anticipate that this will materially affect any
shareholder's proportional interest. We do not anticipate that the reverse split
will result in any material reduction in the number of holders of common stock.
The reverse split may result in some shareholders owning "odd-lots" of
less than 100 shares of common stock. Brokerage commissions and other costs of
transactions in odd-lots are generally somewhat higher than the costs of
transactions in round lots of even multiples of 100 shares.
The reverse split will not affect the company's stockholders' equity as
reflected on our financial statements, except to change the number of issued and
outstanding shares of common stock.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Following is a summary of the material anticipated federal income tax
consequences of the proposed reverse split. This summary is based upon existing
law which is subject to change by legislation, administrative action and
judicial decision, and is necessarily general. In addition, this summary does
not address any consequence of the reverse split under any state, local or
foreign tax laws. Accordingly, this summary is not intended as tax advice to any
person or entity, and we advise you to consult with your own tax advisor for
more detailed information relating to your individual tax circumstances.
We understand that the reverse split will be a "recapitalization" under
applicable federal tax laws and regulations. As a result of such tax treatment,
no gain or loss should be recognized by the company or our shareholders as a
result of the reverse split or the exchange of pre-reverse split shares for
post-reverse split shares. A shareholder's aggregate tax basis in his or her
post-reverse split shares should be the same as his or her aggregate tax basis
in the pre-reverse split shares. In addition, the holding period of the
post-reverse split shares received by such shareholder should include the period
during which the pre-reverse split shares were held, provided that all such
shares were held as capital assets in the hands of the shareholder at the time
of the exchange.
EFFECTIVE DATE OF THE REVERSE SPLIT
If the proposal is approved by the shareholders, the reverse split will
become effective after we file an amendment to our Articles of Incorporation
with the Secretary of State of Colorado. We anticipate that this will take place
on or about September 6, 2000. Upon filing the amendment, all of our outstanding
common stock will be converted into new common stock in accordance with the
reverse split ratio described above. After the reverse split is effective,
certificates representing shares of pre-reverse split common stock will be
deemed to represent only the right to receive the appropriate number of shares
of post-reverse split common stock.
EXCHANGE OF CERTIFICATES
You are not being asked to exchange your certificates at this time,
however you are entitled to do so after the reverse split takes place if you
wish by contacting our transfer agent. Otherwise, certificates representing
pre-reverse split shares will be exchanged for certificates reflecting
post-reverse split shares at the first time they are presented to the transfer
agent for transfer.
RIGHT TO ABANDON REVERSE SPLIT
Although we do not anticipate doing so, we may abandon the proposed
reverse split at any time prior to its effectiveness if our board of directors
deems it advisable to do so. Any decision as to the appropriateness of the
reverse split will be made by solely our board of directors and will depend upon
numerous factors including the future trading price of our stock, the growth and
development of our business and our financial condition and results of
operations.
VOTE REQUIRED
We are required to obtain the affirmative vote of at least a majority
of the shares that are present or represented at the meeting in order to effect
the reverse split. Certain officers, directors and affiliates of the company who
beneficially own an aggregate of approximately 62% of the outstanding votes have
indicated that they intend to vote their shares in favor of the reverse split.
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NAME CHANGE TO HOMEZIPR CORP
(Proposal 1(b))
On July 31, 2000, in connection with the reverse acquisition of MRI by
HomeZipR.com Corp., a Delaware corporation (see "Change in Control," below, for
further information), our board of directors approved a proposal to change our
corporate name from MRI Medical Diagnostics, Inc. to "HomeZipR Corp.," subject
to the approval of the shareholders.
VOTE REQUIRED
We are required to obtain the affirmative vote of at least a majority
of the shares that are present or represented at the meeting in order to change
our name. Certain officers, directors and affiliates of the company who own an
aggregate of approximately 62% of the outstanding votes have indicated that they
intend to vote their shares in favor of the proposed name change.
2000 STOCK OPTION PLAN
(Proposal 2)
INTRODUCTION
On July 31, 2000, our board of directors adopted, subject to
shareholder approval, our 2000 Stock Option Plan. The plan provides for the
grant of non-qualified stock options to our employees, officers, directors,
consultants and independent contractors and for the grant of incentive stock
options to employees that qualify for such options under Section 422 of the
Internal Revenue Code of 1986. The plan terminates on July 31, 2010. We have
reserved 2,000,000 shares of our common stock for issuance, subject to
adjustment upon occurrence of certain events affecting our capitalization.
PURPOSE OF THE PLAN
We believe that the plan will help us to attract and retain highly
qualified employees, officers, directors and consultants by affording such
persons an opportunity for equity participation in the company. We also believe
that our shareholders benefit when we tie our executive compensation, at least
in part, to maximizing shareholder value and align our management's financial
interests with those of our shareholders.
SUMMARY OF THE PLAN
The stock option plan is administered by the board of directors or, at
the board's option, a committee of the board of directors. The board has,
subject to specified limitations, full authority to grant options and establish
the terms and conditions of vesting and exercise. The exercise price of
incentive stock options granted under the plan is required to be no less than
the fair market value of our common stock on the date of grant (110% in the case
of a greater than 10% stockholder).
The board may grant options for terms of up to 10 years, or 5 years in
the case of incentive stock options granted to greater than 10% stockholders. No
optionee may be granted incentive stock options such that the fair market value
of the options which first become exercisable in any one calendar year exceeds
$100,000. If an optionee ceases to be employed by us or ceases to have a
relationship with us, his or her options will expire one year after termination
by reason of death or permanent disability, thirty days after termination for
cause and three months after termination for any other reason.
In order to exercise an option granted under the plan, the optionee
must pay the full exercise price of the shares being purchased. Payment may be
made either in cash or in such other form of compensation, including payment in
shares of our common stock already owned by the optionee, as the board may
determine in its discretion.
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Subject to the foregoing, the board has broad discretion to set the
terms and conditions applicable to options granted under the plan. The board may
discontinue or suspend option grants under the plan, or amend or terminate the
plan entirely, at any time. With the consent of an optionee, the board may also
make such modification of the terms and conditions of such optionee's option as
the board shall deem advisable. However, the board has no authority to make any
amendment or modification to the plan or any outstanding option which would:
o increase the maximum number of shares which may be purchased
pursuant to options granted under the stock option plan,
either in the aggregate or by an optionee, except in
connection with certain antidilution adjustments;
o change the designation of the class of employees eligible to
receive qualified options;
o extend the term of the stock option plan or the maximum option
period thereunder;
o decrease the minimum qualified option price or permit
reductions of the price at which shares may be purchased for
qualified options granted under the stock option plan, except
in connection with certain antidilution adjustments; or
o cause qualified stock options issued under the stock option
plan to fail to meet the requirements of incentive stock
options under Section 422 of the Internal Revenue Code.
Any such amendment or modification shall be effective immediately,
subject to stockholder approval within 12 months before or after the effective
date. No option may be granted during any suspension or after termination of the
plan.
CERTAIN FEDERAL TAX CONSEQUENCES
Following is a summary of the material anticipated federal income tax
consequences to the company and to optionees of the proposed stock option plan.
This summary is based upon existing law which is subject to change by
legislation, administrative action and judicial decision and is necessarily
general. In addition, this summary does not address any consequence of the plan
under any state, local or foreign tax laws. Accordingly, this summary is not
intended as tax advice to any person or entity, and you are advised to consult
with you own tax advisor for more detailed information relating to your
individual tax circumstances.
NON-QUALIFIED STOCK OPTIONS
Holders of non-qualified stock options do not realize income as a
result of a grant of the option, but normally realize compensation income upon
the exercise of the option to the extent that the fair market value of the
underlying shares of common stock on the date of exercise exceeds the exercise
price paid. We will be required to withhold taxes on ordinary income realized by
an optionee on the exercise of a non-qualified option.
In the case of an optionee subject to the "short-swing" profit
recapture provisions of Section16(b) under the Securities Exchange Act of 1934,
the optionee realizes income only upon the lapse of the six-month period under
Section 16(b), unless the optionee elects to earlier recognize the income.
INCENTIVE STOCK OPTIONS
Holders of incentive stock options will not be considered to have
received taxable income upon either the grant of the option or its exercise,
except that the difference between the fair market value of the stock on the
date of exercise and the exercise price is included as income for purposes of
calculating Alternative Minimum Tax.
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If no sale or other taxable disposition of the shares acquired upon
exercise is made by the optionee within two years from the date of grant or
within one year from the date the shares are transferred to the optionee, any
gain realized upon the subsequent sale of the shares will be taxable as a
capital gain. In such case, we will be entitled to no deduction for federal
income tax purposes in connection with either the grant or the exercise of the
option. If, however, the optionee disposes of the shares within either of the
periods mentioned above, the optionee will realize ordinary income in an amount
equal to the excess of the fair market value of the shares on the date of
exercise, or the amount realized on disposition if less over the exercise price,
and we will be allowed a deduction for a corresponding amount.
GRANTS UNDER THE PLAN
As of August 14, 2000, no options have been granted under the plan.
Option grants to plan participants, including officers, directors and employees,
are at the discretion of the board of directors. Accordingly, future grants to
such persons are not determinable at this time.
VOTE REQUIRED
We are required to obtain the affirmative vote of at least a majority
of the shares that are present or represented at the meeting in order to approve
the plan. Certain officers, directors and affiliates of the company who
beneficially own an aggregate of approximately 62% of the outstanding votes have
indicated that they intend to vote their shares in favor of the plan
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(Proposal 3)
On July 31, 2000, we appointed Lesley, Thomas, Schwarz & Postma, Inc.
as our independent public accountants and we are seeking shareholder
ratification of such appointment. If ratified, Lesley, Thomas will audit our
financial statements for our current fiscal year and perform such other
appropriate services as we may request. We expect that a representative of
Lesley, Thomas will be present at the meeting to respond to appropriate
questions or to make a statement if he or she so desires.
VOTE REQUIRED
The ratification of Lesley, Thomas Schwarz & Postma, Inc. requires the
affirmative vote of at least a majority of the shares that are present or
represented at the meeting. Certain officers, directors and affiliates of the
company who beneficially own an aggregate of approximately 62% of the votes have
indicated that they intend to vote their shares for the ratification of Lesley,
Thomas as our independent public accountants.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information with respect to
beneficial ownership of our stock as of August 14, 2000 by:
o persons known by us to be the beneficial owners of
more than five percent of our issued and outstanding
common or preferred stock;
o each of our executive officers and directors; and
o all of our officers and directors as a group.
The information provided reflects projected ownership of
common stock assuming that all outstanding shares of Series A Preferred Stock
have been converted into common stock and the proposed 1 for 18.85077263 reverse
split has been effected. Accordingly, percentages are computed using a
denominator of 16,150,000 shares outstanding.
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES (1) PERCENT OF CLASS
- ------------------------------------------------- --------------------- -------------------
SFC West, Ltd. 4,226,783 (2) 26.2%
c/o International Management
Services, Ltd.
Harbour Centre Building
Georgetown
Caymen Islands, British West Indies
Kenneth C. Ketner (Chairman and Director) 2,536,070 15.7%
1000 Parkwood Circle, Suite 500
Atlanta, GA 30339
Kevin Bonds 1,268,034 7.9%
1000 Parkwood Circle, Suite 500
Atlanta, GA 30339
Beverly Fleming (Executive Vice President and 140,893 <1%
Secretary)
3 Hutton Centre Drive, Suite 150
Santa Ana, CA 92707
Michael Barron (Executive Vice President) 845,357 5.2%
3 Hutton Centre Drive, Suite 150
Santa Ana, CA 92707
Donald Olsen (Director) 0 0
3 Hutton Centre Drive, Suite 150
Santa Ana, CA 92707
Thomas Deemer (Director) 140,893 <1%
3 Hutton Centre Drive, Suite 150
Santa Ana, CA 92707
Javaid Sheikh (Director) 161,429 1.0%
988 St. Joseph Avenue
Los Altos, CA 94024
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NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------------------- --------------------- -------------------
Randy Bristol 1,972,499 12.2%
3223 Bob Cox Rodad
Merieta, GA 30064
Mortgage Capital Resource Corporation 850,000 5.2%
2038 Iowa Avenue, Suite 100
Riverside, CA 92508
All officers and directors as a group (7 9,319,460 (3) 57.7%
persons)
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(1) Figures are approximate due to rounding
(2) Kenneth Ketner has voting control over the shares held by SFC West, Ltd.
(3) Includes shares of SFC West, Ltd over which Kenneth Ketner has voting
control.
RECENT CHANGES
CHANGE IN CONTROL
On July 31, 2000, HomeZipR.com, Corp., a Delaware corporation,
completed a reverse acquisition of MRI pursuant to which MRI purchased all of
the outstanding shares of HomeZipR common stock in exchange for 22,393,671
shares of MRI's common stock and 5,000,000 shares of MRI's Series A Preferred
Stock. As a result, HomeZipR is now a wholly-owned subsidiary of MRI.
Upon the closing of the transaction, the former shareholders of
HomeZipR owned approximately 42% of MRI's outstanding common stock and
approximately 94% of MRI's outstanding preferred stock. Together, this accounts
for approximately 90% of the company's total outstanding voting power. After
giving effect to the reverse split and assuming conversion of all of the
outstanding Series A Preferred Stock into common stock, the former HomeZipR
shareholders will own approximately 90% of the company's outstanding common
stock.
CHANGE IN ACCOUNTANTS
On or about July 31, 2000, in connection with the transaction described
above, we dismissed Ludlow & Harrison, a CPA corporation as our independent
public accountants and appointed Lesley, Thomas, Schwarz & Postma, Inc., who
were HomeZipR's independent public accountants, in their place. Reports issued
by Ludlow & Harrison for the fiscal years ended March 31 1999 and 2000 did not
contain any adverse opinion or disclaimer of opinion and were not qualified as
to audit scope or accounting principles, nor were there any material
disagreements with the former accountants on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
during these years.
We engaged Lesley, Thomas Schwarz & Postma, Inc. as our new independent
public accountants in July 2000. We did not consult with any other accounting
firm regarding the application of accounting principles to a specified
transaction, either contemplated or proposed, or the type of opinion that might
be rendered regarding our financial statements, nor did we consult with Lesley,
Thomas with respect to any accounting disagreement or any reportable event at
any time prior to their appointment as our independent public accountants.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF EXECUTIVE OFFICERS.
The following table sets forth the annual salaries for our chief
executive officer and each of our executive officers who will earn over $100,000
this year. Because of the reverse acquisition of HomeZipR.com described
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elsewhere in this information statement, we are only including information for
our current officers and are not providing information for the period prior to
the reverse acquisition. In addition, because HomeZipR was only formed in March
2000, the information presented below represents the officers' annual salaries
rather than amounts actually paid to date.
Name and Title Salary
-------------- ------
Kenneth Ketner, Chairman $330,000
Kevin Bonds, President and CEO $240,000
Michael Barron, Executive Vice President $150,000
To date, we have not granted any options or other long-term
compensation to any of our executive officers or directors.
COMPENSATION OF DIRECTORS.
We reimburse our directors for out-of-pocket expenses for attending
board meetings and we pay our outside directors $500 per meeting.
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APPENDIX I TO INFORMATION STATEMENT
HOMEZIPR CORP.
2000 STOCK OPTION PLAN
1. PURPOSE. The purpose of the HomeZipR Corp. 2000 Stock Option Plan
(the "Plan") is to strengthen HomeZipR Corp., a Colorado corporation
("Corporation"), by providing to employees, officers, directors, consultants and
independent contractors of the Corporation or any of its subsidiaries (including
dealers, distributors, and other business entities or persons providing services
on behalf of the Corporation or any of its subsidiaries) added incentive for
high levels of performance and unusual efforts to increase the earnings of the
Corporation. The Plan seeks to accomplish this purpose by enabling specified
persons to purchase shares of the Corporation's common stock, no par value,
thereby increasing their proprietary interest in the Corporation's success and
encouraging them to remain in the employ or service of the Corporation.
2. CERTAIN DEFINITIONS. As used in this Plan, the following words and
phrases shall have the respective meanings set forth below, unless the context
clearly indicates a contrary meaning:
2.1 "BOARD OF DIRECTORS" The Board of Directors of the
Corporation.
2.2 "CODE" The Internal Revenue Code of 1986, as amended.
2.3 "COMMITTEE" The Committee which shall administer the Plan
shall consist of two (2) or more members of the Board of Directors or, in the
event the committee is at any time not properly constituted, the Plan will be
administered by the entire Board of Directors, and references to the committee
herein shall in such event be then deemed to refer to the Board of Directors.
2.4 "FAIR MARKET VALUE PER SHARE" The fair market value per
share of the Shares as determined by the Committee in good faith. The Committee
is authorized to make its determination as to the fair market value per share of
the Shares on the following basis:
(i) if the Shares are traded only otherwise than on a
securities exchange and are not quoted on the National
Association of Securities Dealers' Automated Quotation System
("NASDAQ"), but are quoted on the bulletin board or in the
"pink sheets" published by the National Daily Quotation
Bureau, the greater of (a) the average of the mean between the
average daily bid and average daily asked prices of the Shares
during the thirty (30) day period preceding the date of grant
of an Option, as quoted on the bulletin board or in the "pink
sheets" published by the National Daily Quotation Bureau, or
(b) the mean between the average daily bid and average daily
asked prices of the Shares on the date of grant, as published
on the bulletin board or in such "pink sheets;"
(ii) if the Shares are traded on a securities
exchange or on the NASDAQ, the greater of (a) the average of
the daily closing prices of the Shares during the ten (10)
trading days preceding the date of grant of an Option, as
quoted in the Wall Street Journal, or (b) the daily closing
price of the Shares on the date of grant of an Option, as
quoted in the Wall Street Journal; or
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(iii) if the Shares are traded only otherwise than as
described in (i) or (ii) above, or if the Shares are not
publicly traded, the value determined by the Committee in good
faith based upon the fair market value as determined by
completely independent and well qualified experts.
2.5 "INCENTIVE STOCK OPTION" An Option intended to qualify for
treatment as an incentive stock option under Code Sections 421 and 422, and
designated as an Incentive Stock Option.
2.6 "NONQUALIFIED OPTION" An Option not qualifying as an
Incentive Stock Option.
2.7 "OPTION" A stock option granted under the Plan.
2.8 "OPTIONEE" The holder of an Option.
2.9 "OPTION AGREEMENT" The document setting forth the terms
and conditions of each Option.
2.10 "SHARES" The shares of common stock, no par value, of the
Corporation.
2.11 "SUBSIDIARY" Any corporation of which fifty percent (50%)
or more of the total combined voting power of all classes of stock of such
corporation is owned by the Corporation or another Subsidiary (as so defined).
3. ADMINISTRATION OF PLAN.
3.1 IN GENERAL. This Plan shall be administered by the
Committee. Any action of the Committee with respect to administration of the
Plan shall be taken pursuant to (i) a majority vote at a meeting of the
Committee (to be documented by minutes), or (ii) the unanimous written consent
of its members.
3.2 AUTHORITY. Subject to the express provisions of this Plan,
the Committee shall have the authority to:
(i) construe and interpret the Plan, decide all
questions and settle all controversies and disputes which may arise in
connection with the Plan and to define the terms used therein;
(ii) prescribe, amend and rescind rules and
regulations relating to administration of the Plan;
(iii) determine the purchase price of the Shares
covered by each Option and the method of payment of such price,
individuals to whom, and the time or times at which, Options shall be
granted and exercisable and the number of Shares covered by each
Option;
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(iv) determine the terms and provisions of the
respective Option Agreements (which need not be identical);
(v) determine the duration and purposes of leaves of
absence which may be granted to participants without constituting a
termination of their employment for purposes of the Plan; and
(vi) make all other determinations necessary or
advisable to the administration of the Plan.
Determinations of the Committee on matters referred
to in this Section 3 shall be conclusive and binding on all parties howsoever
concerned. With respect to Incentive Stock Options, the Committee shall
administer the Plan in compliance with the provisions of Code Section 422 as the
same may hereafter be amended from time to time. No member of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option.
4. ELIGIBILITY AND PARTICIPATION.
4.1 IN GENERAL. Only officers, employees and directors who are
also employees of the Corporation or any Subsidiary shall be eligible to receive
grants of Incentive Stock Options. Officers, employees and directors (whether or
not they are also employees) of the Corporation or any Subsidiary, as well as
consultants, independent contractors or other service providers of the
Corporation or any Subsidiary shall be eligible to receive grants of
Nonqualified Options. Within the foregoing limits, the Committee, from time to
time, shall determine and designate persons to whom Options may be granted. All
such designations shall be made in the absolute discretion of the Committee and
shall not require the approval of the stockholders. In determining (i) the
number of Shares to be covered by each Option, (ii) the purchase price for such
Shares and the method of payment of such price (subject to the other sections
hereof), (iii) the individuals of the eligible class to whom Options shall be
granted, (iv) the terms and provisions of the respective Option Agreements, and
(v) the times at which such Options shall be granted, the Committee shall take
into account such factors as it shall deem relevant in connection with
accomplishing the purpose of the Plan as set forth in Section 1. An individual
who has been granted an Option may be granted an additional Option or Options if
the Committee shall so determine. No Option shall be granted under the Plan
after July 31, 2010, but Options granted before such date may be exercisable
after such date.
4.2 CERTAIN LIMITATIONS. In no event shall Incentive Stock
Options be granted to an Optionee such that the sum of (i) aggregate fair market
value (determined at the time the Incentive Stock Options are granted) of the
Shares subject to all Options granted under the Plan which are exercisable for
the first time during the same calendar year, plus (ii) the aggregate fair
market value (determined at the time the options are granted) of all stock
subject to all other incentive stock options granted to such Optionee by the
Corporation, its parent and Subsidiaries which are exercisable for the first
time during such calendar year, exceeds One Hundred Thousand Dollars ($100,000).
For purposes of the immediately preceding sentence, fair market value shall be
determined as of the date of grant based on the Fair Market Value Per Share as
determined pursuant to Section 2.3.
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5. AVAILABLE SHARES AND ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
5.1 SHARES. Subject to adjustment as provided in Section 5.2
below, the total number of Shares to be subject to Options granted pursuant to
this Plan shall not exceed Two Million (2,000,000) Shares. Shares subject to the
Plan may be either authorized but unissued shares or shares that were once
issued and subsequently reacquired by the Corporation; the Committee shall be
empowered to take any appropriate action required to make Shares available for
Options granted under this Plan. If any Option is surrendered before exercise or
lapses without exercise in full or for any other reason ceases to be
exercisable, the Shares reserved therefore shall continue to be available under
the Plan.
5.2 ADJUSTMENTS. As used herein, the term "Adjustment Event"
means an event pursuant to which the outstanding Shares of the Corporation are
increased, decreased or changed into, or exchanged for a different number or
kind of shares or securities, without receipt of consideration by the
Corporation, through reorganization, merger, recapitalization, reclassification,
stock split, reverse stock split, stock dividend, stock consolidation or
otherwise. Upon the occurrence of an Adjustment Event, (i) appropriate and
proportionate adjustments shall be made to the number and kind of Shares and
exercise price for the Shares subject to the Options which may thereafter be
granted under this Plan, (ii) appropriate and proportionate adjustments shall be
made to the number and kind of and exercise price for the Shares subject to the
then outstanding Options granted under this Plan, and (iii) appropriate
amendments to the Option Agreements shall be executed by the Corporation and the
Optionees if the Committee determines that such an amendment is necessary or
desirable to reflect such adjustments. If determined by the Committee to be
appropriate, in the event of an Adjustment Event which involves the substitution
of securities of a corporation other than the Corporation, the Committee shall
make arrangements for the assumptions by such other corporation of any Options
then or thereafter outstanding under the Plan. Notwithstanding the foregoing,
such adjustment in an outstanding Option shall be made without change in the
total exercise price applicable to the unexercised portion of the Option, but
with an appropriate adjustment to the number of Shares, kind of shares and
exercise price for each Share subject to the Option. The determination by the
Committee as to what adjustments, amendments or arrangements shall be made
pursuant to this Section 5.2, and the extent thereof, shall be final and
conclusive. No fractional Shares shall be issued under the Plan on account of
any such adjustment or arrangement.
6. TERMS AND CONDITIONS OF OPTIONS.
6.1 INTENDED TREATMENT AS INCENTIVE STOCK OPTIONS. Incentive
Stock Options granted pursuant to this Plan are intended to be "incentive stock
options" to which Code Sections 421 and 422 apply, and the Plan shall be
construed and administered to implement that intent. If all or any part of an
Incentive Stock Option shall not be an "incentive stock option" subject to
Sections 421 or 422 of the Code, such Option shall nevertheless be valid and
carried into effect. All Options granted under this Plan shall be subject to the
terms and conditions set forth in this Section 6 (except as provided in Section
5.2) and to such other terms and conditions as the Committee shall determine to
be appropriate to accomplish the purpose of the Plan as set forth in Section 1.
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6.2 AMOUNT AND PAYMENT OF EXERCISE PRICE.
6.2.1 EXERCISE PRICE. The exercise price per Share
for each Share which the Optionee is entitled to purchase under a Nonqualified
Option shall be determined by the Committee but shall not be less than
eighty-five percent (85%) of the Fair Market Value Per Share on the date of the
grant of the Nonqualified Option. The exercise price per Share for each Share
which the Optionee is entitled to purchase under an Incentive Stock Option shall
be determined by the Committee but shall not be less than the Fair Market Value
Per Share on the date of the grant of the Incentive Stock Option; provided,
however, that the exercise price shall not be less than one hundred and ten
percent (110%) of the Fair Market Value Per Share on the date of the grant of
the Incentive Stock Option in the case of an individual then owning (within the
meaning of Code Section 425(d)) more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or of its
parent or Subsidiaries.
6.2.2 PAYMENT OF EXERCISE PRICE. The consideration to
be paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Committee and may consist of
promissory notes, shares of the common stock of the Corporation or such other
consideration and method of payment for the Shares as may be permitted under
applicable state and federal laws.
6.3 EXERCISE OF OPTIONS.
6.3.1 Each Option granted under this Plan shall be
exercisable at such times and under such conditions as may be determined by the
Committee at the time of the grant of the Option and as shall be permissible
under the terms of the Plan; provided, however, in no event shall an Option be
exercisable after the expiration of ten (10) years from the date it is granted,
and in the case of an Optionee owning (within the meaning of Code Section
425(d)), at the time an Incentive Stock Option is granted, more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Corporation or of its parent or Subsidiaries, such Incentive Stock Option shall
not be exercisable later than five (5) years after the date of grant.
6.3.2 An Optionee may purchase less than the total
number of Shares for which the Option is exercisable, provided that a partial
exercise of an Option may not be for less than One Hundred(100) Shares and shall
not include any fractional Shares.
6.4 NONTRANSFERABILITY OF OPTIONS. All Options granted under
this Plan shall be nontransferable, either voluntarily or by operation of law,
otherwise than by will or the laws of descent and distribution, and shall be
exercisable during the Optionee's lifetime only by such Optionee.
6.5 EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
Except as otherwise determined by the Committee in connection with the grant of
Nonqualified Options, the effect of termination of an Optionee's employment or
other relationship with the Corporation on such Optionee's rights to acquire
Shares pursuant to the Plan shall be as follows:
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6.5.1 TERMINATION FOR OTHER THAN DISABILITY OR CAUSE.
If an Optionee ceases to be employed by, or ceases to have a relationship with,
the Corporation for any reason other than for disability or cause, such
Optionee's Options shall expire not later than three (3) months thereafter.
During such three (3) month period and prior to the expiration of the Option by
its terms, the Optionee may exercise any Option granted to him, but only to the
extent such Options were exercisable on the date of termination of his
employment or relationship and except as so exercised, such Options shall expire
at the end of such three (3) month period unless such Options by their terms
expire before such date. The decision as to whether a termination for a reason
other than disability, cause or death has occurred shall be made by the
Committee, whose decision shall be final and conclusive, except that employment
shall not be considered terminated in the case of sick leave or other bona fide
leave of absence approved by the Corporation.
6.5.2 DISABILITY. If an Optionee ceases to be
employed by, or ceases to have a relationship with, the Corporation by reason of
disability (within the meaning of Code Section 22(e)(3)), such Optionee's
Options shall expire not later than one (1) year thereafter. During such one (1)
year period and prior to the expiration of the Option by its terms, the Optionee
may exercise any Option granted to him, but only to the extent such Options were
exercisable on the date the Optionee ceased to be employed by, or ceased to have
a relationship with, the Corporation by reason of disability and except as so
exercised, such Options shall expire at the end of such one (1) year period
unless such Options by their terms expire before such date. The decision as to
whether a termination by reason of disability has occurred shall be made by the
Committee, whose decision shall be final and conclusive.
6.5.3 TERMINATION FOR CAUSE. If an Optionee's
employment by, or relationship with, the Corporation is terminated for cause,
such Optionee's Option shall expire immediately; provided, however, the
Committee may, in its sole discretion, within thirty (30) days of such
termination, waive the expiration of the Option by giving written notice of such
waiver to the Optionee at such Optionee's last known address. In the event of
such waiver, the Optionee may exercise the Option only to such extent, for such
time, and upon such terms and conditions as if such Optionee had ceased to be
employed by, or ceased to have a relationship with, the Corporation upon the
date of such termination for a reason other than disability, cause, or death.
Termination for cause shall include termination for malfeasance or gross
misfeasance in the performance of duties or conviction of illegal activity in
connection therewith or any conduct detrimental to the interests of the
Corporation. The determination of the Committee with respect to whether a
termination for cause has occurred shall be final and conclusive.
6.6 WITHHOLDING OF TAXES. As a condition to the exercise, in
whole or in part, of any Options the Board of Directors may in its sole
discretion require the Optionee to pay, in addition to the purchase price of the
Shares covered by the Option an amount equal to any Federal, state or local
taxes that may be required to be withheld in connection with the exercise of
such Option.
6.7 NO RIGHTS TO CONTINUED EMPLOYMENT OR RELATIONSHIP. Nothing
contained in this Plan or in any Option Agreement shall obligate the Corporation
to employ or have another relationship with any Optionee for any period or
interfere in any way with the right of the Corporation to reduce such Optionee's
compensation or to terminate the employment of or relationship with any Optionee
at any time.
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6.8 TIME OF GRANTING OPTIONS. The time an Option is granted,
sometimes referred to herein as the date of grant, shall be the day the
Corporation executes the Option Agreement; provided, however, that if
appropriate resolutions of the Committee indicate that an Option is to be
granted as of and on some prior or future date, the time such Option is granted
shall be such prior or future date.
6.9 PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall be
entitled to the privileges of stock ownership as to any Shares not actually
issued and delivered to such Optionee. No Shares shall be purchased upon the
exercise of any Option unless and until, in the opinion of the Corporation's
counsel, any then applicable requirements of any laws or governmental or
regulatory agencies having jurisdiction and of any exchanges upon which the
stock of the Corporation may be listed shall have been fully complied with.
6.10 SECURITIES LAWS COMPLIANCE. The Corporation will
diligently endeavor to comply with all applicable securities laws before any
Options are granted under the Plan and before any Shares are issued pursuant to
Options. Without limiting the generality of the foregoing, the Corporation may
require from the Optionee such investment representation or such agreement, if
any, as counsel for the Corporation may consider necessary or advisable in order
to comply with the Securities Act of 1933 as then in effect, and may require
that the Optionee agree that any sale of the Shares will be made only in such
manner as is permitted by the Committee. The Committee in its discretion may
cause the Shares underlying the Options to be registered under the Securities
Act of 1933, as amended, by the filing of a Form S-8 Registration Statement
covering the Options and Shares underlying such Options. Optionee shall take any
action reasonably requested by the Corporation in connection with registration
or qualification of the Shares under federal or state securities laws.
6.11 OPTION AGREEMENT. Each Incentive Stock Option and
Nonqualified Option granted under this Plan shall be evidenced by the
appropriate written Stock Option Agreement ("Option Agreement") executed by the
Corporation and the Optionee in a form substantially the same as the appropriate
form of Option Agreement attached as Exhibit I or II hereto (and made a part
hereof by this reference) and shall contain each of the provisions and
agreements specifically required to be contained therein pursuant to this
Section 6, and such other terms and conditions as are deemed desirable by the
Committee and are not inconsistent with the purpose of the Plan as set forth in
Section 1.
7. PLAN AMENDMENT AND TERMINATION.
7.1 AUTHORITY OF COMMITTEE. The Committee may at any time
discontinue granting Options under the Plan or otherwise suspend, amend or
terminate the Plan and may, with the consent of an Optionee, make such
modification of the terms and conditions of such Optionee's Option as it shall
deem advisable; provided that, except as permitted under the provisions of
Section 5.2, the Committee shall have no authority to make any amendment or
modification to this Plan or any outstanding Option thereunder which would:
(i) increase the maximum number of Shares which may
be purchased pursuant to Options granted under the Plan, either in the
aggregate or by an Optionee (except pursuant to Section 5.2);
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(ii) change the designation of the class of the
employees eligible to receive Incentive Stock Options;
(iii) extend the term of the Plan or the maximum
Option period thereunder;
(iv) decrease the minimum Incentive Stock Option
price or permit reductions of the price at which Shares may be
purchased for Incentive Stock Options granted under the Plan; or
(v) cause Incentive Stock Options issued under the
Plan to fail to meet the requirements of incentive stock options under
Code Section 422.
An amendment or modification made pursuant to the provisions
of this Section 7 shall be deemed adopted as of the date of the action of the
Committee effecting such amendment or modification and shall be effective
immediately, unless otherwise provided therein, subject to approval thereof (1)
within twelve (12) months before or after the effective date by stockholders of
the Corporation holding not less than a majority vote of the voting power of the
Corporation voting in person or by proxy at a duly held stockholders meeting
when required to maintain or satisfy the requirements of Code Section 422 with
respect to Incentive Stock Options, and (2) by any appropriate governmental
agency. No Option may be granted during any suspension or after termination of
the Plan.
7.2 TEN (10) YEAR MAXIMUM TERM. Unless previously terminated
by the Committee, this Plan shall terminate on July 31, 2010 and no Options
shall be granted under the Plan thereafter.
7.3 EFFECT ON OUTSTANDING OPTIONS. Amendment, suspension or
termination of this Plan shall not, without the consent of the Optionee, alter
or impair any rights or obligations under any Option theretofore granted.
8. EFFECTIVE DATE OF PLAN. This Plan shall be effective as of July 31,
2000, the date the Plan was adopted by the Board of Directors, subject to the
approval of the Plan by the affirmative vote of a majority of the issued and
outstanding Shares of common stock and preferred stock of the Corporation
entitled to vote thereon represented and voting at a duly held meeting at which
a quorum is present within twelve (12) months thereafter. The Committee shall be
authorized and empowered to make grants of Options pursuant to this Plan prior
to such approval of this Plan by the stockholders; provided, however, in such
event the Option grants shall be made subject to the approval of both this Plan
and such Option grants by the stockholders in accordance with the provisions of
this Section 8.
9. MISCELLANEOUS PROVISIONS.
9.1 EXCULPATION AND INDEMNIFICATION. The Corporation shall
indemnify and hold harmless the Committee from and against any and all
liabilities, costs and expenses incurred by such persons as a result of any act,
or omission to act, in connection with the performance of such persons' duties,
responsibilities and obligations under the Plan, other than such liabilities,
costs and expenses as may result from the gross negligence, bad faith, willful
conduct and/or criminal acts of such persons.
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9.2 GOVERNING LAW. The Plan shall be governed and construed in
accordance with the laws of the State of Delaware and the Code.
9.3 COMPLIANCE WITH APPLICABLE LAWS. The inability of the
Corporation to obtain from any regulatory body having jurisdiction authority
deemed by the Corporation's counsel to be necessary to the lawful issuance and
sale of any Shares upon the exercise of an Option shall relieve the Corporation
of any liability in respect of the non-issuance or sale of such Shares as to
which such requisite authority shall not have been obtained.
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