UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14c-5(d)(2))
[ ] Definitive Information Statement
XCEL MANAGEMENT, INC.
-----------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party: Xcel Management, Inc.
(4) Date Filed: April___, 2000
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XCEL MANAGEMENT, INC.
1101 Broadway Plaza
Tacoma, Washington 98402
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL , 2000
TO THE SHAREHOLDERS OF XCEL MANAGEMENT, INC.:
A special meeting of the shareholders (the "Special Meeting") of XCEL
MANAGEMENT, INC. (the "Company"), will be held at the Company's offices at
1101 Broadway Plaza, Tacoma, Washington 98402, on April ____, 2000, at p.m.,
Pacific Time, to consider and vote on the following proposals:
(1) To change the state of incorporation of the Company from Utah to
Delaware, and in connection therewith to: change the name of the Company to
"Insynq, Inc."; modify the purpose for which the Company was organized;
authorize, in addition to the common stock and preferred stock presently
authorized by the Company, a total of 10,000,000 shares of Class A Common
Stock, which entitles the holder to three (3) votes for each share held on all
matters submitted to the shareholders; and generally modify the certificate of
incorporation and bylaws of the Company to conform to the provisions of
Delaware law, all through the merger of the Company with and into a new
wholly-owned subsidiary corporation (the "Delaware Corporation") created by
the Company for that purpose;
(2) To adopt a plan of recapitalization under which the issued and
outstanding shares of the Company's common stock will be forward split two for
one simultaneously with the Company's reincorporation in Delaware so that
shareholders will receive two shares of the Delaware Corporation's common
stock, par value $0.001, for each share of the Company's common stock now held;
(3) To adopt and approve the Company's 2000 Long Term Incentive Plan
(the "Incentive Plan") and the 2000 Executive Officer Long Term Incentive Plan
(the "Executive Plan") (collectively referred to as the "Incentive Plans");
(4) To ratify the selection of G. Brad Beckstead, as independent auditor
of the Company in 2000; and
(5) To transact such other business as may properly come before the
Special Meeting.
ONLY SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON APRIL ___, 2000
(THE "RECORD DATE") ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE SPECIAL
MEETING. THE ATTENDANCE AT AND/OR VOTE OF EACH SHAREHOLDER AT THE SPECIAL
MEETING IS IMPORTANT.
BY ORDER OF THE BOARD OF
DIRECTORS
Tacoma, Washington By-----------------------------
- ---------------------
DATED: April____, 2000
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE ENCOURAGED NOT TO SEND A PROXY.
MANAGEMENT DOES, HOWEVER, ENCOURAGE ALL SHAREHOLDERS TO ATTEND THE SPECIAL
MEETING IN PERSON.
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XCEL MANAGEMENT, INC.
1101 Broadway Plaza
Tacoma, Washington 98402
INFORMATION STATEMENT
This Information Statement is furnished to shareholders of XCEL MANAGEMENT,
INC., a Utah corporation (the "Company"), in connection with its special
meeting of shareholders (the "Special Meeting") to be held on April
, 2000, at the Company's offices at 1101 Broadway Plaza, Tacoma,
Washington 98402, at 2:00 p.m., Pacific Time, and at any adjournment(s)
thereof. This Information Statement and the notice of Special Meeting are
first being mailed to shareholders on or about April ___, 2000.
THE COMPANY AND ITS BOARD OF DIRECTORS ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
Only holders of record of the 9,404,050 shares of common stock of the
Company outstanding as of April , 2000 (the "Record Date"), are entitled to
vote at the Special Meeting. Each holder of common stock has the right to one
vote for each share of the Company's common stock owned. Cumulative voting
for the election of directors or for any other purpose is not provided for.
Stock representing one-half of the voting power of the 9,404,050 shares of the
Company's common stock outstanding on the Record Date, must be represented at
the Special Meeting to constitute a quorum for conducting business. The
Company has no class of voting stock other than the common stock. (However,
with respect to future matters brought before the shareholders, the Company is
proposing, in connection with the proposed reincorporation in Delaware, a new
class of common stock, Class A Common Stock, which will entitle the holder to
three (3) votes for each share held on all matters submitted to the
shareholders for approval. (See "PROPOSAL NO. 1 - REINCORPORATION IN
DELAWARE.")
At the Special Meeting, the shareholders will consider and vote on the
following proposals:
(1) To change the state of incorporation of the Company from Utah to
Delaware, and in connection therewith to: change the name of the
Company to "Insynq, Inc."; modify the purpose for which the
Company was organized; authorize, in addition to the common stock
and preferred stock presently authorized by the Company, a total
of 10,000,000 shares of Class A Common Stock, which entitles the
holder to three (3) votes for each share held on all matters
submitted to the shareholders; and generally modify the
certificate of incorporation and bylaws of the Company to conform
to the provisions of Delaware law, all through the merger of the
Company with and into a new wholly-owned subsidiary corporation
(the "Delaware Corporation") created by the Company for that
purpose;
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(2) To adopt a plan of recapitalization under which the issued and
outstanding shares of the Company's common stock will be forward
split two for one simultaneously with the Company's
reincorporation in Delaware so that shareholders will receive two
shares of the Delaware Corporation's common stock, par value
$0.001, for each share of the Company's common stock now held;
(3) To adopt and approve the Company's 2000 Long Term Incentive Plan
(the "Incentive Plan") and the 2000 Executive Officer Long Term
Incentive Plan (the "Executive Plan")(or collectively referred to
as the "Incentive Plans");
(4) To ratify the selection of G. Brad Beckstead, as independent
auditor of the Company in 2000; and
(5) To transact such other business as may properly come before the
Special Meeting.
Two shareholders holding the voting rights to more than 50% of the common
stock issued and outstanding have indicated their intention to vote in favor
of the proposals of management. Accordingly, the proposals of management will
be approved without the affirmative vote of any other shares, and management
can forego the time, effort, and expense of a proxy solicitation.
HISTORY AND BUSINESS OF THE COMPANY
GENERAL/HISTORY
On January 26, 2000, the Registrant entered into an Asset Purchase
Agreement with Insynq, Inc. ("Insynq"), a closely-held Washington corporation
engaged in providing hardware, software, computer internet and related
telecommunications services and products to small businesses and high-end home
offices. (See "Current Business of the Company," below). The terms of the
Agreement were substantially completed on February 18, 2000. Under the terms
of the Agreement, the Registrant acquired substantially all of the assets of
Insynq, and assumed substantially all of the obligations of Insynq, in
exchange for the issuance by the Company of a total of 7,604,050 shares of
restricted common stock of the Company, to the Insynq shareholders pro rata in
a liquidating distribution. As a result of the transaction, the Company now
has a total of approximately 9,404,050 shares issued and outstanding, of which
7,604,050 shares, or approximately 81% are now held by the former Insynq
shareholders. In connection with the Agreement, Insynq obtained approval of
the sale of its assets by its shareholders at a duly called and convened
shareholders' meeting.
As a result of the Agreement, the Company has acquired essentially all
of the assets, tangible and intangible, of Insynq, and has become engaged in
Insynq's business, described below. These assets include computer hardware
and software, related equipment, furniture and fixtures, proprietary
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technology developed by Insynq, described below, all contractual rights
including capitalized lease equipment and other leasehold rights, tradenames
and trademarks and all client lists and marketing data and materials, cash and
cash equivalents, accounts receivable, inventory, work in progress and related
assets. As indicated below, the asset considered most valuable by Insynq and
the Registrant in completing the Agreement, is Insynq's proprietary data
utility services system that was designed to offer enhanced technological
computer processing and communication capabilities.
In connection with the Agreement, the Registrant has assumed essentially
all of the obligations and liabilities of Insynq, including capital lease
obligations on equipment (approximately $587,517 as of December 31, 1999),
accounts payable, accrued payroll and other business taxes, notes payable, and
other liabilities. As of December 31, 1999, total liabilities of Insynq were
$980,520. In addition to such liabilities, the Company has agreed to assume
all other contractual obligations of Insynq. In that regard, it is
anticipated that the Company will enter into employment contracts with certain
individuals who were executives or key employees of Insynq, on substantially
the same terms as the terms of employment between Insynq and such individuals.
In addition, the Company has agreed to assume all equipment leases,
leasehold obligations covering office space utilized by Insynq, all consulting
contracts, and all other contract obligations. Finally, at the time of
completion of the Insynq asset acquisition, Insynq had outstanding to various
shareholders, a number of warrants and options, entitling the holders to
purchase shares up to a total of 4,176,820 shares of restricted common stock
of Insynq, which warrants and options have been converted into options and
warrants to purchase a total of approximately 4,176,820 shares of the
Company's common stock, at prices of between $.50 to $15.00 per share, not
including options to purchase a total of approximately 4,010,150 shares of
common stock granted under the Company's Incentive Plans. The exercise of all
or any portion of these outstanding options and warrants would have the effect
of substantially diluting the ownership of the present shareholders in the
Company. (See "PROPOSAL NO. 2: PROPOSED RECAPITALIZATION," "PROPOSAL NO. 3 -
ADOPTION OF INCENTIVE PLANS," and "CERTAIN TRANSACTIONS.")
HISTORY OF THE COMPANY
Xcel Management, Inc., formerly known as "Palace Casinos, Inc." (the
"Company"), was inactive from the end of 1995 until the consummation of the
asset purchase transaction with Insynq. During the two year period prior to
the transaction with Insynq, the Company and its then management, was involved
in efforts to complete a plan of reorganization confirmed in the United States
Bankruptcy Court under Chapter 11 of the federal bankruptcy laws, and
undertaking necessary steps to position the Company to seek a new business
enterprise in which it may become involved, either through a merger or
reorganization, or an acquisition transaction. These efforts resulted in the
transaction with Insynq, completed in February, 2000.
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The Company was incorporated in the state of Utah on May 22, 1980, under
the name "Ward's Gas & Oil," to engage in the oil and gas business. This
business was terminated after a few years of operations. From November 1992
until approximately the end of 1995, the Company (which had changed its name
to "Palace Casinos, Inc."), was engaged, through its then wholly-owned
subsidiary, Maritime Group, Ltd. (the "Subsidiary"), in the development of a
dockside gaming facility in Biloxi, Mississippi. In April, 1994, the
Subsidiary completed the development of the Biloxi gaming facility, "Palace
Casino," and commenced operations. On December 1, 1994, the Company and the
Subsidiary separately filed voluntary petitions for relief under Chapter 11 of
the federal bankruptcy laws. Although the Company's original bankruptcy
petition was filed in the United States Bankruptcy Court for the District of
Utah, Central Division, the supervision of the Company's Chapter 11
proceedings was transferred to the United States Bankruptcy Court for the
Southern District of Mississippi (the "Bankruptcy Court"). On September 22,
1995, the Company, which had been operating as debtor-in-possession in
connection with the bankruptcy proceeding, entered into an Asset Purchase
Agreement under the terms of which it agreed, subject to the approval of the
Bankruptcy Court, to sell substantially all of the Subsidiary's operating
assets. This transaction was approved by the Bankruptcy Court, and completed
in the end of 1995, with all of the net proceeds of the transaction being
distributed to creditors. Following the completion of the sale of the
Subsidiary's Assets, the Company had essentially no assets and liabilities and
the Company's business operations essentially ceased, except for efforts to
complete a plan of reorganization, described below.
In February, 1999, Steve Rippon and Edward D. Bagley, the Company's
present management, submitted to the Bankruptcy Court, as plan proponents, a
plan of reorganization (the "Plan"), which was confirmed by the Bankruptcy
Court on June 16, 1999. Under the terms of the Plan: (a) all of the
Company's priority creditors were paid a total of $5,000; (b) unsecured
creditors, holding between $300,000 and $500,000 in claims, were issued pro
rata a total of 90,000 shares of post-bankruptcy common stock in full
satisfaction of such obligations; and (c) all of the equity holders of the
Company's common stock, were issued, pro rata, a total of approximately 90,000
shares of common stock in lieu of a total of 8,794,329 shares of preferred and
common stock issued and outstanding, with the result that .0102 shares of
common stock were issued for each previously outstanding share of common
stock. Under the terms of the Plan, all outstanding warrants and options of
the Company expired. In connection with the Plan, Messrs. Rippon and Bagley,
creditors of the estate and the plan proponents, were elected as the officers
and directors of the Company, and were issued a total of 1,620,000 shares of
common stock (810,000 shares each) of the Company, in consideration of their
contributions of services and approximately $20,000 in cash provided to pay
for legal services and costs incurred in the Plan confirmation process and
related activities.
Following the confirmation of the Plan in June, 1999, the Company and
the plan proponents completed the Plan in accordance with its terms.
Immediately following the confirmation of the Plan, the Company had a total of
approximately 1,800,000 shares of common stock, par value $0.001 per share,
issued and outstanding. On December 3, 1999, the Bankruptcy Court, after
reviewing the efforts by the plan proponents, issued an order closing the
bankruptcy estate of the Company.
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Since the completion of the Plan, the Company and its new management
undertook efforts to complete updated financial statements of the Company, to
prepare and file updated periodic reports with the Securities and Exchange
Commission covering the past year, and to undertake actions to enable the
Company to seek a business opportunity for acquisition or involvement by the
Company. These efforts resulted in the asset purchase transaction with
Insynq, Inc., described above.
FINANCIAL INFORMATION
Attached to this Information Statement, are the unaudited financial
statements of the Company for the seven months ended December 31, 1999, the
audited financial statements of Insynq, Inc., for the two fiscal years ended
December 31, 1999, together with unaudited pro forma consolidated financial
statements as of December 31, 1999. (See Exhibit "E".)
CURRENT BUSINESS OF REGISTRANT
General
As a result of the acquisition by the Company of the assets of Insynq,
the Company is now engaged in the business of Insynq. As discussed under
"PROPOSAL NO. 1 - REINCORPORATION IN DELAWARE," the Company intends to
reincorporate in the state of Delaware, and, in connection therewith, to
change the Company's name to "Insynq, Inc."
Insynq, Inc. (the "Company"), was incorporated as a Washington corporation on
August 31, 1998. Therefore, the Company, as the successor-in-interest of the
business of Insynq, Inc., is in the development stage with a limited history
of operations. During the year ended December 31, 1999, Insynq had total
income of $145,721, and incurred total operating losses of $842,142.
The Company is a provider of computer hardware, software, computer/
internet related telephonic requirements and services, access to web
services of all kinds, access to internet marketing assistance and related
equipment and services. It offers these as an integrated whole. In other
words, Insynq is an on-line provider of hardware and software, together with
related support services, on a rental, fee or sales basis.
Insynq targets small businesses and high-end home offices for the sale
of hardware and software and access to related services. It provides these
products and services not in a retail setting, but by attempting to convince
customers and subscribers to adopt a cost effective on-line solution to
building and to maintain an information technology system through the adoption
of a "server-based" computing as an alternative to both local area networks
(LAN's), and traditional client/server implementations. Insynq attempts to
concentrate on the small business and high-end home office user ("SOHO"), and
markets itself as an "internet utility company" that can provide cost-
effectively all of the computer software, hardware, telecommunication and
internet needs for the SOHO markets.
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John P. Gorst, Chief Executive Officer of the Company, is one of the
pioneers and implementers of the server-based computing model. The server-
based computing model has already grown dramatically and has shown an
outcropping of competitors to Insynq, Inc. The Company currently has several
companies on line using their server-based computing services and has signed
contracts with a number of additional companies to come on board in the next
few months. In addition, the Company has letters of intent with several
organizations.
The Company believes its competency is providing products and services
related to the Internet Utility Company paradigm. This entails IT outsourcing
service, including telecommunications, hardware, software and maintenance
services for small companies and the high end home office, also known by the
term SOHO market. The Company believes it has gained credibility in the
industry with partners such as Hewlett-Packard, Citrix Systems and Frontier
Communications. These companies have chosen to partner with the Company in
various capacities both hardware, software and telecommunication lines
required to build a successful delivery mechanism.
The Company's Proprietary iQ2 Network and Computing Utilities System
The Company's computer utilities and network concept and the iQ2 system
have been developed over the last two years by principals of "Interactive
Information Systems Corporation," a small computer integration company located
in Tacoma, Washington. As a company providing integration and consulting
services, computer equipment systems, LAN networks, software and technical
support to business customers, the management of Interactive Information
Systems Corporation became attuned to the information wants and needs of small
and medium sized businesses. The iQ2 system is an outgrowth of this
experience and responsiveness to real life business situations.
In the process of developing iQ2, the Company believes it acquired
valuable technological expertise. It has created new methodologies and
produced proprietary hardware and software that is believed to be essential to
the configuration and effective management of wide area multi-user networks
and outside deployment of shared software applications. Principals of the
Company are certified as Microsoft Systems Engineers, Microsoft certified
professionals, certified Netware administrators, certified Citrix
administrators, certified netware engineers and GTE certified data
consultants. The Company's system meets the systems security established by
Ernst and Young for Information Security Management, which imposes quality
standards and security routines for banks and financial institutions handling
sensitive data.
The Company's iQ2 computing system is designed to separate the command
and computing functions of the customers computers. The function of the user
terminals is reduced to entering commands to the iQ2 Central Servers located
at the Company's Data Center. Using proprietary ICA (multi-user
configuration) independent computer architecture, and thin client server
technology, iQ2 Central Servers are designed to perform all computing
functions for each user, including processing, storage and backup.
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The iQ2 System receives and transmits information in the form of images
rather than data, and requires only 10% of the bandwidth otherwise required
for data transmission through frame relay (dedicated wired connection). iQ2
thus distributes 32 bit Windows based software to the user with real time
speed. Latency is virtually nil. Commands are performed so fast, the user is
generally unaware of the connection to a central server. iQ2 connected by T-1
frame relay via dedicated high speed telephone lines is the fastest and most
secure telecomputing system to date.
Customers of the Company can be roughly divided into two groups. First,
there will be customers that operate from offices directly connected with the
Company by its T-1 frame relay. There will also be customers, such as persons
with portable communication devices such as lap top computers, using the iQ2
system through an Internet connection. The Company refers to each of its
users as seats. A client with such users will be operating six seats on its
system. Access into its system can occur through any of three terminals,
depending upon what is set up at the clients working site. These terminals
are referred to as Thin technology, a traditional computer processing unit or
through Network Cards.
Thin Technology, also called Thin Clients, operate a simplified diskless
workstation. Thin Technology is a reference to internet appliances. These
devices allow a user to reach the internet with only a monitor, a keyboard and
a mouse. The computer is replaced with this internet appliance at the user's
workstation. The internet appliance actually does very little. It sends the
user's instructions to an outsource provider. Under the iQ2 system, a Citrix
internet appliance communicates the user's data entry and retrieval commands
to iQ2 Servers located at the Company's data center, where all computing
functions are performed. This is the user option recommended by the Company.
Thin Clients do not have disk or tape drives. This increases productivity
because employees cannot install their own software (such as computer games)
or tamper with the computer's operating system. This access device imposes a
singleness of purpose upon the operation and improves manageability,
simplicity and reliability.
The traditional workstation, utilizing a computer processing unit,
constitutes the second type of terminal at the user's business. Customers may
need to use fully equipped workstations for certain individual seats that
utilize non-Windows software applications or very specialized, complex
applications such as CAD programs. This is not the Company's recommended
option because it does not free the customer from the technical problems and
service costs associated with its old computer processing units.
Finally, a customer may choose to use existing workstations as user
terminals, letting the Company convert each workstation to the iQ2 system with
a network card. With a network card installed, each unit will be enabled to
access and give commands to the iQ2 Central Servers. Every user terminal will
be connected to the iQ2 Administrator, which in turn is connected to the T-1
frame relay. The iQ2 Administrator administers the customers system and
performs other functions. If a user is connected with iQ2 by the Internet,
then iQ2 Administrator will not be required. Once connected to the iQ2
system, users can employ any of the following computer services.
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Virtual Office - with iQ2, the Company sets up a virtual office for the
customer, where professionals, employers, employees, clients and customers may
utilize a wide variety of software applications and/or interact directly in a
network environment. This office is always open, irrespective of the time of
day or the user's location.
Office Suite - use of an Office Suite of the types of software
applications generally used by businesses is included in the customers'
monthly subscriptions at no extra charge. Customers may also select from a
menu containing a wide variety of other Windows based software. The Company
Training Library makes employee training programs available to customers in a
variety of fields. The Company serves virtual markets and incorporates
specialized software for these customers. For example, applications are now
on line for vertical markets such as real estate brokers, accountants,
attorneys, point of sale operations, health care administration and
manufacturing. New applications are being configured and added continuously.
If software requested by a customer has a licensing fee, the customer may
purchase the license at a substantial discount through its subscription to the
Company. If the customer wishes to use Windows based software that is not
already on the Company's basic menu, the Company will configure, load and
maintain any application that is compatible with the iQ2 system for a small
additional monthly fee.
Virtual Network - the Company provides every customer with iQ2 Network
at less than half the initial cost of other networks. There is little to no
on-going cost for the iQ2 Network. This is part of the Company's standard
package of customer services. Little employee training is required to use the
iQ2 Network. iQ2 increases the reliability of a network from a factor of
about 50% to 90% plus.
Internet Connection - The Company provides customers connection to the
Internet at no additional charge as part of its services.
Web Site Creation and Hosting - for a small additional fee, the Company
will put the customer's Internet web site on its iQ2 servers and host the site
for them. The Company also offers easy to use software that assists customers
in developing their web site.
Data Back-up and Storage - the iQ2 system automatically and instantaneously
backs up customer data on two separate computer systems and on high speed
DLT tape. If desired, the customer can receive backed up data and back up
logs daily from the iQ2 Virtual Administrator. The Company provides one (1)
gigabyte of data storage for every six seats as part of its customer
installation for small businesses. For medium sized and larger businesses,
the amount of storage is tailored to the customers needs. There is no
limitation on storage available.
Security - the Company's iQ2 system raises the level of customer
security with the following measures. The Company's computers are located in
secure rooms, with locked down, card access only facilities. Customers
utilizing Thin Technology prevent unauthorized disk installation and
installation of outside software which can introduce corruptions and viruses.
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Firewalls in the iQ2 Administrator and Central Servers keep outsiders and
hackers from getting into the customers system and uploading data or
downloading viruses. This is especially important for customers that are
accessing the Internet. Customer data is never transmitted. Transmissions
between the customer's site and the Central Servers are in the form of
indecipherable images. Finally, the Company maintains state of the art anti-
virus measures for the protection of its own system.
Redundancy - iQ2 maintains separate redundant Central Servers to perform
all computing, storage and backup tasks.
Overview of Internet Industry The Internet has emerged as a global
medium, enabling millions of people worldwide to share information,
communicate and conduct business electronically. Industry experts estimate
that the number of Web users will grow from approximately 69 million worldwide
in 1997 to approximately 320 million worldwide by the end of 2002. This
growth is expected to be driven by the large and growing number of PCs
installed in homes and offices, the decreasing cost of PCs, easier, faster and
cheaper access to the Internet, improvements in network infrastructure, the
proliferation of Internet content and the increasing familiarity with and
acceptance of the Internet by businesses and consumers. As the number of
users has increased, the Internet has emerged as an effective means to market
products and services, helping to fuel its growth as a commercial medium.
The Internet possesses a number of unique characteristics that
differentiate it from traditional reference points: a lack of geographic or
temporal limitations; a sense of spatial freedom realized through high powered
navigation tools, fast connectivity and the shedding of one's true identity
and the adoption of an online identity; real-time access to dynamic and
interactive content; and instantaneous communication with a single individual
or with groups of individuals, effecting a flattening and broadening of
interpersonal relationships in general. In a true sense, the term cyberspace
reflects another dimension, the new frontier of our time. As a result of
these characteristics, Internet usage is expected to continue to grow rapidly.
The proliferation of users, combined with the Internet's reach and its lower
cost for transmitting data, graphics and voice communications has created a
powerful new dimension to the conduct of business.
The commercial potential of the Internet has resulted in a proliferation
of Web sites through which businesses, communities, media companies, news
services, affinity groups and individuals seek to inform, entertain,
communicate and conduct business with Internet users worldwide. New Internet
businesses, such as E-Loan Inc., InsWeb Corporation and Microsoft's Expedia,
have been established to offer goods and services in novel ways using the
Internet. Other popular Internet destination sites such as FindLaw, ivillage
and Xoom offer users the ability to engage and participate in a virtual
community with users of similar interests. At the same time, many traditional
media and publishing companies have transitioned their brand and content onto
the Internet, such as ABC's ABC LocalNet, Disney's Family.com, CBS's CBS Local
Guide, Playboy's Playboy.com and Dow Jones (The Wall Street Journal
Interactive Edition). Hundreds of thousands of corporations have established
Web sites and corporate intranets and extranets to communicate with employees,
customers and business partners over the Internet.
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This rapid growth in the number of Web sites and the wide array of
content associated with them has caused the emergence of the "portal," an
integrated online service through which users can access a wide range of
information and services without having to navigate through multiple sites.
Leading Internet service providers, such as AOL, Internet software and
services companies, such as Microsoft and Netscape, and Internet search
engines and directories, such as those offered by Yahoo, Lycos, Excite and
Infoseek, have sought to capitalize on their positions as the most frequently
visited sites on the Internet by establishing themselves as primary portals.
These companies have regularly added to their service offerings, aggregating
third-party content, such as stock quotes, news and yellow pages, and
incorporating links to and from other related sites, in order to prolong their
users' visits and promote repeat usage. In this environment, popular
destination and corporate sites have found it increasingly difficult to
compete for the attention of users and to preserve user loyalty. Many of
these sites have found it necessary to add to the amount of information and
services accessible through their sites, supplementing their more targeted or
thematic content with useful third-party content and services and effectively
becoming portals themselves.
The popularity of the Internet has also resulted in the emergence of new
Internet access devices and the adaptation of traditional communications
devices for Internet access, including cellular phones, pagers, screen phones,
television set-top boxes, online kiosks, personal digital assistants and, most
recently, internet appliances. In order to drive market acceptance of their
devices, these suppliers seek an integrated package of content and services
that is specifically designed to complement the display format and
navigational features of their devices.
In order to differentiate their services and attract the attention of
users on the increasingly crowded Internet, existing and emerging Internet
portals, destination sites and suppliers of PCs and other Internet access
devices all need to continually expand and enrich their offerings with value-
added content and services. The objective of these companies is to
effectively increase the audience for their services in terms of both reach
and frequency. The greater the size of their audience, the greater the
advertising and electronic commerce opportunities afforded to them.
The growth of the Internet represents a significant opportunity for
businesses to conduct commerce over the Internet. One factor in this
projected growth is the increasing variety of transactions that take place on
the Internet. Initially, companies focused on facilitating Internet
transactions between businesses. More recently, however, a number of
companies have targeted business-to-consumer transactions. These companies
typically use the Internet to offer standard products and services that can be
easily described with graphics and text and that do not necessarily require a
physical presence for purchase, such as software, books, music CDs,
videocassettes, home loans, airline tickets and online banking and stock
trading. The Internet allows these companies to develop one-to-one
relationships with customers worldwide without making significant investments
in traditional infrastructure such as retail outlets, distribution networks
and sales personnel.
12
As the Internet evolves into a mass medium, the Company believes there
will be an increasing need for outsourced business and syndication services to
enable existing and emerging Internet portals, destination sites and suppliers
of PCs and other Internet access devices (collectively, "Internet points-of-
entry") to broaden their content offering and exploit the revenue potential of
their audience. In more traditional media such as television, radio and
print, syndicated content provided by the major television networks,
programming syndicators and wire services, such as Reuters and Associated
Press, has been widely used by local television stations, radio stations and
newspapers in order to augment their core programming with additional
programming and, in so doing, extend their audience reach and retention. The
diverse Internet points-of-entry similarly need a source of syndicated content
that will increase the convenience, relevancy and enjoyment of their users'
experience, thereby generating increasing dependence and/or repeat usage and
making it less likely that users will click to another service. Such
syndicated content must be delivered to these Internet points-of-entry through
a reliable, scalable infrastructure that can ensure high-quality service. As
a result, the Company believes there is an opportunity for a highly focused
company to provide business software, outsourced content services and web
hosting to small and medium sized businesses.
The Company's future success is substantially dependent upon continued
growth in the use of the Internet in order to support its sale of services to
the Company's clients. Rapid growth in the use of the Internet is a recent
phenomenon. The Internet is still in its infancy and it is subject to the
vulnerabilities and uncertainties that afflict every new phenomenon. These
include the lack of acceptable security technologies, inadequate development
of the necessary infrastructure, including a reliable network backbone, or
timely development and commercialization of performance improvements,
including high speed modems. To the extent that the Internet continues to
experience significant growth in the number of users and level of use, there
are questions as to whether or not the Internet infrastructure will continue
to be able to support the demands placed upon it by such potential growth or
that the performance or reliability of the Internet will not be adversely
affected by this continued growth. The Internet could lose its viability due
to delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity, or due to increased
governmental regulation. Changes in or insufficient availability of
telecommunications services to support the Internet also could result in
slower response times and adversely affect usage of the Internet. If use of
the Internet does not continue to grow, or if the Internet infrastructure does
not effectively support growth that may occur, the Company's business,
operating results and financial condition would be materially and adversely
affected. The Company may from time to time experience significant delays in
processing of client data, and these delays could have a material adverse
effect on the Company's goodwill among its users, and on the Company's
business.
The market for Internet products and services is characterized by rapid
technological development, evolving industry standards and customer demands,
and frequent new product introductions and enhancements. These market
characteristics are exacerbated by the emerging nature of this market and the
13
fact that many companies are expected to introduce new Internet products and
services in the near future. The Company's future success will depend in
significant part on its ability to continually improve the performance,
features and reliability of its software and other properties in response to
both evolving demands of the marketplace and competitive product offerings.
However, this very phenomena works to the Company's advantage. As businesses
are forced to make hard decisions about the allocation of their scarce
resources, the Company believes that these businesses will decide to apply
their funds to their core competencies and, since these core competencies
require computers for support roles, this very phenomenon of rapid
technological obsolescence will become the driving force which dictates the
decision to outsource their computer requirements, thereby becoming candidates
for utilizing computer utility companies such as the Company.
The Company's Strategic Plan
The Company has targeted the following businesses as its primary market.
Businesses and professionals who need to buy new computers or upgrade their
computers. Businesses and professionals who need to cost effectively network
their computers or replace an existing network with a more useable, lower cost
system. Finally, businesses or professionals who wish to alleviate their
computer problems and/or reduce their costs or using computers.
The Company will focus on differentiating itself from its competitors by
filling the real need of small business and high end home users, also referred
to as "SOHO" users, who require reliable information technology including
propriety and off-the-shelf hardware, software, and all related services at a
cost-effective price. The Company's challenge is to educate its target market
on the enormous cost savings of server-based computing as an alternative to
local area networks and traditional client/server implementations. The
Company will position its product and service offerings as the high-quality,
value-added alternative to traditional computing models.
The Company will promote, market and sell its services in order to
achieve its goals through two channels: via a direct sales force; and through
strategic partnerships with ISPs, Telecom and hardware and software
distributors. By focusing heavily on the education of its direct sales force
and partners in one major city and then reproducing its model in subsequent
cites, the Company hopes to penetrate a large part of the city's population
with a concise and planned approach; there is no assurance, of course, that
the Company will be successful in accomplishing its goal.
The Company must quickly be able to identify the changing market and
respond to market changes that will improve the bottom line. While remaining
focused on the Company's plan will always be paramount, the Company must have
the agility inherent in small companies to make changes when the market
demands.
Marketing and Sales
The Company has broken its targeted market into two groups according to
standard classifications used by market research companies: home offices and
14
small business. More exact definitions of these market segments are not
necessary for its marketing planning purposes; general definitions will
suffice. Management know the Company's home office customers tend to be heavy
users, wanting high-end capabilities. These are people who like computing and
computers. The low-end home office people will buy elsewhere for the next 12
to 24 months and are not included in the Company's target market
Based upon the Company's experience and limited research, management
also knows that its small business customers tend to be much less proficient
on computers and, conversely, much more likely to need and want handholding,
and much more willing and likely to pay for it. These businesses constitute
the Company's core candidate, particularly firms with 6-25 seats per customer
that are critically dependent on technology but unable to justify the expense
and resources required to implement and maintain local area networks and
client/server software applications. These businesses represent the highest
growth rate and revenue generator for the Company over the next 36 months.
This particular market segment is willing to outsource their IT and
application needs to the Company because they need to focus on growing their
business and not on technology, but technology is exactly the barrier they see
to growing their business. They do not have the time, knowledge or resources
to set up their own networks, manage software upgrades and troubleshoot
problems. The outsource IT services and application rental that the Company
provides gives this target market the ability to enjoy the most advanced
computing capabilities while paying only 1/3 of the cost. The Company's
marketing focus will be the small office and home office (SOHO) market. The
target segments will be the key to the Company's success. In addition, the
Company will attempt to continue to add value to its products and services by
adding new services and products to our customers over time.
Home offices domestically are an important, growing market segment.
Nationally, there are approximately 33 million home offices, and the number is
growing at 10% per year. The Company's target SOHO customer is as dependent
on reliable information technology as any other businesses. Often, the small
business owner does not want to understand all of the details of getting their
offices connected, they simply want the benefits that are provided. They care
more about reliable service and confidence than about the rock-bottom lowest
price. They don't want to rely solely on their own expertise, so they choose
instead to deal with the Company with its promise of service and support when
needed.
The Company believes its standard SOHO will be one-system installations,
no networks, and much more powerful systems than the average small business.
Fax modems, voicemail, and printers are likely. They tend to be interested in
desktop publishing, accounting, Internet, and administration software as well
as their job specific software needs. It's important that the Company realize
it will also be selling to the price-oriented SOHO buyers. The Company will
be able to offer an attractive proposition to the service oriented and
security-oriented buyers for a cost-effective price.
Home offices include several types. The Company believes that the most
important are the home offices that serve as the only offices of professional
15
firms. These are likely to be professional services such as graphic artists,
writers, and consultants, also some accountants and the occasional lawyer,
doctor, or dentist. There are also individuals who maintain home offices for
part-time use, including moonlighters' and hobbyists. The Company does not
intend to sell to this segment at this time; its marketing focus will consist
of professionals and entrepreneurs who maintain a full-time office.
The SOHO market will be targeted in a variety of ways, including through
(leveraged Marketing and Sales) hardware manufacturers, telecommunications
companies, Internet Service Providers, software manufacturers and a host of
alternative distribution channels. These types of partner companies can offer
the Company services along with their own services as a product bundle. This
simplifies the marketing, installation and set-up for the SOHO customer. The
Company anticipates finalizing agreements with these types of companies.
In addition to this natural distribution model, the Company will target
the SOHO market through a direct sales effort as well.
Competition
The Company competes in the highly competitive market for computer
services. The principal competitive factors are technical innovation to meet
dynamic market needs, market strength, system/performance, customer service
and support, reliability, ease of use, and price/performance.
The market remains competitive due to Microsoft presence in all sectors
of the software business. The Company does not have the product breadth and
market power of Microsoft. Microsoft's ability to ship networking products
with features and functionality which are compatible with its operating
systems, together with its ability to offer incentives to customers to
purchase certain products from them in order to obtain favorable sales terms
or necessary compatibility or information with respect to other products, may
significantly inhibit the Company's ability to grow its business. In
addition, as Microsoft creates new operating systems and applications, there
can be no assurance that the Company will be able to ensure that its products
will be compatible with those of Microsoft.
Additionally, the Company may face competition from other companies
possessing much greater financial strength, such as Novell, which could
introduce competitive operating systems. If any of these competing products
achieves market acceptance, the Company's business and results of operations
could be materially adversely affected.
Based upon the Company's experience and its own research, the following
competitive forces have been isolated and identified as pivotal to its
markets. These are:
(a) pricing, particularly for the Company's targeted SOHO customers
considers price, because this is the message they're exposed to again, and
again and they have been trained to shop on price;
16
(b) quality service, is a message that these businesses can understand
because it is what they frequently offer, and they are willing to pay 120%
more for a relationship with a long-term vendor providing backup and quality
service because this is akin to their own survivor strategy; and
(c) availability is also very important because SOHO buyers tend to
want immediate solutions to problems.
Consequently, the businesses that make up the Company's targeted market
cannot be subjected to high-pressure, under-trained salespeople who may not be
able to factor in all of a customer's needs.
An in-depth review of the Application Service Providers industry overall
shows that there are several categories that fall under this industry heading.
We have seen a segmentation of companies who are identifying their unique
selling proposition and are carving out their market niches.
When looking at competition, the Company considered its own niche and
the market where it felt that it could provide the highest quality of service
while meeting revenue goals. In doing so, the Company has eliminated many
competitors who were primarily focused on the enterprise application suites
typically purchased by the Fortune 500 and Fortune 1000 companies. Within the
SOHO and small-medium business model, the Company has identified two niche
areas in particular which it is particularly well suited to accommodate:
(1) Integration of business tools and applications for small-medium
sized businesses. The Company is derived from an integration company, and as
such, has significant knowledge and contacts within the small-medium business
(SMB) market. This inherent understanding of the SMB market made this segment
a clear choice to target. An added advantage is the short sales cycle time of
30 days or less.
(2) Serving as a host to the independent software vendor (ISV) market,
consisting of software development companies who cannot or do not want to
invest in the resources and high-cost hardware required to support the
Application Service Provider ("ASP") business model. The Company identified
this market in June of 1998 as a credible and lucrative addition to our
original business plan. The ISV market composed of over 22,000 software
vendors in the United States allows the Company to ASP-enable software vendors
by integrating our backend infrastructure via their corporate web site and
sell subscription software services to their customer base. An in-depth
review of the Application Service Provider industry overall shows that there
are several categories that fall under the industry heading. The Company has
already seen a segmentation of companies who are identifying their unique
selling proposition and are carving out their market niches.
As with any emerging industry, one good idea for a market niche fosters
another two or three others. The Company believes there are several revenue
producing markets that it may choose to enter into after the first 12-months
of meeting its existing business plan. Its focus, however, will remain on the
SMB and ISV markets and the introduction of additional products and services
to those niche markets will serve as an expansion and not a deviation from the
Company's focus.
17
Many of the Company's competitors, such as Telecomputing and FutureLink,
are forming distribution channels that closely resemble "box pushers." The
Company's distribution model via major partners and direct allows it to
deliver on the customer service model that will be required for vendors in
this space to be successful. The Company offers consultative selling
techniques that management believes will provide the customer with the feeling
of security required to outsource their IT infrastructure.
Government Regulation
The Company is not currently subject to direct regulation by any
governmental agency in the United States, other than regulations applicable to
businesses generally, and there are currently few laws or regulations directly
applicable to access to or governing commerce upon the Internet. Due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet, covering
issues such as user privacy, pricing and characteristics and quality of
products and services.
Such legislation could dampen the growth in the use of the Internet
generally and decrease the acceptance of the Internet as a communications and
commercial medium, and could, thereby, have a material adverse effect on the
Company's business, results of operations and financial condition. Other
nations, including Germany, have taken actions to restrict the free flow of
material deemed to be objectionable on the Internet. In addition, several
telecommunications carriers are seeking to have telecommunications over the
Internet regulated by the Federal Communications Commission (the "FCC") in the
same manner as other telecommunications services. For example, America's
Carriers Telecommunications Association ("ACTA") has filed a petition with the
FCC for this purpose. In addition, because the growing popularity and use of
the Internet has burdened the existing telecommunications infrastructure and
many areas with high Internet use have begun to experience interruptions in
phone service, local telephone carriers, such as Pacific Bell, have petitioned
the FCC to regulate ISPs and OSPs in a manner similar to long distance
telephone carriers and to impose access fees on the ISPs and OSPs. If either
of these petitions is granted, or the relief sought therein is otherwise
granted, the costs of communicating on the Internet could increase
substantially, potentially slowing the growth in use of the Internet, which
could in turn decrease the demand for the Company's products. Also it is
possible that laws will be adopted or current laws interpreted in a manner to
impose liability on online service providers such as the Company for linking
to third party content providers and other Internet sites that include
materials that infringe copyrights or other rights of others. Such laws and
regulations if enacted could have an adverse effect on the Company's business,
operating results and financial condition. Moreover, the applicability to the
Internet upon the existing laws governing issues such as property ownership,
copyright defamation, obscenity and personal privacy is uncertain, and the
Company may be subject to claims that its services violate such laws. Any
such new legislation or regulation or the application of existing laws and
regulations to the Internet could have a material adverse effect on the
Company's business, operating results and financial condition.
18
In addition, as the Company's products and services are available over
the Internet in multiple states and foreign countries, such jurisdictions may
claim that the Company is required to qualify to do business as a foreign
corporation in each such state or foreign country. The Company is qualified
to do business only in the State of Washington, and failure by the Company to
qualify as a foreign corporation in a jurisdiction where it is required to do
so could subject the Company to taxes and penalties and could result in the
inability of the Company to enforce contracts in such Jurisdictions. Any such
new legislation or regulation, the application of laws and regulations from
Jurisdictions whose laws do not currently apply to the Company's business, or
the application of existing laws and regulations to the Internet and other
online services could have a material adverse effect on the Company's
business, results of operations and financial condition.
At present, the Company does not collect sales or other similar taxes in
respect of sales and shipments of its products. However, various states have
sought to impose state sales tax collection obligations on out-of-state direct
marketing companies such as the Company. A successful assertion by one or
more of these states that it should have collected or be collecting sales tax
on the sale of its products could result in additional costs and corresponding
price increases to its customers. The U.S. Congress has passed legislation
limiting for three years the ability of states to impose taxes on Internet-
based transactions. Failure to renew this legislation could result in the
broad imposition of state taxes on e-commerce.
Customer Services
The Company's Customer Support Services is composed of Customer Service
Representatives, On-Site Service Technicians, Technical Support
Representatives (the "Help Desk") supplemented by Senior Technical Support
Representatives consisting of Microsoft Certified Systems Engineers and iQ2
Server Technicians. All of these departments have established quality
standards. The Company plans to use customer frustration with slow and
frequently expensive telephone technical support by other industry vendors to
its competitive advantage. Technical Support Representatives will be
available via toll free telephone lines for any aspect of the iQ2 System and,
to the degree feasible, upon any software the customer is utilizing. This
assistance will be free for the first 30 days and will be billed at $8.00 per
fifteen minutes thereafter.
Intellectual Property and Proprietary Rights
The Company regards its service marks, trademarks, domain names and
similar intellectual property as critical to its success. The Company has
applied for domain names including, INSYNQ.com, ON-Q.net, SIMPLENETWORKS.net,
APPLICATIONVAULT.com, MESSAGEIQ.com, OURACCOUNTING.com, OURBOOKEEPER.com,
YOURWEBPC.com and RAPIDNETWORKS.com, all of which are now owned by the
Company.
The Company relies on trademark, unfair competition and copyright law,
trade secret protection and contracts such as confidentiality and license
agreements with its employees, customers, partners and others to protect its
19
proprietary rights. Despite precautions, it may be possible for competitors
to obtain and/or use the proprietary information without authorization, or to
develop technologies similar to the Company's and independently create a
similarly functioning infrastructure. Furthermore, the protection of
proprietary rights in Internet-related industries is uncertain and still
evolving. The laws of some foreign countries do not protect proprietary
rights to the same extent as do the laws of the United States. Protecting the
Company's proprietary rights in the United States or abroad may not be
adequate.
The Company intends to continue to license certain technology from third
parties such as Citrix and Windows NT, plus others, for its communications
technology and the software that underlies its business systems. The market
is evolving and the Company may need to license additional technologies to
remain competitive. The Company may not be able to license these technologies
on commercially reasonable terms or at all. In addition, the Company may fail
to successfully integrate licensed technology into its operations.
Although the Company has not yet experienced infringement or
misappropriation of its intellectual property or similar proprietary rights,
it may be anticipated that infringements and misappropriations will occur as
its business grows and there is more brand loyalty attaching to its tradenames
and domain names. The Company intends to police against infringement or
misappropriation. However, it cannot guarantee that it will be able to
enforce its rights and enjoin the alleged infringers from their use of
confusingly similar trademarks, servicemarks, telephone numbers and domain
names.
In addition, third parties may assert infringement claims against the
Company. The Company cannot be certain that its technologies or marks do not
infringe valid patents, trademarks, copyrights or other proprietary rights
held by third parties. It may be subject to legal proceedings and claims from
time to time relating to the intellectual property of others in the ordinary
course of its business. Intellectual property litigation is expensive and
time-consuming and could divert management resources away from running the
business.
Offices and Facilities
Following the completion of the asset purchase transaction with Insynq,
the Company assumed Insynq's leasehold obligation on office space and
facilities into which the Company has recently relocated, covering
approximately 18,000 square feet, located at 1101 Broadway Plaza, Tacoma,
Washington 98402. The Company has also assumed Insynq's leasehold obligation
covering approximately 1,600 square feet located at the Bank of America
Building, 9th & "A" Street, Suite 560, Tacoma, Washington 98402. The Company
has also assumed Insynq's leasehold obligation covering office space located
at 3017 Douglas Boulevard, Suite 300, Roseville, California, consisting of
approximately 2,000 square feet.
20
Employees
The Company currently has approximately 30 employees, consisting of
former Insynq employees, including Company's management, clerical,
approximately 10 to 12 technical people, and an additional 10 marketing and
sales personnel.
Management
In connection with the consummation of the Asset Purchase Agreement, on
February 18, 2000, described under Item 1 and Item 2 above, Steve Rippon and
Dallin Bagley resigned, as directors of the Company, and appointed, seriatim,
John P. Gorst and M. Carroll Benton, principals of Insynq, Inc., as directors.
A third director, David D. Selmon was subsequently appointed by the board of
directors. Immediately following this action, a meeting of the new board of
directors was held, at which time John P. Gorst was elected as the Chief
Executive Officer and Chairman of the Board, and M. Carroll Benton was elected
as Secretary/Treasurer of the Company.
Certain biographical information with regard to management is set forth
below.
John P. Gorst was the co-founder of Insynq and has directed all
development and business efforts for Insynq. Mr. Gorst has over eleven (11)
years experience in founding entrepreneurial technology ventures, specifically
in the development of software and data services for business. His prior
experience includes serving as Vice President and General Manager of
Interactive Information Systems Corp., a business based in the Pacific
Northwest Region, and a training/IS consulting business in conjunction with
Nynex Business Centers of New York. Mr. Gorst's primary responsibilities
will be as Chairman of the Board and Chief Executive Officer. In such
capacities, Mr. Gorst will be responsible for directing company strategy, and
positioning the Registrant in the marketing by forging strategic business
alliances. It is also anticipated that Mr. Gorst will also serve as the
Company's spokesperson at trade shows, press conferences and industry
meetings. Mr. Gorst earned a bachelors degree in business administration from
Harrington University, and expects to complete his masters in business
administration degree in the first quarter of 2000.
M. Carroll Benton has been with Insynq since its inception in 1997, and
is a co-founder of Insynq. She has directed and managed the fiscal
responsibilities of Insynq. Ms. Benton's early career spanned both the public
and private sectors working largely with the banking system and higher
education institutions, assisting in the development and deployment of
computer systems. Ms. Benton has managed a 13 state insurance brokerage firm
and has been a consultant to the small to medium business markets via
accounting system design, support and business practice analysis. She has
taught undergraduate accounting courses at several Puget Sound colleges and
universities. With an in-depth understanding of Insynq's accounting
infrastructure and vendor leases, Ms. Benton directs Insynq's current
financial practices. Formerly with Benton & Benton, a certified public
accounting firm, for a period of over twenty (20) years, Ms. Benton has over
twenty five (25) years of financial expertise to the business.
21
David D. Selmon, age 43, has been employed as an accountant and tax
professional since approximately 1979. Mr. Selmon is a certified tax
professional. He graduated from the University of Houston, magna cum laude,
in 1983, with a bachelor's degree in accounting and business administration.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date the number of
shares of the Company's common stock, par value $0.001, held of record or
beneficially by each person who held of record, or was known by the Company to
own beneficially, more than 5% of the Company's common stock, and the name and
shareholdings of each executive officer and director, and all officers and
directors as a group:
Name of Person or Group: Shares Owned Percent of Class(1)
- ---------------------------------------------------------------------------
(C>
Principal Shareholders:
John P. Gorst 5,109,418(2) 46.9%
M. Carroll Benton 3,038,456(3) 29.2%
Eric Estoos 1,450,000(4) 15.4%
Officers and Directors:
John P. Gorst ---------See above--------
M. Carroll Benton ---------See above--------
David D. Selmon 0 0.0%
- ------------------------------------------------------------------
All Officers and Directors
as a Group (3 persons): 8,147,874(2)(3) 68.4%
(1) Does not give effect to a two-for-one forward stock split or
consolidation proposed in this Information Statement under "PROPOSAL NO. 2 -
RECAPITALIZATION."
(2) Includes a total of 1,500,000 shares of Class A Common Stock which
may be acquired by Mr. Gorst pursuant to the exercise of stock options under
the 2000 Executive Long Term Incentive Plan, exercisable within sixty days.
The Class A Common Stock, which is proposed in connection with the proposed
reincorporation of the Company in Delaware, entitles the holder to three (3)
votes for each share held on all matters submitted to the shareholders.
(See "PROPOSAL NO. 3 - ADOPTION OF INCENTIVE PLANS.")
22
(3) Includes a total of 91,500 shares held by Ms. Benton's husband,
and a total of 1,000,000 shares of Class A Common Stock which may be acquired
by Ms. Benton pursuant to the exercise of stock options under the 2000
Executive Long Term Incentive Plan, exercisable within sixty days. (See
"PROPOSAL NO. 3 - ADOPTION OF INCENTIVE PLANS.")
(4) Includes a total of 1,500,000 shares of common stock exercisable
within sixty days under warrants granted pursuant to a consulting agreement
with One Click Investments, LC, a limited liability company of which Mr.
Estoos is a principal and may be deemed to be the beneficial owner. (See
"CERTAIN TRANSACTIONS.")
OPTIONS AND WARRANTS OUTSTANDING
As indicated throughout this Information Statement, the Company has a
total of approximately 4,010,150 shares of Common Stock and Class A Common
Stock issuable pursuant to options granted under the Company's Incentive
Plans, and an additional 4,176,820 shares of Common Stock issuable upon
exercise of other outstanding options and warrants. The exercise of any
material portion of these options and warrants would have a significant
dilutive effect on the ownership interest held by present shareholders. If
all outstanding options and warrants were exercised, the shares held by the
present shareholders (9,404,050 shares), would represent approximately 53% of
a total of 17,571,020 shares of common stock which would then be issued and
outstanding. (See "PROPOSAL NO. 3 - ADOPTION OF INCENTIVE PLANS," and
"CERTAIN TRANSACTIONS.")
- ----------------------------------------------------------------------------
PROPOSAL NO. 1 - REINCORPORATION IN DELAWARE
- ----------------------------------------------------------------------------
GENERAL
Due to certain features associated with the body of corporate law set
forth in statutes and judicial determinations, and judicial determinations,
management has determined that it would be advantageous for the Company to be
reincorporated under the laws of the state of Delaware. In connection with
this reincorporation, certain changes in the governing instruments of the
Company will be effected.
The board of directors believes that the best interests of the Company
and its shareholders will be served by changing the state of incorporation of
the Company from Utah to Delaware. In order to accomplish the reincorporation
in accordance with the laws of the states of Utah and Delaware, the Company
proposes to merge with and into a wholly-owned subsidiary, Insynq, Inc.,
formed under the laws of the state of Delaware (hereinafter "the Delaware
Corp."). Under the terms of the merger, the Delaware Corp. will be the
surviving corporation. The certificate of incorporation and bylaws of the
Delaware Corp. will be the governing instruments of the surviving corporation.
23
Shareholders are urged to review the certificate of incorporation of the
Delaware Corp. attached hereto as Exhibit "A" to obtain an understanding of
the governing provisions of the Delaware Corp. Consequently, the Company's
current articles of incorporation, as amended, will no longer be the governing
instrument of the Company following the reincorporation in Delaware.
Through the merger, and in connection with the recapitalization
described under "ITEM 2 - RECAPITALIZATION," the shareholders of the Company
will receive two shares of the Delaware Corp. common stock, par value $0.001
per share, in exchange for each share of the Company's common stock, par value
$0.001 per share, held immediately prior to the merger.
The merger will become effective on the date the Company files the certificate
of merger with the state of Delaware and articles of merger with the state of
Utah. The Company proposes to file such documents within 15 days of the date
of the Special Meeting, to coincide with the effective date of the
Recapitalization. Immediately following the merger, all stock certificates
which represented shares of common stock of the Company shall represent and
evidence ownership of shares of common stock of the Delaware Corp..
Shareholders are not required to tender their certificates representing shares
of the Company for transfer into certificates representing shares of the
Delaware Corp., but are encouraged to do so by management so that outstanding
certificates will reflect the new state of incorporation and capitalization of
the Company.
For a period of thirty days commencing on April ____, 2000 (the
"Effective Date"), the Company will pay, on one occasion only, for the
issuance of new certificates in exchange for old certificates submitted during
such thirty day period; provided, that the Company will not pay any of the
costs of issuing new certificates in a name other than the name appearing on
the old certificates or of issuing new certificates in excess of the number of
old certificates submitted by the shareholder. The only adverse effect of
failure to submit a certificate for exchange within the thirty day period will
be that the shareholder will be required to pay the applicable fee if a
certificate reissuance or transfer is requested at a later date. Following
the Effective Date, the shares of the Delaware Corp. will be traded in the
over-the-counter market in place of the shares of the Company.
The following discussion sets forth certain advantages associated with
reincorporating in the state of Delaware, and the effect of such
reincorporation as proposed upon the shareholders of the Company.
REASON FOR REINCORPORATION
Over the years, the state of Delaware, through legislative action and
court decision, has developed a comprehensive and flexible body of corporate
law which is responsive to the needs of modern business. Many of the largest
and most successful corporations in the United States have either chosen
Delaware as their initial state of incorporation or reincorporated therein.
Due to the large number of corporations who seek incorporation under the laws
of the state of Delaware, the legislative, executive, and judicial branches of
the state government have taken affirmative steps to encourage corporations to
establish themselves in the state of Delaware and have developed a
24
comprehensive body of law which affords corporations a degree of certainty or
predictability with respect to the legal aspects of their corporate existence.
In addition, the Delaware legislature has enacted amendments to the Delaware
law regarding the limitation of liability of directors in certain
circumstances, as discussed below, to facilitate corporations in their efforts
to attract and retain capable directors. Due to the large number of
corporations incorporated under the laws of the state of Delaware, financial
institutions, third party lenders, and other investors are familiar with
Delaware corporation law. This familiarity facilitates the acquisition of
financing when needed for corporate activities and operations.
In light of the foregoing considerations, management is of the opinion
that its future business objectives can be more easily and advantageously
pursued if the Company is reincorporated under the laws of the state of
Delaware. Therefore, management has determined that reincorporation is in the
best interests of the Company and its shareholders.
EFFECT OF REINCORPORATION
As previously noted, the certificate of incorporation of the Delaware
Corp. will be the governing instrument of the surviving corporation following
the merger with the Company, resulting in several changes from the current
articles of incorporation of the Company. Some of these changes are purely
procedural in nature, such as a change in the registered office and agent of
the Company from an office and agent in Utah to an office and agent in
Delaware. Some changes, however, will be substantive in nature and are
discussed below.
Authorization of Class A Common Stock in Addition to Common Stock and
Preferred Stock
The Company's current Articles of Incorporation authorize the issuance
of up to 50,000,000 shares of common stock, par value as amended, $0.001 per
share, and 5,000,000 shares of preferred stock, par value $0.001. The
Certificate of Incorporation of the Delaware Corp. increases the authorized
number of shares of common stock (the "Common Stock") to 100,000,000 shares,
par value $0.001 per share, and 10,000,000 shares of preferred stock, par
value $0.001 per share. In addition, the Certificate of Incorporation of the
Delaware Corp. also authorizes a total of 10,000,000 shares of Class A Common
Stock (the "Class A Common Stock") , par value $0.001 per share.
The shares of Common Stock have no preemptive or other subscription
rights, have no conversion rights, and are not subject to redemption. The
holders of shares of Common Stock are entitled to one vote for each share
held. The Common Stock has non-cumulative voting rights.
The holders of Class A Common Stock are entitled to three (3) votes for
each share held, on all matters submitted to the Company's shareholders. The
shares of Class A Common Stock have no preemptive or other subscription
rights, and are not subject to redemption. The Certificate of Incorporation
of the Delaware Corp. provides that holders of Class A Common Stock are not
entitled to share in cash dividends declared by the Company, but are entitled
25
to share in dividends declared in stock or other property of the Company
without distinction as to class. The Class A Common Stock has non-cumulative
voting rights. Each share of Class A Common Stock is convertible to one share
of Common Stock at the election of the holder, upon the surrender of shares of
Class A Common Stock to the Company for conversion. The number of shares of
Common Stock issuable upon conversion of the Class A Common Stock shall be
subject to anti-dilution adjustment in the event of a stock split or
recapitalization. There is a mandatory conversion upon the death of a holder
of Class A Common Stock. Other than the aforementioned rights and
characteristics, the Class A Common Stock does not possess any other
designations, preferences, special rights, qualifications, limitations or
restrictions on the rights of the holders of Class A Common Stock which differ
in any way from the rights of the holders of Common Stock.
Management of the Company decided to authorize the Class A Common Stock,
for the primary purpose of granting options to purchase Class A Common Stock,
to executive officers of the Company. As of the date of this Information
Statement, the Company has granted to John P. Gorst and M. Carroll Benton,
options under the 2000 Executive Officer Long Term Incentive Option Plan,
entitling them to purchase 1,500,000 shares and 1,000,000 shares,
respectively, of Class A Common Stock. These options, if exercised, would
have the effect of entitling Mr. Gorst and Ms. Benton, to votes representing a
total of 4,500,000 shares and 3,000,000 shares, respectively. (See "PROPOSAL
NO. 3 - ADOPTION OF INCENTIVE PLANS.") In addition, Mr. Gorst and Ms. Benton
currently hold an aggregate of 5,647,874 shares, or approximately 60% of the
issued and outstanding Common Stock of the Company. Therefore, in the
foreseeable future, it may be anticipated that Mr. Gorst and Ms. Benton will
be able to collectively control any matter brought before the Company's
shareholders, if all or any substantial portion of the Class A Common Stock
under options is issued.
The Certificate of Incorporation of the Delaware Corp. also authorizes
the board of directors to issue, without action by the shareholders, all or
any portion of the authorized but unissued Preferred Stock in one or more
series, and to determine the voting rights, preferences as to dividends and
liquidation, conversion rights, and other rights of such series. The
Preferred Stock, if and when issued, may carry rights superior to those of the
Common Stock.
The Company's Articles of Incorporation currently authorize the issuance
of 5,000,000 shares of preferred stock, par value $0.001. However, no shares
of Preferred Stock are presently outstanding. The Certificate of
Incorporation of the Delaware Corp. would increase the number of authorized
shares of Preferred Stock, to 10,000,000 shares, par value $0.001.
The Company considers it desirable to have Preferred Stock available to
provide increased flexibility in structuring future acquisitions and
financings and in meeting corporate needs which may arise. If opportunities
arise that would make it desirable to issue Preferred Stock through either a
public or private financing, the provision for Preferred Stock in the
Company's certificate of incorporation would avoid the possible delay and
expenses of a shareholders' meeting, except as may be required by law or
26
regulatory authorities. Issuance of Preferred Stock would result, however, in
a series of securities outstanding that may have certain preferences with
respect to dividends, liquidation, redemption, and other matters over the
Common Stock and Class A Common Stock. The specific terms of the Preferred
Stock, or any series of Preferred Stock, have not determined by the board of
directors, and such determination will depend on market conditions, terms of
any proposed acquisition or financing, and other factors existing at the time
of issuance. Therefore, it is not possible at this time to determine the
respects in which the a particular series of Preferred Stock will be superior
to the Company's Common Stock or Class A Common Stock. The Company does not
have any specific plans for the issuance of Preferred Stock at the present
time and does not intend to issue and Preferred Stock on terms which it deems
are not in the best interests of the Company and its shareholders.
The power of the board of directors to issue Class A Common Stock or
Preferred Stock, with favorable voting or other rights which might impede or
discourage a takeover attempt, may make the Company a less attractive takeover
candidate and deter takeover attempts not approved by the board of directors,
in which shareholders might receive for some or all of their shares a premium
above market value at the time the takeover bid is made. Additionally,
issuance of Class A Common Stock or Preferred Stock could result in a class of
securities outstanding that will have certain preferences with respect to
dividends and in the event of liquidation, over the common stock, and may
enjoy certain voting rights, contingent or otherwise, in addition to that of
the Common Stock, and could result in the dilution of the voting rights, net
income per share, and net book value of the common stock.
Change of Company's Name
In connection with the reincorporation, the name of the Company will be
changed to "Insynq, Inc.," or some derivation thereof. Since the
consummation of the Asset Purchase Agreement between the Company and Insynq,
Inc., a Washington corporation, in the end of February, 2000, the Company's
business has been the previous business of Insynq, Inc. Therefore, the
Company believes that changing the Company's name to "Insynq, Inc." or some
derivation will be more reflective of the Company's activities.
Limitation of Liability and Indemnification of Officers and Directors
The Certificate of Incorporation contains a provision limiting the
liability of directors to the extent allowed under Delaware law. The
pertinent provision is designed to limit personal liability of directors to
the Company or its shareholders under certain circumstances. The proposed
provision is clearly in the interest of the directors as it would limit their
personal liability in certain circumstances at the potential expense of the
Company and its shareholders. The Company's current Articles of
Incorporation, as amended, contain a similar provision, limiting the liability
of directors to the extent allowed under Utah law.
27
The Certificate of Incorporation of the Delaware Corp. also contains a
provision pursuant to which the Company will be required to indemnify its
officers and directors against any expenses, liabilities or other matters, to
the full extent allowed under Delaware law. The Company's current Articles of
Incorporation, as amended, presently provide for the indemnification of
officers and directors; however, the provision in the Certificate of
Incorporation could be construed to be broader in scope.
The Company believes that these provisions are in the best interests of
the shareholders and the Company, as they should enhance the Company's ability
to attract and retain qualified individuals to serve as officers and directors
of the Company by assuring that their good faith decisions will not be second-
guessed by a court evaluating decisions with the benefit of hindsight. The
Company believes that the diligence exercised by management of a company stems
primarily from a desire to act in the best interests of the company, and not
from a fear of monetary damage awards. Consequently, the Company believes
that the level of scrutiny and care exercised by directors will not be
lessened by these provisions in the Certificate of Incorporation.
Purposes Provision of Certificate of Incorporation
The Certificate of Incorporation of the Delaware Corp. contains paragraph
(a) which describes, in summary fashion, the general purposes of the
Company, consistent with its current business activities. This provision,
although not required, is believed by management to be desirable to more
particularly describe the business of the Company.
CORPORATE LAWS OF DELAWARE
The Delaware General Corporation Law is not believed to differ
significantly from the Utah Revised Business Corporation Act. While it is
impractical to state all of the differences, those which management of the
Company deems to be most significant are set forth below:
(a) Delaware law provides that proxies are valid for three years unless
otherwise provided in the proxy. Utah law provides that proxies may not
be valid for longer than 11 months unless otherwise provided in the
proxy.
(b) Under Delaware law, dividends to the shareholders may be paid
either out of surplus, or if there is no surplus, the net profits of the
corporation in the preceding and current fiscal years. Utah law
provides that dividends may be paid from a corporation's excess of its
assets over its liabilities.
(c) Under Delaware law, shareholders of a corporation have appraisal or
dissenters' rights in cases of mergers or consolidations, but do not have such
rights with respect to a sale of all or substantially all of the assets of a
corporation. Under Utah law, shareholders of a company have dissenters'
rights in cases or merger, plan of share exchange, sale, lease, exchange or
other disposition of substantially all of the assets of the corporation.
28
FORWARD STOCK SPLIT
As discussed under "Item 2 - RECAPITALIZATION," in connection with the
reincorporation of the Company in the state of Delaware, the company proposes
to effect a forward split in the Company's issued and outstanding common
stock, par value $0.001. As proposed, the issued and outstanding shares of
the Company's common stock immediately prior to the reincorporation in
Delaware will be effectively forward split through the merger on a one-for-two
basis. Through the merger with the Delaware Corp., the shareholders of the
Company will receive two shares of common stock, par value $0.001, of Insynq
for each one share of the Company's common stock now held.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders who oppose the proposed merger will have the right to
receive payment for the value of their shares as set forth in Sections 16-10a-
1301 et. seq., of the Utah Revised Business Corporation Act. A copy of
these sections is attached hereto as Exhibit "B" to this Information
Statement. The requirements for a shareholder to properly exercise his or her
rights under these provisions are technical in nature, and the following
summary is qualified in its entirety by the actual statutory provisions which
should be carefully reviewed by any shareholder wishing to assert such rights.
Under the Utah Revised Business Corporation Act, such dissenters' rights
(or "appraisal rights"), will be available only to those shareholders of the
Company who (a) object to the merger (reincorporation) in writing prior to or
at the Special Meeting (a negative vote will not itself constitute such a
written objection), and (b) do not vote in favor of the merger
(reincorporation); (c) file a written demand with the Company prior to the
Special Meeting requesting payment of the fair value of the shares of the
Company's common stock which they hold; and (d) meet the other requirements of
the governing Utah statutes.
Within ten days after receipt by the Company of the written demand for
payment, the Company must send to each shareholder who has satisfied all of
the foregoing conditions (each a "Dissenting Shareholder" and together, the
("Dissenting Shareholders") a written notice in which the Company must offer to
pay Dissenting Shareholders their shares at a price deemed by the Company to
be the fair value of such shares, and supply a form for Dissenting
Shareholders to demand payment. Dissenting Shareholders will have no less
than 30 days and no more than 70 days to make their payment demands and
deposit share certificates on which demand is made, or lose such rights.
After the effective date of the merger, and receipt of a proper notice of
demand from a Dissenting Shareholder, the Company must make payment of its
estimate of the fair value of the shares held by the Dissenting Shareholder,
accompanied by a current balance sheet, income statement and statement of
changes in shareholders equity of the Company; a current estimate of fair
value of the shares and the interest payable with respect to the shares; and a
copy of the dissenters' right to demand payment under the Utah statute.
If a Dissenting Shareholder and the Company do not agree on the fair
value of the shares within the prescribed period, then within 60 days after
receipt of written demand from any Dissenting Shareholder, the Company shall
29
initiate a judicial proceeding seeking a determination of the fair value of
such shares. If the Company fails to initiate such a proceeding, it must pay
the Dissenting Shareholder the amount demanded. All Dissenting Shareholders
must be a party to the proceeding, and all such shareholders will be entitled
to judgment against the Company for the fair value of their shares, to be paid
on surrender of the certificates representing such shares. The judgment will
include an allowance for interest (at a rate determined by the court) from the
date on which the vote was taken on the merger to the date of payment.
The loss or forfeiture of appraisal rights simply means the loss of the
right to receive a cash payment from the Company in exchange for shares; in
such event, the Dissenting Shareholders would still hold the number of shares
of the Company the Dissenting Shareholder held before asserting his appraisal
rights, and retain all of the rights pertaining to such shares.
VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of the
Company is required to approve the proposed reincorporation of the Company in
the state of Delaware, and related changes, discussed above. Management
recommends that the shareholders vote "FOR" the proposal. Holders of greater
than 50% of the Company's outstanding common stock have indicated their
intention to vote in favor of the proposal.
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PROPOSAL NO. 2 - RECAPITALIZATION
- ------------------------------------------------------------------------------
GENERAL
The board of directors has adopted resolutions, subject to shareholder
approval, providing for the adoption of a plan of recapitalization (the
"Recapitalization") pursuant to which the issued and outstanding shares of the
Company's common stock, will be forward split, two-for-one, so that holders of
common stock will receive two shares of the Company's $0.001 par value common
stock ("Split Common Stock") for each share now held.
The rights of existing shareholders will not be altered in connection
with the Recapitalization, and no shareholders will be eliminated as a result
of the Recapitalization. The authorized number of shares of common stock will
not change, and the par value of the Company will remain at $0.001. The
Recapitalization will have the effect of increasing the stated capital of the
Company by approximately $9,404 (which is the number of additional shares as a
result of the Recapitalization multiplied by the par value for such shares).
If the Recapitalization is approved by the shareholders, the 9,404,050
shares of common stock outstanding immediately prior to the reorganization
would be converted to approximately 18,808,100 shares of common stock.
30
REASON FOR RECAPITALIZATION
Management is of the opinion that the Recapitalization is in the best
interest of the Company in that it will increase the number of outstanding
shares to approximately 18,808,100 shares of common stock. Management
believes this greater number of shares is more consistent with the capital
structure of Insynq, prior to the consummation of the asset acquisition
transaction, and, because of the capital structure, could serve to attract
more people to a possible investment in the Company.
IMPLEMENTATION OF THE RECAPITALIZATION
Immediately following effectiveness of the Recapitalization, all stock
certificates which represented shares of the Company's common stock shall
represent ownership of Split Common Stock. Shareholders are not required to
tender their certificates representing shares for transfer into new
certificates representing shares of Split Common Stock, and issued in the new
name of the Company. However, to eliminate confusion in transactions in the
Company's securities in the over-the-counter market, management strongly urges
the shareholders to surrender their certificates for exchange and has adopted
a policy to facilitate this process. Each shareholder will be entitled to
submit his or her old stock certificate (any certificates issued prior to the
Record Date) to the transfer agent of the Company, Colonial Stock Transfer
Co., Inc., 455 East 400 South, Salt Lake City, Utah 84111, and be issued in
exchange therefor new common stock certificates representing the number of
shares of Split Common Stock of which each shareholder is the record owner
after giving effect to the Recapitalization.
For a period of 30 days commencing on April ____, 2000, the Company will
pay, on one occasion only, for the issuance of new certificates in exchange
for old certificates submitted during such 30 day period; provided, that the
Company shall not pay any of the costs of issuing new certificates in the name
of a person other than the name appearing on the old certificate or the
issuance of new certificates in excess of the number of old certificates
submitted by a shareholder.
VOTE REQUIRED
The affirmative vote of a majority of the issued and outstanding shares
of common stock is required to approve the proposed Recapitalization. The
board of directors recommends a vote "FOR" the Recapitalization. Holders of
greater than 50% of the Company's outstanding common stock have indicated
their intention to vote in favor of the Recapitalization.
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PROPOSAL NO. 3 - ADOPTION OF INCENTIVE PLANS
- -------------------------------------------------------------------------------
The Company is seeking approval by the shareholders of the Company's
2000 Long Term Incentive Plan (the "Employee Plan") and its 2000 Executive
Officer Long Term Incentive Plan Option Plan (the "Executive Plan"). The two
plans are hereinafter referred to together as the "Incentive Plans." The
essential terms of the Incentive Plans are substantially identical, except for
two differences:
31
1) The Employee Plan is for key executives and managerial employees of
the Company. The Executive Plan is for executive officers of the Company.
2) The Company has reserved a total of 8,337,650 shares of common stock
for issuance under the Employee Plan, and the Company has reserved a total of
2,700,000 shares of Class A Common Stock for issuance under the Executive
Plan. As described below, the Class A Common Stock carries preferred voting
rights, entitling the holder to three (3) voting shares for each share of
common stock held by a holder of Class A Common Stock.
Shareholders are urged to review the copies of the Employee Plan and
Executive Plan, attached as Exhibit "C" and "D," respectively.
TERMS OF THE EMPLOYEE PLAN AND THE EXECUTIVE PLAN
The 2000 Long Term Incentive Plan and the 2000 Executive Officer Long
Term Incentive Plan (the "Incentive Plans") were adopted by the Board of
Directors on or about February 21, 2000, subject to approval of the
Shareholders. If approved by the Shareholders, the Incentive Plans will allow
stock option grants, performance stock awards, restricted stock awards, and
stock appreciation rights("SAR") as determined by the Company's Compensation
Committee.
The purpose of the Incentive Plans is to foster and promote the
financial success of the Company and increase Stockholder value by enabling
eligible key employees and others to participate in the long-term growth and
financial success of the Company. A summary of the Incentive Plans is set
forth below.
Scope. The Board of Directors has approved the Incentive Plans, subject
to shareholder approval. The Incentive Plans authorize the granting of
incentive stock options and nonqualified stock options to purchase Common
Stock (and Class A Common Stock, in the case of the Executive Plan), stock
appreciation rights, restricted stock and performance units, to key executives
and other key employees of the Company, including officers of the Company and
its subsidiaries. The purpose of the Incentive Plan is to attract and retain
key employees, to motivate key employees to achieve long-range goals and to
further identify the interests of key employees with those of the other
shareholders of the Company.
The Employee Plan authorizes the award of 8,337,650 shares of Common
Stock to be used for stock, stock appreciation rights ("SARs") or restricted
stock, and the Executive Plan authorizes the award of 2,700,000 shares of
Class A Common Stock to be used for such stock, SARs or restricted stock. If
an award made under either of the Incentive Plans expire, terminate or is
forfeited, canceled or settled in cash, without issuance of shares covered by
the award, those shares will be available for future awards under the
Incentive Plans. The Incentive Plans will terminate on February 21, 2010.
Administration. The Incentive Plans may be administered by the Board of
Directors or, if directed by the Board of Directors, the Stock Option
32
Committee or any successor thereto of the Board of Directors of the Company
(the Board of Directors or, if applicable, the Stock Option Committee is
referred to herein as the "Stock Option Committee"). Subject to the
provisions of the Incentive Plans, the Stock Option Committee will have
authority to select employees to receive awards, to determine the time or
times of receipt, to determine the types of awards and the number of shares
covered by the awards, to establish the terms, conditions and provisions of
such awards, to determine the value of performance units, and to cancel or
suspend awards. In making such award determinations, the Stock Option
Committee may take into account the nature of services rendered by the
employee, his or her present and potential contribution to the Company's
growth and success and such other factors as the Stock Option Committee deems
relevant. The Stock Option Committee is authorized to interpret the Incentive
Plans, to establish, amend, and rescind any rules and regulations relating to
the Incentive Plans, to determine the terms and provisions of any agreements
made pursuant to the Incentive Plans, and to make all other determinations
that may be necessary or advisable for the administration of the Incentive
Plans.
Eligibility. Executives and other key full-time employees of the Company
and its subsidiaries may be selected by the Stock Option Committee to receive
awards under the Incentive Plans. The Company estimates that approximately
seven (7) executives and approximately twelve (12) other employees are
currently eligible to receive awards under the Incentive Plans. In the
discretion of the Stock Option Committee, an eligible employee may receive an
award in the form of a stock option, stock appreciation rights, restricted
stock award or performance unit or any combination thereof, and more than one
award may be granted to an eligible employee.
Stock Options. The Incentive Plans authorize the award of both
incentive stock options ("ISOs") and nonqualified stock options. Under the
Incentive Plans, an option may be exercised at any time during the exercise
period established by the Stock Option Committee, except that: (i) no option
maybe exercised prior to the expiration of six months from the date of grant;
(ii) no option may be exercised more than 90 days after employment with the
Company and its subsidiaries terminates by reason other than death, disability
or authorized leave of absence for military or government service; and (iii)
no option may be exercised more than 12 months after employment with the
Company and its subsidiaries terminates by reason of death or disability. The
aggregate fair market value (determined at the time of the award) of the
Common Stock (or Class A Common Stock, as the case may be), with respect to
which ISOs are exercisable for the first time by any employee during any
calendar year may not exceed $100,000. The term of each option is determined
by the Stock Option Committee, but in no event may such term exceed 10 years
from the date of grant. The exercise price of options is determined by the
Stock Option Committee, but the exercise price of ISOs cannot be less than the
fair market value of the Common Stock on the date of the grant. The exercise
price of options may be paid in cash or, with the Stock Option Committee's
approval, in shares of Common Stock (or Class A Common Stock). Grants of
options do not entitle any optionee to any rights as a shareholder, and such
rights will accrue only as to shares actually purchased through the exercise
of an option.
33
Stock Appreciation Rights. The Incentive Plans authorize the grant of
both primary stock appreciation rights ("SARs") and additional SARs. Primary
SARs may be granted either separately or in tandem with options. Primary SARs
entitle the holder to receive an amount equal to the difference between the
fair market value of a share of Common Stock (or Class A Common Stock, as the
case may be) at the time of exercise of the SAR and the option price (or
deemed option price in the event of an SAR that is not granted in tandem with
an option), multiplied by the number of shares of Common Stock or Class A
Common Stock subject to the option or deemed option as to which the SAR is
being exercised (subject to the terms and conditions of the option or deemed
option). An SAR may be exercised at any time when the option to which it
relates may be exercised and will terminate no later than the date on which
the right to exercise the tandem option (or deemed option) terminates (or is
deemed to terminate). The participating employee has the discretion to
determine whether the exercise of an SAR will be settled in cash, in Common
Stock or Class A Common Stock (valued at its fair market value at the time of
exercise) or in a combination of the two, subject to the approval of the Stock
Option Committee in certain circumstances. The exercise of an SAR requires
the surrender of the tandem option, if any, and the exercise of a stock option
requires the surrender of the tandem SAR, if any.
Additional SARs may be granted only in tandem with stock options and
entitle the holder to receive an amount equal to the difference between the
fair market value of a share of Common Stock or Class A Common Stock on the
date of exercise of the related option and the option price, multiplied by the
number of shares of Common Stock Class A Common Stock subject to the option as
to which the SAR is being exercised (subject to the terms and conditions of
the option), multiplied by a percentage factor ranging form 10% to 100% (as
determined either by the Stock Option Committee at the date of grantor by the
formula established by the Stock Option Committee at the date of grant).
If an SAR, or the corresponding option with which the SAR was awarded,
is not exercised prior the date that it ceases to be exercisable, then such
SAR generally shall be deemed exercised as of such date and shall be paid to
the employee in cash. No SAR may be exercised more than 90 days after
employment with the Company and its subsidiaries terminates by reason other
than death, disability or authorized leave of absence for military or
government service. No SAR may be exercised more than 12 months after the
holder's employment with the Company and its subsidiaries terminates by reason
of death or disability.
Restricted Stock. Restricted stock awards are grants of Common Stock or
Class A Common Stock made to employees subject to a required period of
employment following the award (the "Restricted Period") and any other
conditions established by the Stock Option Committee. An employee will become
the holder of shares of restricted stock free of all restrictions if he or she
completes the Restricted Period and satisfies any other conditions; otherwise,
the shares will be forfeited. Under the Incentive Plans, the Restricted Period
may not be more than ten years. The employee will have the right to vote the
shares of restricted stock and, unless the Stock Option Committee determines
otherwise, will have the right to receive dividends on the shares during the
34
Restricted Period. The employee may not sell, pledge or otherwise cucumber or
dispose of restricted stock until the conditions imposed by the Stock Option
Committee have been satisfied. The Stock Option Committee may accelerate the
termination of the Restricted Period or waive any other conditions with
respect to any restricted stock.
Performance Units. Performance units are awards that entitle the
holders to receive a specified value for the units at the end of a performance
period established by the Stock Option Committee if performance measures
established by the Stock Option Committee at the beginning of the performance
period are met. Although the performance measures and performance period will
be determined by the Stock Option Committee at the time of the award of
performance units, they may be subject to such later revision as the Stock
Option Committee deems appropriate to reflect significant events or changes.
If the employment of a holder of a performance unit with the Company or its
subsidiary terminates by reason of death, disability or retirement, then the
Company will pay the employee or his or her beneficiary or estate the amount
of the performance unit earned as of the date of termination. If the
employment of a holder of a performance unit with the Company or a subsidiary
terminates for any other reason, then the performance units held by such
holder will automatically be forfeited.
Adjustments. In the event of any change in the outstanding shares of
Common Stock (or Class A Common Stock) by reason of any stock dividend, split,
spinoff, recapitalization, merger, consolidation, combination, exchange of
shares or other similar change, the aggregate number of shares with respect to
which awards may be made under the Incentive Plan, and the terms and the
number of shares of any outstanding option, SAR, performance unit or
restricted stock, may be equitably adjusted by the Stock Option Committee in
its sole discretion.
Business Combinations. Unless provision is otherwise made in the terms
of the award granted by the Stock Option Committee, or by the terms of the
agreement with respect to the business combination, in the event of a change
in control of the Company (as defined), all outstanding stock options, stock
appreciation rights, restricted stock and performance units shall terminate,
provided that the holders of any options or SARs may exercise such awards to
the extent then vested immediately prior to any such event and the holders of
any performance units shall be entitled to the then vested values of such
units as of such date.
Termination and Amendment. The Incentive Plans may be suspended,
terminated or amended by the Board of Directors, provided that, in the absence
of shareholder approval, no amendment of the Incentive Plans or action of the
Board of Directors may materially increase the total number of shares of
Common Stock (or Class A Common Stock, under the Executive Plan), with respect
to which awards may be made under the Incentive Plans (except as discussed in
"Adjustments" above), change the exercise price of a stock option or the base
price of an SAR, materially modify the requirements as to eligibility for
participation in the Incentive Plans or materially increase the benefits
accruing to participants under the Incentive Plans. No amendment, suspension
or termination of either of the Incentive Plans may alter or impair any
option, SAR, share of restricted stock or performance unit previously awarded
under such Incentive Plans without the consent of the holder thereof.
35
Estimation of Benefits. The amounts that will be paid pursuant to the
Incentive Plans are not currently determinable.
Federal Income Tax Consequences. The following summary of the federal
income tax consequences of the Incentive Plans is not comprehensive and is
based on current income tax laws, regulations and rulings.
Incentive Stock Options. An optionee does not recognize income on the
grant of an incentive stock option. Subject to the effect of the alternative
minimum tax, discussed below, if an optionee exercises an incentive stock
option in accordance with the terms of the option and does not dispose of the
shares acquired within two years from the date of the grant of the option nor
within one year from the date of exercise, the optioned will not realize any
income by reason of the exercise and the Company will be allowed no deduction
by reason of the grant or exercise. The optioned's basis in the shares
acquired upon exercise will be the amount paid upon exercise. Provided the
optioned holds the shares as a capital asset at the time of sale or other
disposition of the shares, his gain or loss, if any, recognized on the sale or
other disposition will be capital gain or loss. The amount of his gain or
loss will be the difference between the amount realized on the disposition of
the shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of (1)
the amount realized on the Early Disposition; or (2) the fair market value of
the shares on the date of exercise, over the optioned's basis in the shares.
The Company will be entitled to a deduction in an amount equal to such income.
The excess, if any, of the amount realized on the Early Disposition of such
shares over the fair market value of the shares on the date of exercise will
be long-term or short-term capital gain, depending upon the holding period of
the shares, provided the optionee holds the shares as a capital asset at the
time of Early Disposition. If an optionee disposes of such shares for less
than his basis in the shares, the difference between the amount realized and
his basis will be a long-term or short-term capital loss, depending upon the
holding period of the shares, provided the optionee holds the shares as a
capital asset at the time of disposition.
The excess of the fair market value of the shares at the time the
incentive stock option is exercised over the exercise price for the shares is
an item of "tax preference" as such term is used in the Internal Revenue Code
(the "Stock Option Preference").
Nonqualified Stock Options. Nonqualified stock options do not qualify
for the special tax treatment accorded to incentive stock options under the
Internal Revenue Code. Although an optionee does not recognize income at the
time of the grant of the option, he recognizes ordinary income upon the
exercise of a nonqualified option in an amount equal to the difference between
the fair market value of the stock on the date of exercise of the option and
the amount of the exercise price.
36
As a result of the optionee's exercise of a nonqualified stock option,
the Company will be entitled to deduct as compensation an amount equal to the
amount included in the optioned's gross income. The Company's deduction will
be taken in the Company's taxable year in which the option is exercised.
The excess of the fair market value of the stock on the date of exercise
of a nonqualified stock option over the exercise price is not an item of tax
preference.
Appreciation Rights. Recipients of SARs do not recognize income upon
the grant of such an award. When a participant elects to receive payment
under an SAR, he recognizes ordinary income in an amount equal to the cash
and/or fair market value of shares received, and the Company is entitled to a
deduction equal to such amount.
Restricted Stock; Performance Units. Grantees of restricted stock and
performance units do not recognize income at the time of the grant of such
stock or units. However, when shares of restricted stock become free from any
restrictions or when performance units are paid, grantees recognize ordinary
income in an amount equal to the cash and the fair market value of the stock
on the date all restrictions are satisfied. Alternatively, the grantee of
restricted stock may elect to recognize income upon the grant of the stock and
not at the time the restrictions lapse.
Taxation of Preference Items. Section 55 of the Internal Revenue Code
imposes an alternative minimum tax equal to the excess, if any, of (1) 26% of
the optionee's "alternative minimum taxable income" that does not exceed
$175,000, plus 28% of his "alternative minimum taxable income" in excess of
$175,000, over (2) his "regular" federal income tax. Alternative minimum
taxable income is determined by adding the optioned's Stock Option Preference
and any other items of tax preference to the optioned's adjusted gross income
and then subtracting certain allowable deductions and an exemption amount.
The exemption amount is $33,750 for single taxpayers, $45,000 for married
taxpayers filing jointly, and $22,500 for married taxpayers filing separately.
However, these exemption amounts are phased out beginning at certain levels
of alternative minimum taxable income.
Change of Control. If there is an acceleration of the vesting of
benefits and/or an acceleration of the exerciseability of Stock Options upon a
Change of Control, all or a portion of the accelerated benefits may constitute
"excess parachute payments" under Section 280G of the Internal Revenue Code.
The employee receiving an excess parachute payment incurs an excise tax of 20%
of the amount of the payment in excess of the employee's average compensation
over the five calendar years preceding the year of the Change of Control, and
the Company is not entitled to a deduction for such payment.
37
OPTIONS GRANTED UNDER THE PLANS
On February 21, 2000, the Company's board of directors approved, subject
to shareholder approval of the Executive Plan, the grant of the following
nonqualified stock options under the Executive Plan:
Percent of
Options Total Options Exercise Expiration
Name Granted Granted Price Date(1)(2)
- ----------------------------------------------------------------------------
John P. Gorst 1,500,000 60.00 $0.20 per 2/21/2010
share
M. Carroll
Benton 1,000,000 40.00 $0.20 per 2/21/2010
Share
- ----------------------------------------------------------------------------
Totals 2,500,000 100.00
(1) The above options are not exercisable until eight (8) years have
elapsed since the date of grant, unless the Company has attained the following
goals: (a) 1,000,000 shares are exercisable on the date the Company's common
stock is traded on the NASD Bulletin Board; (b) 750,000 shares are exercisable
on the date the Company successfully raises $5,000,000 in outside investment
capital as a result of the efforts of Gorst or Benton, as the case may be, as
determined by the Compensation Committee; and (c) 750,000 shares are
exercisable on the first business day following the date the Company's common
stock has traded on the NASD Bulletin Board at a price of not less than $5.00
per share for a period of ten consecutive trading days.
(2) The holder of the above options may not exercise the options unless
he or she, at the time of exercise, has been in the employ of the Company or a
subsidiary continuously since the date of grant. If the holder ceases to be a
full-time employee of the Company, the unexercised portion of the option shall
be forfeited.
On February 21, 2000, the Company's board of directors approved, subject
to shareholder approval of the Employee Plan, the grant of the following
nonqualified stock options to employees under the Employee Plan:
38
Percent of
Pre-Split Total
Options Options Exercise Expiration
Name Granted Granted Price Date
- ----------------------------------------------------------------------------
Donald L. Manzano 319,700 23.08% $1.00 (1)
Carey Holladay 90,450 6.53% $1.00 (2)
James Leigh III 390,000 28.16% $0.50
and $1.00 (3)
Joanie C. Mann 225,000 16.24% $0.50
and $1.00 (4)
James Zachman 87,500 6.32% $1.00 (5)
DJ Johnson 212,500 15.34% $0.50
and $1.00 (6)
Eric Asplund 5,000 0.36% $1.00 2/21/2000
Rudiger Bauer 5,000 0.36% $1.00 2/21/2000
Ian M. Eure 5,000 0.36% $1.00 2/21/2000
Delores Hall 5,000 0.36% $1.00 2/21/2000
Jordan Herrington 5,000 0.36% $1.00 2/21/2000
Nicholas M. Kirsch 5,000 0.36% $1.00 2/21/2000
Art Kuntz 5,000 0.36% $1.00 2/21/2000
Megan Gorst 5,000 0.36% $1.00 2/21/2000
Jerry Martin 5,000 0.36% $1.00 2/21/2000
Kenneth R. Taylor 5,000 0.36% $1.00 2/21/2000
Christopher Todd 5,000 0.36% $1.00 2/21/2000
James D. Torpey 5,000 0.36% $1.00 2/21/2000
- -------------------------------------------------------------------------
Total 1,385,150 100.00%
(1) 69,700 shares are exercisable between February 21, 2000 and February 21,
2005. The remaining 250,000 shares are exercisable one-fifth (1/5) (50,000
shares) each year beginning on February 21, 2001 and continuing for a period
of ten years thereafter.
(2) 27,950 shares are exercisable between February 21, 2000 and February 21,
2005. The remaining 62,500 options are exercisable for a period of ten years,
in increments of one-fifth (1/5) (12,500 shares), beginning February 21, 2001,
and continuing each year thereafter until 2005.
(3) 25,000 shares are exercisable between February 21, 2000 and February 21,
2010, at an exercise price of $1.00. The remaining 365,000 options are
exercisable for a period of ten years, in increments of one-third (1/3)
(121,666 shares), beginning February 21, 2001, and continuing each year
thereafter until 2003.
39
(4) 25,000 shares are exercisable between February 21, 2000 and February 21,
2010, at an exercise price of $1.00. The remaining 200,000 options are
exercisable for a period of ten years, in increments of one-third (1/3)
(66,666 shares), beginning February 21, 2001, and continuing each year
thereafter until 2003.
(5) 12,500 shares are exercisable between February 21, 2000 and February 21,
2011. The remaining 75,000 options are exercisable for a period of ten years,
in increments of one-third (1/3) (25,000 shares), beginning February 21, 2001,
and continuing each year thereafter until 2003.
(6) 25,000 shares are exercisable between February 21, 2000 and February 21,
2010, at an exercise price of $1.00. The remaining 187,500 options are
exercisable for a period of ten years, in increments of one-third (1/3)
(62,500 shares), beginning February 21, 2001, and continuing each year
thereafter until 2003.
VOTE REQUIRED
The affirmative vote of the majority of the outstanding shares of the
Company is required to approve the Incentive Plans described above nominated
above. Management recommends a vote "FOR" the approval of the Incentive
Plans. Holders of greater than 50% of the Company's outstanding common stock
have indicated their intention to vote in favor of this proposal.
- ---------------------------------------------------------------------------
PROPOSAL NO. 4 - APPROVAL OF INDEPENDENT AUDITORS
- ---------------------------------------------------------------------------
In the end of February, 2000, the board of directors approved the
appointment of G. Brad Beckstead ("Beckstead"), certified public accountant,
330 East Warm Springs, Las Vegas, Nevada 89119, as the Company's independent
auditor. Concurrently, Beckstead was engaged as the independent auditor of
Insynq, Inc., to audit the financial statements of Insynq, Inc., for the years
ended December 31, 1998 and 1999. Shareholders are being asked in this
Information Statement to ratify the board's selection of Beckstead as the
Company's independent auditor for the fiscal year ending May 31, 2000.
The firm of Jones, Jensen & Co. ("JJC"), served as the Company's
auditors for the fiscal year ended May 31, 1999. However, because of
Beckstead's familiarity with the accountings and business operations of
Insynq, Inc., the board of directors believes Beckstead is in the best
position to undertake the audit of the Company's financial statements for the
fiscal year ending May 31, 2000.
During the year ended May 31, 1999, and up to and including the present,
there have been no disagreements between the Company and JJC on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures. JJC's report on the financial statements of the Company
for the fiscal year ended May 31, 1999, indicated that substantial doubt
regarding the Company's ability to continue as a going concern.
40
VOTE REQUIRED
The affirmative vote of the majority of the outstanding shares of the
Company is required to ratify the engagement of Beckstead as the Company's
independent auditor. Management recommends a vote "FOR" this proposal.
Holders of greater than 50% of the Company's outstanding common stock have
indicated their intention to vote in favor of this proposal.
- -----------------------------------------------------------------------------
CERTAIN TRANSACTIONS
- -----------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
On March____, 2000, John P. Gorst, Chief Executive Officer and Chairman
of the Board, and M. Carroll Benton, Secretary/Treasurer (each, an
"Employee"), each entered into an employment agreement with the Company
(hereinafter referred to as the "Executive Agreements"). The principal terms
of the Executive Agreements were approved by the board of directors of the
Company on February 21, 2000.
The Executive Agreements are each for an initial term of three years,
and are automatically renewable for additional terms of one year each, unless
terminated by the Company or the Employee on at least thirty (30) days written
notice prior to the expiration of the current term. The Executive Agreements
contain standard confidentiality and non-compete provisions that prohibit the
Employee from disclosing confidential information of the Company, and from
competing with the Company for a period of six (6) months following the
Employee's termination of employment, whether voluntary or involuntary, with
the Company. If the Company terminates either of the Executive Agreements
"for cause," the Company's obligations under such Executive Agreement are
terminated as of the termination date. If the Company terminates either of
the Executive Agreement without cause, the Employee shall be entitled to
receive a severance payment equal to twice the Employee's annual salary,
payable within sixty (60) days of the termination date, and shall be entitled
to receive fully paid medical benefits of the type the Employee had prior to
termination, for a period of eighteen months after such termination. Each of
the Executive Agreements provide for payment of certain benefits to the
Employee upon the occurrence of a "change of control" of the Company, as
defined in the Executive Agreements. If the Employee's employment with the
Company is terminated upon a the event of a "change of control," for any
reasons other than for cause of for "good reason" by the Employee, as defined
in the Executive Agreement, the Employee is entitled to receive a severance
benefit equal to two times the sum of the Employee's highest annual cash base
salary in effect within two years preceding the change of control, plus the
average of the Employee's annual bonuses paid for the two calendar years
immediately preceding the change of control. In addition, if the Employee is
terminated under circumstances requiring a severance payment, as described
above, the Company is required to provide the health and welfare benefits that
are no less favorable than the benefits that the Employee was entitled to
prior to the change of control.
41
The Executive Agreement with Gorst (the "Gorst Agreement"), pursuant to
which Mr. Gorst is employed as Chief Executive Officer of the Company,
provides for an annual salary of $225,000 during the first year; $250,000
during the second year; and $275,000 during the third year or employment by
the Company. In addition, the Gorst Agreement provides for use of a Company
owned or leased automobile; executive health, life, disability and dental
insurance; and reimbursement of all ordinary and necessary business expenses.
The Gorst Agreement entitles Gorst to participate in the Company's 2000 Long
Term Incentive Plan and 2000 Executive Officer Long Term Incentive Plan, as
discussed under "PROPOSAL NO. 3 - ADOPTION OF INCENTIVE PLANS."
The employment agreement with Benton (the "Benton Agreement"), pursuant
to which Ms. Benton is employed as Chief Administrative Officer/Controller of
the Company, provides for an annual salary of $112,000 during the first year;
$125,000 during the second year; and $140,000 during the third year of
employment by the Company. In addition, the Benton Agreement provides for the
use of a Company owned or leased automobile; executive health, life,
disability and dental insurance; and reimbursement of all ordinary and
necessary business expenses. The Benton Agreement entitles Benton to
participate in the Company's 2000 Long Term Incentive Plan and 2000 Executive
Officer Long Term Incentive Plan, as discussed under "PROPOSAL NO. 3 -
ADOPTION OF INCENTIVE PLANS."
In the next few weeks, the Company plans to enter into other employment
agreements with a number of other executives and key employees.
PRIVATE OFFERING
During January of 2000, Insynq completed a private offering, in reliance
upon applicable exemptions from the registration requirements under the
Securities Act of 1933, as amended, of a total of 655,910 shares of common
stock, at an offering price of $2.00 per share, after giving effect to a
reverse split effectuated by Insynq in the beginning of February, 2000. Each
purchaser in the private offering described above, was issued one Class A
Warrant and one Class B Warrant, for each share of common stock purchased by
such purchaser. The Class A Warrants and Class B Warrants entitled the
purchasers to purchase a share of common stock at any time on or before
December 31, 2000, at a price of $5.00 and $8.00, respectively. In
connection with the asset purchase transaction between Insynq and the Company,
Insynq transmitted to each of its shareholders a notice of a special meeting
of Insynq's shareholders, and an accompanying proxy statement, describing the
proposed transaction with the Company, and soliciting the approval of the
shareholders to the transaction. In connection with such solicitation, each
of the shareholders of Insynq were given the opportunity to rescind his or her
original purchase of shares of common stock of Insynq, and to exercise his or
her dissenter's rights under Washington corporate law. With the exception of
one shareholder who dissented, and who was subsequently the fair market value
of his shares, Insynq received approval of the transaction from all of its
shareholders. As a result of such approval, shares of common stock of the
Company were issued, pro rata, to the shareholders of Insynq in a liquidating
distribution, in reliance on applicable exemptions from the registration
requirements under the Securities Act of 1933, as amended.
42
In connection with the completion of the asset purchase transaction with
Insynq, the Company has converted the Class A and Class B Warrants, described
above, into Class A and Class B Warrants of the Company, entitling the same
holders to purchase a total of 655,910 Shares of Common Stock at any time
before December 31, 1999, at a price of $5.00 and $8.00, respectively.
OTHER OPTIONS AND WARRANTS OUTSTANDING
Under the terms of the Asset Purchase Agreement between the Company and
Insynq, Inc., the Company agreed to convert all outstanding options and
warrants of Insynq, into "like" options and warrants of the Company. As a
result, the Company has granted the following options and warrants:
Number of Shares Excerice Expiration
Name Under Option or Warrants(1) Price Period
- --------------------------------------------------------------------------
Class A
Warrantholders(2) 655,910 $5.00 12/31/2000
Class B
Warrantholders(2) 655,910 $8.00 12/31/2000
Consulting & Strategy 300,000(3)(4) $2.00
International, LLC(3) 1,000,000(3)(4) $2.50 - $4.50 (4)
One Click Investments,
LLC 750,000(3)(5) $4.00 - $15.00 2/20/2003
Vijay Alimichandi 270,000(3) $1.00 - $3.00(3) 2/21/2000
2/21/2005
Robert Torres 77,500(3) $6.00(3) (3)
Lowell Cooper 47,500(3) $6.00(3) (3)
Hewlett-Packard 100,000(3) $1.00(3) (3)
Timothy Horan 300,000(6) $0.50 (3)
(1) Does not give effect to the two-for-one forward split proposed under
("PROPOSAL NO. 2 - PROPOSED RECAPITALIZATION.")
(2) See "PRIVATE OFFERING," above.
(3) See "CONSULTING AND BUSINESS AGREEMENTS," below.
(4) In connection with the Business Service Contract with Consulting &
Strategy International, LLC ("CSI"), described above, the Company has granted
to CSI the option to purchase up to 300,000 shares of common stock, at an
exercise price of $2.00 per share, exercisable at any time after August 30,
2000, and for a period of thirty-six (36) months after the Company becomes a
fully reporting and trading Company and receives at least $4 million in
43
funding. These options are not exercisable unless the Company receives
funding of $4 million. Under this contract, the Company has also assumed the
obligation of Insynq, to grant to CSI warrants to purchase up to 1,000,000
shares of common stock exercisable for a period of one year in increments of
250,000 shares, at exercise prices of $5.00, $6.00, $8.00 and $9.00, at such
time as the Company's common stock has an average bid and ask price for thirty
(30) continuous trading days, at prices of $5.00, $7.00, $8.00 and $10.00,
respectively.
(5) In connection with the Consulting Agreement with One Click Investments,
LLC, the Company has granted options to purchase a total of 750,000 shares of
the Company's common stock, exercisable in increments of one-third (250,000
shares), at any time before February 20, 2203, at prices of $4.00, $8.00 and
$15.00, respectively.
CONSULTING AND BUSINESS CONTRACTS
Since the completion of the asset purchase transaction with Insynq, the
Company has entered into a number of service contracts with individuals and
firms, or assumed contract obligations of Insynq, summarized below.
The Company has recently entered into an amendment to a business
services contract between Insynq and Consulting & Strategy International, LLC
("CSI"), an unrelated third party. Under the terms of the amended
agreement, CSI has provided, and agreed to continue to provide, for the
duration of the agreement, business consulting services to the Company. In
consideration of such services, the Company has granted to CSI, options to
purchase a total of 300,000 shares, exercisable at a price of $2.00 per share,
and warrants to purchase up to a total of 1,000,000 shares, in increments of
250,000 shares at prices ranging from $5.00 to $9.00 per share, all on the
terms described under "OTHER OPTIONS AND WARRANTS OUTSTANDING," above. In
addition, the Company has agreed to pay to CSI a monthly retainer of $2,500,
increasing to $5,000 per month after the Company's common stock bid price in
the over-the-counter market exceeds $6.00 per share for five (5) consecutive
business days; $7,500 per month at such time as the Company's common stock bid
price exceeds $8.00 per month for five consecutive business days; and $10, 000
at such time as the Company's stock bid price exceeds $10 per month for five
consecutive business days, or until such time as the Company and any of its
subsidiaries have obtained a funding commitment from any source for $5
million, and received minimum funding of $2 million.
The Company has entered into a consulting agreement with Vijay
Alimanchandani ("VJ"), under the terms of which the Company has engaged VJ to
provide to the Company general consulting services, including strategic
planning, the identification of possible strategic alliances with software
vendors, the evaluation and development of cooperative alliances, and related
activities. The agreement is for a term of fourteen months. The Company has
agreed to reimburse VJ for all travel and entertainment and reasonable
expenses related to his consulting services, and to pay VJ a consulting fee of
$5,000 per month, increasing to $7,000 per month as such time as VJ has
secured $2 million in equity financing for the Company, and to $10,000 per
44
months at such time as VJ has secured an additional $10 million in equity
financing. In addition, the Company has granted options to VJ, as follows:
(a) 125,000 shares, exercisable at any time for a period of five years, at a
price of $1.50 per share; and (b) 100,000 shares, exercisable one year from
the beginning date of the contract, for a period of five years, at an exercise
price of $2.00 per share. The Company has also agreed to grant to VJ (a) an
additional option, entitling him to purchase a total of (b) 45,000 shares for
a five year period at the end of the initial term (24 months) of the
agreement, if such agreement is extended by the Company, at price of $3.00 per
share; and (c) bonus options of between 10,000 to 50,000 shares, to be granted
at the discretion of the board of directors based on the performance of VJ, at
an exercise price of not more than $2.00 per share. The Company has granted
to VJ "piggyback" registration rights in connection with the shares under
options.
The Company has entered into a financial public relations consulting
agreement with One Click Investments, LLC, a Washington state limited
liability company of which Eric Estoos, a shareholder of the Company, is a
principal. Under the terms of the agreement with One Click, the Company has
agreed to engage One Click to provide various financial public relations
services. The Company has agreed to compensate One Click for its services at
the rate of $8,000 per month during the term of the agreement (through August
19, 2000, which is automatically renewable for six additional months unless
terminated by either party in writing), to reimburse One Click for all
reasonable expenses in connection with the agreement, and to pay One Click a
fee of 10% of all funding obtained by One Click for the Company, to the extent
permitted by law. The Company has also granted to One Click, warrants to
purchase a total of 750,000 shares of common stock, exercisable at any time
prior to February 20, 2003, in equal increments of 250,000 shares, at exercise
prices of $4.00, $8.00 and $15.00 per share.
In consideration of consulting services rendered to the Company and
Insynq, the Company has granted options to Robert J. Torres and Lowell Cooper,
entitling them to purchase a total of 77,500 shares and 47,500 shares,
respectively, at any time December 31, 2000, at an exercise price of $6.00 per
share.
In consideration of an equipment financing arrangement with Hewlitt
Packard ("HP"), the Company has granted to HP, an option to purchase a total
of 100,000 shares of common stock at any time on or before February 21, 2010,
at a price of $1.00 per share.
In January, 2000, Insynq obtained $150,000 from Timothy Horan, an
unrelated third party, to provide the Company with capital to secure the
leased facility of the Company's at 1101 Broadway Plaza, Tacoma, Washington.
In consideration of this financing, the Company has agreed to issue to Mr.
Horan, 300,000 shares of the Company's common stock.
ACQUISITION OF STOCK BY FORMER OFFICERS AND DIRECTORS
In July, 1999, in connection with a Chapter 11 plan of reorganization
Dallin Bagley and Steve Rippon each received a total of 810,000 shares of
common stock of the Company.
45
- -----------------------------------------------------------------------------
ADDITIONAL INFORMATION AND OTHER MATTERS
- -----------------------------------------------------------------------------
Additional information regarding the matters to be acted on by the
shareholders, and any other matters described in this Information Statement,
will be available at the Special Meeting. Any of such information is
available prior to the Special Meeting upon request. Consequently,
shareholders are urged to attend the Special Meeting in person.
Management of the Company knows of no other matters that are likely to
be brought before the Special Meeting. If any other matters are brought
before the Special Meeting, such matters will be properly addressed and
resolved, and the proxies will vote on such matters in accordance with their
best judgment.
XCEL MANAGEMENT, INC.
By Order of the Board of Directors
DATED: April____, 2000
By:
- --------------------------------------
John P. Gorst, Chief Executive Officer
46
Exhibit "A"
CERTIFICATE OF INCORPORATION
OF
INSYNQ, INC.
ARTICLE I
NAME
The name of the corporation hereby created shall be: Insynq, Inc.
ARTICLE II
DURATION
The Corporation shall continue in existence perpetually unless sooner
dissolved according to law.
ARTICLE III
PURPOSES
The purposes for which this Corporation is organized:
(a) To develop and market all kinds of computer hardware and software
products and services, and to provide all services and products necessary to
be an internet utility company, including internet outsourcing services,
telecommunications, access to web services of all kinds, access to internet
marketing assistance and related equipment and services.
(b) To do all and everything necessary, suitable, convenient, or
proper for the accomplishment of any of the purposes or the attainment of any
one or more of the objects herein enumerated or incidental to the powers
therein named or which shall at any time appear conclusive or expedient for
the protection or benefit of the Corporation, with all the powers hereafter
conferred by the laws under which this Corporation is organized; and
(c) To engage in any and all other lawful purposes, activities and
pursuits, whether similar or dissimilar to the foregoing, and the Corporation
shall have all the powers allowed or permitted by the laws of the State of
Delaware.
-1-
ARTICLE IV
CAPITALIZATION
The Corporation shall have authority to issue an aggregate of
120,000,000 shares, of which 100,000,000 shares shall be Common Stock,
having a par value of $0.001 per share; 10,000,000 shares shall be Class
A Common Stock, having a par value of $0.001 per share; and 10,000,000 shares
shall be Preferred Stock having a par value of $0.001 per share.
ARTICLE V
CLASSES OF STOCK
A statement of the designations and the powers, preferences, and rights,
and the qualifications, limitations, or restrictions thereof, of the shares of
stock of each class which the Corporation shall be authorized to issue, is as
follows:
(a) Preferred Stock. Shares of preferred stock may be issued from
time to time in one or more series as may from time to time be determined by
the Board of Directors, and for such consideration as shall be fixed by the
Board of Directors. Each series shall be distinctly designated. All shares
of any one series of the preferred stock shall be alike in every particular,
except that there may be different dates from which dividends thereon, if any,
shall be cumulative, if made cumulative. The powers, preferences,
participating, optional and other rights of each such series and
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. Subject to the
provisions of subparagraph (1) of Paragraph (d) of this Article V, the Board
of Directors of this Corporation is hereby expressly granted authority to fix
by resolution or resolutions adopted prior to the issuance of any shares of
each particular series of preferred stock, the designation, powers,
preferences and relative, participating, optional and other rights and the
qualifications, limitations and restrictions thereof, if any, of such series,
including, without limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of
preferred stock which shall constitute, the series, which number may be
increased (except as otherwise fixed by the Board of Directors) or
decreased (but not below the number of shares thereof outstanding) from
time to time by action of the Board of Directors;
(2) The rate and times at which, and the terms and conditions
upon which, dividends, if any, on shares of the series shall be paid,
the extent of preferences or relation, if any, of such dividends to the
dividends payable on any other class or classes of stock of this
Corporation, or on any series of preferred stock, and whether such
dividends shall be cumulative or noncumulative;
(3) The right, if any, of the holders of shares of the series to
convert the same into, or exchange the same for any other series, or any
other class or classes of stock of this Corporation, and the terms and
conditions of such conversion or exchange;
(4) Whether shares of the series shall be subject to redemption,
and the redemption price or prices, including, without limitation, a
redemption price or prices payable in shares of the Common Stock, cash
or other property and the time or times at which, and the terms and
conditions upon which, shares of the series may be redeemed;
(5) The rights, if any, of the holders of shares of the series
upon voluntary or involuntary liquidation merger, consolidation,
distribution or sale of assets, dissolution or winding up of this
Corporation;
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for shares of the series; and
(7) The voting powers, if any, of the holders of shares of the
series which may, without limiting the generality of the foregoing,
include (A) the right to more or less than one vote per share on any or
all matters voted upon by the shareholders and (B) the right to vote as
a series by itself or together without preferred stock as a class, upon
such matters, under such circumstances and upon such conditions as the
Board of Directors may fix, including, without limitation, the right,
voting as a series by itself or together with other series of preferred
or together with all series of preferred stock as a class, to elect one
or more directors of this Corporation in the event there shall have been
a default in the payment of dividends on any one or more series of
preferred stock or under such other circumstances and upon such
conditions as the Board may determine.
(b) Common Stock. The Common Stock shall be non-assessable and shall
not have cumulative voting rights or pre-emptive rights. In addition, the
Common Stock shall have the following powers, preferences, rights,
qualifications, limitations and restrictions:
(1) After the requirements with respect to preferential
dividends of preferred stock (fixed in accordance with the provisions of
Paragraph (a) of this Article V), if any, shall have been met and after
this Corporation shall comply with all the requirements, if any, with
respect to the setting aside of funds as sinking funds or redemption or
purchase accounts (fixed in accordance with provisions of Paragraph (a)
of this Article V) and subject further to any other conditions which may
be fixed in accordance with the provisions of Paragraph (a) of this
Article V, the holders of Common Stock shall be entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors;
(2) After distribution in full of the preferential amount (fixed
in accordance with the provisions of Paragraph (a) of this Article V),
if any, to be distributed to the holders of preferred stock in the event
of a voluntary or involuntary liquidation, distribution or sale of
assets, dissolution or winding up of this Corporation, the holders of
the Common Stock (and Class A Common Stock, as set forth in Paragraph
(c) of this Article V), shall be entitled to receive all of the
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remaining assets of this Corporation, tangible and intangible, of
whatever kind available for distribution to stockholders, ratably in
proportion to the number of shares of the Common Stock (and Class A
Common Stock) held by each;
(3) Shares of the Common Stock may be issued from time to time
as the Board of Directors shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
(4) The holders of Common Stock shall have one vote for each
share of Common Stock, for all matters submitted to the Corporation's
shareholders.
(c) Class A Common Stock.
The Class A Common Stock shall be non-assessable and shall not
have cumulative voting rights or pre-emptive rights. In addition, the
Class A Common Stock shall have the following powers, preferences,
rights, qualifications, limitations and restrictions:
(1) The holders of Class A Common Stock shall have three (3)
votes for each share of Class A Common Stock, on all matters submitted
to the Corporation's shareholders.
(2) Each holder of record of Class A Common Stock may at any
time or from time to time, in the holder's sole discretion and option,
convert any whole number or all of the holder's Class A Common Stock
into fully paid and nonassessable Common Stock at the rate (subject to
adjustment as provided below) of one share of Common Stock for each
share of Class A Common Stock surrendered for conversion;
(3) The conversion of Class A Common Stock into Common Stock may
be effected by any holder of Class A Common Stock surrendering the
holder's certificate or certificates for the Class A Common Stock to be
converted, duly endorsed, at the office of the Corporation or any
transfer agent for the Class A Common Stock, together with a written
notice to the Corporation that the holder elects to convert all or a
specified number of shares of Class A Common Stock and stating the name
or names in which the holder desires the certificate or certificates for
the Class A Common Stock to be issued. The Corporation shall
immediately issue and deliver to the holder or the holder's nominee or
nominees, a certificate or certificates for the number of Common Stock
to which the holder shall be entitled. The conversion shall be deemed
to have been made at the close of business on the date of the surrender
and the person or persons entitled to receive the Common Stock issuable
on the conversion shall be treated for all purposes as the record holder
or holders of those shares of Common Stock on that date;
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(4) The number of shares of Common Stock into which the Class A
Common Stock may be converted shall be subject to adjustment from time
to time in the event of any capital reorganization, reclassification of
the stock of the Corporation, consolidation or merger of the Corporation
with or without another corporation or sale or conveyance of all or
substantially all of the assets of the Corporation to another
corporation or other entity or person. Each share of Class A Common
Stock shall subsequently be convertible into the kind and amount of
securities or other assets, or both, as are issuable or distributable in
respect of the number of shares of Common Stock into which each share of
Class A Common Stock is convertible immediately prior to the
reorganization, reclassification, consolidation, merger, sale or
conveyance. In those cases, appropriate adjustments shall be made by
the Board of Directors of the Corporation in the application of the
provisions set forth in this article with respect to the rights and
interests of the holders of Class A Common Stock, to the end that the
provisions (including provisions for adjustment of the conversion rate)
shall be applicable, as nearly as reasonably may be, in relation to any
securities or other assets deliverable on conversion of the Class A
Common Stock;
(5) No fraction of a share of Common Stock shall be issued on
conversion of any Class A Common Stock but, in lieu of issuance of a
fractional share of Common Stock, the Corporation shall pay in cash for
the fractional share the pro rata fair market value of the fraction.
The fair market value shall be based, in the case of publicly traded
securities, on the last sale price for the securities on the business
day next prior to the date the fair market value is to be determined
(or, in the event no sale is made on that day, the average of the
closing bid and asked prices for that day on the principal stock
exchange on which Common Stock are traded or, if the Common Stock is not
then listed on any national securities exchange, the average of the
closing bid and asked prices for that day quoted by the NASDAQ System)
or, in the case of other property, the fair market value on the day
determined by a qualified independent appraiser expert in evaluating the
property and appointed by the Board of Directors of the Corporation.
The determination of fair market value shall be final and binding on the
Corporation and on each holder of Class A Common Stock or Common Stock;
(6) The Corporation shall at all times reserve and keep
available out of the authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the outstanding Class A
Common Stock, the number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding Class A
Common Stock and if, at any time, the number of shares of authorized and
unissued Common Stock shall not be sufficient to effect conversion of
the then outstanding Class A Common Stock, the Corporation shall take
the corporate action necessary to increase the number of authorized and
unissued shares of Common Stock to the number sufficient for those
purposes;
(7) Holders of Class A Common Stock shall not be entitled to
share in cash dividends declared by the Company;
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(8) Holders of Class A Common Stock shall be entitled to share
in dividends declared in stock or other property of the Company without
distinction as to class and on the same basis as holders of Common Stock
in accordance with subparagraph (2) of Paragraph (b) of this Article V;
(9) All shares of Class A Common Stock held by a holder, shall
automatically be converted into shares of Common Stock upon the death of
such holder.
(d) Other Provisions.
(1) The relative powers, preferences and rights of each series
of preferred stock in relation to the powers, preferences and rights of
each other series of preferred stock shall, in each case, be as fixed
from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in Paragraph (a) of
this Article V, and the consent by class or series vote or otherwise, of
the holders of the preferred stock of such of the series of preferred
stock as are from time to time outstanding shall not be required for the
issuance by the Board of Directors of any other series of preferred
stock whether the powers, preferences and rights of such other series
shall be fixed by the Board of Directors as senior to, or on a parity
with the powers, preferences and rights of such outstanding series, or
any of them; provided, however, that the Board of Directors may provide
in such resolution or resolutions adopted with respect to any series of
preferred stock that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding shares
of such series voting thereon shall be required for the issuance of any
or all other series of preferred stock.
(2) Shares of the Common Stock and Class A Common Stock may be
issued from time to time as the Board of Directors shall determine and
on such terms and for such consideration as shall be fixed by the Board
of Directors.
(3) No holder of any of the shares of any class or series of
stock or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation shall
have any pre-emptive right to purchase or subscribe for any unissued
stock of any class or series or any additional shares of any class or
series to be issued by reason of any increase of the authorized capital
stock of the Corporation of any class or series, or bonds, certificates
of indebtedness, debentures or other securities convertible into or
exchangeable for stock of the Corporation of any class or series, or
carrying any rights to purchase stock of any class or series, but any
such unissued stock, additional authorized issue of shares of any class
or series of stock or securities convertible into or exchangeable for
stock, or carrying any right to purchase stock, may be issued and
disposed of pursuant to resolution of the Board of Directors to such
persons, firms, corporations or associations, whether such holders or
others, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
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ARTICLE VI
BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter or repeal the
Bylaws of the Corporation.
ARTICLE VII
MEETINGS AND RECORDS
Meeting of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation. Elections of
directors need not be by written ballot unless the Bylaws of the Corporation
so provide.
ARTICLE VIII
REGISTERED OFFICE AND AGENT
The address of its registered office in the State of Delaware is:
The Corporation Trust Company
1209 Orange Street
City of Wilmington
County of New Castle, 19801
ARTICLE IX
REMOVAL OF DIRECTORS
Any director of the Corporation may be removed for cause at any annual
or special meeting of the shareholders by the same vote as that required to
elect a director provided, that such director prior to his removal shall
receive a copy of the charges against him, delivered to him personally or by
mail at his address appearing on the records of the Corporation, at least
thirty (30) days prior to the meeting at which such removal is to be
considered, and such director has an opportunity to be heard on such charges
at the meeting of shareholders of the Corporation at which the question of his
removal is to be considered.
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ARTICLE X
LIMITATION ON LIABILITY
A director of the Corporation shall have no personal liability to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except (a) for any breach of a director's duty of loyalty
to the Corporation or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(c) under Section 174 of the General Corporation Law of Delaware as it may
from time to time be amended or any successor provision thereto, or (d) for
any transaction from which a director derived an improper personal benefit.
ARTICLE XI
TAKEOVER STATUTE ELECTION
The Corporation hereby expressly elects not to be governed by the
provisions of Section 203 of the General Corporation Law of the state of
Delaware, which provision shall not apply to the Corporation.
ARTICLE XII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Corporation shall indemnify any and all persons who may serve or who
have served at any time as director or officers, or who, at the request of the
Board of Directors of the Corporation, may serve, or at any time have served
as directors or officers of another corporation in which the Corporation at
such time owned or may own shares of stock, or which it was or may be a
creditor, and the respective heirs, administrators, successors, and assigns,
against any and all expenses, including amounts paid upon judgment, counsel
fees, and amounts paid in settlement (before or after suit is commenced),
actually or necessarily by such persons in connection with the defense or
settlement or any claim, action, suit, or proceeding in which they, or any of
them, are made parties, or a party, or which may be assessed against them or
any of them, by reason of being or having been directors or officers of the
Corporation, or such other corporation, except in relation to matters as to
which any such director or officer of the Corporation, or such other
corporation, or former director or officer shall be adjudged in any action,
suit or proceeding to be liable for his own negligence of misconduct in the
performance of his duties. Such indemnification shall be in addition to any
other rights to which those indemnified may be entitled under any law, by-law,
agreement, vote of stockholders or otherwise.
ARTICLE XIII
AMENDMENT
Except as set forth herein and in the General Corporation Law of the
State of Delaware, the Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statue, and all rights conferred upon
stockholders are granted subject to this reservation.
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ARTICLE XVI
OFFICERS' AND DIRECTORS' CONTRACTS
No contract or other transactions between this Corporation and any other
firm or corporation shall be affected by the fact that a director or officer
of this Corporation has an interest in, or is a director or officer of such
firm or other corporation. Any officer or director, individually or with
others, may be a party to, or may have an interest in, any transaction of this
Corporation or any transaction in which this Corporation is a party or has an
interest. Each person who is now or may become an officer or director of this
Corporation is hereby relieved from liability that he might otherwise obtain
in the event such officer or director contracts with this Corporation for the
benefit of himself or any other firm or corporation in which he may have an
interest, provided such officer or director acts in good faith.
ARTICLE XV
DIRECTORS
The Corporation shall have not less than three (3) nor more than nine
(9) directors as determined from time to time by the Board of Directors. The
names and addresses of the persons who are to serve as directors until the
first annual meeting of shareholders and the class to which each shall belong
are as follows:
Name Address
John P. Gorst 1101 Broadway Plaza, Tacoma, Washington 98402
M. Carroll Benton 1101 Broadway Plaza, Tacoma, Washington 98402
David D. Selmon 1101 Broadway Plaza, Tacoma, Washington 98402
ARTICLE XVI
INCORPORATORS
The names and addresses of the incorporators for this Corporation are as
follows:
Name Address
John P. Gorst 1101 Broadway Plaza, Tacoma, Washington 98402
M. Carroll Benton 1101 Broadway Plaza, Tacoma, Washington 98402
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WE, THE UNDERSIGNED, being each of the incorporators herein before
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, make this certificate, hereby
declaring and certifying that this is our act and deed and the facts herein
stated are true, and accordingly have hereunto set our hands this ----day of
April, 2000.
- ---------------------
John P. Gorst
- ---------------------
M. Carroll Benton
STATE OF }
: ss.
COUNTY OF }
I, ___________________________________________________, a notary public,
hereby certify that on the______day of April, 2000, personally appeared
before me John P. Gorst and M. Carroll Benton, who being by me first duly
sworn, severally declared that they are the persons who signed the foregoing
documents as incorporators of Insynq, Inc., and that the statements therein
contained are true.
WITNESS MY HAND AND OFFICIAL SEAL.
- -----------------------------------------
NOTARY PUBLIC
-9-
Exhibit "B"
UTAH REVISED BUSINESS CORPORATION ACT - DISSENTER'S RIGHTS
16-10a-1301. Definitions. For purposes of Part 13:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 16-10a-1302 and who exercises that right when
and in the manner required by Sections 16-10a-1320 through 16-10a-1328.
(4) "Fair value" with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the statutory rate set forth in Section
15-1-1, compounded annually.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent the beneficial
owner is recognized by the corporation as the shareholder as provided in
Section 16-10a-723.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
16-10a-1302. Right to dissent.
(1) A shareholder, whether or not entitled to vote, is entitled to
dissent from, and obtain payment of the fair value of shares held by him in
the event of, any of the following corporate actions:
(a) consummation of a plan of merger to which the corporation is a
party if: (i) shareholder approval is required for the merger by Section
16-10a-1103 or the articles of incorporation; or
(ii) the corporation is a subsidiary that is merged with its parent
under Section 16-10a-1104;
(b) consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under Subsection 16-10a-1202(1), but not
including a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale; and
(d) consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote upon
the consent of the corporation to the disposition pursuant to Subsection
16-10a-1202(2).
(2) A shareholder is entitled to dissent and obtain payment of the fair
value of his shares in the event of any other corporate action to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors so provides.
(3) Notwithstanding the other provisions of this part, except to the
extent otherwise provided in the articles of incorporation, bylaws, or a
resolution of the board of directors, and subject to the limitations set forth
in Subsection (4), a shareholder is not entitled to dissent and obtain payment
under Subsection (1) of the fair value of the shares of any class or series of
shares which either were listed on a national securities exchange registered
under the federal Securities Exchange Act of 1934, as amended, or on the
National Market System of the National Association of Securities Dealers
Automated Quotation System, or were held of record by more than 2,000
shareholders, at the time of:
(a) the record date fixed under Section 16-10a-707 to determine the
shareholders entitled to receive notice of the shareholders' meeting at which
the corporate action is submitted to a vote;
(b) the record date fixed under Section 16-10a-704 to determine
shareholders entitled to sign writings consenting to the proposed corporate
action; or
(c) the effective date of the corporate action if the corporate action
is authorized other than by a vote of shareholders.
(4) The limitation set forth in Subsection (3) does not apply if the
shareholder will receive for his shares, pursuant to the corporate action,
anything except:
(a) shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) shares of a corporation which at the effective date of the plan of
merger or share exchange either will be listed on a national securities
exchange registered under the federal Securities Exchange Act of 1934, as
amended, or on the National Market System of the National Association of
Securities Dealers Automated Quotation System, or will be held of record by
more than 2,000 shareholders;
(c) cash in lieu of fractional shares; or
(d) any combination of the shares described in Subsection (4), or cash
in lieu of fractional shares.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this part may not challenge the corporate action creating the
entitlement unless the action is unlawful or fraudulent with respect to him or
to the corporation.
16-10a-1303. Dissent by nominees and beneficial owners.
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and causes the
corporation to receive written notice which states the dissent and the name
and address of each person on whose behalf dissenters' rights are being
asserted. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the shareholder dissents and the other
shares held of record by him were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(a) the beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) the beneficial shareholder dissents with respect to all shares of
which he is the beneficial shareholder.
(3) The corporation may require that, when a record shareholder
dissents with respect to the shares held by any one or more beneficial
shareholders, each beneficial shareholder must certify to the corporation that
both he and the record shareholders of all shares owned beneficially by him
have asserted, or will timely assert, dissenters' rights as to all the shares
unlimited on the ability to exercise dissenters' rights. The certification
requirement must be stated in the dissenters' notice given pursuant to Section
16-10a-1322.
16-10a-1320. Notice of dissenters' rights.
(1) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must be sent to all shareholders of the corporation as of the
applicable record date, whether or not they are entitled to vote at the
meeting. The notice shall state that shareholders are or may be entitled to
assert dissenters' rights under this part. The notice must be accompanied by
a copy of this part and the materials, if any, that under this chapter are
required to be given the shareholders entitled to vote on the proposed action
at the meeting. Failure to give notice as required by this subsection does
not affect any action taken at the shareholders' meeting for which the notice
was to have been given.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of shareholders pursuant
to Section 16-10a-704, any written or oral solicitation of a shareholder to
execute a written consent to the action contemplated by Section 16-10a-704
must be accompanied or preceded by a written notice stating that shareholders
are or may be entitled to assert dissenters' rights under this part, by a copy
of this part, and by the materials, if any, that under this chapter would have
been required to be given to shareholders entitled to vote on the proposed
action if the proposed action were submitted to a vote at a shareholders'
meeting. Failure to give written notice as provided by this subsection does
not affect any action taken pursuant to Section 16-10a-704 for which the
notice was to have been given.
16-10a-1321. Demand for payment -- Eligibility and notice of intent.
(1) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights:
(a) must cause the corporation to receive, before the vote is taken,
written notice of his intent to demand payment for shares if the proposed
action is effectuated; and
(b) may not vote any of his shares in favor of the proposed action.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of shareholders pursuant
to Section 16-10a-704, a shareholder who wishes to assert dissenters' rights
may not execute a writing consenting to the proposed corporate action.
(3) In order to be entitled to payment for shares under this part,
unless otherwise provided in the articles of incorporation, bylaws, or a
resolution adopted by the board of directors, a shareholder must have been a
shareholder with respect to the shares for which payment is demanded as of the
date the proposed corporate action creating dissenters' rights under Section
16-10a-1302 is approved by the shareholders, if shareholder approval is
required, or as of the effective date of the corporate action if the corporate
action is authorized other than by a vote of shareholders.
(4) A shareholder who does not satisfy the requirements of Subsections
(1) through (3) is not entitled to payment for shares under this part.
16-10a-1322. Dissenters' notice.
(1) If proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this part.
(2) The dissenters' notice required by Subsection (1) must be sent no
later than ten days after the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302, and shall:
(a) state that the corporate action was authorized and the effective
date or proposed effective date of the corporate action;
(b) state an address at which the corporation will receive payment
demands and an address at which certificates for certificated shares must be
deposited;
(c) inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(d) supply a form for demanding payment, which form requests a
dissenter to state an address to which payment is to be made;
(e) set a date by which the corporation must receive the payment demand
and by which certificates for certificated shares must be deposited at the
address indicated in the dissenters' notice, which dates may not be fewer than
30 nor more than 70 days after the date the dissenters' notice required by
Subsection (1) is given;
(f) state the requirement contemplated by Subsection 16-10a-1303(3), if
the requirement is imposed; and
(g) be accompanied by a copy of this part.
16-10a-1323. Procedure to demand payment.
(1) A shareholder who is given a dissenters' notice described in
Section 16-10a-1322, who meets the requirements of Section 16-10a-1321, and
wishes to assert dissenters' rights must, in accordance with the terms of the
dissenters' notice:
(a) cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in Subsection 16-10a-1322(2)(d), duly
completed, or may be stated in another writing;
(b) deposit certificates for his certificated shares in accordance with
the terms of the dissenters' notice; and
(c) if required by the corporation in the dissenters' notice described
in Section 16-10a-1322, as contemplated by Section 16-10a-1327, certify in
writing, in or with the payment demand, whether or not he or the person on
whose behalf he asserts dissenters' rights acquired beneficial ownership of
the shares before the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action creating
dissenters' rights under Section 16-10a-1302.
(2) A shareholder who demands payment in accordance with Subsection (1)
retains all rights of a shareholder except the right to transfer the shares
until the effective date of the proposed corporate action giving rise to the
exercise of dissenters' rights and has only the right to receive payment for
the shares after the effective date of the corporate action.
(3) A shareholder who does not demand payment and deposit share
certificates as required, by the date or dates set in the dissenters' notice,
is not entitled to payment for shares under this part.
16-10a-1324. Uncertificated shares.
(1) Upon receipt of a demand for payment under Section 16-10a-1323 from
a shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the
transfer of the shares until the proposed corporate action is taken or the
restrictions are released under Section 16-10a-1326.
(2) In all other respects, the provisions of Section 16-10a-1323 apply
to shareholders who own uncertificated shares.
16-10a-1325. Payment.
(1) Except as provided in Section 16-10a-1327, upon the later of the
effective date of the corporate action creating dissenters' rights under
Section 16-10a-1302, and receipt by the corporation of each payment demand
pursuant to Section 16-10a-1323, the corporation shall pay the amount the
corporation estimates to be the fair value of the dissenter's shares, plus
interest to each dissenter who has complied with Section 16-10a-1323, and who
meets the requirements of Section 16-10a-1321, and who has not yet received
payment.
(2) Each payment made pursuant to Subsection (1) must be accompanied
by:
(a) (i) (A) the corporation's balance sheet as of the end of its most
recent fiscal year, or if not available, a fiscal year ending not more than 16
months before the date of payment;
(B) an income statement for that year;
(C) a statement of changes in shareholders' equity for that year and a
statement of cash flow for that year, if the corporation customarily provides
such statements to shareholders; and
(D) the latest available interim financial statements, if any;
(ii) the balance sheet and statements referred to in Subsection (i)
must be audited if the corporation customarily provides audited financial
statements to shareholders;
(b) a statement of the corporation's estimate of the fair value of the
shares and the amount of interest payable with respect to the shares;
(c) a statement of the dissenter's right to demand payment under
Section 16-10a-1328; and
(d) a copy of this part.
16-10a-1326. Failure to take action.
(1) If the effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302 does not occur within 60 days after the date
set by the corporation as the date by which the corporation must receive
payment demands as provided in Section 16-10a-1322, the corporation shall
return all deposited certificates and release the transfer restrictions
imposed on uncertificated shares, and all shareholders who submitted a demand
for payment pursuant to Section 16-10a-1323 shall thereafter have all rights
of a shareholder as if no demand for payment had been made.
(2) If the effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302 occurs more than 60 days after the date set
by the corporation as the date by which the corporation must receive payment
demands as provided in Section 16-10a-1322, then the corporation shall send a
new dissenters' notice, as provided in Section 16-10a-1322, and the provisions
of Sections 16-10a-1323 through 16-10a-1328 shall again be applicable.
16-10a-1327. Special provisions relating to shares acquired after
announcement of proposed corporate action.
(1) A corporation may, with the dissenters' notice given pursuant to
Section 16-10a-1322, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under Section 16-10a-1302 and state that a shareholder who
asserts dissenters' rights must certify in writing, in or with the payment
demand, whether or not he or the person on whose behalf he asserts dissenters'
rights acquired beneficial ownership of the shares before that date. With
respect to any dissenter who does not certify in writing, in or with the
payment demand that he or the person on whose behalf the dissenters' rights
are being asserted, acquired beneficial ownership of the shares before that
date, the corporation may, in lieu of making the payment provided in Section
16-10a-1325, offer to make payment if the dissenter agrees to accept it in
full satisfaction of his demand.
(2) An offer to make payment under Subsection (1) shall include or be
accompanied by the information required by Subsection 16-10a-1325(2).
16-10a-1328. Procedure for shareholder dissatisfied with payment or offer.
(1) A dissenter who has not accepted an offer made by a corporation
under Section 16-10a-1327 may notify the corporation in writing of his own
estimate of the fair value of his shares and demand payment of the estimated
amount, plus interest, less any payment made under Section 16-10a-1325, if:
(a) the dissenter believes that the amount paid under Section
16-10a-1325 or offered under Section 16-10a-1327 is less than the fair value
of the shares;
(b) the corporation fails to make payment under Section 16-10a-1325
within 60 days after the date set by the corporation as the date by which it
must receive the payment demand; or
(c) the corporation, having failed to take the proposed corporate
action creating dissenters' rights, does not return the deposited certificates
or release the transfer restrictions imposed on uncertificated shares as
required by Section 16-10a-1326.
(2) A dissenter waives the right to demand payment under this section
unless he causes the corporation to receive the notice required by Subsection
(1) within 30 days after the corporation made or offered payment for his
shares.
16-10a-1330. Judicial appraisal of shares -- Court action.
(1) If a demand for payment under Section 16-10a-1328 remains
unresolved, the corporation shall commence a proceeding within 60 days after
receiving the payment demand contemplated by Section 16-10a-1328, and petition
the court to determine the fair value of the shares and the amount of
interest. If the corporation does not commence the proceeding within the
60-day period, it shall pay each dissenter whose demand remains unresolved the
amount demanded.
(2) The corporation shall commence the proceeding described in
Subsection (1) in the district court of the county in this state where the
corporation's principal office, or if it has no principal office in this
state, the county where its registered office is located. If the corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered
office of the domestic corporation merged with, or whose shares were acquired
by, the foreign corporation was located.
(3) The corporation shall make all dissenters who have satisfied the
requirements of Sections 16-10a-1321, 16-10a-1323, and 16-10a-1328, whether or
not they are residents of this state whose demands remain unresolved, parties
to the proceeding commenced under Subsection (2) as an action against their
shares. All such dissenters who are named as parties must be served with a
copy of the petition. Service on each dissenter may be by registered or
certified mail to the address stated in his payment demand made pursuant to
Section 16-10a-1328. If no address is stated in the payment demand, service
may be made at the address stated in the payment demand given pursuant to
Section 16-10a-1323. If no address is stated in the payment demand, service
may be made at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares.
Service may also be made otherwise as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under Subsection (2) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
Subsection (2) is entitled to judgment:
(a) for the amount, if any, by which the court finds that the fair
value of his shares, plus interest, exceeds the amount paid by the corporation
pursuant to Section 16-10a-1325; or
(b) for the fair value, plus interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under Section 16-10a-1327.
16-10a-1331. Court costs and counsel fees.
(1) The court in an appraisal proceeding commenced under Section
16-10a-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court.
The court shall assess the costs against the corporation, except that the
court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds that the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
Section 16-10a-1328.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Sections 16-10a-1320 through 16-10a-1328; or
(b) against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this part.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation,
the court may award to those counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
Exhibit "C"
XCEL MANAGEMENT, INC.
2000 Long Term Incentive Plan
I. GENERAL
1. Purpose. The XCEL Management, Inc. 2000 Long Term Incentive Plan (the
"Plan") has been established by XCEL Management, Inc. (the "Company") to:
(a) attract and retain key executive and managerial employees of
the Company;
(b) attract and retain directors, independent contractors and
consultants;
(c) motivate Participants by means of appropriate incentives to
achieve long-range goals;
(d) provide incentive compensation opportunities that are
competitive with those of comparable corporations; and
(e) further identify Participants' interests with those of the
Company's other shareholders through compensation alternatives based on
the Company's common stock; and thereby promote the long-term financial
interest of the Company and its Subsidiaries (if any), including the
growth in value of the Company's equity and enhancement of long-term
shareholder return.
2. Effective Date. Subject to the approval of the holders of a majority
of the voting Stock of the Company, the Plan shall be effective as of February
21, 2000, provided, however, that awards made under the Plan prior to such
approval of the Plan by stockholders of the Company are contingent on such
approval of the Plan by the stockholders of the Company and shall be null and
void if such approval of the stockholders of the Company is withheld. The Plan
shall terminate on February 21, 2000, the tenth anniversary of the Plan's
effective date.
3. Definitions. The following definitions are applicable to the Plan.
(a) "Award Agreement" means a written agreement between the Company
and a Participant documenting an award under this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" has the meaning ascribed to it in Section 1.11.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation Committee of the Board.
(f) "Disabled" means the inability of a Participant, by reason of a
physical or mental impairment, to engage in any substantial gainful
activity, of which the Board shall be the sole judge.
(g) "Fair Market Value" of any share of Stock means (i) if the Stock
is listed on a national securities exchange, the closing price on the
Stock on a given date; (ii) if the Stock is traded on an exchange or
market in which prices are reported on a bid and asked price, the average
of the mean between the bid and asked price for the Stock on a given date;
and (iii) if the Stock is not listed on a national securities exchange nor
traded on the over-the-counter market, such value as the Committee, in
good faith, shall determine.
(h) "1934 Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
(i) "Option Date" means, with respect to any Stock Option, the date
on which the Stock Option is awarded under the Plan.
(j) "Participant" means (i) any regular full-time employee of the
Company or any Subsidiary (meaning an employee who works twenty (20) hours
or more per week) who is selected by the Committee to participate in the
Plan, or (ii) any consultant, independent contractor or director of the
Company or any Subsidiary.
(k) "Performance Award" has the meaning ascribed to it in Article VI.
(l) "Performance Period" has the meaning ascribed to it in Article VI.
(m) "Related Company" means any corporation during any period in
which it is a Subsidiary, or during any period in which it directly or
indirectly owns fifty percent (50%) or more of the total combined voting
power of all classes of securities that are entitled to vote.
(n) "Restricted Period" has the meaning ascribed to it in Article V.
(o) "Retirement" means (i) termination of employment in accordance
with the retirement procedures set by the Company from time to time; (ii)
termination of employment because a participant becomes Disabled; or (iii)
termination of employment voluntarily with the consent of the Company (of
which the Board shall be the sole judge).
(p) "Stock" means the common stock, $.001 par value per share, of
XCEL Management, Inc.
(q) "Stock Appreciation Right" means the right of a holder of a
Stock Option to receive Stock or cash as described in Article IV.
(r) "Stock Option" means the right of a Participant to purchase
Stock pursuant to an Incentive Stock Option, a Non-Qualified Option or a
Reload Option awarded pursuant to the provisions of the Plan.
(s) "Subsidiary" means any corporation during any period of which
fifty percent (50%) or more of the total combined voting power of all
classes of securities entitled to vote is owned, directly or indirectly,
by the Company.
4. Administration. The authority to manage and control the operation and
administration of the Plan shall be vested in the Board. Subject to the
provisions of the Plan, the Board will have authority to select employees to
receive awards of Stock Options, with or without tandem Stock Appreciation
Rights, Performance Awards and/or Restricted Stock, to determine the time or
times of receipt, to determine the types of awards and the number of shares
covered by the awards, to establish the terms, conditions, performance
criteria, restrictions, and other provisions of such awards, and to amend,
modify or suspend awards. In making such award determinations, the Board
may take into account the nature of services rendered by the respective
employee, his or her present and potential contribution to the Company's
success and such other factors as the Board deems relevant.
The Board is authorized to interpret the Plan, to establish, amend, and
rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of any agreements made pursuant to the Plan, to modify such
agreements, and to make all other determinations that may be necessary or
advisable for the administration of the Plan. With respect to persons subject
to Section 16 of the 1934 Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successor rule or
statute under the 1934 Act. To the extent any provision of the Plan or action
by the Board of Directors or the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law.
The Board, in its discretion, may delegate any or all of its authority, powers
and discretion under this Plan to the Committee, and the Board in its
discretion may revest any or all such authority, powers and discretion in
itself at any time. If any or all of the authority, powers and discretion
under this Plan are delegated to the Committee and the Company has registered
any of its equity securities under Section 12 of the 1934 Act, the Committee
shall consist solely of two or more non-employee directors (as defined in
Rule 16b-3 under the 1934 Act) until such time as such other requirements are
imposed by applicable law. If appointed, the Committee shall function as
follows: A majority of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by all members of the Committee, shall
be the acts of the Committee, unless provisions to the contrary are embodied
in the Company's Bylaws or resolutions duly adopted by the Board. All
actions taken and decisions and determinations made by the Board or the
Committee pursuant to the Plan shall be binding and conclusive on all
persons interested in the Plan. No member of the Board or the Committee
shall be liable for any action or determination taken or made in good faith
with respect to the Plan.
5. Participation. Subject to the terms and conditions of the Plan, the
Board shall determine and designate, from time to time, (i) the full-time
employees of the Company and/or its Subsidiaries who will participate in the
Plan, and (ii) any consultants, independent contractors or directors of the
Company and/or its Subsidiaries who will participate in the Plan. In the
discretion of the Board, a Participant may be awarded Stock Options with or
without tandem Stock Appreciation Rights, Performance Units or Restricted Stock
or any combination thereof, and more than one award may be granted to a
Participant; provided, however, that Incentive Stock Options shall not be
awarded to Participants who are not employees of the Company. Except as
otherwise agreed to by the Company and the Participant, any award under the
Plan shall not affect any previous award to the Participant under the Plan
or any other plan maintained by the Company or its Subsidiaries.
6. Shares Subject to the Plan. The shares of Stock with respect to which
awards may be made under the Plan shall be either authorized and unissued
shares or issued and outstanding shares (including, in the discretion of the
Board, shares purchased in the market). Subject to the provisions of Section
1.10, the number of shares of Stock available under the Plan for the grant
of Stock Options with or without tandem Stock Appreciation Rights, Performance
Units and Restricted Stock shall not exceed 8,337,650 shares in the aggregate.
If, for any reason, any award under the Plan or any portion of the award,
shall expire, terminate or be forfeited or cancelled, or be settled in cash
pursuant to the terms of the Plan and, therefore, any such shares are no
longer distributable under the award, such shares of Stock shall again be
available for award under the Plan.
7. Compliance With Applicable Laws and Withholding of Taxes.
(a) Notwithstanding any other provision of the Plan, the Company
shall have no liability to issue any shares of Stock under the Plan unless
such issuance would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity. Prior to the
issuance of any shares of Stock under the Plan, the Company may require a
written statement that the recipient is acquiring the shares for
investment and not for the purpose or with the intention of distributing
the shares.
(b) All awards and payments under the Plan are subject to
withholding of all applicable taxes, which withholding obligations may be
satisfied, with the consent of the Board, through the surrender of shares
of Stock that the Participant already owns, or to which a Participant is
otherwise entitled under the Plan. The Company shall have the right to
deduct from all amounts paid in cash in consequence of the exercise of a
Stock Option, Performance Unit or Stock Appreciation Right or in
connection with an award of Restricted Stock under the Plan any taxes
required by law to be withheld with respect to such cash payments. Where
an employee or other person is entitled to receive shares of Stock
pursuant to the exercise of a Stock Option, a Performance Unit or a Stock
Appreciation Right pursuant to the Plan, the Company shall have the right
to require the employee or such other person to pay to the Company the
amount of any taxes that the Company is required to withhold with respect
to such shares, or, in lieu thereof, to retain, or sell without notice, a
sufficient number of such shares to cover the amount required to be
withheld.
(c) Upon the disposition (within the meaning of Code Section
424(c)) of shares of Stock acquired pursuant to the exercise of an
Incentive Stock Option prior to the expiration of the holding period
requirements of Code Section 422(a)(1), the employee shall be required to
give notice to the Company of such disposition and the Company shall have
the right to require the employee to pay to the Company the amount of any
taxes that are required by law to be withheld with respect to such
disposition.
(d) Upon termination of the Restricted Period with respect to an
award of Restricted Stock (or such earlier time, if any, as an election is
made by the employee under Code Section 83(b), or any successor provisions
thereto, to include the value of such shares in taxable income), the
Company shall have the right to require the employee or other person
receiving shares of Stock in respect of such Restricted Stock award to pay
to the Company the amount of taxes that the Company is required to
withhold with respect to such shares of Stock or, in lieu thereof, to
retain or sell without notice a sufficient number of shares of Stock held
by it to cover the amount required to be withheld. The Company shall have
the right to deduct from all dividends paid with respect to Restricted
Stock the amount of taxes that the Company is required to withhold with
respect to such dividend payments.
8. Transferability. Performance Awards, Incentive Stock Options with or
without tandem Stock Appreciation Rights, and, during the period of
restriction, Restricted Stock awarded under the Plan are not assignable or
transferable except as designated by the Participant by will or by the laws
of descent and distribution. Incentive Stock Options may be exercised during
the lifetime of the Participant only by the Participant or his guardian or
legal representative.
9. Employee and Stockholder Status. The Plan does not constitute a contract
of employment, and selection as a Participant will not give any employee the
right to be retained in the employ of the Company or any Subsidiary or any
director or consultant the right to continue to provide services to the Company
or any Subsidiary. No award under the Plan shall confer upon the holder
thereof any right as a stockholder of the Company prior to the date on which he
fulfills all service requirements and other conditions for receipt of shares
of Stock. If the redistribution of shares is restricted pursuant to Section
1.7, certificates representing such shares may bear a legend referring to such
restrictions.
10. Adjustments to Number of Shares Subject to the Plan. In the event of
any change in the outstanding shares of Stock of the Company by reason of any
stock dividend, split, spinoff, recapitalization, merger, consolidation,
combination, extraordinary dividend, exchange of shares or other similar
change, the aggregate number of shares of Stock with respect to which awards
may be made under the Plan, the terms and the number of shares of any
outstanding Stock Options, Stock Appreciation Rights, Performance Units and
Restricted Stock, and the purchase price of a share of Stock under Stock
Options, may be equitably adjusted by the Board in its sole discretion.
11. Business Combinations. In addition to the rights and obligations of
the Committee to modify, adjust or accelerate exercisability of outstanding
options, in the event that, while any Stock Options, Stock Appreciation Rights,
Performance Units or Restricted Shares are outstanding under the Plan, there
shall occur (i) a merger or consolidation of the Company with or into another
corporation in which the Company shall not be the surviving corporation (for
purposes of this Section 1.11, the Company shall not be deemed the surviving
corporation in any such transaction if, as the result thereof, the existing
shareholders of the Company hold less than 51% of the outstanding stock of the
Company), (ii) a dissolution of the Company, or (iii) a transfer of all or
substantially all of the assets or shares of stock of the Company in one
transaction or a series of related transactions to one or more other persons or
entities (any of the foregoing events as described in (i)-(iii) above, a
"Change of Control"), then, with respect to each Stock Option, Stock
Appreciation Right, Performance Unit and share of Restricted Stock outstanding
immediately prior to the consummation of such transaction and without the
necessity of any action by the Committee:
(a) If provision is made in writing in connection with such
transaction for the continuance and/or assumption of the Stock Options,
Stock Appreciation Rights, Performance Units and Restricted Shares granted
under the Plan, or the substitution for such Stock Options, Stock
Appreciation Rights, Performance Units and Restricted Shares of new Stock
Options, Stock Appreciation Rights, Performance Units and Restricted
Shares, with appropriate adjustment as to the number and kind of shares or
other securities deliverable with respect thereto, the Stock Options,
Stock Appreciation Rights, Performance Units and Restricted Shares granted
under the Plan, or the new Stock Options, Stock Appreciation Rights,
Performance Units and Restricted Shares substituted therefor, shall
continue, subject to such adjustment, in the manner and under the terms
provided in the respective agreements.
(b) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the Stock Options,
Stock Appreciation Rights, Performance Units and Restricted Shares granted
under the Plan, or for the substitution of equivalent options, rights,
units and awards, then (i) each holder of an outstanding option shall be
entitled, immediately prior to the effective date of such transaction, to
purchase the full number of shares that he or she would otherwise have
been entitled to purchase during the entire remaining term of the option;
(ii) the holder of any right or unit shall be entitled, immediately prior
to the effective date of such transaction, to exercise such right to the
extent the related option is or becomes exercisable at such time in
accordance with its terms; (iii) all restrictions on any award of
Restricted Shares shall lapse, and (iv) any restriction or risk of
forfeiture imposed under the Plan shall lapse immediately prior to the
effective date of such transaction. The unexercised portion of any option
or right shall be deemed cancelled and terminated as of the effective date
of such transaction.
12. Agreement With Company. At the time of any awards under the Plan, the
Board will require a Participant to enter into an agreement with the Company
in a form specified by the Board (the "Award Agreement"), agreeing to the terms
and conditions of the Plan and to such additional terms and conditions, not
inconsistent with the Plan, as the Board may, in its sole discretion, prescribe.
13. Amendment and Termination of Plan. Subject to the following provisions
of this Section 13, the Board may at any time and in any way amend, suspend
or terminate the Plan. No amendment of the Plan and, except as provided
in Section 1.10, no action by the Board shall, without further approval of the
stockholders of the Company, increase the total number of shares of Stock with
respect to which awards may be made under the Plan, materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements as to eligibility for participation in the Plan, if stockholder
approval of such amendment is a condition of Securities and Exchange Commission
Rule 16b-3 or its successor rule or statute, the Code or any exchange or market
system on which the Stock is listed at the time such amendment is adopted. No
amendment, suspension or termination of the Plan shall alter or impair any
Stock Option with or without tandem Stock Appreciation Right, Performance
Award or share of Restricted Stock previously awarded under the Plan without
the consent of the holder thereof.
II. INCENTIVE STOCK OPTIONS
1. Definition. The award of an Incentive Stock Option under the Plan
entitles the Participant to purchase shares of Stock at a price fixed at the
time the option is awarded, subject to the following terms of this Article
II.
2. Eligibility. The Board shall designate the Participants to whom Incentive
Stock Options, as described in Code Section 422(b) or any successor section
thereto, are to be awarded under the Plan and shall determine the number
of option shares to be offered to each of them. Incentive Stock Options may be
awarded only to employees. In no event shall the aggregate Fair Market Value
(determined at the time the option is awarded) of Stock with respect to which
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year (under all plans of the Company and all Related
Companies) exceed $100,000.
3. Price. The purchase price of a share of Stock under each Incentive
Stock Option shall be determined by the Board, provided, however, that in no
event shall such price be less than the greater of (i) 100% of the Fair Market
Value of a share of Stock as of the Option Date (or 110% of such Fair Market
Value if the holder of the option owns stock possessing more than 10% of the
combined voting power of all classes of stock of the Company or any Subsidiary)
or (ii) the par value of a share of Stock on such date. To the extent provided
by the Board, the full purchase price of each share of Stock purchased upon the
exercise of any Incentive Stock Option shall be paid in cash or in shares of
Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto.
4. Exercise. Each Option shall become and be exercisable at such time or
times and during such period or periods, in full or in such installments as may
be determined by the Board at the Option Date. In addition, if permitted by
the Board or the terms of the Award Agreement evidencing such Stock Option,
Participants may elect to pay the purchase price of shares of Stock purchased
upon the exercise of Incentive Stock Options in cash or through delivery at the
time of such exercise of shares of Stock (valued at Fair Market Value as of the
date of exercise) already owned by the Participant, or any combination thereof,
equivalent to the purchase price of such Incentive Stock Options. A
Participant's payment of the purchase price in connection with the exercise of
an Incentive Stock Option through delivery of share of Stock ("ISO Stock") that
were acquired through the exercise of an Incentive Stock Option and that have
not been held for more than one year will be considered a disposition (within
the meaning of Code Section 422(c)) of ISO Stock, resulting in the
disqualification of the ISO Stock from treatment as an Incentive Stock Option
under Code Section 422, and the Participant's recognition of ordinary income.
Participants should consult with their tax advisors prior to electing to
exercise an Incentive Stock Option by this method.
5. Option Expiration Date. Unless otherwise provided by the Award
Agreement, the "Expiration Date" with respect to an Incentive Stock Option or
any portion thereof awarded to a Participant under the Plan means the
earliest of:
(a) the date that is ten (10) years after the date on which the
Incentive Stock Option is awarded (or, if the Participant owns stock
possessing more than ten percent (10%) of the combined voting power of all
classes of stock of the Company or any Subsidiary, the date that is five
(5) years after the date on which the Incentive Stock Option is awarded);
(b) the date that is one year after the Participant's employment
with the Company and all Related Companies is terminated by reason of the
Participant becoming Disabled or by reason of the Participant's death; or
(c) thirty (30) days following the date that the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled. All rights to purchase
shares of Stock pursuant to an Incentive Stock Option shall cease as of
such option's Expiration Date.
All rights to purchase shares of Stock pursuant to an Incentive Stock Option
shall cease as of such option's Expiration Date.
6. Reload Options. The Committee may, in its discretion, provide in the
terms of any Award Agreement that if the Participant delivers shares of Stock
already owned or to be received upon exercise of the Option in full or partial
payment of the option price, or in full or partial payment of the tax
withholding obligations incurred on account of the exercise of the Option, the
Optionee shall automatically and immediately upon such exercise be granted an
additional option (a "Reload Option") to purchase the number of shares of Stock
delivered by the Optionee to the Company, on such terms and conditions as the
Committee may determine under the terms of the Plan. Notwithstanding the
preceding, the purchase price of shares of Stock acquired under a Reload
Option shall be not less than the Fair Market Value of a share of Stock on
the date the Reload Option is issued.
III. NON-QUALIFIED STOCK OPTIONS
1. Definition. The award of a Non-Qualified Stock Option under the Plan
entitles the Participant to purchase shares of Stock at a price fixed at the
time the option is awarded, subject to the following terms of this Article
III.
2. Eligibility. The Board shall designate the Participants to whom Non-
Qualified Stock Options are to be awarded under the Plan and shall determine
the number of option shares to be offered to each of them.
3. Price. The purchase price of a share of Stock under each Non-Qualified
Stock Option shall be determined by the Board; provided, however, that
in no event shall such price be less than the Fair Market Value of a share
of Stock as of the Option Date.
4. Exercise. Each Option shall become and be exercisable at such time or
times and during such period or periods, in full or in such installments as may
be determined by the Board at the Option Date. To the extent provided by the
Board, the full purchase price of each share of Stock purchased upon the
exercise of any Non-Qualified Stock Option shall be paid in cash or in shares
of Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto. In addition, unless restricted by
the Board, Participants may elect to pay the purchase price of shares of Stock
purchased upon the exercise of Non-Qualified Stock Options in cash or through
the constructive delivery at the time of such exercise of shares of Stock
(valued at Fair Market Value as of the day of exercise) already owned by the
Participant, or any combination thereof, equivalent to the purchase price of
such Non-Qualified Stock Options, and, as soon as practicable thereafter, a
certificate representing the net number of shares so purchased shall be
delivered to the person entitled thereto. Participants also may elect to
pay, unless restricted by the Board, the purchase price, in whole or in part,
of shares of Stock purchased upon the exercise of Non-Qualified Options
through the Company's withholding of shares of Stock (valued at Fair Market
Value as of the day of exercise) that would otherwise by issuable upon
exercise of such options equivalent to the purchase price of such Non-Qualified
Stock Options and, as soon as practicable thereafter, a certificate
representing the net number of shares so purchased shall be delivered to the
person entitled thereto.
5. Option Expiration Date. Unless otherwise provided in a Participant's
Award Agreement, the "Expiration Date" with respect to a Non-Qualified Stock
Option or any portion thereof awarded to a Participant under the Plan means the
earliest of:
(a) the date that is one (1) year after the Participant's
employment with the Company and all Related Companies is terminated by
reason of the Participant becoming Disabled or by reason of the
Participant's death; or
(b) thirty (30) days following the date that the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled.
All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
6. Reload Options. The Committee may, in its discretion, provide in the
terms of any Award Agreement that if the Participant delivers shares of Stock
already owned or to be received upon exercise of the Option in full or partial
payment of the option price, or in full or partial payment of the tax
withholding obligations incurred on account of the exercise of the Option,
the Optionee shall automatically and immediately upon such exercise be granted
a Reload Option to purchase the number of shares of Stock delivered by the
Optionee to the Company, on such terms and conditions as the Committee may
determine under the terms of the Plan. Notwithstanding the preceding, the
purchase price of shares of Stock acquired under a Reload Option shall be
not less than the Fair Market Value of a share of Stock on the date the
Reload Option is issued.
IV. STOCK APPRECIATION RIGHTS
1. Definition. A Stock Appreciation Right is an award that may or may
not be granted in tandem with a Non-Qualified Stock Option or Incentive Stock
Option, and entitles the holder to receive an amount equal to the difference
between the Fair Market Value of the shares of option Stock at the time of
exercise of the Stock Appreciation Right and the option price, subject to the
applicable terms and conditions of the tandem options and the following
provisions of this Article IV.
2. Eligibility. The Board may, in its discretion, award Stock Appreciation
Right under this Article IV concurrent with, or subsequent to, the award of
the option.
3. Exercise. A Stock Appreciation Right shall entitle the holder of a
Stock Option to receive, upon the exercise of the Stock Appreciation Right,
shares of Stock (valued at their Fair Market Value at the time of exercise),
cash or a combination thereof, in the discretion of the Board, in an amount
equal in value to the excess of the Fair Market Value of the shares of Stock
subject to the Stock Appreciation Right as of the date of such exercise over
the purchase price of the Stock Appreciation Right, as shall be prescribed by
the Board in its sole discretion and as shall be contained in the Participant's
Award Agreement. If granted in tandem with an option, the exercise of a Stock
Appreciation Right will result in the surrender of the related Incentive Stock
Option or Non-Qualified Stock Option and, unless otherwise provided by the
Board in its sole discretion, the exercise of a Stock Option will result in
the surrender of a related Stock Appreciation Right, if any.
4. Expiration Date. The "Expiration Date" with respect to a Stock
Appreciation Right shall be determined by the Board and documented in the
Participant's Award Agreement, and if granted in tandem with an option, shall
be not later than the Expiration Date for the related Stock Option. If
neither the right nor the related Stock Option is exercised before the end
of the day on which the right ceases to be exercisable, such right shall be
deemed exercised as of such date and payment shall be made to the holder
in cash.
V. RESTRICTED STOCK
1. Definition. Restricted Stock awards are grants of Stock to Participants,
the vesting of which is subject to a required period of employment and any
other conditions established by the Board.
2. Eligibility. The Board shall designate the Participants to whom
Restricted Stock is to be awarded and the number of shares of Stock that are
subject to the award.
3. Terms and Conditions of Awards. All shares of Restricted Stock awarded
to Participants under the Plan shall be subject to the following terms and
conditions and to such other terms and conditions, not inconsistent with the
Plan, as shall be prescribed by the Board in its sole discretion and as shall
be contained in the Participant's Award Agreement.
(a) Restricted Stock awarded to Participants may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as
hereinafter provided, for a period of ten (10) years or such shorter
period as the Board may determine, but not less than one (1) year, after
the time of the award of such stock (the "Restricted Period"). Except for
such restrictions, the Participant as owner of such shares shall have all
the rights of a shareholder, including but not limited to the right to
vote such shares and, except as otherwise provided by the Board, the right
to receive all dividends paid on such shares.
(b) The Board may in its discretion, at any time after the date of
the award of Restricted Stock, adjust the length of the Restricted Period
to account for individual circumstances of a Participant or group of
Participants, but in no case shall the length of the Restricted Period be
less than one (1) year.
(c) Except as otherwise determined by the Board in its sole
discretion, a Participant whose employment with the Company and all
Related Companies terminates prior to the end of the Restricted Period for
any reason shall forfeit all shares of Restricted Stock remaining subject
to any outstanding Restricted Stock Award.
(d) Each certificate issued in respect of shares of Restricted
Stock awarded under the Plan shall be registered in the name of the
Participant and, at the discretion of the Board, each such certificate may
be deposited in a bank designated by the Board. Each such certificate
shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the XCEL
Management, Inc. 2000 Stock Incentive Plan and an agreement
entered into between the registered owner and XCEL Management,
Inc. A copy of such plan and agreement is on file in the
office of the Secretary of XCEL Management, Inc. in Tacoma,
Washington."
(e) At the end of the Restricted Period for Restricted Stock, such
Restricted Stock will be transferred free of all restrictions to a
Participant (or his or her legal representative, beneficiary or heir).
VI. PERFORMANCE UNITS
1. Definition. Performance Units are awards to Participants who may
receive value for the units at the end of a Performance Period. The number of
units earned, and value received for them, will be contingent on the degree to
which the performance measures established at the time of the initial award are
met.
2. Eligibility. The Board shall designate the Participants to whom
Performance Units are to be awarded, and the number of units to be the subject
of such awards.
3. Terms and Conditions of Awards. For each Participant, the Board will
determine the timing of awards; the number of units awarded; the value of
units, which may be stated either in cash or in shares of Stock; the
performance measures used for determining whether the Performance Units are
earned; the performance period during which the performance measures will
apply; the relationship between the level of achievement of the performance
measures and the degree to which Performance Units are earned; whether, during
or after the performance period, any revision to the performance measures or
performance period should be made to reflect significant events or changes
that occur during the performance period; and the number of earned Performance
Units that will be paid in cash and/or shares of Stock, as shall be prescribed
by the Board in its sole discretion and as shall be contained in the
Participant's Award Agreement.
4. Payment. The Board will compare the actual performance to the performance
measures established for the performance period and determine the number of
units to be paid and their value. Payment for units earned shall be wholly in
cash, wholly in Stock or in a combination of the two, in a lump sum or
installments, and subject to vesting requirements and such other conditions as
the Board shall provide. The Board will determine the number of earned units
to be paid in cash and the number to be paid in Stock. For Performance Units
valued when awarded in shares of Stock, one share of Stock will be paid for
each unit earned, or cash will be paid for each unit earned equal to either
(i) the Fair Market Value of a share of Stock at the end of the Performance
Period or (ii) the Fair Market Value of the Stock averaged for a number of days
determined by the Board. For Performance Units valued when awarded in cash,
the value of each unit earned will be paid in its initial cash value, or
shares of Stock will be distributed based on the cash value of the units earned
divided by (i) the Fair Market Value of a share of Stock at the end of the
Performance Period or (ii) the Fair Market Value of a share of Stock averaged
for a number of days determined by the Board.
5. Retirement, Death or Termination. A Participant whose employment with
the Company and Related Companies terminates during a performance period
because of Retirement or death shall be entitled to the prorated value of
earned Performance Units, issued with respect to that performance period, at
the conclusion of the performance period based on the ratio of the months
employed during the period to the total months of the performance period. If
the Participant's employment with the Company and Related Companies
terminates during a performance period for any reason other than Retirement
or death, the Performance Units issued with respect to that performance
period will be forfeited on the date his employment with the Company and
Related Companies terminates. Notwithstanding the foregoing provisions of
this Part VI, if a Participant's employment with the Company and Related
Companies terminates before the end of the Performance Period with respect
to any Performance Units awarded to him, the Board may determine that the
Participant will be entitled to receive all or any portion of the units
that he or she would otherwise receive, and may accelerate the determination
and payment of the value of such units or make such other adjustments as the
Board, in its sole discretion, deems desirable.
Exhibit "D"
XCEL MANAGEMENT, INC.
2000 Executive Officer
Long Term Incentive Plan
I. GENERAL
1. Purpose. The XCEL Management, Inc. 2000 Executive Officer Long Term
Incentive Plan (the "Plan") has been established by XCEL Management, Inc. (the
"Company") to:
(a) attract and retain executive employees of the Company (the
"Participants");
(b) motivate the Participants by means of appropriate incentives to
achieve long-range goals;
(c) provide incentive compensation opportunities that are
competitive with those of comparable corporations; and
(d) further identify Participants' interests with those of the
Company's other shareholders through compensation alternatives based on
the Company's common stock; and thereby promote the long-term financial
interest of the Company and its Subsidiaries (if any), including the growth
in value of the Company's equity and enhancement of long-term shareholder
return.
2. Effective Date. Subject to the approval of the holders of a majority
of the voting Stock of the Company, the Plan shall be effective as of February
21, 2000, provided, however, that awards made under the Plan prior to such
approval of the Plan by stockholders of the Company are contingent on such
approval of the Plan by the stockholders of the Company and shall be null and
void if such approval of the stockholders of the Company is withheld. The Plan
shall terminate on February 21, 2010, the tenth anniversary of the Plan's
effective date.
3. Definitions. The following definitions are applicable to the Plan.
(a) "Award Agreement" means a written agreement between the Company
and a Participant documenting an award under this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" has the meaning ascribed to it in Section
1.11.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation Committee of the Board.
(f) "Disabled" means the inability of a Participant, by reason of
a physical or mental impairment, to engage in any substantial gainful
activity, of which the Board shall be the sole judge.
(g) "Fair Market Value" of any share of Stock means (i) if the
Stock is listed on a national securities exchange, the closing price on
the Stock on a given date; (ii) if the Stock is traded on an exchange or
market in which prices are reported on a bid and asked price, the average
of the mean between the bid and asked price for the Stock on a given date;
and (iii) if the Stock is not listed on a national securities exchange nor
traded on the over-the-counter market, such value as the Committee, in
good faith, shall determine.
(h) "1934 Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
(i) "Option Date" means, with respect to any Stock Option, the date
on which the Stock Option is awarded under the Plan.
(j) "Participant" means (i) any regular full-time employee of the
Company or any Subsidiary (meaning an employee who works twenty (20) hours
or more per week) who is selected by the Committee to participate in the
Plan, or (ii) any consultant, independent contractor or director of the
Company or any Subsidiary.
(k) "Performance Award" has the meaning ascribed to it in Article VI.
(l) "Performance Period" has the meaning ascribed to it in Article VI.
(m) "Related Company" means any corporation during any period in
which it is a Subsidiary, or during any period in which it directly or
indirectly owns fifty percent (50%) or more of the total combined voting
power of all classes of securities that are entitled to vote.
(n) "Restricted Period" has the meaning ascribed to it in Article V.
(o) "Retirement" means (i) termination of employment in accordance
with the retirement procedures set by the Company from time to time; (ii)
termination of employment because a participant becomes Disabled; or (iii)
termination of employment voluntarily with the consent of the Company (of
which the Board shall be the sole judge).
(p) "Stock" means the Class A Common Stock, $.001 par value per
share, of XCEL Management, Inc.
(q) "Stock Appreciation Right" means the right of a holder of a
Stock Option to receive Stock or cash as described in Article IV.
(r) "Stock Option" means the right of a Participant to purchase
Stock pursuant to an Incentive Stock Option, a Non-Qualified Option or a
Reload Option awarded pursuant to the provisions of the Plan.
(s) "Subsidiary" means any corporation during any period of which
fifty percent (50%) or more of the total combined voting power of all
classes of securities entitled to vote is owned, directly or indirectly,
by the Company.
4. Administration. The authority to manage and control the operation and
administration of the Plan shall be vested in the Board. Subject to the
provisions of the Plan, the Board will have authority to select employees to
receive awards of Stock Options, with or without tandem Stock Appreciation
Rights, Performance Awards and/or Restricted Stock, to determine the time or
times of receipt, to determine the types of awards and the number of shares
covered by the awards, to establish the terms, conditions, performance
criteria, restrictions, and other provisions of such awards, and to amend,
modify or suspend awards. In making such award determinations, the Board may
take into account the nature of services rendered by the respective employee,
his or her present and potential contribution to the Company's success and
such other factors as the Board deems relevant.
The Board is authorized to interpret the Plan, to establish, amend, and
rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of any agreements made pursuant to the Plan, to modify such
agreements, and to make all other determinations that may be necessary or
advisable for the administration of the Plan. With respect to persons subject
to Section 16 of the 1934 Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successor rule or
statute under the 1934 Act. To the extent any provision of the Plan or action
by the Board of Directors or the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law.
The Board, in its discretion, may delegate any or all of its authority, powers
and discretion under this Plan to the Committee, and the Board in its
discretion may revest any or all such authority, powers and discretion in
itself at any time. If any or all of the authority, powers and discretion
under this Plan are delegated to the Committee and the Company has registered
any of its equity securities under Section 12 of the 1934 Act, the Committee
shall consist solely of two or more non-employee directors (as defined in Rule
16b-3 under the 1934 Act) until such time as such other requirements are
imposed by applicable law. If appointed, the Committee shall function as
follows: A majority of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by all members of the Committee, shall
be the acts of the Committee, unless provisions to the contrary are embodied
in the Company's Bylaws or resolutions duly adopted by the Board. All actions
taken and decisions and determinations made by the Board or the Committee
pursuant to the Plan shall be binding and conclusive on all persons interested
in the Plan. No member of the Board or the Committee shall be liable for any
action or determination taken or made in good faith with respect to the Plan.
5. Participation. Subject to the terms and conditions of the Plan, the
Board shall determine and designate, from time to time, (i) the full-time
employees of the Company and/or its Subsidiaries who will participate in the
Plan, and (ii) any consultants, independent contractors or directors of the
Company and/or its Subsidiaries who will participate in the Plan. In the
discretion of the Board, a Participant may be awarded Stock Options with or
without tandem Stock Appreciation Rights, Performance Units or Restricted Stock
or any combination thereof, and more than one award may be granted to a
Participant; provided, however, that Incentive Stock Options shall not be
awarded to Participants who are not employees of the Company. Except as
otherwise agreed to by the Company and the Participant, any award under the
Plan shall not affect any previous award to the Participant under the Plan
or any other plan maintained by the Company or its Subsidiaries.
6. Shares Subject to the Plan. The shares of Stock with respect to which
awards may be made under the Plan shall be either authorized and unissued
shares or issued and outstanding shares (including, in the discretion of the
Board, shares purchased in the market). Subject to the provisions of Section
1.10, the number of shares of Stock available under the Plan for the grant of
Stock Options with or without tandem Stock Appreciation Rights, Performance
Units and Restricted Stock shall not exceed 2,700,000 shares of Stock in the
aggregate. If, for any reason, any award under the Plan or any portion of the
award, shall expire, terminate or be forfeited or cancelled, or be settled in
cash pursuant to the terms of the Plan and, therefore, any such shares are no
longer distributable under the award, such shares of Stock shall again be
available for award under the Plan.
7. Compliance With Applicable Laws and Withholding of Taxes.
(a) Notwithstanding any other provision of the Plan, the Company
shall have no liability to issue any shares of Stock under the Plan unless
such issuance would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity. Prior to the
issuance of any shares of Stock under the Plan, the Company may require a
written statement that the recipient is acquiring the shares for
investment and not for the purpose or with the intention of distributing
the shares.
(b) All awards and payments under the Plan are subject to
withholding of all applicable taxes, which withholding obligations may be
satisfied, with the consent of the Board, through the surrender of shares
of Stock that the Participant already owns, or to which a Participant is
otherwise entitled under the Plan. The Company shall have the right to
deduct from all amounts paid in cash in consequence of the exercise of a
Stock Option, Performance Unit or Stock Appreciation Right or in
connection with an award of Restricted Stock under the Plan any taxes
required by law to be withheld with respect to such cash payments. Where
an employee or other person is entitled to receive shares of Stock
pursuant to the exercise of a Stock Option, a Performance Unit or a Stock
Appreciation Right pursuant to the Plan, the Company shall have the right
to require the employee or such other person to pay to the Company the
amount of any taxes that the Company is required to withhold with respect
to such shares, or, in lieu thereof, to retain, or sell without notice, a
sufficient number of such shares to cover the amount required to be
withheld.
(c) Upon the disposition (within the meaning of Code Section
424(c)) of shares of Stock acquired pursuant to the exercise of an
Incentive Stock Option prior to the expiration of the holding period
requirements of Code Section 422(a)(1), the employee shall be required to
give notice to the Company of such disposition and the Company shall have
the right to require the employee to pay to the Company the amount of any
taxes that are required by law to be withheld with respect to such
disposition.
(d) Upon termination of the Restricted Period with respect to an
award of Restricted Stock (or such earlier time, if any, as an election is
made by the employee under Code Section 83(b), or any successor provisions
thereto, to include the value of such shares in taxable income), the
Company shall have the right to require the employee or other person
receiving shares of Stock in respect of such Restricted Stock award to pay
to the Company the amount of taxes that the Company is required to
withhold with respect to such shares of Stock or, in lieu thereof, to
retain or sell without notice a sufficient number of shares of Stock held
by it to cover the amount required to be withheld. The Company shall have
the right to deduct from all dividends paid with respect to Restricted
Stock the amount of taxes that the Company is required to withhold with
respect to such dividend payments.
8. Transferability. Performance Awards, Incentive Stock Options with or
without tandem Stock Appreciation Rights, and, during the period of
restriction, Restricted Stock awarded under the Plan are not assignable or
transferable except as designated by the Participant by will or by the laws
of descent and distribution. Incentive Stock Options may be exercised during
the lifetime of the Participant only by the Participant or his guardian or
legal representative.
9. Employee and Stockholder Status. The Plan does not constitute a contract
of employment, and selection as a Participant will not give any employee the
right to be retained in the employ of the Company or any Subsidiary or any
director or consultant the right to continue to provide services to the Company
or any Subsidiary. No award under the Plan shall confer upon the holder
thereof any right as a stockholder of the Company prior to the date on which
he fulfills all service requirements and other conditions for receipt of
shares of Stock. If the redistribution of shares is restricted pursuant to
Section 1.7, certificates representing such shares may bear a legend referring
to such restrictions.
10. Adjustments to Number of Shares Subject to the Plan. In the event of
any change in the outstanding shares of Stock of the Company by reason of any
stock dividend, split, spinoff, recapitalization, merger, consolidation,
combination, extraordinary dividend, exchange of shares or other similar
change, the aggregate number of shares of Stock with respect to which awards
may be made under the Plan, the terms and the number of shares of any
outstanding Stock Options, Stock Appreciation Rights, Performance Units and
Restricted Stock, and the purchase price of a share of Stock under Stock
Options, may be equitably adjusted by the Board in its sole discretion.
11. Business Combinations. In addition to the rights and obligations of
the Committee to modify, adjust or accelerate exercisability of outstanding
options, in the event that, while any Stock Options, Stock Appreciation Rights,
Performance Units or Restricted Shares are outstanding under the Plan, there
shall occur (i) a merger or consolidation of the Company with or into another
corporation in which the Company shall not be the surviving corporation (for
purposes of this Section 1.11, the Company shall not be deemed the surviving
corporation in any such transaction if, as the result thereof, the existing
shareholders of the Company hold less than 51% of the outstanding stock of the
Company), (ii) a dissolution of the Company, or (iii) a transfer of all or
substantially all of the assets or shares of stock of the Company in one
transaction or a series of related transactions to one or more other persons or
entities (any of the foregoing events as described in (i)-(iii) above, a
"Change of Control"), then, with respect to each Stock Option, Stock
Appreciation Right, Performance Unit and share of Restricted Stock outstanding
immediately prior to the consummation of such transaction and without the
necessity of any action by the Committee:
(a) If provision is made in writing in connection with such
transaction for the continuance and/or assumption of the Stock Options,
Stock Appreciation Rights, Performance Units and Restricted Shares granted
under the Plan, or the substitution for such Stock Options, Stock
Appreciation Rights, Performance Units and Restricted Shares of new Stock
Options, Stock Appreciation Rights, Performance Units and Restricted
Shares, with appropriate adjustment as to the number and kind of shares or
other securities deliverable with respect thereto, the Stock Options,
Stock Appreciation Rights, Performance Units and Restricted Shares granted
under the Plan, or the new Stock Options, Stock Appreciation Rights,
Performance Units and Restricted Shares substituted therefor, shall
continue, subject to such adjustment, in the manner and under the terms
provided in the respective agreements.
(b) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the Stock Options,
Stock Appreciation Rights, Performance Units and Restricted Shares granted
under the Plan, or for the substitution of equivalent options, rights,
units and awards, then (i) each holder of an outstanding option shall be
entitled, immediately prior to the effective date of such transaction, to
purchase the full number of shares that he or she would otherwise have
been entitled to purchase during the entire remaining term of the option;
(ii) the holder of any right or unit shall be entitled, immediately prior
to the effective date of such transaction, to exercise such right to the
extent the related option is or becomes exercisable at such time in
accordance with its terms; (iii) all restrictions on any award of
Restricted Shares shall lapse, and (iv) any restriction or risk of
forfeiture imposed under the Plan shall lapse immediately prior to the
effective date of such transaction. The unexercised portion of any option
or right shall be deemed cancelled and terminated as of the effective date
of such transaction.
12. Agreement With Company. At the time of any awards under the Plan, the
Board will require a Participant to enter into an agreement with the Company
in a form specified by the Board (the "Award Agreement"), agreeing to the terms
and conditions of the Plan and to such additional terms and conditions, not
inconsistent with the Plan, as the Board may, in its sole discretion, prescribe.
13. Amendment and Termination of Plan. Subject to the following provisions
of this Section 13, the Board may at any time and in any way amend, suspend or
terminate the Plan. No amendment of the Plan and, except as provided in
Section 1.10, no action by the Board shall, without further approval of the
stockholders of the Company, increase the total number of shares of Stock with
respect to which awards may be made under the Plan, materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements as to eligibility for participation in the Plan, if stockholder
approval of such amendment is a condition of Securities and Exchange Commission
Rule 16b-3 or its successor rule or statute, the Code or any exchange or market
system on which the Stock is listed at the time such amendment is adopted. No
amendment, suspension or termination of the Plan shall alter or impair any
Stock Option with or without tandem Stock Appreciation Right, Performance
Award or share of Restricted Stock previously awarded under the Plan without
the consent of the holder thereof.
II. INCENTIVE STOCK OPTIONS
1. Definition. The award of an Incentive Stock Option under the Plan
entitles the Participant to purchase shares of Stock at a price fixed at the
time the option is awarded, subject to the following terms of this Article II.
2. Eligibility. The Board shall designate the Participants to whom Incentive
Stock Options, as described in Code Section 422(b) or any successor section
thereto, are to be awarded under the Plan and shall determine the number
of option shares to be offered to each of them. Incentive Stock Options may be
awarded only to employees. In no event shall the aggregate Fair Market Value
(determined at the time the option is awarded) of Stock with respect to which
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year (under all plans of the Company and all Related
Companies) exceed $100,000.
3. Price. The purchase price of a share of Stock under each Incentive
Stock Option shall be determined by the Board, provided, however, that in no
event shall such price be less than the greater of (i) 100% of the Fair Market
Value of a share of Stock as of the Option Date (or 110% of such Fair Market
Value if the holder of the option owns stock possessing more than 10% of the
combined voting power of all classes of stock of the Company or any Subsidiary)
or (ii) the par value of a share of Stock on such date. To the extent provided
by the Board, the full purchase price of each share of Stock purchased upon the
exercise of any Incentive Stock Option shall be paid in cash or in shares of
Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto.
4. Exercise. Each Option shall become and be exercisable at such time or
times and during such period or periods, in full or in such installments as may
be determined by the Board at the Option Date. In addition, if permitted by
the Board or the terms of the Award Agreement evidencing such Stock Option,
Participants may elect to pay the purchase price of shares of Stock purchased
upon the exercise of Incentive Stock Options in cash or through delivery at the
time of such exercise of shares of Stock (valued at Fair Market Value as of the
date of exercise) already owned by the Participant, or any combination thereof,
equivalent to the purchase price of such Incentive Stock Options. A
Participant's payment of the purchase price in connection with the exercise of
an Incentive Stock Option through delivery of share of Stock ("ISO Stock") that
were acquired through the exercise of an Incentive Stock Option and that have
not been held for more than one year will be considered a disposition (within
the meaning of Code Section 422(c)) of ISO Stock, resulting in the
disqualification of the ISO Stock from treatment as an Incentive Stock Option
under Code Section 422, and the Participant's recognition of ordinary income.
Participants should consult with their tax advisors prior to electing to
exercise an Incentive Stock Option by this method.
5. Option Expiration Date. Unless otherwise provided by the Award Agreement,
the "Expiration Date" with respect to an Incentive Stock Option or any portion
thereof awarded to a Participant under the Plan means the earliest of:
(a) the date that is ten (10) years after the date on which the
Incentive Stock Option is awarded (or, if the Participant owns stock
possessing more than ten percent (10%) of the combined voting power of all
classes of stock of the Company or any Subsidiary, the date that is five
(5) years after the date on which the Incentive Stock Option is awarded);
(b) the date that is one year after the Participant's employment
with the Company and all Related Companies is terminated by reason of the
Participant becoming Disabled or by reason of the Participant's death; or
(c) thirty (30) days following the date that the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled. All rights to purchase
shares of Stock pursuant to an Incentive Stock Option shall cease as of
such option's Expiration Date.
All rights to purchase shares of Stock pursuant to an Incentive Stock Option
shall cease as of such option's Expiration Date.
6. Reload Options. The Committee may, in its discretion, provide in the
terms of any Award Agreement that if the Participant delivers shares of Stock
already owned or to be received upon exercise of the Option in full or partial
payment of the option price, or in full or partial payment of the tax
withholding obligations incurred on account of the exercise of the Option,
the Optionee shall automatically and immediately upon such exercise be granted
an additional option (a "Reload Option") to purchase the number of shares
of Stock delivered by the Optionee to the Company, on such terms and
conditions as the Committee may determine under the terms of the Plan.
Notwithstanding the preceding, the purchase price of shares of Stock acquired
under a Reload Option shall be not less than the Fair Market Value of a
share of Stock on the date the Reload Option is issued.
III. NON-QUALIFIED STOCK OPTIONS
1. Definition. The award of a Non-Qualified Stock Option under the Plan
entitles the Participant to purchase shares of Stock at a price fixed at the
time the option is awarded, subject to the following terms of this
Article III.
2. Eligibility. The Board shall designate the Participants to whom Non-
Qualified Stock Options are to be awarded under the Plan and shall determine
the number of option shares to be offered to each of them.
3. Price. The purchase price of a share of Stock under each Non-Qualified
Stock Option shall be determined by the Board; provided, however, that
in no event shall such price be less than the Fair Market Value of a share of
Stock as of the Option Date.
4. Exercise. Each Option shall become and be exercisable at such time or
times and during such period or periods, in full or in such installments as may
be determined by the Board at the Option Date. To the extent provided by the
Board, the full purchase price of each share of Stock purchased upon the
exercise of any Non-Qualified Stock Option shall be paid in cash or in shares
of Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto. In addition, unless restricted
by the Board, Participants may elect to pay the purchase price of shares of
Stock purchased upon the exercise of Non-Qualified Stock Options in cash or
through the constructive delivery at the time of such exercise of shares of
Stock (valued at Fair Market Value as of the day of exercise) already owned
by the Participant, or any combination thereof, equivalent to the purchase
price of such Non-Qualified Stock Options, and, as soon as practicable
thereafter, a certificate representing the net number of shares so purchased
shall be delivered to the person entitled thereto. Participants also may
elect to pay, unless restricted by the Board, the purchase price, in whole or
in part, of shares of Stock purchased upon the exercise of Non-Qualified
Options through the Company's withholding of shares of Stock (valued at Fair
Market Value as of the day of exercise) that would otherwise by issuable
upon exercise of such options equivalent to the purchase price of such
Non-Qualified Stock Options and, as soon as practicable thereafter, a
certificate representing the net number of shares so purchased shall be
delivered to the person entitled thereto.
5. Option Expiration Date. Unless otherwise provided in a Participant's
Award Agreement, the "Expiration Date" with respect to a Non-Qualified Stock
Option or any portion thereof awarded to a Participant under the Plan means the
earliest of:
(a) the date that is one (1) year after the Participant's
employment with the Company and all Related Companies is terminated by
reason of the Participant becoming Disabled or by reason of the
Participant's death; or
(b) thirty (30) days following the date that the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled.
All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
6. Reload Options. The Committee may, in its discretion, provide in the
terms of any Award Agreement that if the Participant delivers shares of Stock
already owned or to be received upon exercise of the Option in full or partial
payment of the option price, or in full or partial payment of the tax
withholding obligations incurred on account of the exercise of the Option,
the Optionee shall automatically and immediately upon such exercise be granted
a Reload Option to purchase the number of shares of Stock delivered by the
Optionee to the Company, on such terms and conditions as the Committee may
determine under the terms of the Plan. Notwithstanding the preceding, the
purchase price of shares of Stock acquired under a Reload Option shall be not
less than the Fair Market Value of a share of Stock on the date the Reload
Option is issued.
IV. STOCK APPRECIATION RIGHTS
1. Definition. A Stock Appreciation Right is an award that may or may
not be granted in tandem with a Non-Qualified Stock Option or Incentive Stock
Option, and entitles the holder to receive an amount equal to the difference
between the Fair Market Value of the shares of option Stock at the time of
exercise of the Stock Appreciation Right and the option price, subject to the
applicable terms and conditions of the tandem options and the following
provisions of this Article IV.
2. Eligibility. The Board may, in its discretion, award Stock Appreciation
Right under this Article IV concurrent with, or subsequent to, the award of
the option.
3. Exercise. A Stock Appreciation Right shall entitle the holder of a
Stock Option to receive, upon the exercise of the Stock Appreciation Right,
shares of Stock (valued at their Fair Market Value at the time of exercise),
cash or a combination thereof, in the discretion of the Board, in an amount
equal in value to the excess of the Fair Market Value of the shares of Stock
subject to the Stock Appreciation Right as of the date of such exercise over
the purchase price of the Stock Appreciation Right, as shall be prescribed by
the Board in its sole discretion and as shall be contained in the Participant's
Award Agreement. If granted in tandem with an option, the exercise of a Stock
Appreciation Right will result in the surrender of the related Incentive Stock
Option or Non-Qualified Stock Option and, unless otherwise provided by the
Board in its sole discretion, the exercise of a Stock Option will result in
the surrender of a related Stock Appreciation Right, if any.
4. Expiration Date. The "Expiration Date" with respect to a Stock
Appreciation Right shall be determined by the Board and documented in the
Participant's Award Agreement, and if granted in tandem with an option, shall
be not later than the Expiration Date for the related Stock Option. If
neither the right nor the related Stock Option is exercised before the end of
the day on which the right ceases to be exercisable, such right shall be
deemed exercised as of such date and payment shall be made to the holder in
cash.
V. RESTRICTED STOCK
1. Definition. Restricted Stock awards are grants of Stock to Participants,
the vesting of which is subject to a required period of employment and any
other conditions established by the Board.
2. Eligibility. The Board shall designate the Participants to whom
Restricted Stock is to be awarded and the number of shares of Stock that are
subject to the award.
3. Terms and Conditions of Awards. All shares of Restricted Stock awarded to
Participants under the Plan shall be subject to the following terms and
conditions and to such other terms and conditions, not inconsistent with the
Plan, as shall be prescribed by the Board in its sole discretion and as shall
be contained in the Participant's Award Agreement.
(a) Restricted Stock awarded to Participants may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as
hereinafter provided, for a period of ten (10) years or such shorter
period as the Board may determine, but not less than one (1) year, after
the time of the award of such stock (the "Restricted Period"). Except for
such restrictions, the Participant as owner of such shares shall have all
the rights of a shareholder, including but not limited to the right to
vote such shares and, except as otherwise provided by the Board, the right
to receive all dividends paid on such shares.
(b) The Board may in its discretion, at any time after the date of
the award of Restricted Stock, adjust the length of the Restricted Period
to account for individual circumstances of a Participant or group of
Participants, but in no case shall the length of the Restricted Period be
less than one (1) year.
(c) Except as otherwise determined by the Board in its sole
discretion, a Participant whose employment with the Company and all
Related Companies terminates prior to the end of the Restricted Period for
any reason shall forfeit all shares of Restricted Stock remaining subject
to any outstanding Restricted Stock Award.
(d) Each certificate issued in respect of shares of Restricted
Stock awarded under the Plan shall be registered in the name of the
Participant and, at the discretion of the Board, each such certificate may
be deposited in a bank designated by the Board. Each such certificate
shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the XCEL
Management, Inc. 2000 Stock Incentive Plan and an agreement
entered into between the registered owner and XCEL Management,
Inc. A copy of such plan and agreement is on file in the
office of the Secretary of XCEL Management, Inc. in Tacoma,
Washington."
(e) At the end of the Restricted Period for Restricted Stock, such
Restricted Stock will be transferred free of all restrictions to a
Participant (or his or her legal representative, beneficiary or heir).
VI. PERFORMANCE UNITS
1. Definition. Performance Units are awards to Participants who may
receive value for the units at the end of a Performance Period. The number of
units earned, and value received for them, will be contingent on the degree to
which the performance measures established at the time of the initial award are
met.
2. Eligibility. The Board shall designate the Participants to whom
Performance Units are to be awarded, and the number of units to be the subject
of such awards.
3. Terms and Conditions of Awards. For each Participant, the Board will
determine the timing of awards; the number of units awarded; the value of
units, which may be stated either in cash or in shares of Stock; the
performance measures used for determining whether the Performance Units are
earned; the performance period during which the performance measures will
apply; the relationship between the level of achievement of the performance
measures and the degree to which Performance Units are earned; whether,
during or after the performance period, any revision to the performance
measures or performance period should be made to reflect significant events
or changes that occur during the performance period; and the number of earned
Performance Units that will be paid in cash and/or shares of Stock, as shall
be prescribed by the Board in its sole discretion and as shall be contained
in the Participant's Award Agreement.
4. Payment. The Board will compare the actual performance to the performance
measures established for the performance period and determine the number of
units to be paid and their value. Payment for units earned shall be wholly
in cash, wholly in Stock or in a combination of the two, in a lump sum or
installments, and subject to vesting requirements and such other conditions as
the Board shall provide. The Board will determine the number of earned units
to be paid in cash and the number to be paid in Stock. For Performance Units
valued when awarded in shares of Stock, one share of Stock will be paid for
each unit earned, or cash will be paid for each unit earned equal to either
(i) the Fair Market Value of a share of Stock at the end of the Performance
Period or (ii) the Fair Market Value of the Stock averaged for a number of
days determined by the Board. For Performance Units valued when awarded in
cash, the value of each unit earned will be paid in its initial cash value, or
shares of Stock will be distributed based on the cash value of the units
earned divided by (i) the Fair Market Value of a share of Stock at the end
of the Performance Period or (ii) the Fair Market Value of a share of Stock
averaged for a number of days determined by the Board.
5. Retirement, Death or Termination. A Participant whose employment with
the Company and Related Companies terminates during a performance period
because of Retirement or death shall be entitled to the prorated value of
earned Performance Units, issued with respect to that performance period,
at the conclusion of the performance period based on the ratio of the months
employed during the period to the total months of the performance period. If
the Participant's employment with the Company and Related Companies terminates
during a performance period for any reason other than Retirement or death, the
Performance Units issued with respect to that performance period will be
forfeited on the date his employment with the Company and Related Companies
terminates. Notwithstanding the foregoing provisions of this Part VI, if a
Participant's employment with the Company and Related Companies terminates
before the end of the Performance Period with respect to any Performance Units
awarded to him, the Board may determine that the Participant will be entitled
to receive all or any portion of the units that he or she would otherwise
receive, and may accelerate the determination and payment of the value of such
units or make such other adjustments as the Board, in its sole discretion,
deems desirable.
Exhibit "E"
XCEL MANAGEMENT, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On January 26, 2000, the Registrant entered into an Asset
Purchase Agreement with Insynq, Inc. ("Insynq"), a closely-held
Washington corporation engaged in providing hardware, software,
computer internet and related telecommunications services and products
to small businesses and high-end home offices. (See "Current Business
of the Company,"). The terms of the Agreement were substantially
completed on February 18, 2000. Under the terms of the Agreement, the
Registrant acquired substantially all of the assets of Insynq, and
assumed substantially all of the obligations of Insynq, in exchange for
the issuance by the Company of a total of 7,604,050 shares of
restricted common stock of the Company, to the Insynq shareholders pro
rata in a liquidating distribution. As a result of the transaction,
the Company now has a total of approximately 9,404,050 shares issued
and outstanding, of which 7,604,050 shares, or approximately 81% are
now held by the former Insynq shareholders.
In connection with the Agreement, the Registrant has assumed
essentially all of the obligations and liabilities of Insynq, including
capital lease obligations on equipment (approximately $587,517 as of
December 31, 1999), accounts payable, accrued payroll and other
business taxes, notes payable, and other liabilities. As of December
31, 1999, total liabilities of Insynq were $980,520. In addition to
such liabilities, the Company has agreed to assume all other
contractual obligations of Insynq. In that regard, it is anticipated
that the Company will enter into employment contracts with James R.
Leigh III, Carey M. Holladay and Donald L. Manzano, key employees, on
substantially the same terms as the employment contracts between each
of said individuals and Insynq. In addition, the Company has agreed to
assume all equipment leases, leasehold obligations covering office
space utilized by Insynq, all consulting contracts, and all other
contract obligations.
The acquisition will be accounted for as a purchase, with the assets
acquired and liabilities assumed recorded at fair values, and the
results of Insynq, Inc.'s operations included in the Company's combined
financial statements from the date of acquisition.
The accompanying pro forma condensed combined financial statements
illustrate the effect of the acquisition ("Pro Forma") on the Company's
financial position and results of operations. The pro forma condensed
combined balance sheet as of December 31, 1999 is based on the
historical balance sheets of the Company and Insynq, Inc. as of that
date and assumes the acquisition took place on that date. The pro
forma condensed combined statements of income for the year December 31,
1999 are based on the historical statements of income of the Company
and Insynq, Inc. for that period. The pro forma condensed combined
statements of income assume the acquisition took place on December 31,
1999.
The pro forma condensed combined financial statements may not be
indicative of the actual results of the acquisition. In particular,
the pro forma condensed combined financial statements are based on
management's current estimate of the allocation of the purchase price,
the actual allocation of which may differ.
The accompanying pro forma condensed combined financial statements
should be read in connection with the historical financial statements
of the Company and Insynq, Inc.
Xcel Management, Inc.
Pro Forma Condensed Combined Statement of Income
(Unaudited)
For the Period Ended December 31, 1999
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Xcel
Management, Inc. Insynq, Inc. Adjustments Pro Forma
--------------- ------------ ----------- ---------
Revenue $ 0 $145,721 $ 145,721
Cost of sales 0 110,082 110,082
--------- -------- ---------
Gross profit 0 35,639 35,639
Operating expenses
Research and
development 0 319,060 319,060
General and
administrative 30,854 589,354 620,208
--------- -------- -------
Operating loss (30,854) (872,775) (903,629)
Other income 0 30,633 30,633
--------- -------- --------
Income before taxes (30,854) (842,142) (872,996)
Deferred tax benefit 0 279,341 279,341
--------- -------- -------
Net loss $ 0 $(562,801) $(593,655)
========= ========== ==========
Weighted average number of common
shares outstanding 1,800,000 7,604,050 9,404,050
Earnings per
common share $ 0 $ 0 $ 0
========= ========= ==========