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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
Commission File No. 000-30294
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IMX PHARMACEUTICALS, INC.
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(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 14a-6(i) and 0-11.
(1) Title of each class of securities to which the transaction applies:
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(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):
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(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:
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(4) Date Filed:
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IMX Pharmaceuticals, Inc
----------------------
Notice of Annual Meeting
10:00 O'clock AM, Tuesday, October 29, 2002
------------------------------------
Please take notice that the Annual Meeting of the holders of the Common
Stock and the Class B Preferred Stock of IMX Pharmaceuticals, Inc, (the
"(Company") shall be held at the Offices of Griffin Securities, Inc., Third
Floor 17 State Street, New York, New York 10004 at ten o'clock, AM on the 24th
day of October 2002 to consider all of the following:
1. Election of five Directors for a term of one year.
2. Approval of the 2002 Employee Stock Option Plan
3. Reincorporation in Delaware.
4. Modification of the Class B Preferred Stock.
5. One for Five Stock Recombination.
6. Increase in Authorized Shares
7. Any other business as may properly come before the meeting.
No proxies will be solicited by the Company's management in connection
with this meeting.
Respectfully submitted,
Mark Alan Siegel
Secretary of the Company
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IMX Pharmaceuticals, Inc.
INFORMATION STATEMENT
Annual Meeting of Stockholders
to be held October 29th, 2002
This Information Statement is furnished by IMX Pharmaceuticals. Inc. (the
"Company") in connection with the Company's Annual Meeting of Stockholders to be
held on October 29, 2002 at 10:00 A.M. at the Company's offices, 17 State Street
(Third Floor Conference Room), New York, New York. This Information Statement
was first mailed to holders of Class B Preferred and Common Stock on or about
September 15, 2002. The mailing address of the Company's executive office is 17
State Street, New York, NY 10004.
Annual Report
A copy of the Company's Annual Report on Form 10-KSB, including consolidated
financial statements for the 18-month Fiscal Year concluded on June 30, 2002
("FY 2002"), has been mailed to all the Company's stockholders of record with
this Information Statement. The Annual Report is not part of this Information
Statement.
Outstanding Voting Securities and Voting Rights
The Board of Directors fixed the close of business on September 15th, 2002 as
the record date for determining the stockholders eligible to vote at the
meeting. As of the record date, the Company had outstanding 223,820 shares of
its Class B Preferred Stock and 9,024,791* shares of its Common Stock. The
holder of each share of Class B Preferred Stock is entitled to 20 votes per
share with respect to the election of directors and one vote per share on all
other questions. The holder of each share of Common Stock is entitled to one
vote per share on all questions.
You may vote your shares either by attending the meeting or submitting a written
consent in lieu of a meeting indicating how you would vote on any question
scheduled to come before the Annual Meeting. The number of shares held by
investors who are present or who have submitted a written consent will determine
the presence of a quorum.
On the record date, Stephen Dean, a Director of the Company, controlled,
directly or indirectly, 142,810 shares Class B Preferred Stock, constituting
almost 64% of the outstanding Class B Preferred Shares and 7,525,617 shares of
the Common Stock, constituting YY % of the outstanding Common Shares. Mr. Dean
has informed the Company that he intends to vote his shares for the election of
the entire slate of directors and in favor of all the other agenda items.
We Are Not Asking You for a Proxy and You are Requested Not To Send Us a Proxy
- --------------------
* Does not include approximately _________ shares to which creditors are
entitled under the Plan of Reorganization which have not been claimed.
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Common Stock Ownership by Directors and Executive Officers
The following table sets forth information, as of September 1, 2002, with
respect to the beneficial ownership of the Company's Common Stock by (a) the
present executive officers and directors of the Company and (b) the present
directors and officers of the Company as a group.
Unless otherwise noted, the shares are owned directly or indirectly with sole
voting and investment power.
Name and Address of Beneficial Owner Amount and Nature of Percent of Class
Beneficial Ownership(1) (1)
------------------ -------------------
Stephen Dean
6 Lloyds Avenue 11,056,817(2) %
London, England EC3N 3AX
------------------ -------------------
Adrian Stecyk
17 State Street 309,091(3) %
New York, New York 100
------------------ -------------------
Dean Eaker
470 West Avenue 557,651(4) %
Sanford, Connecticut
------------------ -------------------
Bruce Biegel
470 West Avenue 468,951(5) %
Sanford, Connecticut
------------------ -------------------
Lyndon Chapman
6 Lloyds Avenue 309,091(6) %
London, England EC3N 3AX
------------------ -------------------
Keith Goodman
470 West Avenue 61,550(7) %
Sanford, Connecticut
------------------ -------------------
Edward Fleiss
470 West Avenue 41,840(8) %
Sanford, Connecticut
------------------ -------------------
William Spero
9795 Cabrini Avenue 95,320(9) %
Burbank, California 90504
------------------ -------------------
All present officers and directors 11,723,560(10) %
as a group (10 persons)
------------------ -------------------
(1) All numbers do not reflect approximately _________ shares to which
creditors are entitled under the Plan of Reorganization which have not
been claimed, the proposed one for five stock consolidation, or the
change of the conversion privileges of the Class B Preferred Stock.
They are based upon information furnished to the Company by the
security holders or obtained from the stock transfer books of the
Company. Other than indicated in the notes, the Company has been
informed that these persons have sole voting and investment power with
respect to their shares. Certain options disclosed hereunder may not
have been fully vested as of the date of this report.
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(2) Includes of 4,975,617 common shares held by Cater Barnard and its
subsidiaries, 2,550,000 common shares held by Envesta, 675,000 shares
issuable upon exercise of a warrant to purchase shares held by Griffin
Securities, Inc, a subsidiary of CBUSA, and 2,856,200 common shares
(5,712,400 shares after giving effect to the proposed change in the
conversion privileges of the Class B Preferred) issuable upon
conversion of the 142,810 shares of Class B Preferred Stock held by
Cater Barnard.
(3) This consists of 309,091 shares issuable upon exercise of the Warrants
issued August 27, 2002 but does not include any shares held by the
companies of which Mr. Stecyk is an officer or director.
(4) This includes 228,760 shares of Common Stock (457,520 shares after
giving effect to the proposed change in the conversion privileges of
the Class B Preferred) issuable upon conversion of 11,438 shares Class
B Preferred, 309,091 shares issuable upon exercise of the Warrants
issued August 27, 2002, and 19,800 shares of Common Stock issuable upon
exercise of Stock Options (subject to the approval of the proposed 2002
Stock Option Plan).
(5) This includes 136,760 shares of Common Stock (273,520 shares after
giving effect to the proposed change in the conversion privileges of
the Class B Preferred) issuable upon conversion of 6,838 shares Class B
Preferred, 309,091 shares issuable upon exercise of the Warrants issued
August 27, 2002, 19,800 shares of Common Stock issuable upon exercise
of Stock Options (subject to the approval of the proposed 2002 Stock
Option Plan), and 3,300 shares of Common Stock issuable upon the
exercise of the Warrants issued in connection with the Company's
acquisition of TDMI.
(6) This consists of 309,091 shares issuable upon exercise of the Warrants
issued August 27, 2002 but does not include any shares held by the
companies of which Mr. Chapman is an officer or director.
(7) This includes 54,920 shares of Common Stock (109,840 shares after
giving effect to the proposed change in the conversion privileges of
the Class B Preferred) issuable upon conversion of 2,746 shares Class B
Preferred, 6,600 shares of Common Stock issuable upon exercise of Stock
Options (subject to the approval of the proposed 2002 Stock Option
Plan).
(8) This consists of 41,840 shares of Common Stock (83,680 shares after
giving effect to the proposed change in the conversion privileges of
the Class B Preferred) issuable upon conversion of 2,092 shares Class B
Preferred.
(9) This includes 71,560 shares of Common Stock (143,120 shares after
giving effect to the proposed change in the conversion privileges of
the Class B Preferred) issuable upon conversion of 3,578 shares Class B
Preferred and 23,760 shares of Common Stock issuable upon exercise of
Stock Options (subject to the approval of the proposed 2002 Stock
Option Plan).
(10) Includes 4,750 shares that represent one-half of the beneficial
interest in a trust of which Mr. Siegel, the Company's Secretary, is a
co-trustee.
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Principal Holders of Common Stock.
The following table sets forth information, as of September 1, 2002 with respect
to the beneficial ownership of the Company's Common Stock by each person known
by the Company to be the beneficial owner of more than five percent (5%) of the
Company's outstanding Common Stock
Name and Address of Beneficial Owner Amount and Nature of Percent of Class
Beneficial Ownership (1) (1)
- ---------------------------------------------------- ------------------------------- -------------------
Cater Barnard, plc (2)
6 Lloyds Avenue 5,650,617 (3) %
London, England EC3N 3AX
- ---------------------------------------------------- ------------------------------- -------------------
Envesta, plc (2)
6 Lloyds Avenue 2,550,000 %
London, England EC3N 3AX
- ---------------------------------------------------- ------------------------------- -------------------
Stephen Dean
6 Lloyds Avenue 11,056,817 (4) %
London, England EC3N 3AX
- ---------------------------------------------------- ------------------------------- -------------------
(1) All numbers do not reflect approximately _________ shares to which
creditors are entitled under the Plan of Reorganization which have not
been claimed, the proposed one for five stock consolidation, and the
change of the conversion privileges of the Class B Preferred Stock.
They are based upon information furnished to the Company by the
security holders or obtained from the stock transfer books of the
Company. Other than indicated in the notes, the Company has been
informed that such persons have sole voting and investment power with
respect to their shares. Certain options disclosed hereunder may not
have been fully vested as of the date of this report.
(2) This Company is controlled by Stephen Dean, one of the Company's
Directors.
(3) Includes 427,000 shares held by subsidiaries and 675,000 shares
issuable upon exercise of a warrant to purchase shares held by Griffin
Securities, Inc, a subsidiary of Cater Barnard, but excludes shares
held by Envesta, plc.
(4) Includes of 4,975,617 common shares held by Cater Barnard and its
subsidiaries, 2,550,000 common shares held by Envesta, 675,000 shares
issuable upon exercise of a warrant to purchase shares held by Griffin
Securities, Inc, a subsidiary of Cater Barnard, and 2,856,200 common
shares (5,712,400 shares after giving effect to the proposed change in
the conversion privileges of the Class B Preferred) issuable upon
conversion of the 142,810 shares of Class B Preferred Stock held by
Cater Barnard.
Change in Control
Prior to the Company's bankruptcy, William A. Forster, then its Chairman,
President, and Chief Executive Officer controlled the Company. On November 20,
2000, IMX Pharmaceuticals, Inc. (the "Company") filed for protection from its
creditors under Chapter 11 of the United States Bankruptcy Act. The Company's
Plan of Reorganization was approved on September 26, 2001 and declared effective
during December 2001. The Plan contemplated the reduction of the number of then
outstanding shares of Common Stock by a 1 for 20 reverse stock split, the
issuance of shares of Common Stock to the Company's creditors, and the issuance
of Class B Preferred Stock, Common Stock, and Company Notes to acquire certain
assets from Cater Barnard plc ("Cater Barnard") and Envesta, plc ("Envesta"),
both corporations organized under the laws of England and Wales. (see
"Acquisitions" below)
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As of September 1, 2002 Stephen Dean, owned approximately 53% of Cater Barnard,
and, together with Cater Barnard, owns 54% of Envesta. Collectively, Cater
Barnard, Envesta and their subsidiaries own approximately 64% of the Class B
Preferred Stock and YY% of the outstanding Common Stock.
As a result of these transactions, Stephen Dean, through Cater Barnard, and
Envesta, assumed control of the Company.
Because Mr. Dean and his companies control a disproportionate share of the Class
B Preferred Stock, the change in the conversion price proposed in Agenda Item 4
Modification of Class B Preferred Stock will increase his control of the
Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors, executive officers, and beneficial holders of more than 10% of the
Company's Common Stock are required to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based on our records and
other information, the Company believes that during FY 2002, all applicable
Section 16(a) filing requirements were met. Messers Eaker and Dean were
approximately 10 days late in filing their Forms 3, initial statement of
ownership.
Agenda Item 1 Election of Directors
Five directors are to be elected to hold office until the next Annual Meeting
and until their successors have been duly elected and qualified. All nominees
are presently members of the Board of Directors. The present directors were
appointed by the Board at various times since the effective date of the
Company's Plan of Reorganization. The Company has no reason to believe that any
of the nominees will not serve if elected.
The five directors receiving the highest number of votes will be elected. When
voting on the election of directors, each share of Class B Preferred Stock casts
twenty votes. The Company's Certificate of Incorporation does not provide
cumulative voting rights to the stockholders of either class. Mr. Dean has
informed the Company that he will vote all the Common and Class B Preferred
shares under his control for the election of each nominated director. These
votes constitute more than a majority of the votes that may be cast by each
class of stock for the election of directors and assure that they will all be
elected.
All the nominees who were members of the Board of Directors participated in
every meeting held during their term. The Board of Directors has no committees
other than the Stock Option Committee. It consists of Stephen Dean and Adrian
Stecyk.
The following sets forth information about each nominee for election at this
Annual Meeting and the Company's other executive officers.
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Stephen Dean (52) Nominee for Director, Director and Chairman of the Board since
December 2001.
Mr. Dean's principal occupation since 1995 was as Chairman of Artisan
(UK) plc and Artisan (UK) Developments. He currently has directorships
in two companies listed on the London Stock Exchange - Cater Barnard
plc and Envesta plc, and one listed on OFEX - Cater Barnard (USA) plc.
As chairman of Voyager IT.com (renamed Cater Barnard, plc in 2000), Mr.
Dean orchestrated the acquisition of 20 smaller companies within the
emerging IT, Internet and media sectors, 12 of which were subsequently
listed. Since April 2001 that company shifted towards the financial
services sector. Mr. Dean remains its chairman and has also served as
non-executive chairman of Envesta since 2000. Mr. Dean has also, in the
past, held directorships of a number of other Official List and AIM
companies. He was born in 1950.
Adrian Stecyk (42) Nominee for Director, Director and President of the Company
and Chief Executive Officer since December 2001.
He is the Chief Executive Officer and Director of Griffin Securities,
Inc., a US based investment banking and NASD registered brokerage firm
and has served in that position since 1997. He has been a director of
Cater Barnard and Cater Barnard (USA) since July 2000. Mr. Stecyk has a
B.S. in Engineering and M.B.A. from Boston University. From 1980 to
1986, Mr. Stecyk was member of the Technical Staff at Charles Stark
Draper Laboratory, a technology research and development company. Mr.
Stecyk co-founded Griffin Capital Management Corp., a registered
Investment Advisor, where he was responsible for asset management and
investment advisory services to major institutions.
Dean Eaker, (45) Nominee for Director, Chairman, CEO and Founder of TDMI.
Mr. Eaker has served as a Director and Senior Vice President of the
Company since January 2002. Mr. Eaker founded TDMI in October 1998. In
January 1997, Mr. Eaker joined PC411, Inc. and as President and CEO,
was instrumental in taking the company public in May 1997. Prior to
that, he was President of Electronic Pictures Corp. ("EPC"), a company
he founded in 1983. EPC specialized in developing markets for media and
digital technology firms. After selling its publishing assets in 1989,
EPC provided consulting services to publishing and technology companies
such as Cowles Business Media and IBM's Media and Entertainment
divisions. From 1991 to 1994, Mr. Eaker was Senior Vice President and
Group Publisher of Knowledge Industry Publications. In 1994, Mr. Eaker
helped found Millennium Media Group, an electronic publishing company,
which published CD ROM software for the education and consumer
entertainment markets.
Bruce Biegel, (41) Nominee for Director, President and Chief Operating Officer
of TDMI
Mr. Biegel has served as a Director, Senior Vice President, and Chief
Financial Officer of the Company since January 2002. Mr. Biegel joined
TDMI in October 1998 and brought 19 years of sales, marketing,
technology and management experience. Prior to TDMI, Mr. Biegel served
as a consultant to leading web services integrator iXL Holdings. Prior
to that, he was a Co-founder, Director and Executive Vice-President at
VideoFax Systems, Inc., a multimedia software company successfully sold
in 1997. Mr. Biegel began his career at Kidder Peabody, an investment
bank and brokerage company, where he handled management information
systems as an Officer and Manager of International Telecommunications.
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Lyndon Chapman, (51) Nominee for Director, Managing Director of Findstar.
Mr. Chapman has served as a Director of the Company since April 2002.
Mr. Chapman is currently Chairman and Managing Director of Panda
Software UK Ltd (a subsidiary of Findstar), Chairman of Seven Telecom
Ltd, and a non- executive and audit committee member of Envesta. He is
also the founder and director of Dean Corp., which is now called Lupus
Capital Plc.
Keith Goodman (42) Senior Vice-President.
Mr. Goodman, who joined the Company in October 1998, heads the
ThinkDirectMail division of TDMI. He had served in a similar capacity
at PC411, Inc. beginning in March 1998. Prior to joining PC411, Mr.
Goodman was Vice President of Worldwide Sales and Marketing for Newtek,
Inc., a developer of software and hardware solutions in the film and
video industry and had spent seven years with Access Graphics, a
distributor of high technology solutions focused on the Internet,
digital media and enterprise computing environments.
Edward Fleiss (46) Vice President
Mr. Fleiss, who joined TDMI in October 1998, heads the DigitalData
division of TDMI. He had been the Vice President and Chief Technology
Officer of PC411, Inc. since May 1997. Prior to that, he served as the
Chief Technology Officer at Electronic Pictures Corp. From 1993 to 1996
he served as Technology Sales Manager for Marcus Technology, Inc., a
New York-based network integration firm specializing in printing and
publishing systems.
William Spero, (29) President and CEO of DirectMailQuotes, LLC a wholly owned
subsidiary of TDMI Mr. Spero has served in this capacity since April,
2001. He has worked in the direct mail industry for more than 11 years,
with experience in mail production, sales, and management. He studied
Computer Science and Management at UC Irvine, and was Vice President of
American Mailing Service, Inc. from 1995 to 2001. A well regarded
industry executive, Mr. Spero is a speaker for the National Postal
Forum and writer for trade magazine, Mailing Systems Technology.
Executive Compensation
Cash Compensation
The following table sets forth a summary of all compensation awarded
to, earned by or paid to, the Company's Chief Executive Officer and the other
executive officers of the Company whose compensation exceeded $100,000 per annum
for services rendered in all capacities to the Company and its subsidiaries
during Fiscal Years ended June 30, 2002, December 31, 2000, and December 31,
1999. FY 2002 includes the 18-month period from January 1, 2001 to June 30,
2002. The applicable information for the last 12 months of the Fiscal Year is
included in parentheses.
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SUMMARY COMPENSATION TABLE
- ------------------------------- ------- -------------------------------------------------- --------------------------------
Annual Compensation Long Term Awards
- ------------------------------- ------- -------------------------------------------------- --------------------------------
Securities
Name and Fiscal Other Annual Underlying All other
Principal Position Year Salary Bonus Compensation ($) Options Compensation
- ---------------------------- ---------- ------------------- ------------ ------------------ ------------------- -----------
Adrian Stecyk, Director, 2002(2) -0- -0- -0- -0- -0-
President and Chief
Executive Officer(1) 2000 -0- -0- -0- -0- -0-
1999 -0- -0- -0- -0- -0-
- ---------------------------- ---------- ------------------- ------------ ------------------ ------------------- -----------
Dean Eaker, Director, 2002(2) $240,000(4) -0- -0- 19,800(6) -0-
Senior Vice President of
the Company(3), Chairman, ($160,000)(5)
CEO and Founder of TDMI.
2000 $170,000 -0- -0- -0- -0-
1999 $158,333 -0- -0- -0- -0-
- ---------------------------- ---------- ------------------- ------------ ------------------ ------------------- -----------
Bruce Biegel, Director, 2002(2) 195,000(8) -0- -0- 19,800(6) -0-
Senior Vice President and
Chief Financial Officer of ($130,000)(9)
the Company(7), President
and Chief Operating 2000 $131,667 -0- -0- -0- -0-
Officer of TDMI
1999 $103,333 -0- -0- -0- -0-
- ---------------------------- ---------- ------------------- ------------ ------------------ ------------------- -----------
Keith Goodman, Senior 2002(2) $165,000(10) -0- -0- 6,600(6) -0-
Vice-President of TDMI
($110,000)(11)
2000 $114,375 -0- -0- -0- -0-
1999 $100,000 -0- -0- -0- -0-
- --------
1 Mr. Stecyk was elected a Director and appointed President and Chief
Executive Officer on December 11, 2001.
2 FY 2002 includes the 18-month period from January 1, 2001 to June 30,
2002. The applicable information for the last 12 months of the Fiscal
Year is included in parentheses.
3 Mr. Eaker was elected a Director and appointed Senior Vice-President on
January 31, 2002.
4 Only $200,000 of this amount was actually paid. The balance of $40,000
was accrued.
5 Only $120,000 of this amount was actually paid. The balance of $40,000
was accrued.
6 These options were issued in connection with the acquisition of TDMI to
replace existing options. They are subject to the approval of the 2002
Employee Stock Option Plan at the Annual Meeting.
7 Mr. Biegel was elected a Director and appointed Senior Vice-President
and Chief Financial Officer on January 31, 2002. 8 Only $175,000 of
this amount was actually paid. The balance of $20,000 was accrued.
9 Only $110,000 of this amount was actually paid. The balance of $20,000
was accrued.
10 Only $158,334 of this amount was actually paid. The balance of $6,666
was accrued.
11 Only $103,334 of this amount was actually paid. The balance of $6,666
was accrued.
11
- ---------------------------- ---------- ------------------- ------------ ------------------- ------------------ -----------
Edward Flees, 2002(2) $148,333(12) -0- -0- -0- -0-
Vice-President, Digital
Data ($98,333)(13)
2000 $112,708 -0- -0- -0- -0-
1999 $100,000 -0- -0- -0- -0-
- ---------------------------- ---------- ------------------- ------------ ------------------- ------------------ -----------
Will Spero, Vice-President 2002(2) $121,580 -0- -0- -0- -0-
of the Company, President,
DMQ ($90,000)
2000 -0- -0- -0- -0- -0-
1999 -0- -0- -0- -0- -0-
- ---------------------------- ---------- ------------------- ------------ ------------------- ------------------ -----------
Lyndon Chapman Director of 2002(2) $51,900 -0- -0- -0- -0-
the Company(14) and
President and Chief ($51,900)
Executive Officer of
Findstar 2000 -0- -0- -0- -0- -0-
1999 -0- -0- -0- -0- -0-
- ---------------------------- ---------- ------------------- ------------ ------------------ ------------------- -----------
William A. Forster, Former 2002(2) $4,340(16) -0- -0- -0- -0-
Chief Executive Officer(15)
($4,340)(16) -0- 9,750(18) -0- -0-
2000 204,500(17) -0- 44,328(19) 5,000 -0-
1999 227,250
- ---------------------------- ---------- ------------------- ------------ ------------------ ------------------- -----------
Gary Spielfogel, Former 2002(2) $4,340(21) -0- -0- -0- -0-
Executive Vice President(20)
($4,340)(21)
2000 101,562 -0- 9,750(7) -0- -0-
1999 125,000 144,000 38,183(22) -0- -0-
- ---------------------------- ---------- ------------------- ------------ ------------------ ------------------- -----------
Marc Falkin, 2002(2) $4,340(24) -0- -0- -0- -0-
Former Senior Vice
President(23) ($4,340)(24)
2000 65,000 -0- 9,750(7) -0- -0-
1999 80,000 114,012 37,995(25) -0- -0-
- ---------------------------- ---------- ------------------- ------------ ------------------ ------------------- -----------
- --------------
12 Only $135,000 of this amount was actually paid. The balance of $13,333
was accrued.
13 Only $85,000 of this amount was actually paid. The balance of $13,333
was accrued.
14 Mr. Chapman was elected a Director April 30, 2002.
15 Resigned December 11, 2002
16 Does not include 109,935 shares of Common Stock distributed under the
Plan of Reorganization for unpaid salary and expenses.
17 Includes $38,344 in salary and $2,250 in automobile allowance accrued
as a claim in bankruptcy or as an administration expense.
18 Consists of a non-accountable automobile allowance
19 Consists of a non-accountable automobile allowance of $12,000 and
$32,328 realized from the exercise of an option to purchase shares of
common stock of Medicis Corporation ("Medicis Option") granted in
connection with the formation of the Exorex Company LLC and the
subsequent sale of the shares issued upon exercise of the Medicis
Option. The balance of the unexercised Medicis Option, 60%, is being
held for the benefit of the Company.
20 Resigned October 16, 2000
21 Does not include 343 shares of Common Stock distributed under the Plan
of Reorganization for unpaid salary and expenses.
21 Consists of a non-accountable automobile allowance of $12,000 and
$26,183 realized in 2000 from the exercise of Medicis Option and the
subsequent sale of the shares issued upon exercise of the Medicis
Option. The balance of the unexercised Medicis Option, 60%, is being
held for the benefit of the Company.
23 Resigned November 14, 2000
24 Does not include 1,131 shares of Common Stock distributed under the
Plan of Reorganization for unpaid salary and expenses.
23 Consists of a non-accountable automobile allowance of $12,000 and
$25,995 realized in 2000 from the exercise of Medicis Option and the
subsequent sale of the shares issued upon exercise of the Medicis
Option. The balance of the unexercised Medicis Option, 60%, is being
held for the benefit of the Company.
12
Option Grants in the Last Fiscal Year
All option grants and plans predating the effective date of the
Plan of Reorganization in December were cancelled by the Plan.
In January 2002, the Board of Directors adopted the 2002 Employee
Stock Option Plan (the "Option Plan"), subject to the approval of the
Company's stockholders. In addition, as required by the TDMI Option, the
Company granted options to purchase 189,945 shares of its Common Stock to
replace those then held by TDMI's officers and employees on TDMI shares.
This included grants of Options to purchase a total of 19,800 shares to
Dean Eaker, 19,800 shares to Bruce Biegel, 6,600 shares to Keith Goodman,
and 69,960 to the officers of TDMI as a group. These grants are subject to
the stockholders approval of the Option Plan. (See "Item 3, Approval of the
2002 Employee Stock Option Plan").
Since then, the holders of options for 22,967 shares have left the
Company, options previously vested in the amount of 2,112 expired, and new
options to purchase 2,376 shares have been granted to a new employee. As of
September 1, 2002, options to purchase 167,243 shares were outstanding.
Option Exercises and Holdings
The following table sets forth certain information relating to
option exercises effected during Fiscal 2000, and the value of options held
as of such date by each of the Chief Executive Officer and the other
executive officer of the Company whose compensation exceeded $100,000 per
annum for services rendered in all capacities to the Company and its
subsidiaries during Fiscal 2002:
13
AGGREGATE OPTION EXERCISES FOR FISCAL 2002
AND YEAR END OPTION VALUES
- -----------------------------------------------------------------------------------------------------------------------
Number of Unexercised Value(1) of Unexercised
Options at In-the-Money
June 30, 2002 (#) Options at
June 30, 2002 ($)
- -----------------------------------------------------------------------------------------------------------------------
Name Shares Acquired Value ($) Exercisable/ Exercisable/
on Exercise Realized(2) Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------
Adrian Stecyk -0- -0- -0-/-0- -0-
- -----------------------------------------------------------------------------------------------------------------------
Dean Eaker -0- -0- 19,800/-0-(3) -0-
- -----------------------------------------------------------------------------------------------------------------------
Bruce Biegel -0- -0- 19,800/-0-(3) -0-
- -----------------------------------------------------------------------------------------------------------------------
Keith Goodman -0- -0- 6,600/-0-(3) -0-
- -----------------------------------------------------------------------------------------------------------------------
Edward Fleiss -0- -0- -0-/-0- -0-
- -----------------------------------------------------------------------------------------------------------------------
William Spero -0- -0- 7,920/15,840(3) -0-
- -----------------------------------------------------------------------------------------------------------------------
Lyndon Chapman -0- -0- -0-/-0- -0-
- -----------------------------------------------------------------------------------------------------------------------
All officers and directors as a -0- -0- 54,120/15,820 -0-
group (10 in group)
- -----------------------------------------------------------------------------------------------------------------------
1 Total value of unexercised options is based upon sales of the Common Stock
as reported by the over-the-counter Bulletin Board at $ 0.21 on June 30,
2002.
2 Value realized in dollars is based upon the difference between the fair
market value of the Common Stock on the date of exercise, and the exercise
price of the option.
3 Granted upon the acquisition of TDMI to replace existing options to
purchase TDMI shares.
Executive Employment Agreements
Neither Mr. Dean, Mr. Stecyk, nor Mr. Chapman has an employment
agreement with the Company or any of its subsidiaries. Messers Eaker, Biegel,
Keith Goodman, Ed Fleiss, and William Spero have employment agreements with the
TDMI.
Dean Eaker
Mr. Eaker currently serves as the TDMI's Chief Executive Officer. He is
paid under an Employment Agreement entered into as of September 29, 2000, which
superseded a prior employment contract. Under the Agreement, this continues
until January 31, 2003 and provides for automatic annual renewals after that or,
if not renewed, for the payment of one year's additional salary. Mr. Eaker is to
receive an annual base salary of $150,000, and is eligible to receive an annual
bonus up to an amount of $25,000 depending reaching certain goals set by the
Company. During FY 2002, Mr. Eaker was paid $20,000 less than was provided in
his contract.
Bruce Biegel
Mr. Biegel currently serves as the TDMI's President and Chief Operating
Officer. He is paid under an Employment Agreement entered into as of September
29, 2000, which superseded a prior employment contract. Under the Agreement,
this continues until January 31, 2003 and provides for automatic annual renewals
after that or, if not renewed, for the payment of one year's additional salary.
Mr.Biegel is to receive an annual base salary of $120,000, and is eligible to
receive an annual bonus up to an amount of $25,000 depending reaching certain
goals set by the Company. During FY 2002, Mr. Eaker was paid $20,000 less than
was provided in his contract. During FY 2002, Mr. Biegel was paid $20,000 less
than was provided in his contract; the balance was accrued.
14
Keith Goodman
Mr. Goodman currently serves as the TDMI's Senior Vice-President and
head of the ThinkDirectMail division He is paid under an Employment Agreement
entered into as of September 29, 2000, which superseded a prior employment
contract. Under the Agreement, this continues until January 31, 2003 and
provides for automatic annual renewals after that or, if not renewed, for the
payment of six month's additional salary. Mr. Goodman is to receive an annual
base salary of $110,000, and is eligible to receive an annual bonus up to an
amount of $25,000 depending reaching certain goals set by the Company. During FY
2002, Mr. Goodman was paid $3,333 less than was provided in his contract.
Ed Fleiss
Mr. Fleiss currently serves as TDMI's Vice-President and head of Direct
Mail. He is paid under an Employment Agreement entered into as of September 29,
2000, which superseded a prior employment contract. Under the Agreement, this
continues until January 31, 2003 and provides for automatic annual renewals
after that or, if not renewed, for the payment of sox month's additional salary.
Mr. Fleiss was to receive an annual base salary of $100,000, and is eligible to
receive an annual bonus up to an amount of $25,000 depending reaching certain
goals set by the Company. During FY 2002, Mr. Fleiss was paid $13,333 less than
was provided in his contract.
William Spero
Mr. Spero currently serves as TDMI's vice-President and President of
its DirectMailQuotes subsidiary. He is paid under an Employment Agreement
entered into as of March 1, 2001, which superseded a prior employment contract.
Under the Agreement, this continues until February 28, 2004 and provides for
automatic annual renewals after that or, if not renewed, for the payment of six
month's additional salary. Mr. Spero is to receive an annual base salary of
$90,000, and is eligible to receive an annual bonus up to an amount of $25,000
depending reaching certain goals set by the Company.
The employment agreements with Messers Forster, Spielfogel, and Falkin
were terminated by the bankruptcy and settled as part of those proceedings.
Board of Directors
Other than the Warrants issued after the end of the Fiscal Year, the
members of the Board of Directors receive no additional compensation for their
attendance at meetings or other performance of their duties as directors. They
are reimbursed for their expenses associated with their performance.
15
On April 30, 2002, the Board unanimously chose Lyndon Chapman, the
Chief Executive Officer of its Findstar subsidiary, to replace Mark Garratt
after his resignation. Mr. Garratt's resignation was not the result of any
dispute.
STOCK PERFORMANCE CHART
- --------------------------------------------- ---------------------------- --------------------------
High Bid Low Bid
- --------------------------------------------- ---------------------------- --------------------------
2002
First Quarter $3.00 $0.25
Second Quarter $2.05 $0.21
- --------------------------------------------- ---------------------------- --------------------------
2001
First Quarter $ 2.60 $ 0.02
Second Quarter $ .02 $ 0.02
Third Quarter $ 1.00 $ 0.02
Fourth Quarter $ 0.20 $ 0.20
- --------------------------------------------- ---------------------------- --------------------------
2000
First Quarter $ 1.875 $ 0.25
Second Quarter $ 1.75 $ 0.75
Third Quarter $ 1.0625 $ 0.625
Fourth Quarter $ 0.63 $ 0.01
- --------------------------------------------- ---------------------------- --------------------------
Certain Relationships and Related Transactions
Stephen Dean, through Cater Barnard and Envesta, plc, a company in
which Cater Barnard holds approximately 54% of the equity ("Envesta"), controls
the Company.
Bankruptcy and Plan of Reorganization
On November 20, 2000 the Company and its wholly-owned subsidiary,
imx-eti LifePartners, Inc. ("imx-eti") filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Florida, West Palm Beach Division.
On December 27, 2000, the Bankruptcy Court ordered the joint administration of
the two cases. On September 10, 2001, the Bankruptcy Court dismissed imx-eti's
Bankruptcy Case.
On August 10, 2001, the Company filed its Third Amended Plan of
Reorganization (the "Plan"). The Plan provides that all administrative expenses,
priority tax claims, and US Trustee's fees will be paid in full. The Plan also
provides for nine Classes of Claims, each treated in its own way. Class 1
(unpaid wages) and Classes 2, 3, 4, and 7 (allowed secured claims) will be paid
in full. Classes 5 and 6, disputed secured claims, will be paid a mixture of
cash and the Company's common stock, $.001 par value, ("Common Stock") and Class
8 (allowed unsecured claims) will be paid one share of Common Stock for each
$4.00 dollars of allowed claim. Class 9 (the existing equity holders) will have
their present holdings replaced by one share of Common Stock for each 20 shares
they now own. No fractional shares will be issued. Any partial shares due to
members of Classes 8 or 9 will be rounded up to a full share.
16
On September 26, 2001, after a hearing, the Court confirmed the Plan.
The order was entered on October 11, 2001. The Plan was declared effective on
December 11, 2001.
Cater Barnard was a Class 8 (allowed unsecured) creditor in the amount
of $655,000. It received 163,750 shares of Common Stock in settlement of its
claim.
Acquisitions
On September 30, 2001, the Company, Cater Barnard, and Envesta executed
an agreement for the transfer of the assets (the "Purchase Agreement").
On December 11, 2001, pursuant to the Purchase Agreement, in exchange
for the assets described below, the Company issued to Cater Barnard and Envesta
225,000 shares of its newly created Class B Convertible Preferred Stock, its
promissory notes in the aggregate principal amount of $3,000,000, and 1,500,000
shares of its Common Stock. The Class B Preferred Stock has an $80 stated value
per share. It is convertible into IMX Common Stock at a rate of one share of
Common Stock for each $4.00 of stated value. Until conversion, each share of the
Class B Preferred Stock will cast one vote for each share of Common Stock into
which it can be converted. The notes mature in five (5) years and bear interest
at the rate of five percent (5%) per annum. The interest or principal may be
paid in cash or Common Stock, at the Company's discretion.
In addition, the Company issued 877,500 shares of the Company's Common
Stock and a five year warrant to purchase an additional 675,000 shares of IMX's
post consolidation Common Stock at $4.00 per share to Cater Barnard and Cater
Barnard (USA) plc as designees of Griffin Securities, Inc. ("Griffin"). The
securities were issued in payment for Griffin's services in connection with the
forgoing transaction.
At the conclusion of this transaction, the issuance of new common stock
to creditors, and the consolidation of the old Company common stock, and
assuming full conversion of the Class B Preferred Stock and exercise of the
warrants, Cater Barnard and Envesta held approximately 86% of the equity of the
Company.
At the closing, Cater Barnard transferred all its interests in
ThinkDirectMarketing, Inc. ("TDMI") to the Company. Cater Barnard's interests in
TDMI consist of $4,000,000 of TDMI convertible promissory notes, seventeen and
one-half percent (17.5%) of the equity of TDMI, and an option ("Option") to
acquire the remaining eighty-two and one-half percent (82.5%) of the TDMI
equity. At the same time, Envesta transferred all of its ownership of Findstar,
plc ("Findstar") to the Company. See below for a description of TDMI and
Findstar.
The Purchase Agreement also obligated Cater Barnard to invest $300,000
in cash to fund the Company's Plan of Reorganization and pay the Company's
Debtor in Possession administrative expenses and the tax and non-tax priority
claims. Cater Barnard will receive one share of the Company's Common Stock for
each $4.00 dollars invested. If the Company requires additional funds for the
Plan, Cater Barnard was to fund them through the purchase of shares of the
Company's new class of Preferred Stock at $80 per share. As of December 31,
2001, Cater Barnard had invested an additional $224,800 dollars and been issued
2,810 shares of the Class B Preferred Stock.
17
Immediately after the closing, all of Registrant's then current
officers and directors resigned and Stephen Dean, Adrian Stecyk, and Mark
Garratt were elected directors. The new directors then elected Stephen Dean as
Chairman, Adrian Stecyk as President and Chief Executive Officer, Mark Garratt
as Treasurer and Chief Financial Officer, and Mark Alan Siegel as Secretary.
On January 31, 2002, the Company exercised the Option and acquired the
balance of the TDMI equity. In exchange for the equity, IMX issued to the
holders of those interests a total of 81,010 shares of its Class B Preferred
Stock. At the same time, as required by the agreement creating the Option, IMX
issued warrants to purchase 168,056 shares of its Common Stock to the holders of
TDMI warrants ("Warrants"), and stock options to the existing TDMI employees
under the Company's newly adopted 2002 Stock Option Plan (the "Plan") to
purchase 189,945 shares of Common Stock ("Stock Options"). The Warrants expire
on January 31, 2007. Warrants to purchase 66,000 shares have a purchase price of
$1.89 and the balance have a purchase price of $3.00. The Stock Options, which
are subject to the Plan's approval by the Stockholders, include 60,543 that are
presently vested and have an exercise price of $4.00 and 129,402 that vest over
the next three years and have an exercise price of $3.00.
As part of this transaction 7,838 shares of the Preferred, warrants to
purchase 3,300 shares of Common Stock, and Options to purchase 19,800 shares of
Common Stock were issued to Mr. Eaker and 11,438 shares of the Preferred and
Options to purchase 19,800 shares of Common Stock were issued to Mr. Biegel.
Both Mr. Eaker and Mr. Biegel serve as Directors and Officers of the Company or
its subsidiaries.
Immediately after the closing, Dean Eaker and Bruce Biegel, currently
officers and directors of TDMI were elected directors of IMX and Bruce Biegel
was elected a Senior Vice-President and designated as Chief Financial Officer to
replace Mark Garratt.
The Medicis Options:
On March 20, 2001, the Company settled a portion of is debt to Cater
Barnard by assigning to it the Company's beneficial ownership of certain Options
issued to some of the Company's former officers. The Options provided for the
purchase of the common stock of Medicis Pharmaceutical Corporation of Phoenix,
Arizona ("Medicis") at a price of $24.67 per share ("Exercise Price"). 4,800
shares can be purchased in July 2002 and 4,800 shares in July 2003. On the date
of the settlement, the market price of Medicis common stock was $55.96 (Market
Price"). The amount of the settlement was a portion of the difference between
the Market Price and the Exercise Price ("Difference") multiplied by the number
of shares available for purchase. With respect to the 4,800 shares that could be
purchased within four months of the contract date, the portion was 90% of the
Difference. With respect to the 4,800 shares that could not be purchased for
over fifteen months, the portion was 70% of the Difference.
As a result of this transaction the principal of the Company's five
(5%) percent Promissory Note to Cater Barnard, dated December 11, 2001, was
reduced by $240,307.
18
The Forster Agreement
On December 11, 2001, the Company and Shalom Y'all, Inc., a company
wholly owned by William A. Forster, the Company's former Chairman and CEO,
executed and consummated an agreement providing for the deferred payment of Mr.
Forster's secured claim (Class 4), the settlement and payment of his
administrative claim in Common Stock at $4.00 per share, the sale to Shalom
Y'all of all of the Company's subsidiaries, and its indemnification of the
Company for any claims against it arising from the operation of the
subsidiaries' businesses.
The agreement provides for a payment of $50,000 to induce Shalom Y'all
to provide the indemnity. $35,000 of the indemnity amount was paid at closing.
The balance, together with the $67,000 secured claim, was evidenced by the
Company's $82,000 note due February 28, 2002. The note bears interest at the
rate of 15% per annum, from December 11, 2001. On March 20, 2002, the note was
re-cast to provide for periodic payments principal and for interest to be paid
at the end calculated at a rate of 15% from December 11, 2001. At that time, a
partial principal payment of $25,000 was made and the unpaid interest of $3,333
was added to the principal of the note. Additional payments totaling $35,000
have been made. On June 28, 2002, the Company issued a replacement note in the
principal amount of $27,463.29 consisting of $22,000 if principal and $5,463.29
of unpaid interest. Since the end of the Fiscal Year, an additional $5,000 has
been paid.
In settlement of Mr. Forster's administrative claims, the Company
issued 95,000 shares of its Common Stock.
The purchase price for the subsidiaries is $100,000. The obligation to
make this payment is evidenced by Shalom Y'All's three-year promissory note.
This note is secured by the pledge of 25,000 of Mr. Forster's Common Stock.
Subsidiary Debt Transactions
During January 2002, Envesta elected, with the consent of the Company,
to convert its 85,000 shares of Class B Preferred Stock and its note from the
Company for $1,133,333 in to a total of 1,983,333 shares of Common Stock.
During March, the Company acquired $760,000 of additional debt of TDMI
from Cater Barnard. The Company paid for the debt, evidenced by TDMI Notes, by
issuing a Company promissory note in an equal amount. The note matures on
December 31, 2006 and bears interest at the rate of five (5%) percent per annum.
The Company can elect to pay the interest with Common Stock valued at $0.50 per
share. The holder can convert the notes into Common Stock at a price of $0.50
per share. On June 30th, 2002 the Company agreed to the conversion of this note
into 1,520,000 shares of Common Stock.
Cater Barnard has also agreed to settle the balance due on the
Company's December 11, 2001 note for 813,180 shares of Common Stock and to
accept 240,854 shares of Common Stock for a debt of $120,427 owed to it by the
Company and its subsidiaries. At the same time, CBUSA agreed to sell its claims
for $163,500 against the Company's TDMI subsidiary to the Company for 327,000
shares of Common Stock.
19
The Company has consolidated its and its subsidiaries remaining debts
to Cater Barnard in a note in the principal amount of $1,075,000. This note,
which matures on August 1, 2004, bears interest at the rate of 5% until June 30,
2003 and 7.8% thereafter.
On June 28, 2002, the Company acquired from Envesta debts owed to
Envesta by the Company's Findstar subsidiaries in the face amount of
(pound)664,149 for $200,000 in cash.
As a result of these transactions, at the end of the Fiscal Year on
June 30, 2002, Stephen Dean's Companies owned a total of 7,525,617 shares of
Common Stock, 142,810 shares of Preferred Stock convertible into 11,424,800
shares of Common Stock, and warrants to purchase an additional 675,000 shares of
Common Stock.
As of June 2002 the TDMI was indebted to certain of its Officers,
including Eaker, Biegel, Fleiss, and Goodman, in the amount of $96,666. The
Company purchased the debt from the Officers for a total of 108,664 shares of
Common Stock and its agreement to fund TDMI's payment of $50,231 of withheld
taxes and both the employees' and employer's payroll taxes. Eaker is to receive
41,923 shares of Common Stock and $22,098 of withholding and payroll taxes will
be deposited on his behalf. Biegel is to receive 22,494 shares of Common Stock
and $10,283 of withholding and payroll taxes will be deposited on his behalf.
Fleiss is to receive 15,928 shares of Common Stock and $5,390 of withholding and
payroll taxes will be deposited on his behalf. Goodman is to receive 8,811
shares of Common Stock and $2,771 of withholding and payroll taxes will be
deposited on his behalf.
On August 1, 2002 the Company entered into a Loan Agreement with Cater
Barnard. The agreement provides an additional borrowing line of $750,000 to be
drawn upon as the Company needs. The interest rate is 7.8% and the total balance
outstanding must be paid on August 1, 2004. The Company has pledged all its
equity ownership in its Findstar and TDMI subsidiaries and all debt due from
them as collateral for this loan. As of September 5, 2002, the Company had
borrowed $750,000 under this agreement.
During the Fiscal year, CBUSA provided office facilities and services
and communication services to the Company. As of June 30th, 2002, the Company
was indebted to CBUSA in the aggregate amount of $180,000.
The Spero Debt
As part of its acquisition of DMQ, TDMI issued its note to Mr. Spero,
DMQ's principal owner, in the initial principal amount of $114,000. TDMI
defaulted under this note and under several subsequent settlement agreements. On
August 13, 2002, the Company and Cater Barnard agreed to pay Mr. Spero $172,000
to settle the Note, reclaim property to which Mr. Spero was entitled as a result
of the defaults, and pay his legal costs during the default period. This payment
has been made.
Director's Warrants.
After the end of the Fiscal Year, on August 27, 2002 the Company issued
warrants to Messers Stecyk, Eaker, Biegel, and Chapman providing each the right
to purchase 309,091 shares of the Company's Common Stock at a price of $0.55 per
share, or 183% of the last sale price of the Common Stock prior to that date.
20
Agenda Item 2 Proposed 2002 Employee Stock Option Plan
All of the Company's previous stock option and other employee incentive
plans, and any options granted under them, have been terminated by the Plan of
Reorganization.
In January 2002 the Board of Directors determined both that a stock
option plan was required to permit the acquisition of TDMI and that the
Company's other employees would perform better if their interests were linked to
those of the stockholders through equity based incentives. This key aspect of
both TDMI's and the Company's compensation program is designed to attract,
retain, and motivate the highly qualified individuals required by the knowledge
focus of the Company's business plan. The Board adopted the 2002 Employee Stock
Option Plan (the "Option Plan") to meet both needs.
Approval of the Plan requires the affirmative vote of the holders of a
majority of the shares of Common and Class B Preferred Stock, casting one vote
each and counted as a single class. Mr. Dean has informed the Company that he
will vote all the Common and Class B Preferred shares under his control for the
adoption of the Plan. These votes constitute more than a majority of the votes
that may be cast by each class of stock on this question and assure that the
Plan will be adopted.
A copy of the Option Plan is included in this Information Statement as
Exhibit A and the description below is qualified in its entirety by reference to
the Option Plan.
Number of Options Authorized and Maximum Individual Participation - The
Option Plan reserves 5,000,000 shares of the Company's Common Stock for the
issuance of options under the Option Plan. Not more than 100,000 shares may be
granted to any Key Employee in any fiscal year.
The Option Plan Administration - A committee of the Board of Directors
who are not employees of the Company administers the Option Plan. The Committee
has designated two of the Company's officers to administer the plan with respect
to Key Employees who are not Officers or Directors of the Company.
Term and Amendment of the Option Plan - The Option Plan was effective
as of January 31, 2002, subject to its ratification by the Stockholders this
Annual Meeting. No Options may be granted on or after January 31, 2012. The
Board of Directors may suspend or terminate the Option Plan at any time and it
shall terminate when all the shares reserved for options have been purchased.
The Board may amend the Plan as its deems necessary and intends to make any
amendments necessary to comply with changes in the Income Tax or Securities Laws
of the United States or the State of its incorporation.
Stock Option Award - Stock options awarded may be either Qualified
under Section 442 of the Internal Revenue Code or are Non-Qualified because the
fall outside Section 442's requirements. The options generally expire 10 years
after the date of grant and are not all available for exercise immediately upon
grant. The exercise price of the options may not be less than the fair market
value on the date of grant. The Option Plan provides that the Committee for any
reason, including complying with state and Federal securities laws, may restrict
the transfer of Stock Options. The Stock Option Certificate utilized by the
Committee restricts transfer of the Option and allows exercise after termination
under limited circumstances.
21
Adjustments - The number of shares reserved for the exercise of Options
and the number of shares for which and outstanding Option shall be adjusted by
the Board in an equitable manner to reflect any change in the capitalization of
the Company, including, among other things, stock dividends and stock splits.
Federal Income Tax Consequences - The granting of Qualified Stock
Options or Nonqualified Stock Options does not result in immediate taxable
income to the optionee.
The exercise of a Qualified Stock Option will not result in taxable
income to the optionee if the optionee does not dispose of the stock within two
years of the date the option was granted and one year after the option is
exercised. If these requirements are met, any gain realized by the optionee will
be taxed as a long-term capital gain. The Company will not receive a tax
deduction for the resulting gain. If these holding periods are not met, the
option will be treated generally as a nonqualified Stock Option for tax
purposes.
The exercise of a Nonqualified Stock Option award will result in
taxable income to the optionee. The amount by which the market price exceeds the
exercise price would be taxable as ordinary income. Income tax obligations may
be met either through cash payments at the time of exercise or through share
withholding. At the discretion of the Committee, optionees may be allowed to
elect to defer the receipt of the taxable shares resulting form the exercise. If
this election is made, the optionee will be liable for the taxes on the full
value of the shares plus any accumulated dividends at their value upon
distribution. The Company will receive a tax deduction for the compensation that
corresponds to the compensation gain.
22
Agenda Item 3 Reincorporation in Delaware
Summary
As set forth below, the board of directors believes that in the Company's best
interests and the best interests of our shareholders will be served by changing
our state of incorporation from Utah to Delaware. The board of directors has
approved the reincorporation, which will be effected pursuant to the plan of
merger. Under the plan of merger, you will become shareholders of Dialog Group,
Inc. ("Dialog"). Dialog will continue to operate the Company's business.
Pursuant to the plan of merger, five outstanding shares of our common stock will
automatically be converted into one share of Dialog's common stock, $.001 par
value. (See "Agenda Item 5 - One for Five Stock Recombination")
It is anticipated that the merger will become effective as soon as practicable
following the annual meeting.
Approval of the reincorporation proposal will require the affirmative vote of
the majority of the outstanding shares of both the preferred and common stock on
the record date. Mr. Dean has informed the Company that he will vote all the
Common and Class B Preferred shares under his control in favor of this item.
These votes constitute more than a majority of the votes that may be cast by
each class of stock and assures that it will be approved.
Principal Reasons for the Proposed Reincorporation
The board of directors and management believe that it is essential to be able to
draw upon well established principles of corporate governance in making legal
and business decisions. The prominence and predictability of Delaware corporate
law provide a reliable foundation on which our governance decisions can be
based. Shareholders will benefit from the responsiveness of Delaware corporate
law to their needs and to those of the corporation they own. Reincorporation in
Delaware may reduce the cost and time involved in raising capital and engaging
in other business transactions because investors and other companies and their
counsel are generally more familiar with Delaware law.
Prominence, Predictability and Flexibility of Delaware Law.
Delaware has for many years followed a policy of encouraging
incorporation in that state and has been a leader in adopting,
construing and implementing comprehensive, flexible corporate laws
responsive to the legal and business needs of corporations organized
under its laws. Many corporations have chosen Delaware initially as a
state of incorporation or have subsequently changed corporate domicile
to Delaware in a manner similar to that proposed by us. The Delaware
courts have developed considerable expertise in dealing with corporate
law issues and a substantial body of case law has developed construing
Delaware law and establishing public policies with respect to corporate
legal affairs.
Well Established Principles of Corporate Governance.
There is substantial judicial precedent in the Delaware courts as to
the legal principles applicable to measures that may be taken by a
corporation and as to the conduct of the board of directors under the
business judgment rule. The Company's shareholders will benefit from
the well established principles of corporate governance that Delaware
law affords.
23
Other Provisions of the Charter and Bylaws of Dialog
The provisions of the Dialog certificate of incorporation and bylaws are similar
to the Company's articles of incorporation and bylaws in most respects. Other
changes in the rights of stockholders and powers of management are the result of
the application of Delaware law. See "Antitakeover Implications" and
"Significant Differences between the Corporation Laws of Utah and Delaware,"
below.
Antitakeover Implications
Delaware, like many other states, permits a corporation to adopt a number of
measures that are designed to reduce a corporation's vulnerability to
unsolicited takeover attempts. These measures are not included in the
certificate of incorporation or bylaws of Dialog. The reincorporation proposal
is not being proposed in order to prevent a change in control, nor is it in
response to any present attempt known to the board of directors to acquire
control of us or to obtain representation on the board of directors.
The reincorporation proposal has antitakeover implications because, by operation
of law, Section 203 of the Delaware General Corporation Law restricts "business
combinations" with "interested stockholders" for three years following the date
that a person becomes an interested stockholder, unless the board of directors
approves the business combination.
No Change in the Business, Management, Employee Plans or Location of Principal
Facilities
The reincorporation proposal will effect a change only in the Company's name,
legal domicile and other changes of a legal nature as described in this proxy
statement. The board of directors and management believe that the name Dialog
Group, Inc.will result in a more appropriate image and brand for our company.
The proposed reincorporation will not result in any change in the business,
management (except as described in this proxy statement), fiscal year, assets or
liabilities or location of our principal facilities. All of our obligations will
become the obligations of Dialog. Our employee benefit arrangements will also be
continued by Dialog upon the terms and subject to the conditions currently in
effect. After the merger, the shares of common stock of Dialog will continue to
be traded, without interruption, in the same principal market as the shares of
common stock of the Company are traded prior to the merger.
If the reincorporation proposal is approved, the directors of the Company who
are elected at the annual meeting of shareholders will continue as the directors
of Company after the proposed reincorporation is consummated and until their
successors have been duly elected and qualified.
Prior to the effective date of the merger, the Company will obtain any consents
required for the merger from parties with whom we may have contractual
arrangements. As a result, the rights and obligations under all contractual
arrangements will continue and be assumed by Dialog.
Significant Differences Between The Corporation Laws Of Utah And Delaware
The corporation laws of Utah and Delaware differ in many respects. Although all
the differences are not set forth in this proxy statement, the differences that
could materially affect the rights of shareholders are discussed below.
Stockholder Approval of Certain Business Combinations.
24
In recent years, a number of states have adopted special laws designed to make
certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation and one or more of its significant stockholders, more
difficult. Under the Utah Control Shares Acquisitions Act, shares acquired in a
"control share acquisition" by a single shareholder or group of shareholders
that give the shareholder or group more than 20% of the voting power of certain
public Utah corporations cease to have voting rights until a resolution allowing
the shares to be voted is approved by a majority of the outstanding shares of
the corporation (excluding shares held by officers, directors and the acquiror).
The Utah Control Shares Acquisitions Act applies only to a corporation formed
under the laws of the State of Utah that has all of the following:
> 100 or more shareholders;
> its principal office or place of business, or substantial assets, located in
Utah; and
> any of (i) more than 10% of its shareholders resident in Utah, (ii) more than
10% of its shares owned by Utah residents or (iii) 10,000 shareholders that are
Utah residents.
We do not have our principal office, any place of business, or substantial
assets in the State of Utah or a significant number of shareholders who are Utah
residents. Accordingly, the protections and restrictions of the Control Shares
Act do not presently apply to us or our common stock.
Section 203 of the Delaware General Corporate Law prohibits a corporation from
engaging in a "business combination" with an "interested stockholder" for three
years following the date that the person becomes an interested stockholder. The
three-year moratorium imposed on business combinations by Section 203 does not
apply if:
> prior to the date on which the stockholder becomes an interested stockholder
the board of directors approves either the business combination or the
transaction which resulted in the person becoming an interested stockholder;
> the interested stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction which made him an interested stockholder; or
> the business combination is approved by the board of directors and approved at
a stockholder meeting by the holders of two-thirds of the voting stock not owned
by the interested stockholder. Section 203 only applies to Delaware corporations
that have a class of voting stock that is listed on a national securities
exchange, are quoted on an interdealer quotation system, such as Nasdaq, or are
held of record by more than 2,000 stockholders. However, a corporation may elect
not to be governed by Section 203 by a provision in its Certificate of
Incorporation or its Bylaws. Dialog has not opted out of Section 203.
Accordingly, following consummation of the reincorporation transaction and if
the Company begins trading on NASDAQ, Section 203 will confer upon the board of
directors the power to reject certain business combinations with interested
stockholders, even though a potential acquiror may be offering a substantial
premium.
25
Indemnification and Limitation of Liability.
Utah and Delaware have similar laws respecting indemnification by a corporation
of its officers, directors, employees and other agents. The laws of both states
also permit corporations to adopt a provision in their charter eliminating the
liability of a director to the corporation or its stockholders for monetary
damages for breach of the director's fiduciary duty of care. There are
nonetheless differences between the laws of the two states respecting
indemnification and limitation of liability. In general, Delaware law is
somewhat broader in allowing corporations to indemnify and limit the liability
of corporate agents.
Utah law does not permit the elimination of monetary liability where liability
is based on:
> a financial benefit received by a director to which the director is not
entitled;
> an intentional infliction of harm on the corporation or its shareholders;
> an unlawful distribution; or
> an intentional violation of criminal law.
Delaware law does not permit the elimination of monetary liability for:
> breaches of the director's duty of loyalty to the corporation or its
stockholders;
> acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law;
> the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
> transactions in which the director received an improper personal benefit.
Utah law permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions no
indemnification may be made without court approval when a person is adjudged
liable to the corporation. Similarly, Delaware law allows indemnification of
expenses incurred during derivative and third-party actions; however, Delaware
law requires court approval of indemnification in both derivative and
third-party actions when a person is adjudged liable to the corporation.
Dividends and Repurchase of Shares.
Utah law dispenses with the concepts of par value of shares as well as statutory
definitions of capital, surplus and the like. The concepts of par value, capital
and surplus exist under Delaware law.
Under Utah law, a corporation may not make any distribution, or repurchase its
shares if, after giving effect to the distribution or repurchase:
> the corporation would not be able to pay its debts as they become due in the
normal course; or
> its total assets would be less than the sum of its total liabilities plus the
amount, if any, payable upon liquidation to holders of any preferred stock with
distribution rights superior to the rights of holders of common stock.
26
Delaware law permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and the redemption or repurchase would not impair
the capital of the corporation.
To date, the Company has not paid any cash dividends on its outstanding shares
of common stock and does not anticipate doing so in the foreseeable future.
Stockholder Voting.
Both Utah and Delaware law generally require that the holders of a majority of
the shares of voting stock of both acquiring and target corporations approve
statutory mergers. Neither Utah nor Delaware law requires a stockholder vote of
the surviving corporation in a merger if:
> the merger agreement does not amend the existing certificate of incorporation;
> each share of the stock of the surviving corporation outstanding immediately
before the merger is an identical outstanding share after the merger; and
> either no shares of common stock of the surviving corporation and no
securities convertible into common stock are to be delivered under the plan of
merger, or the authorized unissued shares or the treasury shares of common stock
of the surviving corporation to be delivered under the plan of merger plus those
initially issuable upon conversion of any other securities to be delivered under
the plan do not exceed 20% of the shares of common stock outstanding immediately
prior to the merger.
Both Utah law and Delaware law also require that a sale of all or substantially
all of the assets of a corporation be approved by the holders of a majority of
the outstanding voting shares of the selling corporation.
Utah law also requires that mergers, reorganizations, sales of assets and
similar transactions be approved by a majority vote of each voting group
entitled to vote separately on the plan of merger, reorganization or sale. In
general, a class or series of stock is entitled to vote separately (or together
with similarly affected shares of different series of the same class) if the
proposed transaction would change the rights, preferences or limitations of the
respective class or series. In contrast, Delaware law generally does not require
class voting, except in certain transactions involving an amendment to the
certificate of incorporation that adversely affects a class of shares. As a
result, stockholder approval of transactions may be easier to obtain under
Delaware law for companies that have more than one class of shares outstanding.
Appraisal Rights.
27
Under both Utah law and Delaware law, a stockholder of a corporation
participating in major corporate transactions may be entitled to appraisal
rights under which the stockholder may receive cash in the amount of the fair
market value of his or her shares in lieu of the consideration he or she would
otherwise receive in the transaction. Fair market value is determined exclusive
of any element of value arising from the accomplishment or expectation of the
merger or consolidation. In determining fair market value, courts generally
apply various valuation methods commonly used in the financial community. Under
Delaware law, appraisal rights are not available with respect to the sale, lease
or exchange of all or substantially all of the assets of a corporation, while
Utah law provides for appraisal rights in these circumstances. Utah and Delaware
law both provide exemption from appraisal for a transaction by a corporation the
shares of which are either listed on a national securities exchange or are held
of record by more than 2,000 holders if the stockholders receive only shares of
the surviving corporation or shares of any other corporation that are either
listed on a national securities exchange or held of record by more than 2,000
holders, plus cash in lieu of fractional shares. Delaware and Utah law also
provide an exemption to a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger.
Inspection of Records.
Delaware law allows stockholders and directors to inspect the corporation's
records and stockholder list for purposes reasonably related to the person's
interests as a stockholder or director upon written demand. In contrast, under
Utah law, directors or shareholders may inspect certain corporate records for
any purpose as long as the directors or shareholders gives the corporation
written notice five business days in advance. Other records, including the
shareholder list and minutes from meetings of the board of directors, may be
inspected only for a purpose reasonably related to the shareholder's or
director's interest.
Appraisal Rights
Our shareholders do not have appraisal rights triggered by the reincorporation.
See "Agenda Item 5 - One for Five Stock Combination " for a discussion
of the exchange of stock certificates representing Company shares for stock
certificate representing Dialog shares.
28
Agenda Item 4 Modification of Class B Preferred Stock
On March 20, 2002 the Board of Directors determined it would be in the
Company's best interest to encourage the conversion of the Company's Class B
Preferred Stock (the "Preferred"). It has proposed certain changes in the terms
of the Preferred to encourage and reward conversion of the Preferred into Common
Stock.
Under Utah law, alteration of the privileges of the holders of the
Preferred requires the consent of the holders of a majority of the 223,820
shares of Preferred outstanding. In addition, pursuant to the Investors' Rights
Agreement signed at the time of the Company's acquisition of the balance of the
equity of TDMI, the consent of a majority of the holders of the 81, 010 shares
of Preferred issued at that time is also required. At this time, the holders of
XXX,XXX shares of the Preferred, including all 142,810 shares controlled by Mr.
Dean, constituting ____% of the total outstanding and ______ shares,
constituting __% of the Preferred held by former TDMI stockholders have already
consented in writing to these changes.
The texts of the sections that are to be changed, marked to show the
proposed changes are included in this Information Statement as Exhibit B. The
description below is qualified in its entirety by reference to the actual text.
The proposed changes accomplish all of the following:
1. The number of shares of Common Stock to be issued upon
conversion of each Preferred share shall be doubled to 40
instead of 20 as presently provided. This is accomplished by
reducing the conversion price to $2.00 per share of Common
Stock.
2. The present provision for further adjustments of the
conversion price, intended to protect against dilution upon
the issuance of shares of Common Stock at prices below the
conversion price, is eliminated.
3. The provision for payment or accumulation of dividends at a
rate of five (5%) percent per annum, payable in cash or Common
Stock, at the Company's election, is eliminated.
As of the date of this Information Statement, no dividends have been
declared for the Class B Preferred Stock. Dividends accumulate at the rate of 5%
each year. Less than a year has elapsed since the Preferred was first issued.
If the change is approved at the Annual Meeting, the charter of the
surviving Delaware company (See "Item 3 - Reincorporation in Delaware") shall
reflect the changes in the conditions of the Preferred Stock.
29
Agenda Item 5 One for Five Stock Recombination
The board of directors has adopted a proposal to effect a stock combination of
the Company's issued and outstanding common stock, par value $.001 per share, in
the manner described below. The certificate of incorporation of Dialog Group,
Inc., the new Delaware company will reflect these changes.
Upon the consummation of the merger with Dialog, each five outstanding shares of
Common Stock will automatically be converted into one share of new Common Stock.
The then outstanding stock certificates for shares of Common Stock will
represent one-fifth as many shares of new common stock after the stock
combination is effective. No fractional shares of new common stock will be
issued. Instead of receiving fractional shares, shareholders who hold a number
of shares not evenly divisible by five immediately prior to the date that the
stock combination takes effect will be entitled to receive a full share for any
fractional share. The surrender of certificates representing shares of our
common stock will not be necessary to effect the combination of shares. However,
the Company requests that holders of Common Stock send in their certificates to
be exchanged into certificates for the new Common Stock, which will represent
shares in Dialog. The Company anticipates completing the reincorporation
immediately following its approval.
Approval of the stock combination will require the affirmative vote of the
holders of a majority of our outstanding shares of common stock on the record
date. Mr. Dean has informed the Company that he will vote all the Common and
Class B Preferred shares under his control in favor of this item. These votes
constitute more than a majority of the votes that may be cast by each class of
stock and assures that it will be approved.
Reasons for the Stock Combination.
Many investors look upon low priced stock as unduly speculative in nature and,
as a matter of policy, avoid investment in these stocks. Investors may believe
that low stock prices reflect companies that are of low quality or poor
performers. Accordingly, we believe that the current per share price of the
Common Stock may reduce the effective marketability of the shares because of the
reluctance of many leading brokerage firms to recommend low priced stocks to
their clients. Brokerage firm policies and practices tend to discourage
individual brokers from dealing in low priced stocks for various reasons,
including the perception that those stocks are unduly speculative. Additionally,
many institutional investors have policies prohibiting them from holding low
priced stock in their own portfolios, which not only reduces the number of
potential buyers of our stock but also adversely affects our ability to raise
capital in public and private markets. The structure of trading commissions
tends to have an adverse impact upon holders of low priced stock because the
brokerage commission on a purchase or sale of low priced stock generally
represents a higher percentage of the sales price than the commission on higher
priced stocks. Moreover, analysts at many brokerage firms will not monitor the
trading activity of lower priced stocks.
The board believes that the stock combination should put our common stock in a
price range that will enhance its marketability to the financial community and
investing public and may mitigate any reluctance on the part of brokers and
investors to trade in our common stock. This combination should also enhance our
ability to raise the additional capital we need to expand our operations.
30
Effects of the Stock Combination.
The principal effect of the one-for-five stock combination will be to decrease
the number of outstanding shares of common stock from XX,XXX.XXX to
approximately XX,XXX,XXX shares of common stock, based on share information as
of the record date. The stock combination would not affect our shareholders'
proportionate equity interest in us. In addition, the board will take
appropriate action to adjust proportionately the number of shares of our common
stock issuable upon conversion of the Class B Preferred Stock and the exercise
of outstanding options and similar securities, and to adjust the related
exercise prices, to reflect the stock combination. The stock combination will
not affect the registration of our common stock under the Securities Exchange
Act of 1934 or the listing of our common stock on the OTC Bulletin Board. The
stock combination will not have a material effect on the number of record
holders and, in any event, will not have the effect of reducing the number of
record holders to less than 300.
The stock combination may leave some shareholders with one or more "odd lots" of
common stock, which means stock in amounts of less than 100 shares. The odd lots
may be more difficult to sell, or require greater transaction costs per share to
sell, than shares in even multiples of 100.
Each shareholder's percentage ownership of our common stock will not be altered
except for the effect of the elimination of fractional shares.
Exchange of Stock Certificates
Shareholders will be requested to exchange their stock certificates for new
certificates representing the shares of new Common Stock that will evidence the
effect of the stock combination. The new certificates will represent shares of
common stock of Dialog. Shareholders of record on the date that the one-for-five
stock combination takes effect will be furnished the necessary materials and
instructions for the surrender and exchange of share certificates at the
appropriate time by our transfer agent, Interwest Transfer Company, Inc.
Shareholders will not have to pay a transfer fee or other fee in connection with
the exchange of certificates.
Any shareholder whose certificate for our common stock has been lost, destroyed
or stolen will be entitled to issuance of a certificate representing the shares
of new common stock after giving effect to the stock combination upon satisfying
our requirements and the requirements of our transfer agent.
For a summary of the material federal income tax consequences of the
stock combination on our shareholders, see "Summary of Federal Income Tax
Consequences of the Proposed Stock Combination and Reincorporation" below.
Agenda Item 6 Authorization of Additional Shares Of Stock
The Company is presently authorized to issue 50,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock. Each issue of Preferred
Stock has those rights and privileges established for it by the Board of
Directors. As part of the reincorporation in Delaware, the Board of Directors
has proposed to increase the number of shares of Common Stock which it is
authorized to issue to 100,000,000.
31
The Company presently has 9,024,791 shares of Common Stock outstanding
and had committed itself to issue, upon exercise of options or warrants or
conversion of Preferred Stock, and additional 6,248,063. The Company presently
has 223,820 shares of it Class B Preferred Stock outstanding. No other class of
Preferred Stock is outstanding at this time. The Company's Board if Directors is
also contemplating further conversions of existing debt into Common Stock
The Board of Directors has concluded that an increase in the number of
authorized shares is necessary to provide sufficient shares to allow the Company
to acquire others of close to its size, or to merge on the basis of equality
with another enterprise. If approved, the increase in authorized capital will
allow the Company to respond promptly and effectively to opportunities involving
the issuance of shares of Common Stock.
The Company is continuously evaluating financing opportunities and
potential acquisitions that could result in the issuance of common stock or
securities convertible into common stock.
The Board of Directors is not proposing the increased capitalization as
a means of discouraging tender offers or takeover attempts. However, in the
event of an unsolicited tender offer or takeover proposal, the increased number
of shares could give the Company greater opportunity to issue shares to persons
who are friendly to management. The shares might also be available to make
acquisitions or enter into other transactions that might frustrate potential
offerors.
The vote of a majority of the holders of both the Common and the
Preferred Stock is necessary to approve this change. Mr. Dean has informed the
Company that he will vote all the Common and Class B Preferred shares under his
control in favor of this item. These votes constitute more than a majority of
the votes that may be cast by each class of stock and assures that it will be
approved. If the change is approved at the Annual Meeting, the charter of the
surviving Delaware company (See "Item 4 Reincorporation in Delaware") shall
reflect the proposed number of shares rather than the current quantity.
Agenda Item 7 Other Matters
Management knows of no other matters to be brought before the Annual
Meeting, but if other matters properly come before the meeting, the votes cast
as directed by Mr. Dean will determine the outcome of any ballot.
Summary Of Federal Income Tax Consequences Of The Proposed Stock Combination And
Reincorporation
The following is a discussion of the federal income tax considerations that may
be relevant to holders of our common stock who receive Dialog common stock in
exchange for their Company Common Stock as a result of the proposed stock
combination and reincorporation. The discussion does not address all of the tax
consequences of the proposed stock combination and reincorporation that may be
relevant to particular shareholders, such as dealers in securities, or those
shareholders who acquired their shares upon the exercise of stock options, nor
does it address the tax consequences to holders of options or warrants to
acquire Dialog common stock. Furthermore, no foreign, state, or local tax
considerations are addressed herein. IN VIEW OF THE VARYING NATURE OF THE TAX
CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION AND STOCK
COMBINATION INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL OR FOREIGN TAX
LAWS.
32
Subject to the limitations, qualifications and exceptions described herein, and
assuming the proposed reincorporation qualifies as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, the
following tax consequences generally should result:
> No gain or loss should be recognized by holders of Company common stock upon
receipt of Dialog common stock pursuant to the proposed reincorporation;
> The aggregate tax basis of the Dialog common stock received by each
stockholder in the proposed reincorporation should be equal to the aggregate tax
basis of Company common stock surrendered in exchange therefore;
> The holding period of the Dialog common stock received by each shareholder of
the Company should include the period for which the shareholder held Company
common stock surrendered in exchange therefore, provided that the Company common
stock was held by the shareholder as a capital asset at the time of proposed
reincorporation; and
> The Company should not recognize gain or loss for federal income tax purposes
as a result of the proposed reincorporation, and Dialog should succeed, without
adjustment, to the federal income tax attributes of the Company.
In addition, the one-for-five stock combination will qualify as a
recapitalization described in Section 386(a)(1)(E) of the Code, and no gain or
loss will be recognized by us in connection with the stock combination. The
receipt by a shareholder of shares of common stock, except to the extent that
cash is received in lieu of fractional shares, in the stock combination will be
a nontaxable transaction for federal income tax purposes. Consequently, except
with respect to cash received in lieu of fractional shares of common stock, a
shareholder will not recognize taxable gain or loss with respect to shares of
common stock received as a result of the stock combination. In addition, the
aggregate tax basis of a shareholder's shares of common stock prior to the stock
combination, excluding the portion of the basis allocable to fractional shares
of common stock, will carry over as the tax basis of the shareholder's shares of
common stock received as a result of the combination. Each shareholder will be
required to allocate his or her basis in the shares of common stock ratably
among the total number of shares of common stock received as a result of stock
combination. The holding period of the shares of new common stock will include
the holding period during which the shareholder held our current common stock,
provided that the common stock is held by the shareholder as a capital asset
when the stock combination is completed.
The Company has not requested a ruling from the Internal Revenue Service with
respect to the federal income tax consequences of the proposed reincorporation
under the tax code. A successful IRS challenge to the reorganization status of
the proposed reincorporation would
33
result in a stockholder recognizing gain or loss with respect to each share of
Company common stock exchanged in the proposed reincorporation equal to the
difference between the stockholder's basis in the share and the fair market
value, as of the time of the proposed reincorporation, of the Dialog common
stock received in exchange therefore. In this event, a stockholder's aggregate
basis in the shares of Dialog common stock received in the exchange would equal
their fair market value on such date, and the stockholder's holding period for
the shares would not include the period during which the stockholder held
Company common stock.
Stockholder Proposals for the 2003 Annual Meeting
Stockholder proposals relating to the Company's 2003 Annual Meeting
must be received by the Company at its principal executive offices, 17 State
Street, New York, NY 10004, Attention: President, no later than June 15th, 2003.
Expenses of Meeting
The Company will bear the expenses in preparing, printing, and mailing
the Information Statement and Annual Report on Form 10-KSB to the stockholders.
No proxies will be solicited by the Company's management in connection with this
meeting. We are not asking you for a proxy and you are requested not to send us
a proxy.
By Order of the Board of Directors,
/s/ Mark Alan Siegel
---------------------------
Mark Alan Siegel
Secretary of the Company
Dated: September __, 2002
34
Exhibit A
IMX Pharmaceuticals, Inc.
2002 STOCK OPTION PLAN
Section 1 PURPOSE
The purpose of this Plan is to promote the interests of IMX
Pharmaceuticals, Inc. (the "Company") by granting Options to purchase Stock to
Key Employees, Outside Directors and Key Consultants in order to (a) attract and
retain Key Employees and Key Consultants; (b) provide an additional incentive to
each Key Employee and Key Consultant to work to increase the value of the Stock;
and (c) provide each such Key Employee, Outside Director and Key Consultant with
a stake in the future of the Company which corresponds to the stake of each of
the Company's stockholders.
Section 2 DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set forth
opposite such term for purposes of this Plan and for any Option granted under
this Plan. For purposes of such definitions, the singular shall include the
plural and the plural shall include the singular. Unless otherwise expressly
indicated, all Section references herein shall be construed to mean references
to a particular Section of this Plan.
2.1 Board means the Board of Directors of the Company.
2.2 Change of Control means any of the following:
(i) the acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section 13(d) or
14(d)(2) of the Securities Exchange Act of 1934, as amended from time
to time) (the "Exchange Act"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or
more of either (A) the then outstanding shares of Stock (the
"Outstanding Company Common Stock") or (B) the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Company Voting
Securities"); provided, however, that any acquisition by (x) the
Company or any of its subsidiaries, or any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of its
subsidiaries or (y) any corporation with respect to which, following
such acquisition, more than 50% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Company
Voting Securities immediately prior to such acquisition in
substantially the same portion as their ownership, immediately prior to
such acquisition of the Outstanding Company Common Stock and Company
Voting Securities, as the case may be, shall not constitute a change in
control of the Company; or
(ii) individuals who, as of January 31, 2002, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that
any individual becoming a director subsequent to January 31, 2002,
whose election or nomination for election by the Company's shareholders
was approved by a vote of at least a majority of the directors then
comprising the incumbent Board shall be considered as though such
individual was elected prior to January 31, 2002, even if his initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the
Company (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or
35
(iii) approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination"), in
each case, with respect to which all or substantially all of the
individuals and entities who were the respective beneficial owners of
the Outstanding Company Common Stock and Company Voting Securities
immediately prior to such Business Combination do not, following such
Business Combination, beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination in
substantially the same proportion as their ownership immediately prior
to such Business Combination or the Outstanding Company Common Stock
and Company Voting Securities, as the case may be; or
(iv) (A) a complete liquidation or dissolution of the Company
or a (B) sale or other disposition of all or substantially all of the
assets of the Company other than to a corporation with respect to
which, following such sale or disposition, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Company
Voting Securities immediately prior to such sale or disposition in
substantially the same proportion as their ownership of the Outstanding
Company Common Stock and Company Voting Securities, as the case may be,
immediately prior to such sale or disposition.
2.3 Code means the Internal Revenue Code of 1986, as amended.
2.4 Committee means the committee of Non-Employee Directors appointed
by the Board to administer this Plan as contemplated by Section 5.
2.5 Company means IMX Pharmaceuticals, Inc., a Utah corporation, and
any successor to this corporation.
2.6 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.7 Designated Committee means a committee appointed by the Committee
in accordance with Section 5.
2.8 Fair Market Value in respect of the Stock on any day means (a) if
the principal market for the Stock is a national securities exchange, the
average between the high and low sales prices of the Stock on such day as
reported by such exchange or on a consolidated tape reflecting transactions on
such exchange; (b) if the principal market for the Stock is not a national
securities exchange and the Stock is quoted on The NASDAQ Stock Market
("NASDAQ"), and (i) if actual sales price information is available with respect
to the Stock, then the average between the high and low sales prices of the
Stock on such day on NASDAQ, or (ii) if such information is not available, then
the average between the highest bid and lowest asked prices for the Stock on
such day on NASDAQ; or (c) if the principal market for the Stock is not a
national securities exchange and the Stock is not quoted on NASDAQ, then the
average between the highest bid and lowest asked prices for the Stock on such
day as reported by The Nasdaq Bulletin Board, or a comparable service; provided
that if clauses (a), (b) and (c) of this Paragraph are all inapplicable, or if
no trades have been made or no quotes are available for such day, then the fair
market value of the Stock shall be determined by the Committee by any method
consistent with applicable regulations adopted by the Treasury Department
relating to stock options. The determination of the Committee shall be
conclusive in determining the fair market value of the stock.
36
2.9 For cause, when used in connection with termination of a grantee's
employment, shall have the meaning set forth in any then-effective employment
agreement between the grantee and the Company or Subsidiary. In the absence of
such an employment agreement, "for cause" means: (a) charge or conviction of a
felony or any other crime (whether or not involving the Company or a
Subsidiary); (b) engaging in any substantiated act involving moral turpitude;
(c) the continual or frequent possession by grantee of an illegal substance or
abuse by the grantee of a controlled substance or alcohol resulting in a pattern
of behavior disruptive to the business operations of the Company or a
Subsidiary; (d) engaging in any act which, in each case, subjects, or if
generally known would subject, the Company or a Subsidiary to public ridicule or
embarrassment; (e) any action by the grantee which constitutes dishonesty
relating to the Company or a Subsidiary, a willful violation of law (other than
traffic and similar minor offenses) or a fraud against the Company or a
Subsidiary; (f) material violation of the Company's or a Subsidiary's written
policies, including, without limitation, those relating to sexual harassment or
the disclose or misuse of confidential information; (g) misappropriation of the
Company's or a Subsidiary's funds or assets by the grantee for personal gain; or
(h) serious neglect or misconduct in the performance of the grantee's duties for
the Company or a Subsidiary or willful or repeated failure or refusal to perform
such duties; in each case determined by the Committee or the Designated
Committee, which determination shall be final, binding and conclusive.
2.10 Insider shall mean an employee who is, at the time of an award
made under this Plan, an insider pursuant to ss. 16 of the Exchange Act.
2.11 ISO means any option granted under this Plan to purchase Stock
which satisfies the requirements of Section 422 of the Code. Any Option that is
not specifically designated as an ISO shall under no circumstances be considered
an ISO.
2.12 Key Consultant means any consultant or independent contractor of
the Company or a Subsidiary (other than a Non-Employee Director) or any such
consultant or contractor who is a Non-Employee Director and who serves as such a
consultant or contractor pursuant to a written agreement with the Company which
has been approved by the Board, in either case who, in the judgment of the
Committee acting in its absolute discretion, is a key to the success of the
Company or a Subsidiary.
2.13 Key Employee means any employee of the Company or a Subsidiary,
who, in the judgment of the Committee acting in its absolute discretion, is a
key to the success of the Company or a Subsidiary.
2.14 Non-Employee Director means any member of the Board of Directors
of the Company qualified as such under SEC Rule 16b-3(b)(3)(i) under the
Exchange Act, or any successor rule.
2.15 Non-ISO means any option granted under this Plan to purchase stock
that fails to satisfy the requirements of Section 422 of the Code or has been
specifically denominated as a non-ISO by the Committee as of the time the option
is granted.
2.16 Option means an ISO or a Non-ISO.
2.17 Option Certificate means the written agreement or instrument which
sets forth the terms of an Option granted to a Key Employee, Key Consultant or
Outside Director under this Plan.
2.18 Option Price means the price which shall be paid to purchase one
share of stock upon the exercise of an Option granted under this Plan.
2.19 Outside Director means any member of the Board of Directors of the
Company who is not employed by the Company, regardless of whether such person
qualifies as a Non-Employee Director.
2.20 Parent Corporation means any corporation which is a parent
corporation of the Company within the meaning of Section 424(e) of the Code.
37
2.21 Plan means this IMX Pharmaceuticals, Inc. 2000 Stock Option Plan,
as amended from time to time.
2.22 Principal Officer means the Chairman of the Board (if the Chairman
of the Board is a payroll employee), the Chief Executive Officer, the President,
any Executive Vice President, any Senior Vice President, any Vice President and
the Treasurer of the Company and any other person who is an "officer" of the
Company as that term is defined in SEC Rule 16a-1(f) under the Exchange Act or
any successor rule there under.
2.23 Securities Act means the Securities Act of 1933, as amended.
2.24 SEC means the Securities Exchange Commission.
2.25 Stock means the Common Stock, $.01 par value per share, of the
Company.
2.26 Subsidiary means any corporation that is a subsidiary corporation
of the Company within the meaning of Section 424(f) of the Code.
2.27 Ten Percent Shareholder means a person who owns after taking into
account the attribution rules of Section 424(d) of the Code more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, a Subsidiary or a Parent Corporation.
Section 3. SHARES SUBJECT TO OPTIONS
There shall be 5,000,000 shares of Stock reserved for issuance in
connection with ISOs and Non-ISOs granted under this Plan. Such shares of Stock
shall be reserved to the extent that the Company deems appropriate from
authorized but unissued shares of Stock and from shares of Stock which have been
reacquired by the Company. Any shares of Stock subject to an Option which remain
after the cancellation, expiration or exchange of such Option for another Option
thereafter shall again become available for use under this Plan.
Section 4. EFFECTIVE DATE
The effective date of this Plan shall be January 31, 2002, subject to
approval by the stockholders of the Company acting at a duly called meeting of
such stockholders or acting by unanimous written consent in lieu of a meeting,
provided such stockholder approval occurs within twelve (12) months after the
date the Board approves and adopts this Plan.
Section 5. COMMITTEE
(a) A Committee consisting solely of not less than two (2) Non-Employee
Directors shall administer this Plan. The members of the Committee shall be
appointed by, and serve at, the pleasure of the Board. To the extent required
for transactions under the Plan to qualify for the exemptions available under
Rule 16b-3 promulgated under the Exchange Act, all actions relating to awards to
persons subject to Section 16 of the Exchange Act shall be taken by the
Committee and not any Designated Committee (as defined below). In addition, to
the extent required for compensation realized from awards under the Plan to be
deductible by the Company pursuant to Section 162(m) of the Code, all actions
relating to awards to persons subject to Section 162(m) of the Code shall be
taken by the Committee and not any Designated Committee (as defined below).
(b) The Committee acting in its absolute discretion shall exercise such
powers and take such action as expressly called for under this Plan.
Furthermore, the Committee shall have the power to interpret this Plan and to
take such other action in the administration and operation of this Plan as the
Committee deems equitable under the circumstances, which action shall be binding
on the Company, on each affected Key Employee, Key Consultant or Outside
Director and on each other person directly or indirectly affected by such
action.
38
(c) The Committee may appoint a separate committee comprised of two (2)
or more persons, both of whom are members of the Board (and who may also be a
Key Employee or a Key Consultant) (the "Designated Committee"), to administer
this Plan with respect to Key Employees who are not Principal Officers or Ten
Percent Shareholders, and to Key Consultants who are not Ten Percent
Shareholders, subject to such conditions, restrictions and limitations as may be
imposed by the Committee: including (i) Options to purchase not more than
1,000,000 shares of Stock may be granted by the Designated Committee in any one
calendar year to all employees of the Company in the aggregate; and (ii) the
Committee shall establish a maximum number of shares that may be subject to
Options granted under the Plan in any one calendar year to any single Key
Employee or Key Consultant by the Designated Committee. Unless and until the
Committee shall take further action, the maximum number of shares that may be
subject to Options granted under the Plan in any one calendar year by the
Designated Committee to any single Key Employee or Key Consultant shall be
100,000. Any actions duly taken by the Designated Committee with respect to the
grant of Options to Key Employees who are not Principal Officers and to Key
Consultants shall be deemed to have been taken by the Committee for purposes of
the Plan.
Section 6. ELIGIBILITY
Only Key Employees, Key Consultants and Non-Employee Directors shall be
eligible for the grant of Options under this Plan.
Section 7. GRANT OF OPTIONS
7.1 Committee Action. The Committee or the Designated Committee, as the
case may be, acting in its absolute discretion, shall grant Options to Key
Employees and Key Consultants under this Plan from time to time to purchase
shares of Stock and, further, shall have the right to grant new Options in
exchange for outstanding Options. Options shall be granted to Non-Employee
Directors as provided in Section 7.3 of this Plan. Each grant of an Option shall
be evidenced by an Option Certificate, and each Option Certificate shall:
(a) specify whether the Option is an ISO or Non-ISO; and
(b) incorporate such other terms and conditions as the
Committee or the Designated Committee, as the case may be, acting in
its absolute discretion deems consistent with the terms of this Plan,
including, without limitation, a limitation on the number of shares
subject to the Option which first became exercisable or subject to
surrender during any particular period.
If the Committee or the Designated Committee, as the case may be, grants an ISO
and a Non-ISO to a Key Employee on the same date, the right of the Key Employee
to exercise or surrender one such Option shall not be conditioned on his or her
failure to exercise or surrender the other such Option. In connection with the
termination for any reason of employment by or service to the Company or any
Subsidiary of any particular holder of any Option, the Committee may, in its
discretion, determine to accelerate the time such Option first becomes
exercisable during any particular period as provided in the related Option
Certificate; provided, however, that the Committee may not extend any such
period with respect to any shares of Stock subject to such Option. The Committee
may also, in its discretion, condition the grant of an ISO or a Non-ISO upon the
acceptance by a Key Employee or Key Consultant of one or more modifications to
outstanding options, including but not limited to, forfeiture of all profits if
the Key Employee provides services to a competitor within a reasonable time as
determined in the discretion of the Committee or the improper disclosure of the
Company's confidential or proprietary information.
7.2 $100,000 Limitation. To the extent that the aggregate Fair Market
Value of the stock with respect to which ISOs and other incentive stock options
satisfying the requirements of Section 422 of the Code granted to a Key Employee
under this Plan and under any other stock option plan adopted by the Company, a
Subsidiary or a Parent Corporation first become exercisable in any calendar year
exceeds $100,000 (based upon the Fair Market Value on the date of the grant),
such Options shall be treated as Non-ISOs.
39
Section 8. OPTION PRICE
The Option Price for each share of Stock subject to an ISO shall not be
less than the Fair Market Value of a share of Stock on the date the Option is
granted. If the Option is an ISO and the Key Employee is a Ten Percent
Shareholder, the Option Price for each share of Stock subject to such Option
shall not be less than 110% of the Fair Market Value of a share of Stock on the
date the Option is granted. The Option Price shall be payable in full upon the
exercise of any Option, and an Option Certificate at the discretion of the
Committee (except for an Option granted to a Non-Employee Director) may provide
for the payment of the Option Price either in cash or in Stock acceptable to the
Committee or in any combination of cash and Stock acceptable to the Committee.
Any payment made in Stock shall be treated as equal to the Fair Market Value of
such Stock on the date the properly endorsed certificate for such Stock is
delivered to the Committee.
Section 9. EXERCISE PERIOD
(a) Each Option granted under this Plan shall be exercisable in whole
or in part at such time or times as set forth in the related Option Certificate,
but no Option Certificate shall provide that:
(1) an Option is exercisable before the date such Option is
granted, or
(2) an Option is exercisable after the date which is the tenth
anniversary of the date such Option is granted.
If an option that is an ISO is granted to a Key Employee who is a Ten Percent
Shareholder, the Option Certificate shall provide that the Option is not
exercisable after the expiration of five years from the date the Option is
granted. An Option Certificate may provide for the exercise of an Option after
the employment of a Key Employee or service by a Key Consultant has terminated
for any reason whatsoever, including death or disability. In connection with the
termination for any reason of employment by or service to the Company or any
Subsidiary of any particular holder of any Option, the Committee may, in its
discretion, determine to extend the period during which such Option may be
exercised as provided in the related Option Certificate; provided, however, that
no such extension shall permit an Option to be exercised beyond the date
specified in paragraph (b) of this Section or the date applicable to Options
granted to a Ten Percent Shareholder, as the case may be.
(b) Notwithstanding any other provision of this Section, upon a Change
of Control each Option granted under this Plan prior to such Change of Control
(whether prior to or after the amendment of the Plan to include this provision)
shall immediately become exercisable to the full extent of the original grant
and, in the case an Option held by a Key Employee shall remain exercisable for
three months (or such longer period as specified in the particular Option with
regard to all or any shares of Stock covered by such Option) after any
termination of employment of such Key Employee.
Section 10. TRANSFERABILITY
The Committee or the Designated Committee, as the case may be, shall
impose such restrictions on the transfer of options granted under the Plan as it
may deem advisable, including, without limitation, restrictions deemed necessary
or advisable under applicable federal securities laws, under the requirements of
any stock exchange or market upon which Stock is then listed in or traded, and
under any Blue Sky or state securities laws applicable to such Stock. Upon
request of any person receiving an award of an Option under the Plan, the
Committee may, in its sole and absolute discretion, determine to remove any such
40
transfer restriction originally imposed and may, in connection with the removal
of such transfer restriction, impose such conditions (including restrictions on
further transfers of the Option or upon transfers of the Stock upon exercise of
the Option) as the Committee or the Designated Committee, as the case may be, in
its discretion, may deem advisable, including, without limitation, restrictions
deemed by the Committee or the Designated Committee, as the case may be, to be
necessary or advisable in order to comply with applicable federal and state
securities laws or the requirements of any stock exchange or market upon which
the Stock is then listed or traded. Subject to its authority to impose such
conditions on further transfers, the Committee or the Designated Committee, as
the case may be, shall authorize the transfer of Options for bona fide estate
planning purposes or for contributions to qualified charities or charitable
trusts.
Section 11. SECURITIES REGISTRATION AND RESTRICTIONS
Each Option Certificate shall provide that, upon the receipt of shares
of Stock as a result of the exercise or surrender of an Option, the Key
Employee, Key Consultant or Outside Director shall, if so requested by the
Company, hold such shares of Stock for investment and not with a view toward
resale or distribution to the public and, if so requested by the Company, shall
deliver to the Company a written statement to that effect satisfactory to the
Company. Each Option Certificate shall also provide that, if so requested by the
Company, the Key Employee, Key Consultant or Outside Director shall represent in
writing to the Company that he or she will not sell or offer to sell any such
shares of Stock unless a registration statement shall be in effect with respect
to such Stock under the Securities Act and any applicable state securities law
or unless he or she shall have furnished to the Company an opinion, in form and
substance satisfactory to the Company, of legal counsel acceptable to the
Company, that such registration is not required. Certificates representing the
Stock transferred upon the exercise or surrender of an Option granted under this
Plan may at the discretion of the Company bear a legend to the effect that such
Stock has not been registered under the Securities Act or any applicable state
securities law and that such Stock may not be sold or offered for sale in the
absence of (i) an effective registration statement as to such Stock under the
Securities Act and any applicable state securities law or (ii) an opinion, in
form and substance satisfactory to the Company, of legal counsel acceptable to
the Company, that such registration is not required. Furthermore, the Company
shall have the right to require a Key Employee, Key Consultant or Outside
Director to enter into such stockholder or other related agreements as the
Company deems necessary or appropriate under the circumstances as a condition to
the issuance of any Stock under this Plan to a Key Employee, Key Consultant or
Outside Director.
Section 12. LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier of
(a) the tenth anniversary of the original effective date of
this Plan as determined under Section 4; provided, however, that after
such anniversary date this Plan otherwise shall continue in effect
until all outstanding Options have been exercised in full or no longer
are exercisable, or
(b) the date on which all of the Stock reserved under Section
3 of this Plan has, as a result of the exercise of Options granted
under this Plan, been issued or no longer is available for use under
this Plan, in which event this Plan also shall terminate on such date.
Section 13. ADJUSTMENT
The number of shares of Stock reserved under Section 3 of this Plan,
the number of shares of Stock to be granted from time to time pursuant to
Section 7.3 of this Plan (if permitted by the exemption in Rule 16b-3 under the
Exchange Act or any successor rule), the number of shares of Stock that may be
granted pursuant to Section 5 of this Plan by the Designated Committee to any
single Key Employee or Key Consultant, and the number of shares of Stock subject
to Options granted under this Plan and the Option Price of such Options shall be
adjusted by the Board in an equitable manner to reflect any change in the
capitalization of the Company, including, but not limited to, such changes as
stock dividends or stock splits.
41
Furthermore, the Board shall have the right to
adjust in a manner which satisfies the requirements of Section 424(a) of the
Code the number of shares of Stock reserved under Section 3 of this Plan and the
number of shares subject to Options granted under this Plan and the Option Price
of such Options in the event of any corporate transaction described in Section
424(a) of the Code that provides for the substitution or assumption of such
Options. If any adjustment under this Section 13 would create a fractional share
of Stock or a right to acquire a fractional share of Stock, such fractional
share shall be disregarded and the number of shares of Stock reserved under this
Plan and the number subject to any Options granted under this Plan shall be the
next lower number of shares of Stock, rounding all fractions downward. An
adjustment made under this Section 13 by the Board shall be conclusive and
binding on all affected persons and, further, shall not constitute an increase
in "the number of shares reserved under Section 3" within the meaning of Section
15(a) of this Plan.
Section 14. SALE OR MERGER OF THE COMPANY
If the Company agrees to sell all or substantially all of its assets
for cash or property or for a combination of cash and property or agrees to any
merger, consolidation, reorganization, division or other corporate transaction
in which Stock is converted into another security or into the right to receive
securities or property and such agreement does not provide for the assumption or
substitution of the Options granted under this Plan, each then outstanding
Option, at the direction of the Board, may be canceled unilaterally by the
Company as of the effective date of such transaction in exchange for a payment
in cash or Stock, or in a combination of cash and Stock, equal in amount to the
excess of the Fair Market Value on such date of the shares represented by the
canceled Options over the Option Price for such shares.
Section 15. AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, that no such
amendment shall be made absent the approval of the stockholders of the Company
(a) to increase the aggregate number of shares reserved under Section 3, (b) to
change the class of persons eligible for Options under Section 6 or (c) to
materially modify the requirements as to eligibility for participation in this
Plan, (d) to otherwise materially increase the benefits accruing under this Plan
to Plan participants if such approval would be required in order for the Company
to comply with applicable law or the rules or regulations of any stock exchange
or market on which the Stock is traded or listed. The Board also may suspend the
granting of Options under this Plan at any time and may terminate this Plan at
any time; provided, however, that the Company shall not have the right to
unilaterally cancel or, in a manner which would materially adversely affect the
holder, amend or modify any Option granted before such suspension or termination
unless (i) the Key Employee, Key Consultant or Outside Director previously
consents in writing to such modification, amendment or cancellation or (ii)
there is a dissolution or liquidation of the Company or a transaction described
in Section 13 or Section 14 of this Plan.
It is the intention of the Company that the Plan shall comply with the
conditions of Rule 16b-3 of the Exchange Act, as such Rule may from time to time
be amended. The Board shall have the authority, without the approval of the
stockholders, to amend the Plan from time to time to include any conditions,
terms or other provisions which may be required to be set forth in a plan in
order for transactions by directors or officers to be exempt under Rule 16b-3 of
the Exchange Act or any successor exemption.
Section 16. CHANGE OF CONTROL
Notwithstanding any other provision of the Plan, upon a Change of
Control each Option granted under this Plan prior to such Change of Control
shall immediately become exercisable to the full extent of the original grant
and shall remain exercisable for three months (or such longer period as
specified in the particular Option with regard to all or any shares of Stock
covered by such Option) after (i) any termination of employment of any Key
Employee; or (ii) resignation or removal of any Outside Director from the
Company's Board of Directors.
42
Section 17. MISCELLANEOUS
17.1 No Stockholder Rights. No Key Employee, Key Consultant or Outside
Director shall have any rights as a stockholder of the Company as a result of
the grant of an Option to him or to her under this Plan or his or her exercise
or surrender of such Option pending the actual delivery of Stock subject to such
Option to such Key Employee, Key Consultant or Non-Employee Director.
17.2 No Contract of Employment. The grant of an Option to a Key
Employee, Key Consultant or Outside Director under this Plan shall not
constitute a contract of employment or consulting or right to continue to serve
on the Company's Board of Directors and shall not confer on a Key Employee, Key
Consultant or Outside Director any rights upon his or her termination of
employment or service in addition to those rights, if any, expressly set forth
in the Option Certificate which evidences his or her Option.
17.3 Withholding. The exercise or surrender of any Option granted under
this Plan shall constitute a Key Employee's full and complete consent to
whatever action the Committee elects to satisfy the federal and state tax
withholding requirements, if any, which the Committee in its discretion deems
applicable to such exercise or surrender.
17.4 Construction. This Plan and the Option Certificates shall be
construed under the laws of the State of Florida
17.5. Indemnification. In addition to such other rights of
indemnification as they may have as directors or as members of the Committee or
the Designated Committee, the members of the Committee and the Designated
Committee shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and reasonably incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken by them as directors or members of the Committee and the Designated
Committee and against all amounts paid by them in settlement thereof (provided
such settlement is approved by the Board) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that the
director or Committee or Designated Committee member is liable for gross
negligence or willful misconduct in the performance of his or her duties. To
receive such indemnification, a director or Committee or Designated Committee
member must first offer in writing to the Company the opportunity, at its own
expense, to defend any such action, suit or proceeding.
The Company, the Board, the Committee, and the Designated Committee
shall not be required to give any security or bond for the performance of any
obligation that may be created by the Plan.
17.6 Governing Law. All rights and obligations under the Plan shall be
constructed and interpreted with the laws of the State of New York, without
giving effect to the principles of conflict of laws.
43
Exhibit B
The text of the two deleted sections and the
altered section are set forth below. All
other provisions are unchanged.
(Deletions are struck through, additions are underlined)
Section 3(a) is proposed to be amended as follows:
"(a) Number of Shares of Common Stock: One (1) share of Common Stock
shall be issued for every four ($4) two ($2) dollars of stated value of
the Class B Preferred (the "Conversion Price")."
Sections 2 and 3(f) of ARTICLE IV-STOCK are proposed to be eliminated in their
entirety. The text to be deleted is set forth in full below:
"2. Each share of Class B Preferred Stock shall be entitled to receive
an annual dividend on December 31 of each year equal to five (5%)
percent of the per share stated value. If a dividend is not paid when
due, it shall accumulate until paid or otherwise satisfied. The Company
may, in its sole discretion, pay any current or accumulated dividend by
issuing to the holders of the Class B Preferred the number of shares of
Common Stock equal in value to the amount of unpaid dividends. For the
purposes of calculating the number of shares of Common Stock to be
issued, the Common Stock shall be valued at the average of the closing
bid and asked prices on the last 30 trading days before December 31 or,
if the dividend is not timely paid, on the 30 trading days ending five
(5) days before the dividend is paid."
"3(f) Adjustment of Conversion Price: The Conversion Price
shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
(1) Reclassification, Consolidation or
Merger or Share Issuances. In case of any
reclassification or change of the outstanding Common
Stock issuable upon conversion of Class B Preferred
(other than a change in par value, or from par value
to no par value, or from no par value to par value,
or as a result of subdivision or combination), or in
case of any consolidation or merger of the Company
with or into another corporation (other than a merger
with another Company in which the Company is the
surviving Company and which does not result in any
reclassification or change -- other than a change in
par value, or from par value to no par value, or from
no par value to par value, or as a result of a
subdivision or combination -- of the outstanding
Common Stock issuable upon the conversion), or
certain issuances of any shares of Common Stock for
consideration less than the Conversion Price, the
rights of the holders of the outstanding Class B
Preferred shall be adjusted in the manner described
below:
(a) If the Company is the surviving Company, the
Class B Preferred shall, without payment of
additional consideration therefore, be
deemed modified so as to provide that upon
conversion thereof the holder of the Class B
Preferred being converted shall be entitled
to receive, in lieu of each share of Common
Stock theretofore issuable upon conversion,
the kind and amount of shares of stock,
other securities, money and property
receivable upon the reclassification,
change, consolidation, or merger by the
holder of one share of Common Stock issuable
upon conversion of the Class B Preferred had
the conversion occurred immediately prior to
the reclassification, change, consolidation,
or merger. The Class B Preferred shall be
deemed thereafter to provide for adjustments
that shall be as nearly equivalent as may be
practicable to the adjustments provided for
in this Section 3(f). The provisions of this
clause (a) shall apply in the same manner to
successive reclassifications, changes,
consolidations, and mergers.
44
(b) In the event that the Company is not the
surviving Company, the surviving corporation
shall, without receipt of any additional
consideration therefore, issue a new Class B
Preferred providing that upon conversion
thereof, the holder thereof shall be
entitled to receive, in lieu of each share
of Common Stock theretofore issuable upon
conversion of the Class B Preferred, the
kind and amount of shares of stock, other
securities, money, and property receivable
upon the reclassification, change,
consolidation, or merger by the holder of
one share of Company Common Stock issuable
upon conversion of the Class B Preferred had
the conversion occurred immediately prior to
the reclassification, change, consolidation,
or merger. The new Class B Preferred shall
provide for adjustments that shall be as
nearly equivalent as may be practicable to
the adjustments provided for in this Section
3(f). The provisions of this clause (b)
shall apply in the same manner to successive
reclassifications, changes, consolidations
and mergers.
(c) Issuance of Common Stock. If the Company
shall issue any shares of Common Stock (or
any security convertible into or
exchangeable for shares of Common Stock)
other than Excluded Stock (as defined below)
without consideration or for a consideration
per share less than the Conversion Price,
the Conversion Price shall be adjusted, as
of the date of such issuance, to that price
determined by multiplying the Conversion
Price theretofore in effect by a fraction
(1) the numerator of which shall be the
total number of shares of Common Stock
outstanding on a fully-diluted basis
immediately prior to such issuance and (2)
the denominator of which shall be the total
number of shares of Common Stock outstanding
on a fully-diluted basis immediately after
such issuance of Common Stock. "Excluded
Stock" means (i) shares of Common Stock
issuable upon conversion of Class B
Preferred Stock as contemplated by Section
3(a) hereof and (ii) the shares of Common
Stock issuable under the terms of those
certain September 30, 2001 promissory notes
(all as adjusted equitably for stock
dividends, stock splits and combinations,
and shall include any additional shares of
Common Stock as may be issued by virtue of
applicable anti-dilution provisions).
(2) Subdivision or Combination of Shares. If the
Company, at any time while any of the Class B Preferred is
outstanding, shall subdivide or combine its Common Stock, the
Conversion Price (i) shall be proportionately reduced, in case
of subdivision of shares, as of the effective date of the
subdivision, or (ii) shall be proportionately increased, in
the case of combination of shares, as of the effective date of
the combination.
(3) Certain Dividends or Distributions. While any of
the Class B Preferred is outstanding, the following shall
apply:
(a) Stock Dividends. If the Company shall pay a
dividend payable in Common Stock, effect a stock
split or make any other distribution of Common Stock
in respect of its Common Stock, the Conversion Price
shall be adjusted, as of the date of the payment or
other distribution, to that price determined by
multiplying the Conversion Price theretofore in
effect by a fraction (1) the numerator of which
45
shall be the total number of shares of Common Stock
outstanding immediately prior to dividend, stock
split, or distribution and (2) the denominator of
which shall be the total number of shares of Common
Stock outstanding immediately after the dividend,
stock split, or distribution (plus, in the event that
the Company paid cash for fractional shares, the
number of additional shares which would have been
outstanding had the Company issued fractional shares
in connection with said dividend, stock split, or
distribution).
(b) Liquidating Dividends etc. If the Company shall
make a distribution of its property to the holders of
its Common Stock (other than a distribution in
accordance with Section 6) as a dividend in
liquidation or partial liquidation or by way of
return of capital or other than as a dividend payable
out of funds legally available for dividends under
the Articles of Incorporation and the laws of the
State of Utah, the holders of the Class B Preferred
shall, upon conversion thereof, be entitled to
receive, in addition to the number of shares of
Common Stock receivable thereupon, and without
payment of any consideration therefore, a sum equal
to the amount of any property as would have been
payable to them as owners of that number of shares of
Common Stock of the Company receivable upon the
conversion, had they been the holders of record of
Common Stock on the record date for the distribution
and an appropriate provision therefore shall be made
a part of any distribution.
(4) Notice of Adjustments. Whenever the Conversion
Price shall be adjusted pursuant to section 3(f) hereof, the
Company shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer,
Secretary, or Assistant Secretary, setting forth, in
reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which the adjustment
was calculated (including a description of the basis on which
the Board of Directors made any determination hereunder), and
the Conversion Price after giving effect to the adjustment,
and shall cause copies of the certificate to be mailed (by
first-class mail, postage prepaid) to each holder of Class B
Preferred at its address shown on the books of the Company.
The Company shall make a certificate and mail it to each
holder promptly after each adjustment."