SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
[ ] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
PARADIGM ADVANCED TECHNOLOGIES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which 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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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PARADIGM ADVANCED TECHNOLOGIES, INC.
30 LEEK CRESENT, SUITE 103
RICHMOND HILL, ONTARIO L4B 4N4
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
__________, 2002
Dear Paradigm Stockholder:
You are cordially invited to attend the 2002 annual meeting of the
stockholders of Paradigm Advanced Technologies, Inc. The annual meeting will be
held at __________ on __________, commencing at 10:00 a.m., Eastern Daylight
Time. I look forward to meeting with as many of our stockholders as possible.
At the meeting, you will vote upon the election of our Board of
Directors, the ratification of Schwartz Levitsky Feldman LLP as auditors of
Paradigm and the approval of our Amended and Restated 2001 Stock Option Plan.
There will also be a report on our business, and you will have the opportunity
to ask questions about Paradigm. In addition, we will attend to any other
business properly brought before the meeting.
We have attached a proxy statement that contains more information about
these items and the meeting. Stockholders that own stock at the close of
business on __________, 2002, can vote at the meeting. A list of our
stockholders allowed to vote will be available for inspection by any stockholder
at our offices in Richmond Hill during normal business hours, for the ten
business days prior to the meeting. This list will also be available during the
meeting.
We hope that you will find it convenient to attend the meeting in
person. WHETHER OR NOT YOU EXPECT TO ATTEND, PLEASE COMPLETE, DATE, SIGN, AND
MAIL THE ENCLOSED PROXY TO ENSURE YOUR REPRESENTATION AT THE MEETING AND THE
PRESENCE OF A QUORUM. If your address on our stockholder list is in the United
States, a return envelope is provided and no postage need be affixed to the
proxy if it is mailed in the United States. If you mail the proxy from locations
other than in the United States, you must affix the appropriate postage when you
mail your proxy. IF YOU DECIDE TO ATTEND THE MEETING AND WISH TO CHANGE YOUR
PROXY VOTE, YOU MAY DO SO BY VOTING IN PERSON AT THE MEETING.
By Order of the Board of Directors,
/s/ Gordon Sharwood
GORDON SHARWOOD
Chairman
Richmond Hill, Ontario, Canada
__________, 2002
This proxy statement is dated __________, 2002 and was first
mailed to stockholders on __________, 2002.
TABLE OF CONTENTS
Information Concerning Solicitation and Voting 1
Questions and Answers About the Meeting and Voting 1
PROPOSAL 1. ELECTION OF DIRECTORS 3
Nominees and Business Experience 3
PROPOSAL 2. APPROVAL OF THE AMENDED AND RESTATED 2001 STOCK OPTION PLAN 3
Background 4
Summary of the Plan 4
Options 7
United States Federal Income Tax Consequences 9
Canadian Federal Income Tax Consequences 10
PROPOSAL 3. RATIFICATION OF APPOINTMENT OF AUDITORS 11
Compensation and Other Information Concerning Directors and Executive Officers 12
Biographical Information 12
Meetings and Committees of the Board of Directors 13
Director Compensation 13
Executive Compensation 14
Option and Warrant Grants in 2001 14
Aggregated Option Exercises in 2001 and Option Values in 2001 16
Compensation Committee Interlocks and Insider Participation 17
Employment and Consulting Agreements 18
Equity Compensation Plan Information 18
Certain Relationships and Related Transactions 20
Comparative Stock Performance Graph 21
Security Ownership of Certain Beneficial Owners and Management 21
Compensation Committee Report on Executive Compensation 23
Audit Committee Report 25
Section 16(a) Beneficial Ownership Reporting Compliance 26
Independent Auditors 26
Expenses of Solicitation 26
Stockholder Proposals for the 2003 Annual Meeting 26
Miscellaneous 26
PROXY STATEMENT
PARADIGM ADVANCED TECHNOLOGIES, INC.
30 LEEK CRESCENT, SUITE 103
RICHMOND HILL, ONTARIO, CANADA L4B 4N4
(905) 764-3701
INFORMATION CONCERNING SOLICITATION AND VOTING
This proxy statement is being furnished in connection with the
solicitation of proxies by and on behalf of our board of directors to be used at
our annual meeting of stockholders to be held on __________, 2002, and at any
adjournment of the annual meeting, for the purposes set forth in the
accompanying notice of annual meeting. Our annual report for the year ended
December 31, 2001 accompanies this proxy statement. This proxy statement and
accompanying materials are expected to be first sent or given to our
stockholders on or about __________, 2002.
We have fixed the close of business on __________, 2002 as the record
date for the determination of the stockholders entitled to notice of and to vote
at the annual meeting. Only holders of record of shares of our common stock on
that date are entitled to notice of and to vote at the annual meeting. Each
share of our common stock entitles the holder to one vote on each matter
presented to stockholders for approval at the annual meeting. On __________,
2002, there were __________ shares of our common stock outstanding.
QUESTIONS AND ANSWERS ABOUT THE Meeting AND VOTING
1. What is a proxy?
A proxy is your legal designation of another person to vote the stock
you own. That other person is called a proxy. If you designate someone as your
proxy in a written document, that document also is called a proxy or a proxy
card. Our Chairman of the Board, Gordon Sharwood and our Chief Executive
Officer, Eduardo Guendelman have been designated the Proxies for the 2002 annual
meeting.
2. What is a proxy statement?
A proxy statement is a document that Securities and Exchange Commission
regulations require us to give you when we ask you to sign a proxy card.
3. What different methods can you use to vote?
Stockholders can vote by written proxy card in person at the meeting
(unless they are street name holders without a legal proxy).
4. What is the record date and what does it mean?
The record date for the 2002 annual meeting is __________, 2002. The
record date is established by our board of directors as required by Delaware
law. Only owners of common stock at the close of business on the record date are
entitled to receive notice of the meeting and to vote at the meeting and any
adjournments or postponements of the meeting.
5. How can you revoke a proxy?
A stockholder can revoke a proxy by giving written notice to our
secretary, delivering a later-dated proxy, or voting in person at the meeting.
Attendance at the annual meeting will not, by itself, constitute revocation of a
proxy.
6. What are your voting choices when voting for director nominees, and
what vote is needed to elect directors?
In voting on the election of director nominees to serve until the 2003
annual meeting, stockholders may vote in favor of all nominees, may withhold
votes as to all nominees, or may withhold votes as to specific nominees. The
election of each nominee requires the affirmative vote of a majority of the
common stock voted in person or by proxy at the annual meeting. The board
recommends a vote "FOR" each of the nominees.
7. What are your voting choices when voting on the Amended and Restated
2001 Stock Option Plan?
In voting on the 2001 Amended and Restated Stock Option Plan,
stockholders may vote in favor of approving or against approving the plan, or
may abstain from voting on the plan. The proposal to approve the plan will
require approval by a majority of the votes cast by the holders of the shares of
common stock voting in person or by proxy at the meeting. If the plan is not
approved by a majority of the votes cast by holders of the shares of common
stock, the plan will remain effective and all options currently granted under
the plan will remain outstanding and exercisable for common stock, but the
company will be unable to grant "incentive stock options" as defined in the
United States Internal Revenue Code. Additionally, if the plan is not approved
by a majority of votes cast by holders of the shares of common stock, other than
those votes attaching to shares of common stock beneficially owned by directors
and senior officers of Paradigm and certain persons and entities related to them
as defined under applicable Ontario securities law, the company will be unable
to grant options under the plan in compliance with applicable Ontario securities
law. The board recommends a vote "FOR" this proposal.
8. What are your voting choices when voting on the ratification of
Schwartz Levitsky Feldman LLP as our conditions?
In voting on the ratification of Schwartz Levitsky Feldman LLP as our
auditors, stockholders may vote in favor of ratification, may vote against
ratification or may abstain from voting. The ratification of Schwartz Levitsky
Feldman LLP requires approval by a majority of the votes cast by the holders of
the shares of Common Stock voting in person or by proxy at the meeting. The
board recommends a vote "FOR" this proposal.
9. What if a stockholder does not specify a choice for a matter when
returning a proxy?
Stockholders should specify their choice for each matter on the
enclosed form of proxy. If no instructions are given, proxies which are signed
and returned will be voted FOR the election of all director nominees, FOR the
approval of the Amended and Restated 2001 Stock Option Plan, and FOR the
ratification of Schwartz Levitsky Feldman LLP as our auditors.
10. How are abstentions and broker non-votes counted?
Broker non-votes will not be included in vote totals and will not
affect the outcome of the vote. In all matters other than the election of
directors, abstentions will have the same effect as a vote against a specified
proposal.
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PROPOSAL 1. ELECTION OF DIRECTORS
Our board of directors is currently composed of three members. The
names of the three nominees for election as directors are set forth below. All
directors are elected annually and serve a one-year term until the next annual
meeting or until their respective successors are duly elected and qualified. All
of the nominees listed below are expected to serve as directors if they are
elected. If any nominee should decline or be unable to accept such nomination or
to serve as a director, an event which our board of directors does not now
expect, our board of directors reserves the right to nominate another person or
to vote to reduce the size of our board of directors. If another person is
nominated, the proxy holder intends to vote the shares to which the proxy
relates for the election of the person nominated by our board of directors.
NOMINEES AND BUSINESS EXPERIENCE
NAME AGE POSITION(S)
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Gordon Sharwood 70 Chairman of the Board, Director
Eduardo Guendelman 49 President, Chief Executive Officer and Director
David Ghermezian 29 Director
Gordon Sharwood has served as Chairman of our board of directors since
March 2002 and has been a director since September 2001. Mr. Sharwood has served
as Chairman of Sharwood Inc., an investment banking firm, since founding its
predecessor in 1976. Mr. Sharwood is also a director of a number of Canadian
public companies. Mr. Sharwood holds a B.A. from McGill University, a B.A. and a
M.A. from Oxford University in England as well as a P.M.D. from Harvard
University.
Eduardo Guendelman has served as a director and as President and Chief
Executive Officer since joining Paradigm in July 2000 following Paradigm's
acquisition of PowerLOC Technologies, Inc. and Power Point Microsystems, Inc.
Mr. Guendelman founded both these companies in 1992 and served as their
President from 1992 to 2000. Mr. Guendelman holds a B.Sc. in electrical
engineering.
David Ghermezian has served as a director since June 2000. Mr.
Ghermezian has served as Vice President of Triple Five Group of Companies with
responsibility for the real estate activities in the western United States
including management of the San Jose, Seattle and Phoenix offices since 1996.
Triple Five owns substantial shopping malls and has extensive investments in
commercial and residential developments throughout North America. Mr. Ghermezian
has directed Triple Five's diversification efforts into venture capital and
technology.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES TO THE
BOARD OF DIRECTORS.
PROPOSAL 2. APPROVAL OF THE AMENDED AND RESTATED 2001 STOCK OPTION PLAN
The Paradigm Advanced Technologies, Inc. Amended and Restated 2001
Stock Option Plan (the "Plan") was adopted by our board of directors on
September 21, 2001, and amended and restated in its entirety on April 29, 2002.
The Plan authorizes 40,000,000 shares of our Common Stock for issuance, and
requires us to present the Plan to the stockholders of the Company for approval.
If the stockholders approve the Plan at our annual meeting, the Company will be
able to issue incentive stock options that will meet the requirements of Section
422 of the United States Internal Revenue Code of 1986, as amended, which will
provide our employees with certain tax benefits. If the plan is not approved by
a majority of the votes cast by holders of the shares of common stock, the plan
will remain effective and all options currently granted under the plan will
remain outstanding and exercisable for common stock, but the company will be
unable to grant "incentive stock options" as defined in the United States
Internal Revenue Code.
Additionally, if the Plan is not approved by a majority of votes cast
by holders of the shares of common stock, other than those votes attaching to
shares of common stock beneficially owned by directors and senior officers of
Paradigm and certain persons and entities related to them as defined under
applicable Ontario securities
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law, the company will be unable to grant options under the plan in compliance
with applicable Ontario securities law. The number of votes attaching to the
shares of common stock which will not be counted for the purposes of determining
whether the required level of shareholder approval has been attained is
_______________.
BACKGROUND AND PURPOSE OF THE PLAN
The purpose of the Plan is to promote our interests and our
stockholders' interests by aiding us in attracting and retaining employees,
officers, consultants, members of our advisory board, independent contractors
and directors capable of assuring our future success, to offer these persons
incentives to put forth maximum efforts for the success of our business and to
afford these persons an opportunity to acquire a proprietary interest in us. As
of __________, 2002, ________ shares were subject to issuance in connection with
outstanding options issued under the Plan, and ________ shares remained
available for issuance in connection with future options.
SUMMARY OF THE PLAN
PERSONS ELIGIBLE TO PARTICIPATE IN THE PLAN
Any employee, officer, consultant, member of our advisory board,
independent contractor or director providing services to us or any of our
affiliates is eligible to receive options under the Plan. An "affiliate" is any
entity that is directly or indirectly controlled by us and any entity in which
we have a significant equity interest, in each case as determined by the
committee. We currently have approximately __________ eligible participants in
the Plan.
In determining which eligible persons shall receive an option and the
terms of any option, the committee administering the Plan may take into account
the nature of the services provided by the eligible persons, their present and
potential contributions to our success, and such other factors as the committee,
in its discretion, shall deem relevant, provided, however, an incentive stock
option shall only be granted to our full- or part-time employees (including
officers and employee directors) or an affiliate's full- or part-time employees
(assuming the affiliate is a subsidiary corporation under the applicable U.S.
tax laws).
No eligible person, participant or other person shall have any claim to
be granted any option under the Plan. The committee administering the Plan has
no obligation to treat uniformly eligible persons, participants or holders or
beneficiaries of options under the Plan.
The grant of an option will not be construed as giving a participant
the right to be employed by us or by any of our affiliates, nor will it affect
our right or our affiliates' rights to terminate such employment at any time,
with or without cause. We or any of our affiliates may at any time dismiss a
participant from employment free from any liability or any claim under the Plan
or any option, unless otherwise expressly provided in the Plan or in any option
agreement. Nothing in the Plan shall confer any legal or equitable right,
directly or indirectly, or give rise to any cause of action at law or in equity
against us or any of our affiliates. The options granted under the Plan shall
not form any part of the wages or salary of an eligible person for purposes of
severance pay or termination indemnities, irrespective of the reason for
termination of employment. Under no circumstances shall any person ceasing to be
an employee of us or any of our affiliates be entitled to any compensation for
any loss of any right or benefit under the Plan which the employee might
otherwise have enjoyed but for the termination, whether the compensation is
claimed by way of damages for wrongful or unfair dismissal, breach of contract
or otherwise. By participating in the Plan, each participant shall be deemed to
have accepted and be fully bound by all the conditions of the Plan and the terms
and conditions of any rules and regulations adopted by the committee.
NEW PLAN BENEFITS
AMENDED AND RESTATED 2001 STOCK OPTION PLAN
Name and Position Dollar Value ($)(1) Number of Shares
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Eduardo Guendelman, President and
Chief Executive Officer 27,741 130,000
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AMENDED AND RESTATED 2001 STOCK OPTION PLAN
Name and Position Dollar Value ($)(1) Number of Shares
- ----------------- ------------------- ----------------
David Kerzner, Former Chairman
and Chief Executive Officer 691,847 4,108,333
Ron Yekutiel, General Manager,
Destinator Products Division 176,439 826,818
Shay David, Vice President, 138,124 647,273
Business Development,
Destinator Division
All executive officers as a group 1,183,136 7,310,274
All directors who are not executive officers
as a group 74,649 400,000
All employees, including officers who are not
executive officers, as a group 3,043,265 7,945,859
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(1) We used the Black-Scholes option-pricing model to determine the grant
date present value of the options set forth in this table. The
following facts and assumptions were used in calculating grant date
present value: exercise prices as indicated in the table above, fair
market value of each option on the date of grant based on the best
information available, a dividend yield of 0.0%, an expected stock
option term of 1 to 4 years, and a stock price volatility of 100% based
on the market performance of the stock of similar companies. We used an
assumed risk-free interest rate in our calculations equivalent to the
yield of a zero-coupon, ten-year Treasury bond on the date of the
grants. The risk-free interest rate was 2.17% to 3.59%. No other
discounts or restrictions related to vesting or the likelihood of
vesting of the stock options were applied.
TERM OF THE PLAN AND AMENDMENTS TO THE PLAN
The Plan was adopted by our board of directors on September 21, 2001
and amended and restated on April 29, 2002. Our board of directors may amend,
alter, suspend, discontinue or terminate the Plan at any time; provided,
however, that the board will not take any of these actions without the approval
of our stockholders that would (i) violate the rules or regulations of the
NASDAQ National Market System or any other applicable securities exchange or
(ii) cause us to be unable to grant incentive stock options.
No option will be granted after September 21, 2011 or any earlier
discontinuation or termination of the Plan. Unless otherwise expressly provided
in the Plan or in an option agreement, any option granted may extend beyond the
termination of the Plan, and the authority of the committee to administer the
Plan and the board to amend the Plan will extend beyond the termination of the
Plan.
OPTIONS GRANTED TO CANADIAN RESIDENT PARTICIPANTS
When the participant is an employee, officer or director who is
resident in Canada within the meaning of the Income Tax Act (Canada), the
following conditions shall apply:
o The sole form in which payment of the exercise price may be
made shall be cash, certified check or bank cashier's check
payable to us;
o The sole form in which payment may be made by us to the
Canadian participant shall be shares of Common Stock;
o A Canadian participant shall not be permitted to satisfy any
tax withholding obligations relating to the exercise of an
option by delivering (or electing to have us withhold a
portion of) shares of Common Stock;
o The purchase price shall not be less than 100% of the fair
market value of a share of Common Stock on the date of grant
of such Option (except where the committee has authorized a
lower amount and the Canadian participant has acknowledge in
writing that such lower amount may result in adverse tax
consequences); and
o With respect to any shares of Common Stock acquired by a
Canadian participant, no undertaking shall be given by us, any
of our affiliates or any partnership or trust of which we or
any of our affiliates is a member or beneficiary and no
agreement shall be entered by any such person with a Canadian
participant, including any agreement or undertaking relating
to the redemption, acquisition or cancellation of the shares
of Common Stock or the reduction of the Company's paid-up
capital.
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SHARES AVAILABLE UNDER THE PLAN
The shares available for options under the Plan will be authorized but
unissued shares of our Common Stock or shares that were previously acquired by
us in the open market or otherwise. The maximum number of shares available for
granting options under the Plan shall be 40,000,000, which number may be
adjusted to reflect any stock dividends, stock splits or other similar changes
as the committee deems equitable. If any shares covered by an option are not
purchased or are forfeited, or an option terminates without delivery of any
shares, then those shares will again be available for grants under the Plan. No
person shall be granted options for more than 10,000,000 shares of our common
stock in the aggregate in any calendar year.
If an option under the Plan entitles the holder to receive or purchase
shares, the number of shares covered by the option will be counted on the date
of grant of the option against the aggregate number of shares available for
granting.
ADMINISTRATION OF THE PLAN
The Plan is administered by a committee of directors designated by the
board of directors. The committee shall be comprised of at least that number of
directors as are required to permit the options granted under the Plan to
qualify under Rule 16b-3 of the Securities and Exchange Act of 1934, as amended,
and each member shall be a "non-employee director" within the meaning of Rule
16b-3 and an "outside director" within the meaning of section 162(m) of the
Internal Revenue Code. The committee has the authority to:
o designate participants;
o determine the type of option to be granted to each participant
under the Plan;
o determine the number of shares to be covered by (or the method
by which payments or other rights are to be calculated in
connection with) each option;
o determine the terms and conditions of any option or option
agreement;
o amend the terms and conditions of any option or option
agreement (including accelerate the exercisability of any
option or the lapse of restrictions relating to any option),
provided, however, that the amendment does not adversely
affect the rights of the recipient of the option;
o determine whether, to what extent and under what circumstances
options may be exercised in cash, shares, promissory notes,
other securities or other property or cancelled, forfeited or
suspended;
o determine whether, to what extent and under what circumstances
cash, shares, promissory notes, other securities, other
options, other property and other amounts payable with respect
to an option under the Plan will be deferred either
automatically or at the election of the recipient or the
committee;
o interpret and administer the Plan and any instrument or
agreement, including any option agreement, relating to the
Plan;
o establish, amend, suspend or waive such rules and regulations
and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and
o make any other determination and take any other action that
the committee deems necessary or desirable for the
administration of the Plan.
Unless otherwise provided in the Plan, determinations and interpretations under
or with respect to the Plan or any option under the Plan are within the sole
discretion of the committee and will be binding on any participant, holder
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or beneficiary of an option and any employee of us or our affiliates.
The committee may delegate its powers and duties to one or more
directors (including a committee of directors or officers) or officers, subject
to such terms, conditions and limitations as the committee establishes in its
sole discretion, provided, however, the committee will not delegate its powers
and duties:
o with respect to options to be granted to our (or our
affiliates') officers or directors in such a manner as to
violate Section 16 of the Exchange Act of 1934, as amended
(which provides for certain officer and director reporting
requirements and trading restrictions) or Section 162(m) of
the Internal Revenue Code (which provides for the
deductibility of certain payments to our officers); or
o in such a manner as would cause our options not to comply with
the requirements of Section 157 of the Delaware General
Corporation Law (which provides for corporate procedures that
must be taken when we issue options).
The board of directors may at any time, and without further action of the
committee, exercise the powers and duties of the committee.
OPTIONS
TYPES OF OPTIONS
The Plan permits the granting of stock options, including options
intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code.
Stock Options. The committee may grant stock options under the Plan and
set their terms, including the number of stock options granted, the exercise
price of the stock options, the vesting schedule applicable to such stock
options, the period during which they can be exercised and the form of payment
to be made upon exercise, which may include, without limitation, cash, common
stock, promissory note, other securities, other options or other property, or
any combination thereof.
Incentive Stock Options. The committee may also grant stock options
that are intended to be treated as incentive stock options under Section 422 of
the Internal Revenue Code. Incentive stock options will have the following terms
and conditions:
o The aggregate fair market value (determined as of the time the
option is granted) of the shares with respect to which
incentive stock options are exercisable for the first time by
any participant during any calendar year (including those
issued under this Plan, all of our other plans and under plans
of our affiliates) shall not exceed $100,000.
o All incentive stock options must be granted by September 21,
2011.
o Unless sooner exercised, all incentive stock options shall
expire and no longer be exercisable no later than 10 years
after the date of grant; provided, however, that in the case
of a grant of an incentive stock option to a participant who,
at the time such option is granted, owns (within the meaning
of Section 422 of the Internal Revenue Code) stock possessing
more than 10% of the total combined voting power of all
classes of our stock or of our affiliates' stock, the
incentive stock option shall expire and no longer be
exercisable no later than 5 years from the date of grant.
o The purchase price per share for an incentive stock option
shall be not less than 100% of the fair market value of a
share on the date of grant of the option; provided, however,
that, in the case of the grant of an incentive stock option to
a participant who, at the time such option is granted, owns
(within the meaning of Section 422 of the Internal Revenue
Code) stock possessing more than 10% of the total combined
voting power of all classes of our stock or of our affiliates'
stock, the
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purchase price per share purchasable under an incentive stock
option shall be not less than 110% of the fair market value of
a share on its date of grant.
o Any incentive stock option authorized under the Plan may
contain such other provisions as the committee may deem
advisable, but shall in all events be consistent with and
contain all provisions required in order to qualify the option
as an incentive stock option.
In addition, the Plan is to be submitted to our stockholders within one year
after its adoption by the Board. In the event the Plan fails to be approved by
our stockholders or is not submitted to our stockholders within one year after
its adoption, all of the options granted as incentive stock options shall
instead be deemed, pursuant to the terms of the Plan, to be non-incentive stock
options issued under the Plan.
RESTRICTIONS ON TRANSFER
No option shall be transferable otherwise than by will or by the laws
of descent and distribution; provided, however, that, if so determined by the
committee, a participant may, in the manner established by the committee,
designate a beneficiary or beneficiaries to exercise the option and receive any
property distributable with respect to the option upon the death of the
participant. Notwithstanding this, but always subject to the terms of the
applicable stock option agreement, a participant may transfer an option (that is
not an incentive stock option) to any "family member" (as the phrase is defined
in the applicable regulations relating to the form S-8 registration statement
upon which the options have been registered) at any time, provided that the
transfer may not be for value, the family member may not make any subsequent
transfers other than by will or by the laws of descent and distribution and we
receive written notice of the transfer. Such transfer rights with respect to
Ontario resident optionholders may be modified by the applicable stock option
agreements in order to comply with Ontario securities law. No option or right
under any such option may be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or encumbrance
thereof shall be void and unenforceable against us or our affiliates.
All shares or other securities delivered under the Plan pursuant to the
exercise of any option shall be subject to such restrictions as the committee
may deem advisable under the Plan, applicable federal, state or province
securities laws and regulatory requirements, and the committee may cause
appropriate entries to be made or legends to be placed on the certificates for
such shares or other securities to reflect such restrictions. If our shares or
our other securities are traded on a securities exchange, we shall not be
required to deliver any shares or other securities covered by an option unless
and until these shares or other securities have been admitted for trading on the
securities exchange.
Shares shall not be issued pursuant to the exercise of an option unless
the exercise and delivery shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act of 1934, as amended, the applicable rules and regulations, the
requirements of any applicable Stock Exchange and the Delaware General
Corporation Law. As a condition to the exercise of an option, we may require the
person exercising the option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel, such a representation is required by law.
AMENDMENTS TO OPTIONS AND PLAN INCONSISTENCIES
Subject to the provisions of the Plan, the committee may waive any
conditions of or our rights under any outstanding option, prospectively or
retroactively. Except as otherwise provided in the Plan or an option agreement,
the committee may not amend, alter, suspend, discontinue or terminate any
outstanding option prospectively or retroactively without the consent from the
participant, holder or beneficiary of the option if such action would adversely
affect the rights of the holder of the option. The committee also may correct
any defect, supply any omission or reconcile any inconsistency in any option, or
in the Plan, that the committee deems desirable to carry the Plan into effect.
ADJUSTMENTS TO OPTIONS
-8-
If the committee determines that any event affecting our securities,
including but not limited to the events listed below, would result in the
dilution or enlargement of any of the benefits or potential benefits intended to
be made available under the Plan, the committee will, in a manner it deems
equitable, adjust any or all of:
o the number and type of shares (or other securities or other
property) that may be made the subject of options;
o the number and type of shares (or other securities or other
property) subject to outstanding options; and
o the purchase or exercise price with respect to any option.
Notwithstanding any adjustments the committee makes, the number of shares of
common stock covered by any option or to which an option relates always must be
a whole number. Events affecting the shares of common stock may include:
o a dividend or other distribution (whether in cash, shares,
other securities or other property);
o a recapitalization;
o a stock split or reverse stock split;
o a reorganization, merger, consolidation, split-up, spin-off or
business combination;
o a repurchase or exchange of shares of our common stock or our
other securities;
o the issuance of warrants or other rights to purchase shares of
our common stock or our other securities; or
o any other similar corporate transaction or event.
OPTION AGREEMENTS
No participant will have rights under an option until an option
agreement is executed on our behalf and, if we request, signed by the holder and
delivered to us. In the event there are conflicts between the option agreement
and the Plan, the terms of the Plan shall control.
GOVERNING LAW
The validity, construction and effect of the Plan or any option, and
any rules and regulations relating to the Plan or any option, shall be
determined in accordance with the internal laws, and not the law of conflicts,
of the state of Delaware.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal
income tax consequences generally applicable to options granted under the Plan.
The summary is based on a number of assumptions, and is not intended to
constitute a complete analysis of all United States federal income tax
consequences, and should not be interpreted as legal or tax advice to any
particular employee or consultant.
The grant of an option is not expected to result in any taxable income
for the recipient. The holder of an incentive stock option generally will have
no taxable income upon the exercise of an incentive stock option (except that a
liability may arise pursuant to the alternative minimum tax), and we will not be
entitled to a tax deduction when an incentive stock option is exercised. Upon
exercise of a nonqualified stock option, the optionee must
-9-
recognize ordinary income equal to the excess of the fair market value of the
shares of Common Stock acquired on the date of exercise over the exercise price,
and we will be entitled at that time to a tax deduction for the same amount.
The tax consequence to an optionee upon a disposition of shares
acquired through the exercise of an option will depend on how long the shares
have been held and whether such shares were acquired by exercising an incentive
stock option or by exercising a nonqualified stock option. Generally, there will
be no tax consequence to us in connection with disposition of shares acquired
upon exercise of an option, except that we may be entitled to a tax deduction in
the case of a disposition of shares acquired upon exercise of an incentive stock
option before the applicable holding periods set forth in the Internal Revenue
Code have been satisfied.
Special rules may apply in the case of individuals subject to Section
16 of the Securities Exchange Act of 1934. In particular, unless a special
election is made pursuant to the Internal Revenue Code, shares received pursuant
to the exercise of a stock option may be treated as restricted as to
transferability and subject to a substantial risk of forfeiture for a period of
up to six months after the date of exercise of an option. Accordingly, the
amount of any ordinary income recognized, and the amount of our tax deduction,
will be determined as of the end of that period.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal Canadian federal income tax
consequences under the Income Tax Act (Canada) applicable to the holding and
disposing of Common Stock acquired by Canadian residents on exercise of options
received under the Plan, and to the granting and exercise of such options. The
summary is based on a number of assumptions, and is not intended to constitute a
complete analysis of all Canadian federal income tax consequences, and should
not be interpreted as legal or tax advice to any particular employee or
consultant.
The grant of an option to a Canadian employee has no income tax
consequences to the Canadian employee. There are no specific rules in the Income
Tax Act (Canada) relating to the income tax treatment of stock options granted
to independent contractors and there exists some uncertainty as to the law in
this area. Based on generally accepted principles, however, a Canadian
consultant will likely be required to include in his or her income in the year
in which an option is granted the fair market value of the option at the time of
the grant less any amount paid for the option.
A Canadian employee who acquires Common Stock in a taxation year
pursuant to the exercise of an option under the Plan will be deemed to have
received a benefit by virtue of his employment equal to the amount by which the
fair market value of the Common Stock at the time of acquisition exceeds the
amount paid by him for the Common Stock (the "Benefit"). The Canadian employee
will, in the first instance, be required to include the full amount of the
Benefit in computing his income for the year. The Canadian employee will be
entitled to a deduction in computing his taxable income for the year in which
the Benefit is included equal to one-half of the amount of the Benefit, provided
that the exercise price of the option was not less than the fair market value of
the Common Stock at the time the option was granted and certain other conditions
are met. Special provisions have been included in the Plan regarding options
granted to Canadian employees. Provided these provisions are complied with and
the attributes of the Common Stock remain unchanged, these other conditions will
be satisfied.
Where certain conditions are met and subject to certain limitations,
the inclusion of the Benefit in the Canadian employee's income may be deferred
until the year in which the Common Stock are disposed of (or the year of death
or cessation of Canadian residence, if earlier). The amount which may be
deferred is subject to an annual vesting limit of Cdn. $100,000. This limit is
based on the year in which the options vest (i.e. first become exercisable) and
on the fair market value of the underlying Common Stock at the time the options
were granted to the Canadian employee.
With respect to Canadian consultants, while there is some uncertainty
in this area, the better view appears to be (and the Canada Customs and Revenue
Agency appears to accept) that where an option is held by a Canadian consultant
as capital property, no additional amount will be required to be included in
income in the year the option is exercised. (The income tax consequences would
likely be different where the option is held by a Canadian consultant as
non-capital property used in a business.)
-10-
A Canadian employee or Canadian consultant who disposes of Common
Stock, including by deemed disposition on death, will realize a capital gain (or
capital loss) equal to the amount by which the actual or deemed proceeds of
disposition less reasonable costs of disposition exceed (or are exceeded by) the
adjusted cost base of the Common Stock. One-half of any capital gain (taxable
capital gain) realized by a Canadian employee or Canadian consultant is required
to be included in his or her income and is taxed at normal rates. Capital gains
realized by a Canadian employee or Canadian consultant may also, in certain
circumstances, give rise to alternative minimum tax under the Income Tax Act
(Canada). In general, the Canadian employee or Canadian consultant may deduct
one-half of any capital loss (allowable capital loss) from taxable capital gains
realized in the year of disposition and, to the extent not so deductible, from
taxable capital gains of any of the three preceding years or any subsequent
year, or from income from all sources of the year of death or the preceding
year.
There will generally be no Canadian income tax consequences to a
Canadian affiliate of Paradigm in connection with the grant of options by
Paradigm to the Canadian affiliate's Canadian employees and Canadian consultants
or the exercise of such options.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDED AND RESTATED 2001 STOCK OPTION PLAN.
PROPOSAL 3. RATIFICATION OF APPOINTMENT OF AUDITORS
Schwartz Levitsky Feldman LLP, independent accountants and auditors,
have been our independent accountants, or auditors, since 2000. Our board of
directors has recommended that the stockholders ratify the reappointment of
Schwartz Levitsky Feldman LLP as our independent accountants for the current
year.
A representative of Schwartz Levitsky Feldman LLP is expected to be
present at the meeting and will be afforded an opportunity to make a statement,
if such representative desires to do so, and will be available to answer any
appropriate questions.
In the event the appointment of Schwartz Levitsky Feldman LLP is not
ratified by the stockholders, our board of directors will make another
appointment to be effective at the earliest possible time.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
PROPOSAL TO RATIFY THE APPOINTMENT OF SCHWARTZ LEVITSKY FELDMAN LLP.
-11-
COMPENSATION AND OTHER INFORMATION CONCERNING
DIRECTORS AND EXECUTIVE OFFICERS
BIOGRAPHICAL INFORMATION
The following table sets forth biographical information regarding our
directors and executive officers as of ____________, 2002.
NAME AGE POSITION(S)
- -------------------------- --------- ----------------------------------------------------------------------------
Gordon Sharwood 70 Chairman of the Board and Director
Eduardo Guendelman 49 Chief Executive Officer, President and Director
R. Charles Allen 46 Executive Vice President, General Counsel and Secretary
David Ellis 50 Chief Financial Officer
Moise Benedid 48 Chief Operating Officer, PowerLOC Technologies, Inc.
Ron Yekutiel 29 General Manager, Destinator Products and GPSoft Ltd.
David Ghermezian 29 Director
Shay David 29 Vice President, Business Development, Destinator Products Division
See "Proposal No. 1 Election of Directors" for biographical information
regarding Messrs. Sharwood, Guendelman and Ghermezian.
David Ellis has served as our Chief Financial Officer since December
2001. From April 2001 to December 2001, Mr. Ellis acted as a principal of his
consulting company, Skyspan Inc., a financial planning and consultancy company
for start-up companies in the telecommunications and data networking fields in
Ottawa and Montreal. From 1999 to 2001, he served as Chief Financial Officer of
SiGEM Inc., a company actively involved in the location - based services and
telematics sectors. From 1996 to 1999, Mr. Ellis served as Chief Financial
Officer of Nuvo Network Management Inc., a remote network services company
focused on global banking and government accounts. Prior to that, he was a
financial officer of large telecommunications companies including Telesat
Canada, Mitel Corporation, and iStar Internet Inc. Mr. Ellis holds an M.B.A.
from the University of Ottawa and a Certified General Accountant's accounting
designation earned at McGill University.
R. Charles Allen has served as our Vice President, General Counsel and
Secretary since April 2001. He has served as our Secretary since December 2001
and was our Interim Chief Financial Officer from September 2001 until December
2001. From 1992 to 2000 Mr. Allen worked as a management consultant or founder
of a number of related companies including Applied Powder Technologies, Inc.,
Endeavor Resources Inc., Cubacan Exploration Inc., Kahuna Investment Corporation
Inc. and Fibre-Klad Industries. From 1992 until 2001, he was the Executive Vice
President of Applied Powder Technologies, Inc. a company involved in the
manufacture and sale of industrial ceramic powders. In addition, Mr. Allen was
the Vice President and General Counsel for Endeavour Resources Inc., a company
involved in oil and gas exploration throughout North America and from 1995 to
2001 he was the Chief Financial Officer, Executive Vice President and General
Counsel of Cubacan Exploration Inc., an international petroleum exploration
company. Mr. Allen holds an L.L.B. and a Bachelor of Education from the
University of Alberta.
Moise Benedid has served as the Chief Operating Officer of PowerLOC
Technologies, Inc. since November 2001. From 1996 to 2001, Mr. Benedid served as
Chief Executive Officer of Info Systems, Inc., the telecommunications division
of Fidelity Holdings Inc., a provider of telecommunications switching hardware
worldwide. Mr. Benedid holds a B.A. in nuclear engineering from Ecole Technique
Superieure, Geneva, Switzerland.
Ron Yekutiel has served General Manager - Destinator Division from its
inception in February 2001 until April 2002, and as General Manager - GPSoft LTD
from its inception in February 2001 until February 2002. Prior to founding
GPSoft Ltd and the Destinator Division, Mr. Yekutiel served as an International
Business Development Manager for PowerLOC, where he played an important role in
locating and acquiring the NaftEl intellectual
-12-
property assets. From 1991 to 2000, Mr. Yekutiel was a foreign air force officer
specializing in GPS applications and aviation navigation systems. Ron Yekutiel
is the nephew of Eduardo Guendelman.
Shay David is our Vice President, Business Development, Destinator
Products Division. Mr. David joined Paradigm in March of 2001, as our Vice
President, Software Development. From February 2000 to February 2001, Mr. David
served as the Director of Business Development for MindEcho Corporation, a
leading international provider of personalization solutions focusing on Internet
and Wireless applications. From February 1999 to February 2000, Mr. David was a
software development team leader for NetCustomize Corporation . From August 1996
to January 1999, Mr. David was a Senior Consultant working for Israel Air
Industries in charge of field-testing, customer training assimilation of
advanced avionics hardware and software systems. From 1993 to 1996, Mr. David
was an foreign air force officer, working primarily with unmanned air vehicle
systems. Mr. David holds a B.Sc. in Computer Science and a B.A. in Philosophy
Magna Sum Laude.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors is responsible for managing Paradigm in
accordance with the provisions of our bylaws and certificate of incorporation
and applicable law. The number of directors which constitutes the board of
directors is established by the board, subject to a minimum of three directors.
Currently, all directors hold office for a term ending on the date of the annual
meeting following the annual meeting at which such director was elected. Except
as otherwise provided by the bylaws for filling vacancies on the board of
directors, our directors are elected at the annual meeting of stockholders and
hold office until their respective successors are elected, or until their
earlier resignation or removal. Our board of directors held three meetings
during 2001.
The board of directors has established an audit committee consisting of
Mr. Sharwood, Guendelman and Ghermezian. Mr. Ghermezian is independent while Mr.
Sharwood and Mr. Guendelman are not independent. The committee provides
recommendations to the board of directors regarding the selection of our
independent public accountants, reviews the scope of the annual audit, approves
the audit fees to be paid, and reviews our financial accounting controls with
the staff and the independent public accountants. The board of directors has not
adopted a written charter for the audit committee. The committee held one
meeting during 2001.
The board of directors did not have a standing compensation committee
in 2001. The board of directors has no standing nominations committee.
DIRECTOR COMPENSATION
Mr. Ghermezian receives a fee of $3,000 per quarter and reimbursement
of all reasonable expenses for attending meetings of the board of directors. As
compensation for acting as chairman of the board of directors, Mr. Sharwood
receives a fee of CDN $10,000 per month, an annual grant of a warrant to
purchase one million shares of common stock (the warrants issued in 2001 are
exercisable with respect to 400,000 shares at an exercise price of $0.16 per
share and with respect to 600,000 shares at an exercise price of $0.22 per
share) and reimbursement of all reasonable expenses for attending meetings of
the board of directors.
Mr. Guendelman serves as our President and Chief Executive Officer. For
information regarding Mr. Guendelman's executive compensation see "Executive
Compensation." Mr. Guendelman receives no additional compensation for serving on
the board of directors.
EXECUTIVE COMPENSATION
Our executive officers are appointed by our board of directors. Other
than Mr. Guendelman who has a five year employment contract, the executive
officers have at-will employment contracts.
-13-
The following table sets forth summary information concerning
compensation awarded to, earned by, or accrued for services by our Chief
Executive Officer and our three other most highly-compensated executive officers
for services rendered to us in all capacities during the years ended December
31, 1999, 2000 and 2001.
SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
------------------------------ ---------------------------------
SECURITIES
UNDERLYING
RESTRICTED OPTIONS/WARRANTS
YEAR SALARY BONUS STOCK AWARDS (#)
- ---------------------------------------- ----- ---------- -------- ------------ ----------------
Eduardo Guendelman (1) 2001 $ 105,000 $ 80,000 $ 15,000 16,330,000
Chief Executive Officer and President 2000 100,000 60,000 90,000 10,000,000
David Kerzner (2) 2001 87,500 - 12,500 4,108,333
Former Chairman and Chief Executive 2000 100,000 - - -
Officer
1999 100,000 - - 7,000,000
Ron Yekutiel (3) 2001 71,508 - 442,000 826,818
General Manager, Destinator Products 2000 - - - -
Shay David (4) 2001 50,057 - 221,000 647,273
Manager - Business Development,
Destinator Products
(1) Mr. Guendelman joined Paradigm in July 2000.
(2) Mr. Kerzner resigned from his position with Paradigm in the first
quarter of 2002.
(2) Mr. Yekutiel joined Paradigm in October 2000.
(3) Mr. David joined Paradigm in March 2001.
OPTION AND WARRANT GRANTS IN 2001
The following table sets forth, as to the named executive officers,
information concerning stock options and warrants granted during the year ended
December 31, 2001.
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL MARKET
OPTIONS/ PRICE ON
NUMBER OF WARRANTS DATE OF
SECURITIES GRANTED GRANT
UNDERLYING TO (IF LESS
OPTIONS/ EMPLOYEES THAN GRANT DATE
WARRANTS IN FISCAL EXERCISE EXERCISE PRESENT
NAME GRANTED YEAR PRICE PRICE) EXPIRATION VALUE (1)
- ------------------ ------------- --------------- ----------- --------- ---------- -----------
Eduardo Guendelman 1,250,000 (2) 3.88 $ 0.05 $ 0.15 12/21/04 $ 259,501
-14-
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL MARKET
OPTIONS/ PRICE ON
NUMBER OF WARRANTS DATE OF
SECURITIES GRANTED GRANT
UNDERLYING TO (IF LESS
OPTIONS/ EMPLOYEES THAN GRANT DATE
WARRANTS IN FISCAL EXERCISE EXERCISE PRESENT
NAME GRANTED YEAR PRICE PRICE) EXPIRATION VALUE (1)
- ------------------ ------------- --------- ----------- --------- ---------- ------------
1,250,000 (3) 3.88 0.05 0.15 03/21/05 264,190
1,250,000 (4) 3.88 0.05 0.15 06/21/05 268,660
1,250,000 (5) 3.88 0.05 0.15 09/21/05 272,849
32,500 (2) 0.10 0.15 12/21/04 6,761
32,500 (3) 0.10 0.15 03/21/05 6,882
32,500 (4) 0.10 0.15 06/21/05 6,995
32,500 (5) 0.10 0.15 09/21/05 7,103
11,200,000 (6) 34.79 0.05 0.15 12/31/04 2,760,729
David Kerzner 1,000,000 (2) 3.11 0.40 12/21/04 158,013
1,000,000 (3) 3.11 0.40 03/21/05 164,395
1,000,000 (4) 3.11 0.40 06/21/05 170,346
1,000,000 (5) 3.11 0.40 09/21/05 176,028
27,083 (2) 0.08 0.15 12/21/04 5,634
27,083 (3) 0.08 0.15 03/21/05 5,735
27,083 (4) 0.08 0.15 06/21/05 5,829
27,084 (5) 0.08 0.15 09/21/05 5,867
Ron Yekutiel 206,705 (7) 0.64 0.15 12/31/04 43,001
206,705 (8) 0.64 0.15 03/31/05 43,771
206,703 (9) 0.64 0.15 06/29/05 44,490
206,705 (10) 0.64 0.15 09/29/05 45,177
Shay David 206,995 (7) 0.64 0.15 12/31/04 33,663
-15-
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL MARKET
OPTIONS/ PRICE ON
NUMBER OF WARRANTS DATE OF
SECURITIES GRANTED GRANT
UNDERLYING TO (IF LESS
OPTIONS/ EMPLOYEES THAN GRANT DATE
WARRANTS IN FISCAL EXERCISE EXERCISE PRESENT
NAME GRANTED YEAR PRICE PRICE) EXPIRATION VALUE (1)
- ------------------ ------------- --------- ----------- -------- ---------- -----------
206,995 (8) 0.64 0.15 03/31/05 34,266
206,995 (9) 0.64 0.15 06/29/05 34,828
206,996 (10) 0.64 0.15 09/29/05 35,367
- --------------
(1) We used the Black-Scholes option-pricing model to determine the grant
date present value of the options set forth in this table. Use of this
model should not be construed as an endorsement of its accuracy at
valuing options. The real value of the options depends upon actual
changes in the market price of our common stock during the applicable
period.
(2) Options vested on December 21, 2001.
(3) Options vested on March 21, 2002.
(4) Options vest on June 21, 2002.
(5) Options vest on September 21, 2002.
(6) Warrants vested September 21, 2001.
(7) Options vested on December 31, 2001.
(8) Options vested on March 31, 2002.
(9) Options vest on June 29, 2002.
(10) Options vest on September 29, 2002
All stock option valuation models, including the Black-Scholes model,
require a prediction about the future movement of the stock price. The following
facts and assumptions were used in calculating grant date present value:
exercise prices as indicated in the table above, fair market value of each
option on the date of grant based on the best information available, a dividend
yield of 0.0%, an expected stock option term of 1 to 4 years, and a stock price
volatility of 100% based on the market performance of the stock of similar
companies. We used an assumed risk-free interest rate in our calculations
equivalent to the yield of a zero-coupon, ten-year Treasury bond on the date of
the grants. The risk-free interest rate was 2.17% to 3.59%. No other discounts
or restrictions related to vesting or the likelihood of vesting of the stock
options were applied.
AGGREGATED OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES
The following table sets forth information concerning options to
purchase our common stock held as of December 31, 2001 by each of the officers
named in the summary compensation table who have stock options.
Amounts set forth as "value realized" in the following table represent
hypothetical calculations based on the difference between the fair market value
of our common stock underlying the options and the exercise price of the
options. The value realized does not necessarily represent any actual monetary
gain to the option holder.
-16-
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS/WARRANTS AS OF OPTIONS/WARRANTS AS OF
NAME ACQUIRED REALIZED ($) DECEMBER 31, 2001 DECEMBER 31, 2001
- ------------------------- -------- ------------ --------------------------- ---------------------------
ON
EXERCISE
(#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- -------- ------------ ----------- ------------- ----------- -------------
Eduardo Guendelman -- -- 16,200,000 130,000 $ 3,853,527 27,741
David Kerzner -- -- 11,187,500 3,108,333 2,534,591 533,834
Ron Yekutiel -- -- -- 826,818 -- 176,438
Shay David -- -- -- 647,273 -- 138,124
INSIDER PARTICIPATION
The board of directors sets the Company's policies regarding executive
compensation. See "Board of Directors Report on Executive Compensation" on page
23. Mr. Guendelman, who is a member of the board of directors, is currently our
Chief Executive Officer. Mr. Sharwood, who is also a member of the board of
directors, serves as our Chairman of the Board.
REPORT ON REPRICING OF OPTIONS
We adjusted the exercise price of stock options to Mr. Kerzner and Mr.
Guendelman during the last fiscal year.
On September 21, 2001 our board of directors agreed to cancel 4,000,000
stock options at a strike price of $0.65 per share to Mr. Kerzner, and issue
4,000,0000 option at an exercise price $0.40 per share. Our board of directors
agreed to issue the new options in recognition of Mr. Kerzner's lengthy and
ongoing contribution, and his strategic assistance, to Paradigm. The new options
expires on December 31, 2004.
On September 21, 2001, 10 million options at a strike price of $0.66
owned by Mr. Guendelman were cancelled and 5 million options were issued at a
strike price of $0.05. These options vested immediately. The fair market value
of the options granted or repriced were estimated at $1,092,798 at the date of
re-pricing using the Black-Scholes pricing model using the following
assumptions: A dividend yield of 0.0%, an expected stock option term of 4 years,
and a stock price volatility of 100% based on the market performance of the
stock of similar companies. We assume the risk-free interest rate in our
calculation is 3.59%. No other discounts or restrictions relating to vesting or
the likelihood of vesting of the stock options were applied. Our board of
directors agreed to issue the new options in recognition of Mr. Guendelman's
contribution to Paradigm, his participation in the development of future
products and revenues, postponement of payment of the indebtedness with respect
to the sale of the PowerLOC shares, his assistance in the acquisition of the
NaftEL assets, assistance in the formation of our Israeli based research and
development company, GPSoft Ltd., postponement of payment of part of his
quarterly bonuses and other strategic assistance to Paradigm. The options were
issued to Mr. Guendelman and director and to members of his family including a
family trust. The options expire on December 31, 2004.
Respectfully submitted,
Board of Directors
Mr. Gordon Sharwood
Mr. Eduardo Guendelman
Mr. David Ghermezian
The following table describes the material terms of repricings of
options or warrants held by our executive officers during the last ten fiscal
years.
-17-
NUMBER OF LENGTH OF
SECURITIES ORIGINAL
UNDERLYING MARKET PRICE EXERCISE OPTION TERM
OPTIONS/ OF STOCK AT PRICE AT REMAINING AT
WARRANTS TIME OF TIME OF NEW DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- ---- ------- ----------- ------------ ------------ -------- ------------
Eduardo Guendelman 9/21/01 5,000,000 $0.15 $0.66 $0.05 2 years
David Kerzner 9/21/01 4,000,000 0.15 0.65 0.40 2 years
Moise Benedid 9/24/01 75,000 0.15 0.78 0.15 3 years
9/24/01 75,000 0.15 0.78 0.15 4 years
R. Charles Allen 9/24/01 100,000 0.15 0.50 0.15 3.5 years
9/24/01 100,000 0.15 0.50 0.15 4.5 years
Ron Yekutiel 9/24/01 250,000 0.15 0.41 0.15 2.5 years
Shay David 9/24/01 50,000 0.15 0.41 0.15 3.5 years
EMPLOYMENT AND CONSULTING AGREEMENTS
In February 1996, we entered into a ten-year consulting agreement with
David Kerzner, the-then Chairman of the board of directors. The consulting
agreement provided for a fee of $100,000 per year. The consulting agreement was
terminable in the event of the resignation, death or disability or other
incapacity of Mr. Kerzner. On July 25, 2000, the agreement was amended and it
was agreed that Mr. Kerzner would be issued 1,000,000 stock options per quarter
with an exercise price of $1.42 per share, to an aggregated maximum of 4,000,000
stock options, subject to Paradigm meeting certain business targets. Mr. Kerzner
tendered his resignation to the Company on February 22, 2002 thereby terminating
the consulting agreement.
In March 2000, we entered into a five-year consulting agreement with
Eduardo Guendelman, our President and Chief Executive Officer. The consulting
agreement provided for a fee of $120,000 per year and an annual bonus of
$80,000. The consulting agreement is terminable in the event of the resignation,
death or disability or any other incapacity of Mr. Guendelman. The agreement
does not contain any provision which would require us to pay any compensation to
Mr. Guendelman in the event of his termination or a change of control. On July
25, 2000 the agreement was amended and it was agreed that Mr. Guendelman would
be issued 10,000,000 stock options with an exercise price of $1.42 per option.
EQUITY COMPENSATION PLAN INFORMATION
The following tables sets forth certain information regarding our
equity compensation plans as of December 31, 2001:
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES FOR FUTURE ISSUANCE
TO BE ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
- ------------------------- ---------------------- ---------------------- --------------------------
EQUITY COMPENSATION 9,705,267 (1) $ 0.0125 294,733
PLANS APPROVED BY
SECURITY HOLDERS
EQUITY COMPENSATION 59,335,133 (2) $ 0.63 24,343,867
PLANS NOT APPROVED BY
SECURITY HOLDERS
---------- ------------ -----------
TOTAL 69,040,000 $ 0.54 24,638,600
-18-
(1) Issued under Paradigm's 1996 Stock Option Plan.
(2) Includes 15,656,133 shares issued under Paradigm's Amended and Restated
2001 Stock Option Plan and 43,679,000 shares issued pursuant to
non-plan grants of options or warrants.
A full description of material features of the Amended and Restated
2001 Stock Option Plan is included in this proxy statement under the caption
"Proposal 2 - Approval of the Amended and Restated 2001 Stock Option Plan."
The material features of the outstanding options or warrants which were
granted as compensation outside of Paradigm's 1996 Stock Option Plan and Amended
and Restated 2001 Stock Option Plan are as follows:
NUMBER OF SECURITIES EXPIRATION
ISSUED TO EXERCISE PRICE ISSUABLE UPON EXERCISE DATE VESTING DATE
- --------- -------------- ---------------------- ---------- ------------
Employees & Directors $0.05 562,500 1/31/03 1/31/96
0.05 3,187,500 1/31/03 1/31/96
0.05 7,000,000 9/21/02 9/21/99
2.50 10,000 8/27/04 8/28/01
2.50 10,000 8/27/05 8/28/02
2.50 10,000 8/27/06 8/28/03
1.00 8,000 2/6/05 2/7/02
1.00 8,000 2/6/06 2/7/03
1.00 8,000 2/6/07 2/7/04
1.03 20,000 2/11/05 2/12/02
1.03 30,000 2/11/05 2/12/02
1.03 40,000 2/11/05 2/1202
1.03 50,000 2/11/05 2/12/02
1.03 50,000 2/11/05 2/12/02
0.96 20,000 2/28/05 3/1/02
0.75 20,000 3/17/05 3/18/02
0.55 50,000 4/1/04 4/1/02
1.50 15,000 6/5/04 6/6/01
1.50 15,000 6/5/06 6/6/03
0.05 1,250,000 12/21/04 12/21/01
0.05 1,250,000 3/21/05 321/02
0.05 1,250,000 6/21/05 6/21/02
0.05 1,250,000 9/21/05 9/21//02
0.05 11,200,000 12/31/04 9/21/01
0.40 6,000,000 10/7/04 10/3/01
Consultants 2.00 200,000 10/1/03 10/1/00
3.50 200,000 1/1/04 1/1/01
5.00 200,000 4/1/04 4/1/01
6.50 200,000 7/1/04 7/1/01
8.00 200,000 10/1/04 10/1/01
9.50 200,000 1/1/05 1/1/02
11.00 200,000 4/1/05 4/1/02
12.50 200,000 7/1/05 7/102
2.00 200,000 10/1/03 10/1/00
3.50 200,000 1/1/04 1/1/01
-19-
NUMBER OF SECURITIES EXPIRATION
ISSUED TO EXERCISE PRICE ISSUABLE UPON EXERCISE DATE VESTING DATE
- --------- -------------- ---------------------- ---------- ------------
5.00 200,000 4/1/04 4/1/01
6.50 200,000 7/1/04 7/1/01
8.00 200,000 10/1/04 10/1/01
9.50 200,000 1/1/05 1/1/02
11.00 200,000 4/1/05 4/1/02
12.50 200,000 7/1/05 7/1/02
4.20 12,500 9/13/03 9/14/00
5.08 12,500 9/13/03 9/14/00
3.50 15,000 9/13/03 9/14/00
0.05 1,200,000 12/31/04 8/2/01
0.05 5,160,000 12/31/04 8/2/01
Legal Advisors 1.16 250,000 2/18/06 2/19/01
1.16 500,000 2/19/06 2/20/01
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 2001, 2,000,000 shares were issued to Mr. Kerzner pursuant
to the conversion of a promissory note of $47,867 from Mr. Kerzner, resulting in
a charge to the income statement of approximately $18,000.
On August 2, 2001, 600,000 shares were issued to Mr. Guendelman, at
below fair market value, in settlement of consulting fees valued at $90,000,
resulting in an addition al charge to the income statement of $23,100.
We issued 1,200,000 options to Mr. Guendelman at a strike price of
$0.05 for consulting fees and postponement of the debt monies owing in respect
of the acquisition of PowerLOC resulting in an additional charge to the income
statement of $204,000.
On August 25, 2001, Mr. Guendelman agreed to acquire 1,031,031 shares
and 2,062,062 warrants for consideration of $113,413.
On August 25, 2001, Mr. Kerzner agreed to acquire 1,241,157 shares and
2,482,314 warrants for consideration of $136,587.
The warrants issued to Mr. Guendelman and Mr. Kerzner for the August
25, 2001 private placements have an exercise price of $0.15 and expire on August
29, 2004. Together they resulted in a charge to the income statement of
$227,219.
On September 21, 2001, 10,000,000 options were issued to Mr. Guendelman
at an exercise price of $0.05. In addition, 10,000,000 options at a strike price
of $0.66 owned by Mr. Guendelman were cancelled at 5,000,000 options were issued
at a strike price of $0.05, resulting in a charge to the income statement of
$1,740,000. The options vested immediately. Our Board of Directors agreed to
issue the new options in recognition of Mr. Guendelman's contribution to
Paradigm, his participation in the development of future products and revenues,
postponement of payment of the indebtedness with respect to the sale of the
PowerLOC shares to the Company, his assistance in the acquisition of the NaftEL
assets, assistance in the formation of the Company's Israeli based research and
development company, GPSoft Ltd., postponement of payment of part of his
quarterly bonuses and other strategic assistance to the Company. The options
were issued to Mr. Guendelman and to members of his family including a family
trust. The options expire 3 years from vesting date.
-20-
On September 24, 2001, 2,640,670 shares were committed to be issued as
a result of the conversion by a company (which is related to David Ghermezian)
of a loan of $225,000 (December 31, 2000 - $475,000) plus accrued interest of
$66,833 based on a price of $0.11 per share. In addition, 5,281,340 warrants
were issued at an exercise price of $0.15 that are convertible into common
shares at any time prior to September 24, 2004.
During the year, we cancelled 20,000,000 options at prices ranging from
$1.75 to $4.00 to held by a company related to David Ghermezian. Six million
warrants were issued at a strike price of $0.40. These warrants expire October
2004.
The fair value of the options and warrants granted or re-priced were
estimated at $1,743,000 on the date of grant or re-pricing, using the
Black-Scholes pricing model using the following assumptions
Risk-free interest rate 3.0% - 4.6%
Dividend yield 0%
Expected life 3 - 5 years
Stock price volatility 100%
On October 29, 2001, we agreed to issue 2,000,000 shares to Ron
Yekutiel, a Paradigm Vice President and General Manager of our GPSoft subsidiary
and the Destinator Division, worth a total of $442,000, and 1, 000,000
restricted shares to Shay David, the Manager of Business Development of our
Destinator Division, worth a total of $221,000. Our Board of Directors agreed to
issue these shares in recognition of their contributions to GPSoft Ltd., their
experience in navigation technologies, their assistance in the acquisition of
the NaftEL assets, their participation in the development of future Destinator
products and revenues and their three year commitment to the Destinator
division. Fifty percent of these amounts were charged to the income statement in
2001.
During the year, we committed to issue 150,000 restricted common shares
to Gordon Sharwood and also issued 400,000 options to him. These options vested
quarterly commencing January 1, 2002, and were issued at a strike price of
$0.16, expiring in 3 years. The options resulted in a charge to the income
statement of $36,000 in 2001.
We believe that all of the transactions described above were made and
are on terms no less favorable to us than those we could obtain from independent
third parties in arm's-length negotiations.
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to
stockholders on our common stock during the period from April 25, 1997 through
December 31, 2001 to an equal investment in the NASDAQ Market Index and a
composite of the companies comprising SIC Code 3812 (search and navigation
equipment). The comparison assumes $100 was invested on April 25, 1997 in our
common stock and the foregoing indices and assumes reinvestment of all
dividends.
TOTAL RETURN
[CHART]
<Table>
<Caption>
FISCAL YEAR ENDING
-------------------------------------------------------------------------------
COMPANY/INDEX/MARKET 4/25/1997 12/31/1997 12/31/1998 12/31/1999 12/29/2000 12/31/2001
- -------------------- --------- ---------- ---------- ---------- ---------- ----------
Paradigm Advance Tech 100.00 85.11 58.51 15.96 398.94 148.34
Search & Navigation Equipment 100.00 131.14 140.15 85.47 112.15 124.15
NASDAQ Market Index 100.00 125.21 176.60 311.48 195.76 156.06
</Table>
Notwithstanding anything to the contrary set forth in any of our
previous filings made under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that might incorporate future filings made by us under
those statutes, neither the preceding Stock Performance Graph nor the
Compensation Committee Report is to be incorporated by reference into any such
prior filings, nor shall such graph or report be incorporated by reference into
any future filings made by us under those statutes.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-21-
The following table provides certain information regarding beneficial
ownership of our common stock as of March 31, 2002 by each stockholder known by
us to own beneficially more than 5% of our outstanding shares, our directors,
some of our most highly compensated executive officers, and our directors and
executive officers as a group.
The amounts and percentages of common stock beneficially owned are
reported on the basis of regulations of the Securities and Exchange Commission
governing the determination of beneficial ownership of securities. Under the
rules of the Commission, a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power," which includes the power
to vote or to direct the voting of such security, or "investment power," which
includes the power to dispose of or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities for which
that person has a right to acquire beneficial ownership within 60 days. Under
these rules, more than one person may be deemed a beneficial owner of the same
securities and a person may be deemed to be the beneficial owner of securities
as to which that person has no economic interest.
Unless otherwise indicated, the address for each person or entity named
below is c/o Paradigm Advanced Technologies, Inc., 30 Leek Crescent, Suite 103,
Richmond Hill, Ontario L4B 4N4.
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE OF
NAME BENEFICIALLY OWNED OUTSTANDING SHARES
- ----------------------------------------------------------------- ---------------------- ------------------------
David Kerzner (1) 18,073,469 11.00%
Eduardo Guendelman (2) 19,332,885 11.62%
Gordon Sharwood (3) 350,000 *
David Ghermezian (4) 18,572,011 11.54%
Ronald Yekutiel (5) 2,413,410 1.61%
Shay David (6) 1,323,636 *
Triple Five Financial LLC (7) 18,572,011 11.54%
Watson & Associates International Corp. (8) 18,315,000 11.55%
WorldLink, LLC (9) 19,800,000 12.21%
George Guttman (10) 15,257,489 9.79%
All directors and executive officers as a group (8 persons) (11) 43,187,642 28.86%
* Less than one percent.
(1) Includes 12,241,666 shares issuable upon the exercise of stock options
and 2,482,313 shares issuable upon exercise of warrants.
(2) Includes 5,543,729 shares issuable upon the exercise of stock options.
Also includes a total of 11,200,000 shares held of record by his wife,
children and family trust. Mr. Guendelman disclaims beneficial
ownership of shares held by his family trust.
(3) Includes 200,000 shares issuable upon the exercise of stock options.
(4) Includes (i) 150,001 shares held by Danton Enterprises, Ltd. (a holding
and investment company of which Mr. Ghermezian is the President), (ii)
6,450,000 shares held by Regent Ventures LLC (a holding and investment
company of which Mr. Ghermezian is a Manager), 6,000,000 of which are
issuable upon the exercise of warrants (iii) 4,000,000 shares held by
Triple Five Investment, Ltd. (a holding and investment company of which
Mr. Ghermezian is an executive officer), (iv) 7,922,010 shares held by
Triple Five Financial LLC (a holding and investment company with which
Mr. Ghermezian is affiliated), of which 5,281,340 are issuable upon the
exercise of warrants, and (v) 50,000 shares held by 8827 Corp. (a
holding and investment company with which Mr. Ghermezian is
affiliated).
(5) Includes 413,410 issuable upon the exercise of stock options.
-22-
(6) Includes 323,636 issuable upon the exercise of stock options.
(7) Includes (i) 7,922,010 shares held by Triple Five Financial LLC, of
which 5,281,340 are issuable upon the exercise of warrants, (ii)
150,001 shares held by Danton Enterprises, Ltd., (iii) 6,450,000 shares
held by Regent Ventures LLC, 6,000,000 of which are issuable upon the
exercise of warrants, (iv) 4,000,000 shares held by Triple Five
Investment, Ltd., and (v) 50,000 shares held by 8827 Corp. Each of
Triple Five Financial LLC, Danton Enterprises, Ltd., Regent Ventures
LLC, Triple Five Investment, Ltd. and 8827 Corp. (collectively, the
"Triple Five Group") has its principal executive offices at 9510 West
Sahara Avenue, Las Vegas, Nevada 89117. Voting and dispositive power
over the Paradigm common stock beneficially owned by the Triple Five
Group is exercised by the "Ghermezian Family." The "Ghermezian Family"
is a Canadian family, with its principal business interests in Canadian
and U.S. real estate and other ventures. David Ghermezian is a member
of our board of directors.
(8) Watson & Associates International Corp.'s address is Marron House,
Corner Virginia and Augusta Streets, Nassau P.O. Box N-4826, Bahamas.
Watson & Associates' investment decisions are made by Lily Berlin.
Watson & Associates is owned by Lily Berlin. Includes 6,360,000 shares
issuable upon the exercise of warrants and 2,625,000 shares issuable
upon the exercise of options.
(9) The address for WorldLink, LLC is 4550 Post Oak Place, Suite 175,
Houston, Texas 77027. WorldLink, LLC's investment decisions are made
jointly by Marc Nathan and Paradigm. WorldLink, LLC is owned by Pangea
Petroleum Inc. (45%), Paradigm (50%) and Marc Nathan (5%). Includes
12,500,000 shares issuable upon the exercise of warrants.
(10) The address for George Gutman is 930 East 7th Street, Suite 4F,
Brooklyn, New York 11230. Includes 13,645,000 shares of common stock
held by C-Saw Investments (USA), Ltd., 4,750,000 of which are issuable
upon the exercise of warrants; and 1,612, 489 shares of common stock
held by Jericho Partners, Ltd., 1,500,000 of which are issuable upon
the exercise of warrants. C-Saw Investments and Jericho Partners are
both holding and investment companies of which Mr. Guttman is the
president and control person.
(11) Includes all shares and options exercisable within sixty days owned by
all directors and executive officers and their spouses.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy. The board of directors attempts to create a
balanced compensation package by combining components based upon the achievement
of long-term value to stockholders with components based upon the execution of
shorter-term strategic goals. Our board of directors expects that the
achievement of these shorter-term goals ultimately will contribute to our
long-term success. Our board of directors has instituted a management
compensation plan that:
o Attracts and retains talented management;
o Provides short-term and long-term incentives; and
o Focuses performance on the achievements of our objectives.
Compensation Methodology. Our board of directors develops and
implements compensation policies, plans and programs which seek to enhance
stockholder value by closely aligning the financial interests of senior
management with those of our stockholders.
Our board of directors's compensation program for senior management
is comprised of the following:
BASE SALARY. The annual base salary is designed to compensate
executives for their sustained performance and level of responsibility.
Base salary is based on individual performance and the executives'
experience. The board of directors approves all salary increases for
executive officers.
ANNUAL INCENTIVE BONUS. An annual cash bonus program is established to
promote the achievement of our performance objectives. The granting of
an annual bonus is discretionary. Our goals and individual goals and
milestones for our management are established at the beginning of the
year, and include targets for progress in research and development,
development of sales, marketing and investor relations programs and
organizational developments and share price. Our board of directors
provides bonus incentives for achievement of these goals because we
believe attainment of these goals will be in the best long-term
-23-
interests of our stockholders. Bonus amounts for each executive are
dependent upon our level of achievement, as well as achievements by the
individual.
LONG-TERM INCENTIVE COMPENSATION. Our board of directors determines the
number of stock option grants to be granted to each executive. These
recommendations are based on the executive's ability to improve our
financial and operational performance, the executive's past
performance, and our Chief Executive Officer's expectation of the
executive's future performance and contributions. All stock options or
other awards we have made under our 1996 Stock Option Plan and will
make under our Amended and Restated 2001 Stock Option Plan are granted
with an exercise price equal to the closing market price on the day
immediately preceding the date of grant.
Compensation of our Chief Executive Officer. Our board of directors
meets at least annually to evaluate the performance of our Chief Executive
Officer. Based on this evaluation, the board of directors may approve salary
increases, annual bonuses and long-term incentive awards, or any combination
thereof, for our Chief Executive Officer. Our Chief Executive Officer's
compensation reflects a high degree of policy-making and decision-making
authority and a high level of responsibility with respect to our strategic
direction and our financial and operating results. It also reflects our Chief
Executive Officer's long-term commitment and contributions to our success.
Insider Participation. Eduardo Guendelman, our current chief executive
officer serves on the board of directors.
Respectfully submitted,
Board of Directors
Mr. Gordon Sharwood
Mr. Eduardo Guendelman
Mr. David Ghermezian
APRIL 29, 2002
-24-
AUDIT COMMITTEE REPORT
The audit committee provides advice with respect to our financial
matters and helps the board of directors oversee finance, accounting, and tax
compliance. The audit and internal auditing controls committee's primary duties
are to:
o independently and objectively monitor our financial reporting
process and internal control systems;
o review and appraise the audit efforts of our independent
public accountants;
o evaluate our quarterly financial performance and our
compliance with laws and regulations;
o oversee management's establishment and enforcement of
financial policies and business practices; and
o provide an open line of communication among the independent
public accountants, financial and senior management, and the
board of directors.
AUDIT FEES: The aggregate fee billed for professional services rendered
by Schwartz Levitsky Feldman LLP for the audit of the financial statements for
the most recent fiscal year and the reviews of the financial statements included
in each of our quarterly reports on Form 10-QSB during 2001 was $66,000 during
2001.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES: There
were no fees paid for professional services relating to financial information
systems design and implementation during 2001.
The audit committee has considered the fees paid to the outside
auditors and believes the fees are compatible with maintaining the outside
auditor's independence.
The audit committee has reviewed and discussed our audited financial
statements for the year ended December 31, 2001 with our management. The audit
committee has discussed with Schwartz Levitsky Feldman LLP the matters required
to be discussed by Statement on Auditing Standards No. 61.
The audit committee has received the written disclosures and the letter
from Schwartz Levitsky Feldman LLP required by Independence Standards Board
Standard No. 1, and has discussed Schwartz Levitsky Feldman LLP's independence
with Schwartz Levitsky Feldmann LLP.
Based upon the audit committee's review and discussions as noted above,
the audit committee has recommended to the board of directors that our audited
financial statements be included in our Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the Securities and Exchange Commission.
Respectfully submitted,
Audit Committee
Mr. Gordon Sharwood
Mr. Eduardo Guendelman
Mr. David Ghermezian
APRIL 29, 2002
-25-
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, certain of our officers, and persons or entities who own more than
ten percent of our common stock, to file with the Commission reports of
beneficial ownership and changes in beneficial ownership of our common stock.
Those directors, officers, and stockholders are required by regulations to
furnish us with copies of all forms they file under Section 16(a). Based solely
upon a review of the copies of such reports furnished to us and written
representations from such directors, officers, and stockholders, we believe the
filing requirements applicable to our current directors and executive officers
have been complied with by any such person with respect to the fiscal year ended
December 31, 2001.
INDEPENDENT AUDITORS
Upon the recommendation of the audit committee, our board of directors
selected Schwartz Levitsky Feldman LLP as our independent auditors for the year
ending December 31, 2001. One or more representatives of Schwartz Levitsky
Feldman LLP are expected to attend our annual meeting to respond to appropriate
questions. They will have an opportunity to make a statement if they so desire.
Any material non-audit services provided to us by Schwartz Levitsky Feldman LLP
will be approved by the audit committee prior to the rendering of such services
after due consideration of the effect of the performance thereof on the
independence of our auditors.
EXPENSES OF SOLICITATION
We will bear the total cost of the proxy solicitation. We anticipate
that banks, brokerage houses and other custodians, nominees, and fiduciaries
will forward soliciting material to the beneficial owners of shares of common
stock entitled to vote at our annual meeting and that we will reimburse those
persons for their out-of-pocket expenses incurred in this connection.
STOCKHOLDER PROPOSALS FOR THE 2003 MEETING
We intend to hold an annual meeting of stockholders in or around May
2003. Stockholders are hereby notified that, if they intend to submit proposals
for inclusion in our proxy statement and proxy for our 2003 annual meeting of
stockholders, such proposals must be received by us no later than January 31,
2003 and must otherwise be in compliance with applicable Securities and Exchange
Commission regulations.
MISCELLANEOUS
Our board of directors knows of no other business to be presented at
our annual meeting. If other matters properly come before our annual meeting, it
is intended that the proxies in the accompanying form will be voted thereon in
accordance with the judgment of the person or persons holding such proxies.
By Order of the Board of Directors,
/s/ Gordon Sharwood
--------------------------------
GORDON SHARWOOD
Chairman
-26-
PARADIGM ADVANCED TECHNOLOGIES, INC.
ANNUAL MEETING OF STOCKHOLDERS ____________, 2002
The undersigned hereby appoints Gordon Sharwood and Eduardo Guendelman, Proxies,
with full power of substitution, to appear on behalf of the undersigned and to
vote all shares of common stock (par value $.00001) of Paradigm Advanced
Technologies, Inc. (the "Company") that the undersigned is entitled to vote at
the Annual Meeting of Stockholders of the Company to be held at _______________
on _________, 2002, commencing at 10:00 a.m. (Eastern Daylight Time), and at any
adjournment thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE LISTED NOMINEES
AS DIRECTORS AND FOR THE APPROVAL OF OUR AMENDED AND RESTATED 2001 STOCK OPTION
PLAN.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Please mark box [X] in blue or black ink.
1. Election of FOR all nominees listed below [ ]
Directors:
Nominees: DAVID GHERMEZIAN, EDUARDO GUENDELMAN, GORDON SHARWOOD
TO WITHHOLD AUTHORITY TO VOTE FOR ANY ONE OR MORE NOMINEES, LINE THROUGH OR
OTHERWISE STRIKE OUT THE NAME OF THE NOMINEE OR NOMINEES FOR WHOM YOU WITHHOLD
AUTHORITY TO VOTE.
2. Approval of our Amended and Restated 2001 Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To ratify the appointment of Schwartz Levitsky Feldman LLP as
independent accountants for the 2003 fiscal year.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In his discretion, the proxy is authorized to vote upon such other
business as may properly come before the Annual Meeting and any adjournment
thereof.
Please sign exactly as your name
appears on the left. When signing
as an attorney, executor,
administrator, trustee or
guardian, please give your full
title. If shares are held
jointly, each holder should sign.
PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE
ANNUAL MEETING [ ]
Dated: , 2002
---------------------------
---------------------------------------------
Signature
---------------------------------------------
Signature
Please sign, date, and return the proxy card using the enclosed
envelope.
EXHIBIT A
PARADIGM ADVANCED TECHNOLOGIES, INC.
AMENDED AND RESTATED 2001 STOCK OPTION PLAN
Section 1. Purpose
The purpose of the Plan is to promote the interests of the Company and
its stockholders by aiding the Company in attracting and retaining employees,
officers, consultants, directors, members of the Company's advisory board,
independent contractors and Directors capable of assuring the future success of
the Company, to offer such persons incentives to put forth maximum efforts for
the success of the Company's business and to afford such persons an opportunity
to acquire a proprietary interest in the Company.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, in each case as
determined by the Committee.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the United States Internal Revenue Code of 1986,
as amended from time to time, and any regulations promulgated thereunder.
(d) "Committee" shall mean a committee of Directors designated by the
Board to administer the Plan. The Committee shall be comprised of not less than
such number of Directors as shall be required to permit Options granted under
the Plan to qualify under Rule 16b-3, and each member of the Committee shall be
a "Non-Employee Director" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of Section 162(m) of the Code. The Company expects
to have the Plan administered in accordance with the requirements for the award
of "qualified performance-based compensation" within the meaning of Section
162(m) of the Code.
(e) "Company" shall mean Paradigm Advanced Technologies, Inc., a
Delaware corporation, and any successor corporation.
(f) "Director" shall mean a member of the Board, including Non-Employee
Directors.
(g) "Eligible Person" shall mean any employee, officer, consultant,
director, member of the Company's advisory board, independent contractor or
Director (including any Non-Employee Director) providing services to the Company
or any Affiliate whom the Committee determines to be an Eligible Person.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee. Notwithstanding the foregoing,
(i) if the Shares are listed on any established stock exchange or a national
market system, including without limitation the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq"),
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such system or exchange,
or, if there is more than one such system or exchange, the system or exchange
with the greatest volume of trading in Shares for the last market trading day
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Committee deems reliable; (ii) if the Shares are quoted
on the Nasdaq (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer
but selling prices are not reported, its Fair Market Value shall be the mean
between the high bid and low asked prices for the Shares for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Committee deems reliable; or (iii) in the
absence of an established market for the Common Stock, the Fair Market Value
thereof shall be determined in good faith by the Committee.
(j) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision.
(k) "Non-Employee Director" shall mean any Director who is not also an
employee of the Company or an Affiliate.
(l) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(m) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(n) "Option Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Option granted under the Plan. Each
Option Agreement shall be subject to the applicable terms and conditions of the
Plan and any other terms and conditions (not inconsistent with the Plan)
determined by the Committee.
(o) "Participant" shall mean an Eligible Person designated to be
granted an Option under the Plan.
(p) "Person" shall mean any individual, corporation, partnership,
association or trust.
(q) "Plan" shall mean the Paradigm Advanced Technologies, Inc. Amended
and Restated 2001 Stock Option Plan, as amended from time to time, the
provisions of which are set forth herein.
(r) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation.
(s) "Share" or "Shares" shall mean shares of common stock, $.0001 par
value per share, of the Company or such other securities or property as may
become subject to Options pursuant to an adjustment made under Section 4(c) of
the Plan.
Section 3. Administration
(a) Power and Authority of the Committee. The Plan shall be
administered by the Committee. Subject to the express provisions of the Plan and
to applicable law, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type of Option to be granted to each
Participant under the Plan; (iii) determine the number of Shares to be covered
by (or the method by which payments, or other rights are to be calculated in
connection with) each Option; (iv) determine the terms and conditions of any
Option or Option Agreement; (v) amend the terms and conditions of each Option or
Option Agreement and accelerate the exercisability of any Option or the lapse of
restrictions relating to any Option; (vi) determine whether, to what extent and
under what circumstances Options may be exercised in cash, Shares, promissory
notes, other securities or other property or canceled, forfeited or suspended;
(vii) determine whether, to what extent and under what circumstances cash,
Shares, promissory notes, other securities or other property and other amounts
payable with respect to an Option under the Plan shall be deferred either
automatically or at the election of the holder thereof or the Committee; (viii)
interpret and administer the Plan and any instrument or agreement, including an
Option Agreement, relating to the Plan; (ix) establish, amend, suspend or waive
such rules and regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; and (x) make any other determination
and take any other action that the Committee deems necessary or desirable for
the administration of the Plan. Unless otherwise expressly provided in the Plan,
all designations, determinations, interpretations and other decisions under or
with respect to the Plan or any Option shall be within the sole discretion of
the Committee, may be made at
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any time and shall be final, conclusive and binding upon any Participant, any
holder or beneficiary of any Option and any employee of the Company or any
Affiliate.
(b) Delegation. The Committee may delegate its powers and duties under
the Plan to one or more Directors or officers of the Company, or to a committee
of Directors or officers, subject to such terms, conditions and limitations as
the Committee may establish in its sole discretion, provided, however, that the
Committee shall not delegate its powers and duties under the Plan (i) with
regard to officers or directors of the Company or any Affiliate who are subject
to Section 16 of the Exchange Act, (ii) in such a manner as would cause the Plan
not to comply with the requirements of Section 162(m) of the Code or (iii) in
such a manner as would contravene Section 157 of the Delaware General
Corporation Law.
(c) Power and Authority of the Board. Notwithstanding anything to the
contrary contained herein, the Board may, at any time and from time to time,
without any further action of the Committee, exercise the powers and duties of
the Committee under the Plan.
Section 4. Shares Available for Options
(a) Shares Available. Subject to adjustment as provided in Section 4(c)
of the Plan, the aggregate number of Shares that may be issued under all Options
under the Plan shall be 40,000,000. Shares to be issued under the Plan may be
either authorized but unissued Shares or Shares re-acquired and held in
treasury. In addition, if any Shares covered by an Option or to which an Option
relates are not purchased or are forfeited, or if an Option otherwise terminates
without delivery of any Shares, then the number of Shares counted against the
aggregate number of Shares available under the Plan with respect to such Option,
to the extent of any such forfeiture or termination, shall again be available
for granting Options under the Plan. Notwithstanding the foregoing, the number
of Shares available for granting Incentive Stock Options under the Plan shall
not exceed 40,000,000, subject to adjustment as provided in the Plan and subject
to the provisions of Section 422 or 424 of the Code or any successor provision.
(b) Accounting for Options. For purposes of this Section 4, if an
Option entitles the holder thereof to receive or purchase Shares, the number of
Shares covered by such Option or to which such Option relates shall be counted
on the date of grant of such Option against the aggregate number of Shares
available for granting Options under the Plan.
(c) Adjustments. In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or other property) that thereafter may be made the subject of
Options, (ii) the number and type of Shares (or other securities or other
property) subject to outstanding Options and (iii) the purchase or exercise
price with respect to any Option; provided, however, that the number of Shares
covered by any Option or to which such Option relates shall always be a whole
number.
(d) Option Limitations Under the Plan. No Eligible Person may be
granted any Option or Options under the Plan for more than 10,000,000 Shares
(subject to adjustment as provided for in Section 4(c) of the Plan), in the
aggregate in any calendar year. The foregoing annual limitation specifically
includes the grant of any Option or Options representing "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code.
Section 5. Eligibility
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Any Eligible Person shall be eligible to be designated a Participant.
In determining which Eligible Persons shall receive an Option and the terms of
any Option, the Committee may take into account the nature of the services
rendered by the respective Eligible Persons, their present and potential
contributions to the success of the Company or such other factors as the
Committee, in its discretion, shall deem relevant. Notwithstanding the
foregoing, an Incentive Stock Option may only be granted to full or part-time
employees (which term as used herein includes, without limitation, officers and
Directors who are also employees), and an Incentive Stock Option shall not be
granted to an employee of an Affiliate unless such Affiliate is also a
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code or any successor provision.
Section 6. Options
(a) Options. The Committee is hereby authorized to grant Options to
Eligible Persons with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the Plan
as the Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under
an Option shall be determined by the Committee.
(ii) Option Term. The term of each Option shall be fixed by the
Committee, but, with respect to any Incentive Stock Option, shall in no event
exceed 10 years from the date on which such Incentive Stock Option is granted.
(iii) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, promissory notes, other securities, other Options or
other property, or any combination thereof, having a Fair Market Value on the
exercise date equal to the applicable exercise price) in which, payment of the
exercise price with respect thereto may be made or deemed to have been made.
(iv) Incentive Stock Options. Notwithstanding anything in the Plan
to the contrary, the following additional provisions shall apply to the grant of
stock options which are intended to qualify as Incentive Stock Options,
provided, however, that in the event the Plan fails to be approved by the
stockholders of the Company within one year after its adoption by the Board as
required in Section 10, such options shall be deemed to be Non-Qualified Stock
Options issued under the Plan:
(A) The aggregate Fair Market Value (determined as of
the time the option is granted) of the Shares with respect to
which Incentive Stock Options are exercisable for the first
time by any Participant during any calendar year (under this
Plan and all other plans of the Company and its Affiliates)
shall not exceed $100,000.
(B) All Incentive Stock Options must be granted
within ten years from the earlier of the date on which this
Plan was adopted by the Board or the date this Plan was
approved by the stockholders of the Company.
(C) Unless sooner exercised, all Incentive Stock
Options shall expire and no longer be exercisable no later
than 10 years after the date of grant; provided, however, that
in the case of a grant of an Incentive Stock Option to a
Participant who, at the time such Option is granted, owns
(within the meaning of Section 422 of the Code) stock
possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of its Affiliates, such
Incentive Stock Option shall expire and no longer be
exercisable no later than 5 years from the date of grant.
(D) The purchase price per Share for an Incentive
Stock Option shall be not less than 100% of the Fair Market
Value of a Share on the date of grant of the Incentive Stock
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Option; provided, however, that, in the case of the grant of
an Incentive Stock Option to a Participant who, at the time
such Option is granted, owns (within the meaning of Section
422 of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company
or of its Affiliates, the purchase price per Share purchasable
under an Incentive Stock Option shall be not less than 110% of
the Fair Market Value of a Share on the date of grant of the
Inventive Stock Option.
(E) Any Incentive Stock Option authorized under the
Plan shall contain such other provisions as the Committee
shall deem advisable, but shall in all events be consistent
with and contain all provisions required in order to qualify
the Option as an Incentive Stock Option.
(b) General
(i) No Cash Consideration for Options. Options shall be granted
for no cash consideration or for any cash or other consideration as may be
determined by the Committee or required by applicable law.
(ii) Forms of Payment under Options. Subject to the terms of the
Plan and of any applicable Option Agreement, payments or transfers to be made by
the Company or an Affiliate upon the grant or exercise of an Option may be made
in such form or forms as the Committee shall determine (including, without
limitation, cash, Shares, promissory notes, other securities, other Options or
other property or any combination thereof), and may be made in a single payment
or transfer, in installments or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments.
(iii) Limits on Transfer of Options. No Option and no right under
any such Option shall be transferable by a Participant otherwise than by will or
by the laws of descent and distribution and the Company shall not be required to
recognize any attempted assignment of such rights by any Participant; provided,
however, that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, designate a beneficiary or beneficiaries to
exercise the rights of the Participant and receive any property distributable
with respect to any Option upon the death of the Participant, provided further,
however, and subject to the terms of any Option Agreement, that a Participant
may transfer a Non-Qualified Stock Option to any "Family Member" (as such term
is defined in the General Instructions to Form S-8 (or any successor to such
Instructions or such Form)) at any time that such Participant holds such Option,
provided that such transfers may not be for value (i.e., the transferor may not
receive any consideration therefor), the Family Member may not make any
subsequent transfers other than by will or by the laws of descent and
distribution and the Company receives written notice of such transfer. No Option
or right under any such Option may be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or encumbrance
thereof shall be void and unenforceable against the Company or any Affiliate.
(iv) Term of Options. The term of each Option shall be for such
period as may be determined by the Committee; provided, however, that in the
case of an Incentive Stock Option such Option shall not be exercisable after the
expiration of 10 years from the date such Option is granted or 5 years from the
date such Option is granted as required under Section 6(a)(iv)(C).
(v) Restrictions; Securities Exchange Listing. All Shares or other
securities delivered under the Plan pursuant to any Option or the exercise
thereof shall be subject to such restrictions as the Committee may deem
advisable under the Plan, applicable federal, state or provincial securities
laws and regulatory requirements, and the Committee may cause appropriate
entries to be made or legends to be placed on the certificates for such Shares
or other securities to reflect such restrictions. If the Shares or other
securities of the Company are traded on a securities exchange, the Company shall
not be required to deliver any Shares or other securities covered by an Option
unless and until such Shares or other securities have been admitted for trading
on such securities exchange.
Section 7. Amendment and Termination; Adjustments
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(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue or terminate the Plan at any time; provided, however, that,
notwithstanding any other provision of the Plan or any Option Agreement, without
the approval of the stockholders of the Company, no such amendment, alteration,
suspension, discontinuation or termination shall be made that, absent such
approval:
(i) would violate the rules or regulations of the NASDAQ National
Market System or any other securities exchange that are applicable to the
Company; or
(ii) would cause the Company to be unable, under the Code, to
grant Incentive Stock Options under the Plan;
Any such action shall be effective as of the initial date of approval of the
Plan unless otherwise stated.
(b) Amendments to Options. The Committee may waive any conditions of or
rights of the Company under any outstanding Option, prospectively or
retroactively. Except as otherwise provided herein or in an Option Agreement,
the Committee may not amend, alter, suspend, discontinue or terminate any
outstanding Option, prospectively or retroactively, if such action would
adversely affect the rights of the holder of such Option, without the consent of
the Participant or holder or beneficiary thereof. Any such action shall be
effective as of the initial date of approval of the Plan unless otherwise
stated.
(c) Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Option in the manner and to the extent it shall deem desirable
to carry the Plan into effect.
Section 8. Income Tax Withholding
In order to comply with all applicable national, federal, state or local
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable national, federal, state or local
payroll, withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of the
national, federal, state and local taxes to be withheld or collected upon
exercise or receipt of (or the lapse of restrictions relating to) an Option, the
Committee, in its discretion and subject to such additional terms and conditions
as it may adopt, may permit the Participant to satisfy such tax obligation by
(i) electing to have the Company withhold a portion of the Shares otherwise to
be delivered upon exercise or receipt of (or the lapse of restrictions relating
to) such Option with a Fair Market Value equal to the amount of such taxes or
(ii) delivering to the Company Shares other than Shares issuable upon exercise
or receipt of (or the lapse of restrictions relating to) such Option with a Fair
Market Value equal to the amount of such taxes. The election, if any, must be
made on or before the date that the amount of tax to be withheld is determined.
Section 9. General Provisions
(a) No Rights to Options. No Eligible Person, Participant or other
Person shall have any claim to be granted any Option under the Plan, and there
is no obligation for uniformity of treatment of Eligible Persons, Participants
or tholders or beneficiaries of Options under the Plan. The terms and conditions
of Options need not be the same with respect to any Participant or with respect
to different Participants.
(b) Option Agreements. No Participant will have rights under an Option
granted to such Participant unless and until an Option Agreement shall have been
duly executed on behalf of the Company and, if requested by the Company, signed
by the Participant.
(c) Plan Provisions Control. In the event that any provision of an
Option Agreement conflicts with or is inconsistent in any respect with the terms
of the Plan as set forth herein or subsequently amended, the terms of the Plan
shall control.
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(d) No Rights of Stockholders. Neither a Participant nor the
Participant's legal representative shall be, or have any of the rights and
privileges of, a stockholder of the Company with respect to any Shares issuable
to such Participant upon the exercise of any Option, in whole or in part, unless
and until such Shares have been issued in the name of such Participant or such
Participant's legal representative without restrictions thereto.
(e) No Limit on Other Compensation Arrangements. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or continuing
in effect other or additional compensation arrangements, and such arrangements
may be either generally applicable or applicable only in specific cases.
(f) No Right to Employment. The grant of an Option shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate, nor will it affect in any way the right of the Company
or an Affiliate to terminate such employment at any time, with or without cause.
In addition, the Company or an Affiliate may at any time dismiss a Participant
from employment free from any liability or any claim under the Plan or any
Option, unless otherwise expressly provided in the Plan or in any Option
Agreement. Nothing in this Plan shall confer on any person any legal or
equitable right against the Company or any Affiliate, directly or indirectly, or
give rise to any cause of action at law or in equity against the Company or an
Affiliate. The Options granted hereunder shall not form any part of the wages or
salary of any Eligible Person for purposes of severance pay or termination
indemnities, irrespective of the reason for termination of employment. Under no
circumstances shall any person ceasing to be an employee of the Company or any
Affiliate be entitled to any compensation for any loss of any right or benefit
under the Plan which such employee might otherwise have enjoyed but for
termination of employment, whether such compensation is claimed by way of
damages for wrongful or unfair dismissal, breach of contract or otherwise. By
participating in the Plan, each Participant shall be deemed to have accepted all
the conditions of the Plan and the terms and conditions of any rules and
regulations adopted by the Committee and shall be fully bound thereby.
(g) Governing Law. The validity, construction and effect of the Plan or
any Option, and any rules and regulations relating to the Plan or any Option,
shall be determined in accordance with the internal laws, and not the law of
conflicts, of the State of Delaware.
(h) Severability. If any provision of the Plan or any Option is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify the Plan or any Option under any law deemed applicable by
the Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Option, such provision shall be stricken as to such jurisdiction
or Option, and the remainder of the Plan or any such Option shall remain in full
force and effect.
(i) No Trust or Fund Created. Neither the Plan nor any Option shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Option, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(j) Other Benefits. No compensation or benefit awarded to or realized
by any Participant under the Plan shall be included for the purpose of computing
such Participant's compensation under any compensation-based retirement,
disability, or similar plan of the Company unless required by law or otherwise
provided by such other plan.
(k) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(l) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
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(m) Conditions Precedent to Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, the
requirements of any applicable Stock Exchange and the Delaware General
Corporation Law. As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
Section 10. Effective Date of the Plan
The Plan shall be effective upon adoption by the Board of Directors. The
Plan shall be submitted to the stockholders of the Company for approval within
one year of such adoption, provided, however, that in the event the stockholders
fail to approve the Plan, any options purporting to be Incentive Stock Options
shall be deemed to be Non-Qualified Stock Options issued under Section 6(a) of
the Plan.
Section 11. Term of the Plan
No Option shall be granted under the Plan after ten years from the earlier
of the date of adoption of the Plan by the Board or the date of stockholder
approval or any earlier date of discontinuation or termination established
pursuant to Section 7(a) of the Plan. However, unless otherwise expressly
provided in the Plan or in an applicable Option Agreement, any Option
theretofore granted may extend beyond such date, and the authority of the
Committee provided for hereunder with respect to the Plan and any Options, and
the authority of the Board to amend the Plan, shall extend beyond the
termination of the Plan.
Section 12. Options Granted to Canadian Resident Participants
Where the Participant is an employee, officer or director who is resident
in Canada within the meaning of the Income Tax Act (Canada) (in this Section 12,
referred to as a "Canadian Participant"), notwithstanding any other provision of
the Plan or of any Option Agreement entered into with such person, the following
conditions shall apply:
(a) Upon the exercise of an Option by a Canadian Participant, the sole
form in which payment of the exercise price may be made by the Canadian
Participant shall be cash or certified check or bank cashier's check payable to
the order of the Company.
(b) Upon the exercise of an Option by a Canadian Participant, the sole
form in which payment may be made by the Company to the Canadian Participant
shall be Shares.
(c) A Canadian Participant shall not be permitted to satisfy any tax
withholding obligations relating to the exercise of an Option by delivering
Shares to the Company or by electing to have the Company withhold a portion of
the Shares otherwise to be delivered to him upon exercise of such Option.
(d) The purchase price per Share purchasable under an Option shall not
be less than 100% of the Fair Market Value of a Share on the date of grant of
such Option (except where the Committee has authorized in writing a lower amount
and the Canadian Participant has acknowledged in writing that such lower amount
may result in adverse income tax consequences).
(e) With respect to any Shares which have been acquired by a Canadian
Participant, no undertakings shall be given by the Company, any Affiliate or any
partnership or trust of which the Company or any Affiliate is a member or
beneficiary and no agreement shall be entered into by any such person with a
Canadian Participant, including any agreement or undertaking relating to the
redemption, acquisition or cancellation of the Shares or the reduction of the
Company's paid-up capital.
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