UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
Amedia Networks, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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AMEDIA NETWORKS, INC.
2 CORBETT WAY
EATONTOWN, NEW JERSEY 07724
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the 2007 annual meeting (the "Annual
Meeting") of stockholders of Amedia Networks, Inc. (the "Company") will be held
at 11:00a.m, on July 16, 2007, at the Sheraton Eatontown Hotel, Route 35,
Eatontown, NJ 07724, to:
(i) elect four directors of the Company to hold office until their
respective successors shall have been duly elected and qualified;
(ii) approve an amendment to the Company's amended and restated
certificate of incorporation to increase the number of shares of Common
Stock the Company is authorized to issue from 100,000,000 to
2,000,000,000 shares;
(iii) increase the number of shares of Common Stock, reserved for
issuance under the Company's 2000 Equity Incentive Plan from 10,000,000
to 20,000,000 shares;
(iv) increase the number of shares of Common Stock, reserved for
issuance under the Company's 2002 Non-Employee Directors Stock Option
Plan from 2,000,000 to 4,000,000 shares;
(v) ratify the appointment of Marcum & Kliegman, LLP as the independent
public accounting firm of the Company for the year ending December 31,
2007; and
(vi) transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on June 21, 2007,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting or any adjournment thereof.
If you do not expect to be personally present at the Annual Meeting but
wish your stock to be voted for the business to be transacted thereat, the Board
of Directors requests that you complete, sign and date the enclosed proxy and
promptly return it by mail in the postage paid envelope provided.
BY ORDER OF THE BOARD OF DIRECTORS
FRANK GALUPPO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
June __, 2007
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE
ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
AMEDIA NETWORKS, INC.
2 CORBETT WAY
EATONTOWN, NEW JERSEY 07724
PRELIMINARY PROXY STATEMENT
For the Annual Meeting of Stockholders
to be held on July 16, 2007
This Proxy Statement is being sent to stockholders of Amedia Networks,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Company's Board of Directors (the "Board of
Directors" or the "Board") for use at the 2007 annual meeting (the "Annual
Meeting") of holders of the Company's common stock, par value $0.001 per share
(the "Common Stock"), to be held at the Sheraton Eatontown Hotel, Route 35,
Eatontown, NJ 07724, on July 16, 2007, at 11:00 am, and any adjournment(s)
thereof. The purposes of the Annual Meeting are to:
(i) elect four directors of the Company to hold office until their
respective successors shall have been duly elected and qualified;
(ii) approve an amendment to the Company's amended and restated
certificate of incorporation to increase the number of shares of Common
Stock the Company is authorized to issue from 100,000,000 to
2,000,000,000 shares;
(iii) increase the number of shares of Common Stock, reserved for
issuance under the Company's 2000 Equity Incentive Plan (the "2000
Incentive Plan") from 10,000,000 to 20,000,000 shares;
(iv) increase the number of shares of Common Stock, reserved for
issuance under the Company's 2002 Non-Employee Directors Stock Option
Plan (the "2002 Directors' Plan") from 2,000,000 to 4,000,000 shares;
(v) ratify the appointment of Marcum & Kliegman, LLP ("Marcum") as the
independent public accounting firm of the Company for the year ending
December 31, 2007; and
(vi) transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
If proxy cards in the accompanying form are properly executed and returned, the
shares of Common Stock represented thereby will be voted as instructed on the
proxy. If no instructions are given, the individuals named as proxies will vote
your shares (i) FOR the election as directors of the nominees of the Board of
Directors named below; (ii) FOR the proposal to amend the Certificate of
Incorporation to increase the number of shares of Common Stock authorized for
issuance; (iii) FOR the proposal to increase the number of shares of Common
Stock available for issuance under the 2000 Incentive Plan; (iv) FOR the
proposal to increase the number of shares of Common Stock available for issuance
under the 2002 Directors' Plan; (v) FOR the ratification of the appointment of
Marcum as the independent public accounting firm of the Company for the year
ending December 31, 2007; and (vi) in the discretion of the proxies named in the
proxy card on any other proposals to properly come before the Annual Meeting or
any adjournment thereof.
Any stockholder returning the accompanying proxy may revoke such proxy at any
time prior to its exercise by filing with the Secretary of the Company a duly
executed proxy bearing a later date or a written instrument revoking the proxy
or by personally appearing at the Annual Meeting.
This Proxy Statement is first being mailed to stockholders on or about JUNE 27,
2007.
VOTING RIGHTS
All voting rights are vested exclusively in the holders of the Common Stock (the
"Stockholders"). Only Stockholders of record at the close of business on June
21, 2007 (the "Record Date") will be entitled to receive notice of and to vote
at the Annual Meeting. As of the Record Date, there were 30,759,747 shares of
Common Stock outstanding. Each Stockholder is entitled to one vote for each
share held of record at the close of business on the Record Date.
Stockholders representing a majority of the Common Stock entitled to vote at the
Annual Meeting, present in person or by proxy at the Annual Meeting, will
constitute a quorum for the transaction of business at the Annual Meeting or any
adjournment thereof. Abstentions and shares held of record by a broker, which
are not voted because the broker has not received voting instructions from the
beneficial owner of the shares and either lacks or declines to exercise the
authority to vote the shares in its discretion are counted as shares that are
present at the annual meeting for purposes of determining a quorum. Assuming a
quorum is present, the affirmative vote of a plurality of the shares present in
person or by proxy is required for approval of Proposal No. 1 (Election of
Directors); the affirmative vote of a majority of the shares issued and
outstanding is required for approval of Proposal No. 2 (Increase Authorized
Shares of Common Stock); the affirmative vote of a majority of the shares
present at the Annual Meeting in person or by proxy is required for approval of
Proposals No. 3 (Increase Shares of Common Stock available under 2000 Incentive
Plan), No. 4 (Increase Shares of Common Stock available under 2002 Directors'
Plan) and 5 (Ratification of Independent Public Accounting Firm). With respect
to shares of Common Stock held in a brokerage account:
1
o with respect to Proposal No. 1 (Election of Directors), the broker is
entitled to vote your shares on these matters if no instructions are
received from you. Abstentions may not be specified as to the election
of directors;
o with respect to Proposals No. 2 (Increase Authorized Shares of Common
Stock) and No. 5 (Ratification of Independent Public Accounting Firm),
your broker is entitled to vote your shares on these matters if no
instructions are received from you. Abstentions will be counted as votes
against Proposal No. 2 but are not considered votes cast and, therefore,
will be counted neither for nor against Proposal No. 5.
o with respect to Proposal No. 3 (Increase Shares of Common Stock
Available under 2000 Incentive Plan) and Proposal No. 4 (Increase Shares
of Common Stock Available under 2002 Directors' Plan), your failure to
give voting instructions to your broker will result in a broker non-vote
since your broker is not entitled to vote your shares on these matters
unless it receives instructions from you. Broker non-votes and
abstentions are not considered as votes cast and, therefore, will be
counted neither for nor against Proposal No. 3 and Proposal No. 4.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL HOLDERS
The following table sets forth certain information, as of the Record Date,
concerning the ownership of the Common Stock by (a) each person who, to the best
of the Company's knowledge, beneficially owned on that date more than 5% of the
outstanding Common Stock, (b) each of the Company's directors and Named
Executive Officers (as defined above under "Executive Compensation") and (c) all
current directors and executive officers of the Company as a group.
Number of Shares
Percent of -----------------------------------------
Name of Beneficial Owner (1) Beneficially Owned (2) Common Stock (2)
- ---------------------------- ---------------------- ----------------
Frank Galuppo, President, Chief Executive Officer
and Director 1,370,789 (3) 4.45%
James D. Gardner, Chief Financial Officer 211,100 (4) *
John R. Colton, Chief Technology Officer 225,602 (5) *
Juan Mendez, Director 1,990,688 (6) 6.47%
Richard Rosenblum, Director 372,323 (7) 1.21%
Gerald Butters, Director 237,500 (8) *
Bob Martin, Director 150,000 (9) *
All directors and executive officers as
a group(7 persons) 4,555,002 14.82%
2
* Indicates less than 1%.
(1) Unless otherwise indicated, the address of each person listed is c/o Amedia
Networks, Inc., 2 Corbett Way, Eatontown, New Jersey 07724.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares of Common Stock issuable upon the exercise of options or warrants which
are currently exercisable or which become exercisable within 60 days following
the date of the information in this table are deemed to be beneficially owned
by, and outstanding with respect to, the holder of such options or warrants.
Except as indicated by footnote, and subject to community property laws where
applicable, to the knowledge of the Company, each person listed is believed to
have sole voting and investment power with respect to all shares of Common Stock
owned by such person.
(3) Represents (i) 35,270 shares of Common Stock and (ii) 1,335,519 shares of
Common Stock issuable upon the exercise of currently exercisable employee stock
options issued under the Company's 2000 Equity Incentive
(4) Represents (i) 36,100 shares of Common Stock and (ii) 175,000 shares of
Common Stock issuable upon the exercise of currently exercisable employee stock
options issued under the Company's 2000 Equity Incentive Plan. Does not include
options to purchase an additional 125,000 shares of Common Stock scheduled to
vest by May 2008.
(5) Represents (i) 27,274 shares of Common Stock and (ii) 198,328shares of
Common Stock issuable upon the exercise of currently exercisable employee stock
options issued under the Company's 2000 Equity Incentive Plan. Does not include
options to purchase an additional 56,946 shares of Common Stock scheduled that
to vest over the next two years. Mr. Colton resigned from the employ of the
Company on June 13, 2007.
(6) Represents (i) 1,260,626 shares of Common Stock and (ii) 730,062 shares of
Common Stock issuable upon exercise of currently exercisable options. The
foregoing is based, in part, on the Amendment No. 1 to Schedule 13D filed by the
stockholder on March 3, 2006.
(7) Represents (i) 16,667 shares of Common Stock, (ii) 164,406 shares of Common
Stock issuable upon exercise of currently exercisable non-plan options and (iii)
191,250 shares of Common Stock issuable upon the exercise of currently
exercisable employee stock options issued under the Company's 2002 Non-Employee
Directors Stock Option Plan.
(8) Represents (i) 56,250 shares of Common Stock and (ii) 181,250 shares of
Common Stock issuable upon the exercise of currently exercisable employee stock
options issued under the Company's 2002 Non-Employee Directors Stock Option
Plan.
(9) Represents shares of Common Stock issuable upon the exercise of currently
exercisable employee stock options issued under the Company's 2002 Non-Employee
Directors Stock Option Plan.
EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each executive
officer of the Company:
Name Age Position
Frank Galuppo 60 Chief Executive Officer, President and Director
James D. Gardner 54 Chief Financial Officer
John R. Colton 65 Former Chief Technology Officer
The business experience, principal occupations and employment, as well as the
periods of service, during at least the last five years of each of the Company's
executive officers who is not also a director nominee are set forth below.
JAMES D. GARDNER has been the Company's Chief Financial Officer since May 2005.
From January 2005 thru May 2005, Mr. Gardner served as Chief Operating Officer
of dotPhoto, a private company engaged in on-line photo processing and wireless
application development for cellular telephones. From January 2002 through April
2004, Mr. Gardner served as Chief Executive Officer for Comstar Interactive, a
private company engaged in the wireless credit card processing field. He has
also held the position of Chief Financial Officer at BellSouth Wireless Data
(renamed Cingular Interactive (May 1999 through November 2001), and as chief
financial officer of BellSouth Mobile Data (November 1995 through May 1999) and
chief financial officer of RAM/BSE Communications L.P. from 1991 though 1995,
with all companies involved in the provision of wireless packet data networks
and services, principally in the US and Europe. Mr. Gardner also held several
other senior executive positions at BellSouth and AT&T in the areas of financial
management, domestic and international corporate finance, issuing debt and
equity and the related rating agency and investment banking interfaces,
shareholder relations and a number of other treasury, accounting and finance
positions.
JOHN R. COLTON has been with the Company since April 2004 and has been its Chief
Technology Officer and Senior Vice President, Product Realization since June
2005 until his resignation on June 13, 2007. From November 2001 to March 2004
Mr. Colton was Vice
3
President of Architecture, Systems Engineering, and Product Management for
Lambda Optical Systems, where he specified technology, product and network
architecture, and system applications for a next generation optical networking
product line incorporating optical switching, optical DWDM transmission, optical
add/drop multiplexing, and network management. From October 2000 to October
2001, John founded and managed JRC Consulting, a company providing consultation
in the fields of optical communications, voice and data switching, and FTTP, a
position that led to officer and board positions with several startups. Before
his retirement after 36 years with Bell Labs, AT&T, and Lucent, Mr. Colton
served in senior positions in Lucent's Optical Networking Group as well as in
technical management and product management positions while at Bell Laboratories
and AT&T Network Systems. He holds an SMEE from the Massachusetts Institute of
Technology and a BSEE from the University of Pennsylvania.
CODE OF ETHICS
The Company has adopted a Code of Ethics applicable to its senior executive
officers and senior financial officers, including the principal executive
officer, principal financial officer and principal accounting officer. A copy of
this code has been filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 2005.
EXECUTIVE COMPENSATION
The following table sets forth all compensation for the last fiscal year awarded
to, earned by, or paid to our Chief Executive Officer and the two most highly
paid executive officers serving as such at the end of 2006 whose salary and
bonus exceeded $100,000 for the year ended December 31, 2006 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
Option Awards All Other Total
Name & Principal Position Year Salary ($) Bonus ($) ($) (1) Compensation ($) ($)
- ---------------------------------------------------------------------------------------------------------------
FRANK GALUPPO
President and Chief Executive
Officer 2006 230,192 (2) -- 121,806 (3) -- 351,998 (2)
- ---------------------------------------------------------------------------------------------------------------
JD GARDNER
Chief Financial Officer 2006 175,054 (4) -- 56,911 -- 231,965 (3)
- ---------------------------------------------------------------------------------------------------------------
JOHN C COLTION
Former Chief Technology Officer 2006 150,000 -- 65,731 (5) -- 215,731 (4)
- ---------------------------------------------------------------------------------------------------------------
(1) Amounts in this column reflect the expense recognized by us for accounting
purposes calculated in accordance with FASB Statement of Financial Accounting
Standards No. 123R ("FAS 123R") with respect to employee stock options issued
under the Company's 2000 Equity Incentive Plan in 2006 and in previous years.
The assumptions used to calculate the fair value of stock option grants under
FAS 123R, were: expected holding period of 3.5 years, risk free interest rate of
4.68%, no dividend yield and volatility of 57%.
(2) The payment of approximately $9,038.46 of this amount in respect of fiscal
2006 has been deferred by agreement of the named officer pending the raise by us
of additional capital.
(3) Includes the expense recognized by us for accounting purposes of options
issued under the 2000 Equity Incentive Plan on February 22, 2006.
(4) The payment of approximately $20,192.38 of this amount in respect of fiscal
2006 has been deferred by agreement of the named officer pending the raise by us
of additional capital.
(5) Includes the expense recognized by us for accounting purposes of options
issued under the 2000 Equity Incentive Plan on February 22, 2006.
GRANTS OF PLAN-BASED AWARDS
The following table sets forth information concerning each grant of an award
made during the fiscal year ended December 31, 2006 to each of the Named
Executive Officers:
GRANTS OF PLAN-BASED AWARDS -- YEAR ENDED DECEMBER 31, 2006
4
OPTION EXERCISE OR
AWARDS: BASE
NUMBER PRICE
OF SECURITIES OF
UNDERLYING OPTION
GRANT OPTIONS AWARD
NAME DATE (#) (1) ($/SH)
---- ---- ------- ------
Frank Galuppo 2/21/06 40,540 (2) 0.69
John Colton 2/22/06 54,548 (3) 0.70
1. All grants were made under our 2000 Equity Incentive Plan.
2. Represents an award of options made in connection with (and as consideration
for) the exercise for cash by the named executive officer of options for 20,270
shares at a per share exercise price of $0.74.
3. Represents an award of options made in connection with (and as consideration
for) the exercise for cash by the named executive officer of options for 27,274
shares at a per share exercise price of $0.55. On June 13, 2007, Mr. Colton
resigned from the employ of the Company.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth information concerning unexercised options and
stock that has not vested for each of our executive officers named in the
Summary Compensation Table that are outstanding as of December 31, 2006.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END -- DECEMBER 31, 2006
Equity Incentive Plan
Number of Securities Number of Securities Awards: Number of
Underlying Unexercised underlying Unexercised Securities Underlying Option Exercise
Options (#) Options (#) Unexercised Unearned Price Option Expiration
Name Exercisable Unexercisable Options (#) ($) Date
- ----------------------------------------------------------------------------------------------------------------------
Frank Galuppo 1,185,374 (1) 109,604 -- 0.74 3/15/2014
- ----------------------------------------------------------------------------------------------------------------------
40,540 (2) -- -- 0.69 2/21/2016
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
JD Gardner 150,000 (3) 150,000 -- 1.05 5/23/2015
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
John C. Colton 56,059 (4) 16,667 -- 0.55 7/1/2014
- ----------------------------------------------------------------------------------------------------------------------
65,972 (5) 59,028 -- 0.92 6/9/2015
- ----------------------------------------------------------------------------------------------------------------------
54,548 (2) -- -- 0.70 2/22/2016
- ----------------------------------------------------------------------------------------------------------------------
1. The options vest over twelve succeeding quarters, beginning June 30, 2004.
2. The options vested upon grant.
3. The options vest 1/6 after 6 months service and the balance equally over the
next ten succeeding quarters, beginning November 23, 2005.
4. The options vest 1/3 after one year of service and the balance equally over
the next eight succeeding quarters, beginning June 30, 2005.
5. The options vest over twelve succeeding quarters, beginning June 9, 2005.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of December 31, 2006
relating to our equity compensation plans.
5
Plan Category
Number of
securities to
be issued Weighted-
upon average Number of
exercise of exercise price of securities
outstanding outstanding remaining
options, options, available for
warrants and warrants future
rights and rights issuance.
(a) (b) (c)
---------- ---------- ----------
Equity compensation plans approved by
security holders 8,186,364 $ 1.49 3,413,158
Equity compensation plans not approved
by security holders 6,492,626(1) $ 1.38 -
---------- ----------
Total 14,678,990 $ 1.44 3,413,158
========== ==========
6
(1) Comprised of (i) 164,406 shares of our Common Stock that may be issuable
upon the exercise of non-plan five-year options issued to a non-employee
director in January 2004 and are exercisable at a per share exercise price of
$0.56, (ii) 100,000 shares of our Common Stock that may be issuable upon the
exercise of four year warrants issued to a service provider and are exercisable
at a per share exercise price of $0.62, (iii) 716,667 shares of our Common Stock
issuable upon exercise of five year warrants issued in August 2004 to placement
agent in connection with the private placement of our 7% Series A Convertible
Preferred Stock at prices ranging from $0.75 to $2.50 per share, subject to
cashless exercise provisions under certain terms, (iv) 333,333 shares of our
Common Stock issuable upon exercise of five year warrants issued in August 2004
to a provider of an equity line commitment discussed in Note 11to the
accompanying financial statement, (v) 150,000 shares of our Common Stock
issuable upon exercise of five year warrants issued in April 2005 in connection
with a short-term loan made to us (vi) 1,153,220 shares of our Common Stock
issuable upon exercise of five year warrants issued in April and May 2005 to a
placement agent in connection with the private placement of our 8% Series B
Convertible Preferred Stock, as more fully described in Note 5 of the
accompanying financial statement (vii) 500,000 shares of our Common Stock
issuable upon exercise of five year warrants issued in December 2005 in
connection with a short-term loan made to us, (viii) 1,375,000 shares of our
Common Stock issuable upon exercise of five year warrants issued between January
and May 2006 in connection with a short-term loan made to us, and (ix) 2,000,000
shares of our Common Stock issuable upon exercise of five year warrants issued
in July 2006 issued to a placement agent in connection with the private
placement of our 8% Convertible Debenture.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company and Mr. Frank Galuppo, its Chief Executive Officer and President and
a director, entered into a three-year employment agreement, effective as of
March 15, 2004, pursuant to which Mr. Galuppo was paid an annual salary of
$235,000. The Company also issued to Mr. Galuppo an option under our 2000 Equity
Incentive Plan to purchase up to 1,315,250 shares of Common Stock at a per share
exercise price of $0.79, which option is scheduled to vest over twelve
succeeding quarters, beginning June 30, 2004. Mr. Galuppo has agreed to certain
customary confidentiality and non-compete provisions that prohibit him from
competing with us for one year, or soliciting our employees for one year,
following the termination of his employment. Mr. Galuppo's agreement expired in
March 2007 and Mr. Galuppo continues in the employ of the Company on a month to
month `at will' arrangement.
In May 2005, the Company entered into an employment agreement with James D.
Gardner pursuant to which Mr. Gardner serves as its Chief Financial Officer. The
agreement has an initial term of one year. After the initial term of one year,
the agreement is automatically renewable for an additional one-year term unless
either party notifies the other in writing at least 45 days prior to the
scheduled termination of the initial term or any renewal term that it does not
intend to renew such agreement. Mr. Gardner is paid a monthly salary of $14,583
and was granted options under the Company's 2000 Equity Incentive Plan to
purchase 300,000 shares of Common Stock at a per share purchase price of $1.05.
The options vest over three years from the grant date on a quarterly basis. The
agreement may be terminated by Mr. Gardner for any reason on 60 days written
notice to the Company or by the Company immediately for cause. In the event of a
termination by us for any reason other than cause, the Company is to pay Mr.
Gardner an amount equal to 6 months' salary. Mr. Gardner has agreed to certain
customary confidentiality and non-compete provisions that prohibit him from
competing with the Company for one year, or soliciting the Company's employees
for one year, following the termination of his employment.
In June 2005, the Company entered into an employment agreement with John R.
Colton pursuant to which Mr. Colton served as its Chief Technology Officer and
pursuant to which he was paid a monthly salary of $12,500. Either the Company or
Mr. Colton may terminate the agreement at any time upon advance notice. In
connection with the entry into the employment agreement, Mr. Colton was granted
options under the Company's 2000 Equity Incentive Plan to purchase 125,000
shares of Common Stock at a per share purchase price of $0.92. The options vest
over three years from the grant date. Mr. Colton resigned from the Company's
employment in June 2007.
COMPENSATION OF DIRECTORS
In addition to cash compensation, we compensate our non-employee directors by
the grant of options from our 2002 Non-Employee Directors Stock Option Plan.
The following table summarizes data concerning the compensation of our
non-employee directors for the fiscal year ended December 31, 2006.
Fees Earned Option
or paid (1) Awards($) (2) Total ($)
----------- ------------- ---------
Juan Mendez 23,750 $207,462 (3) 231,212
Richard Rosenblum 29,250 $ 80,317 (4) 109,567
Gerald Butters 12,000 63,515 (5) 75,515
Bob Martin 16,500 38,995 (6) 55,495
(1) Certain of the amounts payable in respect of fiscal 2006 has been deferred
pending the raise by us of additional financing, as follows: (i) payment to Mr.
Mendez in the approximate amount of $5,750 has been deferred, (ii) payment to
Mr. Rosenblum in the approximate amount of $7,250 has been deferred, (iii)
payment to Mr. Butters in the approximate amount of $3,500 has been deferred and
(iv) payment to Mr.
7
Martin in the approximate amount of $4,000 has been deferred.
(2) Amounts in this column reflect the expense recognized by the Company for
accounting purposes calculated in accordance with FASB Statement of Financial
Accounting Standards No. 123R ("FAS 123R") with respect to employee stock
options issued under the Company's 2002 Non-Employee Directors Plan. For
information on the assumptions used to calculate the value of stock option
grants under FAS 123R, see the Company's financial statements for the year ended
December 31, 2006 The assumptions used to calculate the fair value of stock
option grants under FAS 123R, were: expected holding period of 3.5 years, risk
free interest rate of 4.8-4.9%, no dividend yield and volatility of 55-70%.
(3) Represents the expense associated with the grant of options for (i) 136,250
shares issued on April 25, 2006 in consideration of service on the our Board of
Directors during fiscal 2005, (ii) 115,000 shares issued on October 12, 2006 in
consideration of service on our Board of Directors during fiscal 2006 and (iii)
328,812 shares issued on February 22, 2006.
(4) Represents the expense associated with the grant of options for (i) 116,250
shares issued on April 25, 2006 in consideration of service on the our Board of
Directors and (ii) 75,000 shares issued on October 12, 2006 in consideration of
service on our Board of Directors during fiscal 2006.
(5) Represents the expense associated with the grant of options for (i) 25,000
shares issued on April 25, 2006 in consideration of service on the our Board of
Directors during fiscal 2005, (ii) 25,000 shares issued on October 12, 2006 in
consideration of service on our Board of Directors during fiscal 2006 and (iii)
112,500 shares issued on February 22, 2006.
(6) Represents the expense associated with the grant of options for 25,000
shares issued on April 25, 2006 in consideration of service on the our Board of
Directors during fiscal 2005 and (ii) 25,000 shares issued on October 12, 2006
in consideration of service on our Board of Directors during fiscal 2006. Does
NOT include expense associated with the issuance of options for an additional
25,000 shares in connection with other services provided to the Company. See
Item 12, "Certain Relationships and Related Transactions"
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 2004, the Company entered into a service agreement with Elite
Financial Communications Group, LLC ("Elite"), pursuant to which Elite agreed to
provide investor relation services to the Company for compensation of $7,500 per
month (plus expenses). By its terms, the agreement with Elite expired in
December 2005. One of the Company's former non-employee directors was a partner
and managing member of Elite. This director resigned from service on the Board
of Directors as of June 9, 2005.
In August 2004, we paid to Greenfield Capital Partners, LLC, and its designees
("Greenfield"), a placement fee with respect to the placement of 2,500 shares of
our Convertible Preferred Stock. The placement fee was comprised of (i) a cash
payment of $25,000 and (ii) five-year warrants to purchase up to 66,667 shares
of our Common Stock, of which warrants to purchase 33,333 shares are exercisable
at a per share exercise price of $.75, warrants to purchase 16,667 shares are
exercisable at a per share exercise price of $1.50 and warrants to purchase
16,667 shares are exercisable at a per share exercise price of $2.50. The
warrants are otherwise exercisable on the same terms and conditions as those
relating to the Warrants issued to the purchasers of the Convertible Preferred
Stock. One of our directors, Mr. Richard Rosenblum, was a Managing Director of
such entity at the time that the private placement was consummated. At that time
Greenfield designated Mr. Rosenblum to receive half of those warrants. Mr.
Rosenblum subsequently left Greenfield Capital Partners, LLC.
In January 2006 we entered into bridge loan agreements with three private
investors (collectively the "January 2006 Investors"), pursuant to which these
investors loaned to us, on a secured basis, the aggregate amount of $500,000.
The January 2006 Investors included Mr. Juan Mendez, Chairman of the Company's
board of directors, who loaned the Company $250,000. Pursuant to the terms of
the agreements with these investors, we issued to Mr. Mendez five year warrants
to purchase up to 125,000 shares of our Common Stock at a per share exercise
price of $1.50, subject to adjustment.
On November 13, 2006, we obtained a $100,000 loan from Mr. Juan Mendez, the
Chairman of our board of directors, for purpose of meeting our operating
requirements. The loan was made pursuant to our demand promissory note issued to
Mr. Mendez in the principal amount of $100,000. Interest on the loan accrues at
the rate of 24% per annum.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires officers and directors of the
Company and persons who own more than ten percent of the Common Stock, to file
initial statements of beneficial ownership (Form 3), and statements of changes
in beneficial ownership (Forms 4 or 5), of Common Stock with the SEC. Officers,
directors and greater than ten-percent stockholders are required by SEC
regulation to furnish the Company with copies of all such forms they file.
Based solely on review of the copies of such forms received by the Company with
respect to 2006, or written representations from certain reporting persons, the
Company believes that all filing requirements applicable to its directors and
officers and persons who own more than 10% of a registered class of the
Company's equity securities have been complied with.
8
PROPOSAL NO. 1
ELECTION OF DIRECTORS
INFORMATION AS TO NOMINEES FOR DIRECTOR
The persons named below, all of whom are currently directors of the Company,
have been nominated for election as directors of the Company by the Board of
Directors. If elected, each nominee will hold office until the next annual
meeting of the stockholders.
The Board of Directors has nominated four (4) directors to stand for
re-election, which is fewer than the number of directors fixed pursuant to the
Company's bylaws, which is currently seven but may be changed at any time by the
Board of Directors. Proxies cannot be voted for a greater number of persons than
the number of nominees named therein.
It is the intention of the persons named in the accompanying proxy to vote FOR
the election of each of the four persons named in the table below as directors
of the Company, unless authority to do so is withheld. If events not now known
or anticipated make any of the nominees unwilling or unable to serve, the
proxies will be voted (in the discretion of the holders of such proxies) for
other nominees not named herein in lieu of those unwilling or unable to serve.
The Board is not aware of any circumstances likely to cause any nominee to
become unavailable for election.
The following table sets forth the name, age and position of each director
nominee:
Name Age Position
Frank Galuppo 60 Chief Executive Officer, President and
Director
Juan Mendez 43 Director
Gerald Butters 63 Director
Bob Martin 65 Director
The business experience, principal occupations and employment, as well as the
periods of service, of each of the Company's director nominees and executive
officers during at least the last five years are set forth below.
FRANK GALUPPO has been a director and Chief Executive Officer of the Company
since March 2004 and President since December 2004. Mr. Galuppo possesses nearly
40 years of experience in the Telecommunications Industry, serving in a number
of senior management positions with Lucent Technologies and AT&T. From March
2003 until he began his employment with the Company, Mr. Galuppo had been
assisting several companies with business development support in the U.S.
Government market where he has extensive sales experience. Mr. Galuppo was
employed by Lucent since its formation in September 1996 until March 2003 in a
series of management level and operational positions. His most recent role at
Lucent was President of Lucent's Optical Networking Group, which he held since
September 2002 and had worldwide responsibility for the development and
marketing of Lucent's global optical portfolio, which had annual sales of over
$1 billion.
JUAN MENDEZ has been a director of the Company since July 2003 and the Chairman
of the Company's Board of Directors since September 2003. Mr. Mendez is
President, Chief Executive Officer and co-founder of Total Claims Management,
Inc., a privately held company based in Miami, Florida. Mr. Mendez has held that
position since March 1999. Prior to co-founding Total Claims Management, Inc.,
Mr. Mendez was a Public Insurance Adjuster from 1996 to 1999.
GERALD BUTTERS has been a director of the Company since May 2004. Mr. Butters is
a communications industry veteran with more than 39 years experience in this
sector. His career encompasses senior executive positions at Nortel Networks,
AT&T, and Lucent Technologies. These include Chairman of the Board of AGCS (a
joint venture of GTE and AT&T), President of NTI (a Nortel Networks US
subsidiary). He was President of Global Public Networks at AT&T Network Systems
from October 1997 to November 1999, President of the Optical Networks Group at
Lucent Technologies from December 1999 to August 2000 and Senior Vice President
Marketing and Technology at Lucent Technologies. Mr. Butters retired from Lucent
Technologies in August 2000. Mr. Butters has been a technical advisor to several
privately held technology firms from August 2000 through the present time and a
director of Lambda Optical Systems, a privately held company, since October
2003.
BOB MARTIN has been a director of the Company since May 2004. Mr. Martin retired
as the Chief Technology Officer of Lucent Technologies' Bell Laboratories in
September 2003, a position he held for seven years. In this role, he helped
guide Lucent's directions in next generation networks and in approaches the
company used for research and development. His background at Bell Laboratories
and Bellcore included a variety of positions related to large systems
development. He has been responsible for Unix, network management systems,
intelligent network systems, packet switching, and broadband access systems
developments. Bob received his Bachelor of Science in Electrical Engineering
from Brown University in 1964, and his Master of Science and Doctor of
Philosophy degrees in Electrical Engineering and Computer Science from
Massachusetts Institute of Technology in 1965 and 1967, respectively. In 1985,
he attended the MIT Alfred P. Sloan
9
School Senior Executive Program. A Fellow of the Institute of Electrical and
Electronics Engineers, Bob was member and first chair of its Software Industrial
Advisory Board. He has served on the National Research Council's Computer
Science and Telecommunications Board and the FCC's Technological Advisory Board.
He is on technical advisory boards for venture capitalists and startups in
telecommunications, optical devices and product innovation.
There are no family relationships between any of the above executive officers or
directors, and there is no arrangement or understanding between any of the above
executive officers or directors and any other person pursuant to which the
officer or director was elected to hold office.
All directors hold office until the next annual meeting of stockholders and the
election and qualification of a successor.
The name, age, business experience, principal occupations and employment, as
well as the periods of service thereof during at least the last five years of
one of the directors of the Company who have elected not to stand for
re-election at the 2007 Annual Meeting during are set forth below.
RICHARD ROSENBLUM, 49, has been a director of the Company since September 2003.
Since July 2004, Mr. Rosenblum has been a principal of Harborview Advisors, LLC,
a firm that provides structuring and financing advice to publicly and privately
held firms. From August 2004 through November 2004, Mr. Rosenblum was a Managing
Director of Greenfield Capital Partners, LLC, a private investment banking firm.
From July 2001 until July 2004, Mr. Rosenblum was a Managing Director of
Investment Banking for Finance Investments in New York, where he was responsible
for advising, structuring and financing publicly and privately held companies.
From July 2001 until July 2004, Mr. Rosenblum also served as Senior Managing
Partner of ACP Advisors in New York, where he was responsible for advising and
raising capital for emerging growth companies. From April 1999 until July 2001,
Mr. Rosenblum was a Managing Director at Robb Peck McCooey Financial Services,
Inc. in New York. Mr. Rosenblum also serves on the board of directors of Mobile
Reach International, Inc.
ADDITIONAL INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board met or acted by written consent 25 times during the year ended
December 31, 2006. No director who served during the 2006 fiscal year attended
fewer than 75% of the meetings of the Board and of committees of the Board of
which he was a member.
The Board does not have a formal policy with respect to attendance by Board
members at annual stockholder meetings, although it encourages directors to
attend such meetings. Mr. Galuppo, our President and Chief Executive Officer,
and Mr. Juan Mendez, the Chairman of the Board of directors, attended the
Company's 2006 annual meeting.
BOARD COMMITTEES
The Company has two standing committees: the audit committee (the "Audit
Committee") and the compensation/stock option committee (the "Compensation/Stock
Option Committee").
The Company currently does not have a nominating committee. Instead, nominations
for the election of directors have been handled by the full Board of Directors,
which permits all directors to participate in the process. Due to the small size
of the Company and its Board of Directors, the Company believes that this is
appropriate.
In identifying and evaluating candidates to be nominated as directors, the Board
seeks individuals with stated relevant experience that can add to the ability of
the Board to fulfill its fiduciary obligations and its stated business goals.
Director candidates must also have high personal and professional ethics,
integrity and values. Additionally, director nominees must have sufficient time
to devote to the Company's affairs.
As a small company, the Company has generally used an informal process to
identify and evaluate director candidates. The Company has encouraged both
independent directors and directors that are not independent to identify
nominees for the Board of Directors. The Company has not paid any third party a
fee to assist in the nomination process or to identify or evaluate candidates.
The Company will consider candidates that are nominated by its stockholders. The
name, together with the business experience and other relevant background
information of a candidate, should be sent to the Chief Executive Officer who
will then forward such information to the independent directors for their review
and consideration. The process for determining whether to nominate a director
candidate put forth by a stockholder is the same as that used for reviewing
candidates submitted by directors. Other than candidates submitted by its
directors and executive officers, the Company has never received a proposed
candidate for nomination from any security holder that beneficially owned more
than 5% of the Company's voting Common Stock.
The Company has not, to date, implemented a policy or procedure by which its
stockholders can communicate directly with its directors. Due to the small size
of the Company and its resources, the Company believes that this is appropriate.
10
AUDIT COMMITTEE
The Audit Committee is responsible for selecting the Company's independent
auditors, reviewing the Company's accounting policies, financial procedures and
internal controls, the engagement of independent auditors and the general scope
of the annual audit and any other services that the auditors may be asked to
perform, and review with the auditors their report on the Company's financial
statements following the completion of each audit.
The Audit Committee currently consists of Juan Mendez and Richard Rosenblum. The
Company believes that each of Messrs. Mendez and Rosenblum meet the independence
criteria set out in Rule 4200(a)(14) of the Marketplace Rules of the National
Association of Securities Dealers ("NASD") and the rules of the and other
requirements of the SEC. Mr. Rosenblum will not be standing for re-election to
the Company's Board of Directors.
The Board does not believe that any of the existing audit committee members is
an "audit committee financial expert" as the term is defined in the SEC rules.
It is difficult for a company with a financial profile such as the Company's to
attract and to afford a director who qualifies as a financial expert.
Nonetheless, the Company is seeking an appropriate candidate who qualifies as an
audit committee financial expert. It may however be difficult for a company with
a financial profile such as the Company's to attract and to afford a director
who qualifies as a financial expert.
In 2006, the Audit Committee held 4 meetings.
The Board of Directors adopted a charter governing the duties and
responsibilities of the Audit Committee in January 2003. A copy of the Audit
Committee charter is attached as Appendix D to this Proxy Statement.
COMPENSATION COMMITTEE
The Compensation/Stock Option Committee is responsible for reviewing the
compensation arrangements in effect for the Company's executive officers and for
administering the Company's 2000 Incentive Plan. The Committee did not hold any
meetings in 2006 and acted by consent on 6 occasions. This committee currently
consists of Juan Mendez and Richard Rosenblum.
None of the members of the Compensation Committee was employed by the Company or
any of its subsidiaries or had any other relationship requiring disclosure by
the Company under any paragraph of Item 404 of Regulation S-B. Mr. Rosenblum
will not be standing for re-election to the Company's Board of Directors.
REPORT OF THE AUDIT COMMITTEE
The following report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent the Company
specifically incorporates this report by reference therein.
The Audit Committee acts under a written charter, which was adopted by the Board
of Directors in January 2003. The charter, which includes standards set forth in
SEC regulations and rules of the National Association of Securities Dealers,
Inc. includes assisting the Company with:
o auditing and integrity of the Company's financial statements;
o qualification and independence of the Company's independent
accountants;
o performance of the Company's independent accountants;
o compliance by the Company with legal and regulatory requirements
as promulgated by the SEC; and
o accounting and financial reporting process.
As part of its auditing and integrity of the Company's financial statements, the
Audit Committee reviewed and discussed with both management and the Company's
independent accountants all financial statements prior to their issuance.
Management advised the audit committee in all cases that all financial
statements were prepared in accordance with generally accepted accounting
principals and reviewed any significant accounting issues with the audit
committee. These reviews included discussion with the independent accountant of
matters required to be discussed pursuant to Statement on Auditing Standards No.
61 (Communication with Audit Committees).
The Audit Committee also discussed with the Company's independent accountants
matters relating to its independence, including a review of audit fees and the
disclosures made to the Audit Committee pursuant to Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees).
Taking all of these reviews and discussions into account, the audit committee
recommended to the Board of Directors that the Board approve the inclusion of
the Company's audited financial statements in the Company's Annual Report on
Form 10-KSB for the fiscal year ended
11
December 31, 2006, for filing with the Securities and Exchange Commission.
Dated: June 11, 2007
AUDIT COMMITTEE
JUAN MENDEZ
RICHARD ROSENBLUM
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF ALL OF THE NOMINEES TO THE BOARD OF DIRECTORS.
PROPOSAL NO. 2
AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK
THAT THE COMPANY IS AUTHORIZED TO ISSUE
FROM 100,000,000 TO 2,000,000,000 SHARES
The Company's Certificate of Incorporation currently provides for authorized
capital stock consisting of 100,000,000 shares of Common Stock and 5,000,000
shares of preferred stock, par value $.001 per share (the "Preferred Stock").
The Board of Directors has the authority to fix the rights, privileges,
preferences and restrictions of any series of Preferred Stock that it may
designate. Currently, the following series of Preferred Stock have been
designated: (i) 52,500 shares of Series A 7% Convertible Preferred Stock (the
"Series A Preferred Stock") of which 10,418 shares were issued and outstanding
as of the Record Date and (ii) 85,000 shares of Series B 8% Convertible
Preferred Stock (the "Series B Preferred Stock") of which 33,000 shares were
issued and outstanding as of the Record Date.
On June 4, 2007, the Board adopted a resolution to increase the number of shares
of Common Stock that the Company is authorized to issue from 100,000,000 to
2,000,000,000 shares and, subject to approval of the Company's stockholders, to
file with the Secretary of State of the State of Delaware an amendment to the
Company's Amended and Restated Certificate of Incorporation to effect the
increase in the number of authorized shares of Common Stock (the "Amendment").
The resolution also provided that the Amendment be submitted to the stockholders
entitled to vote thereon for consideration at the Annual Meeting, all in
accordance with Section 242 of the Delaware General Corporation Law. The text of
the Amendment is attached hereto as Appendix A. Each share of newly authorized
Common Stock will have the same rights and privileges as each share of existing
Common Stock. Until an authorized share of Common Stock is issued, it is not
counted in the number of shares that are outstanding, does not have a vote, and
does not decrease the Company's earnings or loss per share. The Amendment will
not affect the number of shares of Preferred Stock currently authorized.
As of May 22, 2007, the Company had 30,759,747 shares of Common Stock
outstanding. The Company also has reserved for issuance 10,000,000 shares under
the Company's 2000 Equity Incentive Plan (the "2000 Incentive Plan"), 2,000,000
shares under the 2002 Non-Employee Director's Plan (the "2002 Director's Plan"),
approximately 6,492,626 shares for issuance upon the exercise of non-plan
options and warrants to purchase Common Stock, approximately 1,389,067 upon
conversion of outstanding shares of the Company's Series A Preferred Stock and
approximately 4,400,000 shares for issuance upon conversion of outstanding
shares of the Company's Series B Preferred Stock.
In addition, on May 5, 2006, the Company raised gross proceeds of $10 million
from the private placement (the "May 2006 Placement") to certain accredited
institutional and individual investors (the "Buyers") of its 8% Senior Secured
Convertible Debentures (the "Convertible Debentures"). The Convertible
Debentures are convertible into the Company's Common Stock at a fixed conversion
rate equal to $0.75 (subject to adjustment upon certain specified conditions).
Interest on the Convertible Debentures accrues at a per annum rate of 8% and is
payable on a semi-annual basis (beginning December 31, 2006) and upon conversion
and, at the Company's option and subject to certain specified conditions, may be
paid in shares of Common Stock at a conversion rate equal to 90% of the volume
weighted average price of the Common Stock for the five trading days ending on
the trading day immediately preceding the relevant interest payment date.
Accordingly, the Company has reserved approximately 13,566,666 shares of Common
Stock upon conversion of the Convertible Debentures and in payment of interest
thereon through maturity (based on the conversion rate of $0.75). In connection
with the issuance of the Convertible Debentures, the Company also issued to the
Buyers warrants to purchase an aggregate of 6,666,667 shares of Common Stock and
also issued to a registered broker dealer who served as placement agent for the
Placement warrants to purchase 2,000,000 shares of our Common Stock (of which
warrants for 1,333,333 shares have a per share exercise price of $0.75 and
666,667 have a per share exercise price of $1.50) . The May 2006 Placement also
resulted in an adjustment of the conversion rate into Common Stock of the
Company's currently outstanding Series B 8% Convertible Preferred Stock.
In addition to the foregoing, there are approximately 4,566,667 shares of Common
Stock that the Company may be obligated to issue upon exercise of warrants but
for which it currently does not maintain any reserve pursuant to agreements with
the holders of these warrants.
12
The table below summarizes information relating to the number of shares of the
Company's Common Stock currently outstanding, reserved and available for
issuance and the number of shares of Common Stock that would be reserved and
available for issuance immediately following approval of the Amendment:
Before Amendment After Amendment
Shares outstanding
(as of June 12, 2007) 30,759,747 30,759,747
Shares reserved
for issuance 64,095,891 76,095,891
Total of the above
as a % of the
maximum number of
authorized shares * 95% 6%
Shares available
for issuance 5,144,362 1,893,144,362
* The column captioned "After Amendment" assumes that Proposal No. 3
(Increase Shares of Common Stock available under 2000 Incentive Plan)
and Proposal No. 4 (Increase Shares of Common Stock available under 2002
Directors' Plan) have been approved.
STOCK SPLIT
In conjunction with its approval of the Amendment, the Board approved, subject
to approval by the stockholders of the Amendment, a ten-for-one stock split. The
stock split will be effected in the form of a stock dividend of 9 shares of
Common Stock for each outstanding share of Common Stock outstanding immediately
prior to the stock dividend. The proposed increase in the number of authorized
shares of Common Stock is necessary because the current number of authorized
shares of Common Stock that are not reserved or outstanding is not sufficient to
effect this stock split. The Board is recommending that the additional shares of
Common Stock be authorized in order to accommodate this stock split.
If the stock split is effected, the Company's earnings per share would be
reduced if the Company were to be profitable at some point in the future, but
the stock split would not affect voting rights of current stockholders, as each
stockholder would continue to hold the same percentage interest in the Company
immediately after the stock split. The Company's outstanding stock options,
stock purchase rights and warrants, if any, would be proportionately adjusted
such that the number of shares underlying the Company's outstanding stock
options, stock purchase rights and warrants would be increased and the exercise
price would be proportionately reduced. Stockholder approval of a stock split
effected in the form of a stock dividend is not required under Delaware law, is
not being solicited by this Proxy Statement and will not be solicited in the
future in order to effect the stock split. If the amendment to the Restated
Certificate of Incorporation is not approved, the Company will not be able to
complete the stock split.
The additional authorized shares could also be used by the Company for business
and financial purposes as determined by the Board from time to time to be
necessary or desirable. The availability of additional authorized shares of
Common Stock will enable the Board of Directors to act with flexibility as and
when the need arises to issue additional shares without the delays necessitated
by having to obtain stockholder approval, except as may be required by law or
the rules of any applicable exchange. The additional authorized shares of Common
Stock that are not needed to effect the stock split referred to above may be
issued for any proper corporate purpose approved by the Board of Directors.
Among the reasons for having additional authorized and unissued shares of Common
Stock are the ability to sell shares in capital raising transactions during
advantageous market conditions, issue shares in connection with acquisitions of
the assets, operating businesses or securities of other companies, and issue
stock as stock dividends, stock splits and to use shares for other general
corporate purposes. Except as described above, the Company has no current plans
or arrangements regarding the issuance of these additional authorized shares in
connection with any of the foregoing matters.
Some of the additional shares of Common Stock that would become available for
issuance could also be used by the Company to oppose a hostile takeover attempt
or to delay or prevent changes in control or management. For example, without
further stockholder approval, the Board of Directors could strategically sell
shares of Common Stock in a private transaction to purchasers who would oppose a
takeover or favor the current Board of Directors. Such an issuance of shares of
Common Stock would increase the number of outstanding shares, thereby possibly
diluting the interest of a party attempting to obtain control of the Company and
could otherwise facilitate future efforts by the Board of Directors to deter or
prevent changes in control, including transactions in which stockholders might
otherwise receive a premium for their shares over the then current share price.
This proposal to increase the authorized Common Stock has been prompted by
business and financial considerations and not by the threat of any hostile
takeover attempt. Except as described in this paragraph and except for the
ability of the Board of Directors to fix by resolution the designations,
preferences and relative, participating, optional or other special rights of any
series of Preferred Stock, and any qualifications, limitations or restrictions
thereof, including without limitation thereof, voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, to the
full extent permitted by Delaware law, there are no anti-takeover provisions in
the Company's certificate of incorporation or bylaws and the Company has no
plans or proposals to adopt any provisions to its certificate of incorporation
or bylaws or enter into other arrangements that may have material anti-takeover
consequences.
13
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT.
PROPOSAL 3
AMENDMENT TO THE COMPANY'S 2000 EQUITY INCENTIVE PLAN
INCREASING THE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE THERE UNDER TO 20,000,000 SHARES.
At the Annual Meeting, the Stockholders will be asked to approve an amendment to
the Company's 2000 Equity Incentive Plan (the "2000 Incentive Plan") to increase
the number of shares of Common Stock available for issuance under the 2000
Incentive Plan to 20,000,000 shares. A summary of the principal terms of the
2000 Incentive Plan is set forth below.
The Board believes that equity based awards are an important incentive for
attracting, retaining and motivating employees and officers through the
opportunity of equity participation in the Company. The amendment to increase
the number of shares of Common Stock under the 2000 Incentive Plan is intended
to enable the Company to continue to have an adequate number of shares of Common
Stock available for the grant of stock options to attract new employees, as well
as retain current employees.
As of the Record Date, the total number of shares of Common Stock subject to
awards granted under the 2000 Incentive Plan was 7,853,030 and only 2,146,970
shares of Common Stock remained available for future grants to employees and
other service providers under the 2000 Incentive Plan.
Although the Company cannot currently determine the number of options that may
be granted in the future to the executive officers of the Company, each of the
executive officers and key employees of the Company has an interest in the
approval of the amendment to the 2000 Incentive Plan in so far as they are
eligible recipients of options under the plan.
SUMMARY OF THE TERMS OF THE 2000 INCENTIVE PLAN
The summary of the 2000 Incentive Plan below is qualified in its entirety by the
2000 Incentive Plan attached hereto as Appendix B.
THE 2000 INCENTIVE PLAN ADMINISTRATION
The 2000 Incentive Plan is administered by the Board of Directors of the Company
or, at the discretion of the Board, by a committee composed of at least two
members of the Board. The Compensation Committee of the Board, established in
October 2000, administers the 2000 Incentive Plan. Such committee, and the Board
itself acting in its capacity as administrator of the 2000 Incentive Plan, is
referred to herein as the "Committee." The Committee is authorized, among other
things, to construe, interpret and implement the provisions of the 2000
Incentive Plan, to select the key employees to whom awards will be granted, to
determine the terms and conditions of such awards and to make all other
determinations deemed necessary or advisable for the administration of the 2000
Incentive Plan.
SHARES AVAILABLE
If Proposal No. 3 is approved by the Stockholders, the aggregate number of
shares of Common Stock available for issuance, subject to adjustment as
described below, under the 2000 Incentive Plan will be 20,000,000. Such shares
may be authorized and unissued shares or treasury shares. If Proposal No. 3 is
approved, shares reserved for issuance for grants under the 2000 Incentive Plan
will represent approximately 65% of the Common Stock issued and outstanding as
of the Record Date (without giving effect to Proposal No. 2). Together with the
shares reserved for issuance under the 2002 Directors' Plan, the shares reserved
for issuance under these plans will represent approximately 72% of the Common
Stock issued and outstanding as of the Record Date (or 78% of the Common Stock
issued and outstanding as of the Record Date if Proposal No. 4 is approved),
without giving effect to Proposal No.2.
If any shares of Common Stock subject to an award are forfeited or an award is
settled in cash or otherwise terminates for any reason whatsoever without an
actual distribution of shares, the shares subject to such award will again be
available for awards. If any performance units awarded under the 2000 Incentive
Plan are forfeited or canceled, the performance units will again be available
for awards. If the Committee determines that any stock dividend,
recapitalization, split, reorganization, merger, consolidation, combination,
repurchase, or other similar corporate transaction or event, affects the Common
Stock or the book value of the Company such that an adjustment is appropriate in
order to prevent dilution or enlargement of the rights of participants, then the
Committee shall adjust any or all of (i) the number and kind of shares of Common
Stock which may thereafter be issued in connection with awards, (ii) the number
and kind of shares of Common Stock issuable in respect of outstanding awards,
(iii) the aggregate number and kind of shares of Common Stock available, (iv)
the number of performance units which may thereafter be granted and the book
value of the Company with respect to outstanding performance units, and (v)
14
the exercise price, grant price, or purchase price relating to any award. If
deemed appropriate, the Committee may also provide for cash payments relating to
outstanding awards, provided, however, in each case that no adjustment shall be
made which would cause the plan to violate Section 422(b)(1) of the Internal
Revenue Code of 1986, as amended (the "Code") with respect to ISOs (defined
below) or would adversely affect the status of a Performance-Based Award
(defined below) as "performance based compensation" under Section 162(m) of the
Code. The Committee may also adjust performance conditions and other terms of
awards in response to unusual or nonrecurring events or to changes in applicable
laws, regulations, or accounting principles, except to the extent that such
adjustment would adversely affect the status of any outstanding
Performance-Based Awards as "performance-based compensation" under Section
162(m) of the Code.
ELIGIBILITY
Persons eligible to participate in the 2000 Incentive Plan include all key
employees and consultants of the Company and its subsidiaries, as determined by
the Committee. While the specific individuals to whom awards will be made in the
future cannot be determined at this time, it is anticipated that currently
approximately nine employees presently are eligible for participation in the
2000 Incentive Plan.
AWARDS
The 2000 Incentive Plan is designed to give the Committee the maximum
flexibility in providing incentive compensation to key employees and
consultants. The 2000 Incentive Plan provides for the grant of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted
stock, bonus stock, awards in lieu of cash obligations, other stock-based awards
and performance units. The 2000 Incentive Plan also permits cash payments either
as a separate award or as a supplement to a stock-based award, and for the
income and employment taxes imposed on a participant in respect of any award.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Committee is authorized to grant stock options, including both incentive
stock options ("ISOs"), which can result in potentially favorable tax treatment
to the participant, and nonqualified stock options. The Committee can also grant
stock appreciation rights ("SARs") entitling the participant to receive the
excess of the fair market value of a share of Common Stock on the date of
exercise over the grant price of the SAR. The exercise price per share of Common
Stock subject to an option and the grant price of an SAR are determined by the
Committee, provided that the exercise price of an ISO or SAR may not be less
than the fair market value (110% of the fair market value in the case of an ISO
granted to a 10% shareholder) of the Common Stock on the date of grant. However,
the 2000 Incentive Plan also allows the Committee to grant an option, an SAR or
other award allowing the purchase of Common Stock at an exercise price or grant
price less than fair market value when it is granted in substitution for some
other award or retroactively in tandem with an outstanding award. In those
cases, the exercise or grant price may be the fair market value at that date, at
the date of the earlier award or at that date reduced by the fair market value
of the award required to be surrendered as a condition to the receipt of the
substitute award. The terms of each option or SAR, the times at which each
option or SAR will be exercisable, and provisions requiring forfeiture of
unexercised options or SARs and relating to exercisability or following
termination of employment will be fixed by the Committee. However, no ISO or SAR
granted in tandem will have a term exceeding ten years (or shorter period
applicable under Section 422 of the Code). Options may be exercised by payment
of the exercise price in cash or in Common Stock, outstanding awards or other
property (including notes or obligations to make payment on a deferred basis, or
through "cashless exercises") having a fair market value equal to the exercise
price, as the Committee may determine from time to time. The Committee also
determines the methods of exercise and settlement and certain other terms of the
SARs.
RESTRICTED STOCK
The 2000 Incentive Plan also authorizes the Committee to grant restricted stock.
Restricted stock is an award of shares of Common Stock which may not be disposed
of by participants and which may be forfeited in the event of certain
terminations of employment or certain other events prior to the end of a
restriction period established by the Committee. Such an award entitles the
participant to all of the rights of a stockholder of the Company, including the
right to vote the shares and the right to receive any dividends thereon, unless
otherwise determined by the Committee.
OTHER STOCK-BASED AWARDS, BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS
In order to enable the Company to respond to business and economic developments
and trends in executive compensation practices, the 2000 Incentive Plan
authorizes the Committee to grant awards that are denominated or payable in, or
valued in whole or in part by reference to the value of, Common Stock. The
Committee will determine the terms and conditions of such awards, including
consideration to be paid to exercise awards in the nature of purchase rights,
the period during which awards will be outstanding and forfeiture conditions and
restrictions on awards. In addition, the Committee is authorized to grant shares
as a bonus, free of restrictions, or to grant shares or other awards in lieu of
Company obligations to pay cash or deliver other property under other plans or
compensatory arrangements, subject to such terms as the Committee may specify.
15
CASH PAYMENTS
The Committee may grant the right to receive cash payments whether as a separate
award or as a supplement to any stock-based awards. Also, to encourage
participants to retain awards payable in stock by providing a source of cash
sufficient to pay the income and employment taxes imposed as a result of a
payment pursuant to, or the exercise or vesting of, any award, the 2000
Incentive Plan authorizes the Committee to grant a Tax Bonus in respect of any
award.
PERFORMANCE UNITS
The Committee is also authorized to grant performance units. A performance unit
is a right to receive a payment in cash equal to the increase in the book value
of the Company if specified performance goals during a specified time period are
met. The Committee has the discretion to establish the performance goals and the
performance periods relating to each performance unit. A performance goal is a
goal expressed in terms of growth in book value, earnings per share, return on
equity or any other financial or other measurement selected by the Committee, in
its discretion, and may relate to the operations of the Company as a whole or
any subsidiary, division or department, and the performance periods may be of
such length as the Committee may select. Neither the performance goals nor the
performance periods need be identical for all performance units awarded at any
time or from time to time.
PERFORMANCE-BASED AWARDS
The Committee may (but is not required to) grant awards pursuant to the 2000
Incentive Plan to a participant who, in the year of grant, may be among the
Company's Chief Executive Officer and the four other most highly compensated
executive officers ("Covered Employees"), which are intended to qualify as a
Performance-Based Award. If the Committee grants an award as a Performance-Based
Award, the right to receive payment of such award, other than stock options and
SARs granted at not less than fair market value on the date of grant, will be
conditional upon the achievement of performance goals established by the
Committee in writing at the time such Performance-Based Award is granted. Such
performance goals may vary from participant to participant and Performance-Based
Award to Performance-Based Award. The goals will be based upon (i) the
attainment of specific amounts of, or increases in, one or more of the
following, any of which may be measured either in absolute terms or as compared
to another company or companies: revenues, earnings, cash flow, net worth, book
value, stockholder's equity, financial return ratios, market performance or
total stockholder return, and/or (ii) the completion of certain business or
capital transactions. Before any Performance-Based Award is paid, the Committee
will certify in writing that the performance goals applicable to the
Performance-Based Award were in fact satisfied.
OTHER TERMS OF AWARDS
The maximum amount which may be granted as Performance-Based Awards to any
participant in any calendar year shall not exceed (i) stock-based awards for
500,000 shares of Common Stock (whether payable in cash or stock), subject to
adjustment as provided in the 2000 Incentive Plan, (ii) 500,000 performance
units, (iii) a Tax Bonus payable with respect to the stock-based awards and
performance units and (iv) cash payments (other than Tax Bonuses) of $1,000,000.
The Committee has the discretion to grant an award that is not a
Performance-Based Award to a participant who may be a Covered Employee.
In the discretion of the Committee, awards may be settled in cash, Common Stock,
other awards or other property. The Committee may require or permit participants
to defer the distribution of all or part of an award in accordance with such
terms and conditions as the Committee may establish, including payment of
reasonable interest on any amounts deferred under the 2000 Incentive Plan.
Awards granted under the 2000 Incentive Plan may not be pledged or otherwise
encumbered. Generally, unless the Committee determines otherwise, awards are not
transferable except by will or by the laws of descent and distribution, or
(except in the case of an ISO) otherwise if permitted under Rule 16b-3 of the
Exchange Act and by the Committee. The 2000 Incentive Plan grants the Committee
broad discretion in the operation and administration of the 2000 Incentive Plan.
This discretion includes the authority to make adjustments in the terms and
conditions of, and the criteria included in performance conditions related to,
any awards in recognition of unusual or nonrecurring events affecting the
Company or in response to changes inapplicable laws, regulations or accounting
principles. However, no such adjustment may adversely affect the status of any
outstanding award as a Performance-Based Award. The Committee can waive any
condition applicable to any award, and may adjust any performance condition
specified in connection with any award, if such adjustment is necessary, to take
account of a change in the Company's strategy, performance of comparable
companies or other circumstances. However no adjustment may adversely affect the
status of any outstanding award as a Performance-Based Award. Awards under the
2000 Incentive Plan generally will be granted for no consideration other than
services. The Committee may, however, grant awards alone, in addition to, in
tandem with, or in substitution for, any other award under the 2000 Incentive
Plan, other awards under other Company plans, or other rights to payment from
the Company. Awards granted in addition to or in tandem with other awards may be
granted either at the same time or at different times. If an award is granted in
substitution for another award, the participant must surrender such other award
in consideration for the grant of the new award.
CHANGE OF CONTROL
In the event of a change of control of the Company, all awards granted under the
2000 Incentive Plan (including Performance-Based Awards) that are outstanding
and not yet vested or exercisable or which are subject to restrictions, will
become immediately 100% vested in each
16
participant or will be free of any restrictions, and will be exercisable for the
remaining duration of the award. All awards that are exercisable as of the
effective date of the change of control will remain exercisable for the
remaining duration of the award. Under the 2000 Incentive Plan, a change of
control occurs upon any of the following events: (i) the acquisition, in one or
more transactions, of beneficial ownership by any person or group, (other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a subsidiary), of any securities of the Company such that, as a
result of such acquisition, such person or group, either (A) beneficially owns,
directly or indirectly, more than 50% of the Company's outstanding voting
securities entitled to vote on a regular basis for a majority of the members of
the Board or (B) otherwise has the ability to elect, directly or indirectly, a
majority of the members of the Board; (ii) a change in the composition of the
Board such that a majority of the members of the Board are not Continuing
Directors (as defined in the 2000 Incentive Plan); or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 50% of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company, in one or
more transactions, of all or substantially all the Company's assets. The
foregoing events will not be deemed to be a change of control if the
transactions causing such change are approved in advance by the affirmative vote
of at least a majority of the Continuing directors.
AMENDMENT AND TERMINATION
The 2000 Incentive Plan is of indefinite duration; continuing until all shares
and performance units reserved therefore have been issued or until terminated by
the Board. The Board may amend, alter, suspend, discontinue, or terminate the
2000 Incentive Plan or the Committee's authority to grant awards thereunder
without further stockholder approval or the consent of the participants, except
stockholder approval must be obtained within one year after the effectiveness of
such action if required by law or regulation or under the rules of the
securities exchange on which the Common Stock is then quoted or listed or as
otherwise required by Rule 16b-3 under the Exchange Act. Notwithstanding the
foregoing, unless approved by the stockholders, no amendment will: (i) change
the class of persons eligible to receive awards; (ii) materially increase the
benefits accruing to participants under the 2000 Incentive Plan; or (iii)
increase the number of shares of Common Stock subject to the 2000 Incentive
Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND THE PARTICIPANT
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to awards under the 2000 Incentive Plan. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
income and other tax consequences. A participant will not realize any income
upon the award of an option (including any other stock-based award in the nature
of a purchase right), an SAR or a performance unit, nor will the Company be
entitled to any tax deduction. When a participant who has been granted an option
which is not designated as an ISO exercises that option and receives Common
Stock which is either "transferable" or not subject to a "substantial risk of
forfeiture" under Section 83(c) of the Code, the participant will realize
compensation income subject, in the case of an employee, to withholding taxes.
The amount of that compensation income will equal the excess of the fair market
value of the Common Stock (without regard to any restrictions) on the date of
exercise of the option over its exercise price, and the Company will generally
be entitled to a tax deduction in the same amount and at the same time as the
compensation income is realized by the participant. The participant's tax basis
for the Common Stock so acquired will equal the sum of the compensation income
realized and the exercise price. Upon any subsequent sale or exchange of the
Common Stock, the gain or loss will generally be taxed as a capital gain or loss
and will be a long-term capital gain or loss if the Common Stock has been held
for more than one year after the date of exercise.
If a participant exercises an option which is designated as an ISO and the
participant has been an employee of the Company or its subsidiaries throughout
the period from the date of grant of the ISO until three months prior to its
exercise, the participant will not realize any income upon the exercise of the
ISO (although alternative minimum tax liability may result), and the Company
will not be entitled to any tax deduction. If the participant sells or exchanges
any of the shares acquired upon the exercise of the ISO more than one year after
the transfer of the shares to the participant and more than two years after the
date of grant of the ISO, any gain or loss (based upon the difference between
the amount realized and the exercise price of the ISO) will be treated as
long-term capital gain or loss to the participant. If such sale, exchange or
other disposition takes place within two years of the grant of the ISO or within
one year of the transfer of shares to the participant, the sale, exchange or
other disposition will generally constitute a "disqualifying disposition" of
such shares. In such event, to the extent that the gain realized on the
disqualifying disposition does not exceed the difference between the fair market
value of the shares at the time of exercise of the ISO over the exercise price,
such amount will be treated as compensation income in the year of the
disqualifying disposition, and the Company will be entitled to a deduction in
the same amount and at the same time as the compensation income is realized by
the participant. The balance of the gain, if any, will be treated as capital
gain and will not result in any deduction by the Company.
With respect to other awards (including an SAR or a performance unit) granted
under the 2000 Incentive Plan that may be settled either in cash or in Common
Stock or other property that is either transferable or not subject to a
substantial risk of forfeiture under Section 83(c) of the Code, the participant
will realize compensation income (subject, in the case of employees) to
withholding taxes) equal to the amount of cash or the fair market value of the
Common Stock or other property received. The Company will be entitled to a
deduction in the same amount and at
17
the same time as the compensation income is realized by the participant.
With respect to awards involving Common Stock or other property that is both
nontransferable and subject to a substantial risk of forfeiture, unless an
election is made under Section 83(b) of the Code, as described below, the
participant will realize compensation income equal to the fair market value of
the Common Stock or other property received at the first time the Common Stock
or other property is either transferable or not subject to a substantial risk of
forfeiture. The Company will be entitled to a deduction in the same amount and
at the same time as the compensation income is realized by the participant. Even
though Common Stock or other property may be nontransferable and subject to a
substantial risk of forfeiture, a participant may elect (within 30 days of
receipt of the Common Stock or other property) to include in gross income the
fair market value (determined without regard to such restrictions) of such
Common Stock or other property at the time received. In that event, the
participant will not realize any income at the time the Common Stock or other
property either becomes transferable or is not subject to a substantial risk of
forfeiture, but if the participant subsequently forfeits such Common Stock or
other property, the participant's loss would be limited only to the amount
actually paid for the Common Stock or other property. While such Common Stock or
other property remains nontransferable and subject to a substantial risk of
forfeiture, any dividends or other income will be taxable as additional
compensation income. Finally, special rules may apply with respect to
participants subject to Section 16(b) of the Exchange Act.
The Committee may condition the payment, exercise or vesting of any award on the
payment of the withholding taxes and may provide that a portion of the Common
Stock or other property to be distributed will be withheld (or previously
acquired stock or other property surrendered by the participant) to satisfy such
withholding and other tax obligations. Finally, amounts paid pursuant to an
award which vests or becomes exercisable, or with respect to which restrictions
lapse, upon a Change in Control may constitute a "parachute payment" under
Section 280G of the Code. To the extent any such payment constitutes an "excess
parachute payment," the Company would not be entitled to deduct such payment and
the participant would be subject to a 20 percent excise tax (in addition to
regular income tax).
SECTION 162(M) PROVISIONS
The 2000 Incentive Plan was designed to permit the deduction by the Company of
the compensation realized by certain officers in respect of long-term incentive
compensation granted under the 2000 Incentive Plan which is intended by the
Committee to qualify as "performance-based compensation" under Section 162(m) of
the Code. Section 162(m) of the Code generally disallows a deduction to the
Company for compensation paid in any year in excess of $1 million to any Covered
Employee. Certain compensation, including compensation that meets the specified
requirements for "performance-based compensation," is not subject to this
deduction limit. Among the requirements for compensation to qualify as
"performance-based compensation" is that the material terms pursuant to which
the compensation is to be paid be disclosed to, and approved by, the
stockholders of the Company in a separate vote prior to the payment.
Accordingly, because the 2000 Incentive Plan has been approved by the
Stockholders, the compensation payable pursuant to awards granted to officers
who in the year of grant may be Covered Employees and which are intended by the
Committee to qualify as "performance-based compensation" should not be subject
to the deduction limit of Section 162(m) of the Code, provided the Plan
continues to be administered by a Committee consisting solely of two or more
"outside directors" and the other requirements of Section 162(m) of the Code are
satisfied. Nonqualified stock options granted with an option price less than the
fair market value at the time of grant will not qualify as performance-based
compensation. Not withstanding the foregoing, the Committee may, in the exercise
of its discretion, issue stock option grants that would be subject to the
deductibility limit where it deems such issuance to be in the best interests of
the Company and it's stockholders.
NEW PLAN BENEFITS
Because awards under the 2000 Incentive Plan are discretionary, the Company
cannot currently determine the number of options that may be granted under the
2000 Incentive Plan, as amended. Options to purchase 1,291,588 shares of Common
Stock were awarded under the 2000 Incentive Plan in 2006. The Named Executive
Officers received option and restricted stock grants under the 2000 Incentive
Plan as set forth in this proxy statement under the caption "Executive
Compensation." In addition, of the persons eligible to receive grants under the
Equity Plan, the following persons received option and restricted stock grants
under the 2000 Incentive Plan in 2006 as follows: (i) All current executive
officers as a group (2): 95,008 and (ii) All employees who are not executive
officers: 1,001,500, and (iii) to advisory board members and other consultants:
1,070,000.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE 2000 EQUITY INCENTIVE PLAN.
PROPOSAL 4
AMENDMENT TO THE COMPANY'S 2002 NON-EMPLOYEE DIRECTORS'
PLAN INCREASINGTHE NUMBER OF SHARES OF COMMON STOCK,
RESERVED FOR ISSUANCE THEREUNDER, TO 4,000,000 SHARES.
At the Annual Meeting, the Stockholders will be asked to approve an amendment to
the Company's 2002 Non-Employee Directors' Plan (the
18
"2002 Directors' Plan") to increase the number of shares of the Company's Common
Stock reserved for issuance under the 2002 Director's Plan to a total of
4,000,000 shares of Common Stock.
The Board believes that stock options are an important incentive for attracting
and retaining on the Company's Board the service of individuals of stature who
are not otherwise employed by the Company or any subsidiary.
Although the Company cannot currently determine the number of options that may
be granted in the future to non-employee directors, each of Messrs. Mendez,
Butters and Martin has an interest in the approval of the amendment to the 2002
Directors' Plan in so far as they are eligible recipients of options under the
plan.
SUMMARY OF THE TERMS OF THE 2002 DIRECTORS' PLAN
The summary of the 2002 Directors' Plan below is qualified in its entirety by
the 2002 Directors' Plan attached hereto as Appendix C.
The 2002 Directors' Plan is administered by the Board of Directors or, if so
determined by the Board, by a committee consisting solely of two or more
non-employee directors of the Company. The body administrating the 2002
Directors' Plan is referred to herein as the "Administrative Body." The
Administrative Body is authorized to construe, interpret and implement the
provisions of the 2002 Directors' Plan, to select the non-employee directors to
whom awards will be granted, to determine the amount, terms and conditions of
such awards and to make all other determinations deemed necessary or advisable
for the administration of the 2002 Directors' Plan. The shares available for
grant under the 2002 Directors' Plan may be authorized and unissued shares or
treasury shares. If any shares of Common Stock subject to an award are forfeited
or the award otherwise terminates for any reason whatsoever without an actual
distribution of shares, the shares subject to such award will again be available
for awards. Only directors not employed by the Company or any of its
subsidiaries are eligible to participate in the 2002 Directors' Plan.
Under the 2002 Directors' Plan, the Administrative Body may issue only
non-qualified options. Each option granted under the 2002 Directors' Plan will,
unless earlier terminated as provided in the 2002 Directors' Plan, expire six
years from the date of grant. If a non-employee director ceases to serve as a
director of the Company, options issued to such a director under the 2002
Directors' Plan will (i) in the case of removal for cause, terminate
immediately; (ii) in the case of death or disability, terminate one year after
the date on which such director ceased to serve; and (iii) in all other the
cases (including failure to be renominated or reelected), terminate three months
after such director ceased to serve. The exercise price of the option will be
the fair market value of the Common Stock on the date of the grant of the
option. The number of options and prices at which they are exercisable are
subject to adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends.
The 2002 Directors' Plan continues in effect through December 31, 2012. The
Board may amend, alter, suspend, discontinue, or terminate the 2002 Directors'
Plan. Notwithstanding the foregoing, any such amendment, alteration, suspension,
discontinuation or termination shall be subject to the approval of the Company's
stockholders if such approval is required by any applicable law or regulation or
any applicable stock exchange rule. Additionally, without the consent of the an
affected non-employee director, no amendment, alteration, suspension,
discontinuation or termination of the 2002 Directors Plan may materially,
adversely affect the rights of such non-employee director under any option
theretofore granted.
FEDERAL TAX CONSEQUENCES
Set forth below is a description of the federal income tax consequences under
the Code, of the grant and exercise of the benefits awarded under the 2002
Directors' Plan. This description does not purport to be a complete description
of the federal income tax aspects of the 2002 Directors' Plan. The summary does
not include any discussion of state, local or foreign income tax consequences or
the effect of gift, estate or inheritance taxes, any of which may be significant
to a particular director eligible to receive options.
A director to whom an option is granted under the 2002 Directors' Plan will not
recognize any taxable income upon the grant of an option. Upon the exercise of
such option, an optionee will generally recognize ordinary compensation income
equal to the difference between the exercise price of the option and the fair
market value of the Common Stock acquired on the date of exercise. The tax basis
of such Common Stock to the optionee will equal the amount includable in the
optionee's income as compensation, and the optionee's holding period for such
Common Stock will commence on the day on which the optionee recognizes the
compensation income in respect of such Common Stock. Any additional gain or any
loss recognized on the subsequent disposition of the shares of Common Stock will
be a capital gain or loss and will be a long-term gain or loss if the shares are
held for more than one year. Generally, the Company will be entitled to a tax
deduction upon the exercise of an option under the 2002 Directors' Plan at the
same time and in the same amount as the ordinary income recognized by the
optionee.
NEW PLAN BENEFITS
Because awards under the 2002 Directors' Plan are discretionary, the Company
cannot currently determine the number of options that may be granted under the
2002 Directors' Plan. Only non-employee directors are eligible to receive
options under the 2002 Directors' Plan.
19
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE 2002 DIRECTORS' PLAN.
PROPOSAL NO. 5
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTING FIRM
The Audit Committee has selected Marcum & Kliegman, LLP ("Marcum") as the
Company's independent public accounting firm for the year ending December 31,
2007. The Board has directed that such appointment be submitted for ratification
by the shareholders at the Annual Meeting.
It is not anticipated that a member of Marcum will be present at the Annual
Meeting.
If you do not ratify the Audit Committee's selection of the independent public
accounting firm, the Audit Committee will reconsider the appointment. However,
even if you ratify the selection, the Audit Committee may still appoint a new
independent public accounting firm at any time during the year if it believes
that such a change would be in the best interests of Company and its
stockholders.
FEES
The following table presents fees for professional audit services rendered by
Marcum for the audit of our annual financial statements for 2006 and 2005 and
fees billed for other services rendered by Marcum during 2005 and 2004.
Type of Service/Fee Fiscal 2006 Fiscal 2005
------------------- ----------- -----------
Audit Fees (1) $ 208,000 $ 100,542
Audit Related Fees (2) $ 0 $ 0
Tax Fees (3) $ 0 $ 0
All Other Fees (4) $ 0 $ 0
(1) Consists of fees for professional services rendered for the audit of our
consolidated financial statements included in the annual report and the review
of the interim financial statements included in the quarterly reports, and for
the services that are normally provided in connection with regulatory filings or
engagements.
(2) Includes fees associated with assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
financial statements. This category includes fees related to consultation
regarding generally accepted accounting principles.
(3) Consists of fees for tax compliance, tax advice and tax planning.
(4) Consists of fees for products and services not included in the above
categories.
The Audit Committee reviewed the non-audit services rendered for fiscal 2006 and
fiscal 2005 as set forth in the above table and concluded that such services
were compatible with maintaining the accountants' independence. The Audit
Committee's policy is to pre-approve all audit services and all non-audit
services that our independent auditor is permitted to perform under applicable
federal securities regulations. As permitted by the applicable regulations, the
Audit Committee's policy utilizes a combination of specific pre-approval on a
case-by-case basis of individual engagements of the independent auditor and
general pre-approval of certain categories of engagements up to predetermined
dollar thresholds that are reviewed annually by the Audit Committee. Specific
pre-approval is mandatory for the annual financial statement audit engagement,
among others.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE INDEPENDENT PUBLIC ACCOUNTING FIRM.
OTHER MATTERS
At the Annual Meeting, management does not intend to present any matters other
than matters referred to herein, and as of this date management does not know of
any matter that will be presented by other persons named in the attached proxy
to vote thereon in accordance with their best judgment on such matters.
20
STOCKHOLDER PROPOSALS
Under the rules of the SEC, proposals of stockholders intended to be presented
at the 2008 annual meeting of Stockholders must be made in accordance with the
by-laws of the Company and received by the Company, at its principal executive
offices, for inclusion in the Company's proxy statement for that meeting, no
later than March 16, 2008. The Board of Directors will review any stockholder
proposals that are filed as required and will determine whether such proposals
meet applicable criteria for inclusion in its 2007 proxy statement.
ANNUAL REPORT & QUARTERLY REPORT
Enclosed is the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2006, including audited financial statements, and the Company's
Quarterly Report on Form 10-QSB for the three months ended March 31, 2007. Such
annual report on Form 10-KSB and quarterly report on Form 10-QSB do not form any
part of the material for the solicitation of proxies.
SOLICITATION OF PROXIES
The Company will pay the cost of the solicitation of proxies. Solicitation of
proxies may be made in person or by mail, telephone, or telecopy by directors,
officers, and employees of the Company. The Company may also engage the services
of others to solicit proxies in person or by telephone or telecopy.
In addition, the Company may also request banking institutions, brokerage firms,
custodians, nominees, and fiduciaries to forward solicitation material to the
beneficial owners of Common Stock held of record by such persons, and the
Company will reimburse such persons for the costs related to such services.
It is important that your shares be represented at the Annual Meeting. If you
are unable to be present in person, you are respectfully requested to sign the
enclosed proxy and return it in the enclosed stamped and addressed envelope as
promptly as possible.
BY ORDER OF THE BOARD OF DIRECTORS
FRANK GALUPPO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
________, 2007
21
AMEDIA NETWORKS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
July 16, 2007
The undersigned hereby constitutes and appoints each of FRANK GALUPPO and JAMES
D. GARDNER with full power of substitution, attorney and proxy to represent and
to vote all the shares of common stock, par value $.001 per share, of AMEDIA
NETWORKS, INC. (the "Company") that the undersigned would be entitled to vote,
with all powers the undersigned would possess if personally present, at the
Annual Meeting of Stockholders of the Company, to be held on July 16, 2007, and
at any adjournment thereof, on the matters set forth on the reverse side and
such other matters as may properly come before the meeting.
1. ELECTION OF DIRECTORS. Nominees: FRANK GALUPPO, JUAN MENDEZ, GERALD BUTTERS
AND BOB MARTIN.
(Mark only one of the following boxes.)
|_| VOTE FOR all nominees listed above, except vote withheld as to the following
nominees (if any): _________________
|_| VOTE WITHHELD from all nominees.
2. PROPOSAL TO APPROVE THE AMENDMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR
ISSUANCE TO 2,000,000,000 SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
3. PROPOSAL TO APPROVE THE AMENDMENT TO THE COMPANY'S 2000 EQUITY INCENTIVE PLAN
TO INCREASE THE SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER FROM
10,000,000 TO 20,000,000 SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
4. PROPOSAL TO APPROVE THE AMENDMENT TO THE COMPANY'S 2002 NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN TO INCREASE THE SHARES OF COMMON STOCK AVAILABLE FOR
ISSUANCE THEREUNDER FROM 2,000,000 TO 4,000,000 SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
5. PROPOSAL TO RATIFY THE APPOINTMENT OF MARCUM & KLIEGMAN, PC AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2007.
|_| FOR |_| AGAINST |_| ABSTAIN
In their discretion, upon any other business that may properly come before the
meeting or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
(i) FOR the election as directors of the nominees of the Board of Directors,
(ii) FOR the proposal to amend the Certificate of Incorporation to increase the
number of shares of Common Stock authorized for issuance; (iii) FOR the proposal
to increase the number of shares of Common Stock reserved for issuance under the
2000 Incentive Plan; (iv) FOR the proposal to increase the number of shares of
Common Stock reserved for issuance under the 2002 Directors Plan; (v) FOR the
ratification the appointment of Marcum as the independent public accounting firm
of the Company for the year ending December 31, 2007; and (vi) in the discretion
of the Proxies named in the proxy card on any other proposals to properly come
before the Annual Meeting or any adjournment thereof.
The undersigned acknowledges receipt of the accompanying Proxy Statement dated
________ __, 2007.
Dated: __________________, 2007
SIGNATURE OF SHAREHOLDER(S)
(When signing as attorney,
trustee, executor,
administrator, guardian,
corporate officer, etc., please
give full title. If more than
one trustee, all should sign.
Joint owners must each
sign.)
Please date and sign exactly as
name appears above.
I plan |_| I do not plan |_| to
attend the Annual Meeting.
APPENDIX A
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMEDIA NETWORKS, INC.
The undersigned, Frank Galuppo, President and Chief Executive Officer of Amedia
Networks, Inc., a Delaware corporation (the "Corporation"), does hereby certify
to the following:
1. The name of the Corporation is Amedia Networks, Inc.
2. The Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on July 14, 1994.
3. The first paragraph of Paragraph 4 of the Certificate of Incorporation
is hereby amended to read in its entirety as follows:
"The aggregate number of shares of stock which the corporation shall have the
authority to issue is 2,005,000,000, 2,000,000,000 of which are shares of Common
Stock, each with a par value of $0.001, each entitled to one vote per share, and
5,000,000 of which are Preferred Stock, with a par value of $0.001."
4. This amendment was adopted in accordance with Section 242 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment
as of this ____ day of ___________ 2007.
/S/ FRANK GALLUPO
-----------------
Name: Frank Gallupo
Title: President and Chief Executive Officer
A-1
APPENDIX B
AMEDIA NETWORKS, INC.
2000 EQUITY INCENTIVE PLAN
Section 1. Purpose of the Plan
The purpose of the Amedia Networks, Inc. Equity Incentive Plan (the "Plan") is
to further the interests of Amedia Networks, Inc. (the "Company") and its
shareholders by providing long-term performance incentives to those key
employees and consultants of the Company and its Subsidiaries who are largely
responsible for the management, growth and protection of the business of the
Company and its Subsidiaries.
Section 2. Definitions
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Award" means any Option, Performance Unit, SAR (including a Limited SAR),
Restricted Stock, Stock granted as a bonus or in lieu of other awards, other
Stock-Based Award, Tax Bonus or other cash payments granted to a Participant
under the Plan.
(b) "Award Agreement" shall mean the written agreement, instrument or document
evidencing an Award.
(c) "Change of Control" means and includes each of the following: (i) the
acquisition, in one or more transactions, of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) by any person or entity or any
group of persons or entities who constitute a group (within the meaning of
Section 13(d)(3) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
Subsidiary, of any securities of the Company such that, as a result of such
acquisition, such person, entity or group either (A) beneficially owns (within
the meaning of Rule l3d-3 under the Exchange Act), directly or indirectly, more
than 50% of the Company's outstanding voting securities entitled to vote on a
regular basis for a majority of the members of the Board of Directors of the
Company or (B) otherwise has the ability to elect, directly or indirectly, a
majority of the members of the Board; (ii) a change in the composition of the
Board of Directors of the Company such that a majority of the members of the
Board of Directors of the Company are not Continuing Directors; or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 50% of the
total voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one or
more transactions) all or substantially all of the Company's assets.
Notwithstanding the foregoing, the preceding events shall not be deemed to be a
Change of Control if, prior to any transaction or transactions causing such
change, a majority of the Continuing Directors shall have voted not to treat
such transaction or transactions as resulting in a Change of Control.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(e) A "Continuing Director" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board on
the effective date of the Plan or (ii) was nominated for election or elected to
such Board with the affirmative vote of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
(g) "Fair Market Value" means, with respect to Stock, Awards, or other property,
the fair market value of such Stock, Awards, or other property determined by
such methods or procedures as shall be established from time to time by the
Committee in good faith and in accordance with applicable law. Unless otherwise
determined by the Committee, the Fair Market Value of Stock shall mean the mean
of the high and low sales prices of Stock on the relevant date as reported on
the stock exchange or market on which the Stock is primarily traded, or if no
sale is made on such date, then the Fair Market Value is the weighted average of
the mean of the high and low sales prices of the Stock on the next preceding day
and the next succeeding day on which such sales were made, as reported on the
stock exchange or market on which the Stock is primarily traded.
(h) "ISO" means any Option designated as an incentive stock option within the
meaning of Section 422 of the Code.
(i) "Limited SAR" means an SAR exercisable only for cash upon a Change of
Control or other event, as specified by the Committee.
(j) "Option" means a right granted to a Participant pursuant to Section 6(b) to
purchase Stock at a specified price during specified time periods. An Option may
be either an ISO or a nonstatutory Option (an Option not designated as an ISO).
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(k) "Performance Unit" means a right granted to a Participant pursuant to
Section 6(c) to receive a payment in cash equal to the increase in the book
value of the Company during specified time periods if specified performance
goals are met.
(l) "Restricted Stock" means Stock awarded to a Participant pursuant to Section
6(d) that may be subject to certain restrictions and to a risk of forfeiture.
(m) "Stock-Based Award" means a right that may be denominated or payable in, or
valued in whole or in part by reference to the market value of, Stock,
including, but not limited to, any Option, SAR (including a Limited SAR),
Restricted Stock, Stock granted as a bonus or Awards in lieu of cash
obligations.
(n) "SAR" or "Stock Appreciation Right" means the right granted to a Participant
pursuant to Section 6(e) to be paid an amount measured by the appreciation in
the Fair Market Value of Stock from the date of grant to the date of exercise of
the right, with payment to be made in cash, Stock or as specified in the Award,
as determined by the Committee.
(o) "Subsidiary" shall mean any corporation, partnership, joint venture or other
business entity of which 50% or more of the outstanding voting power is
beneficially owned, directly or indirectly, by the Company.
(p) "Tax Bonus" means a payment in cash in the year in which an amount is
included in the gross income of a Participant in respect of an Award of an
amount equal to the federal, foreign, if any, and applicable state and local
income and employment tax liabilities payable by the Participant as a result of
(i) the amount included in gross income in respect of the Award and (ii) the
payment of the amount in clause (i) and the amount in this clause (ii). For
purposes of determining the amount to be paid to the Participant pursuant to the
preceding sentence, the Participant shall be deemed to pay federal, foreign, if
any, and state and local income taxes at the highest marginal rate of tax
imposed upon ordinary income for the year in which an amount in respect of the
Award is included in gross income, after giving effect to any deductions
therefrom or credits available with respect to the payment of any such taxes.
Section 3. Administration of the Plan
The Plan shall be administered by shall be administered by the Board of
Directors of the Company or, at the discretion of the Board, by a committee
composed of at least two members of the Board. Any such committee designated by
the Board, and the Board itself acting in its capacity as administrator of the
Equity Incentive Plan, is referred to herein as the "Committee." After any such
designation, no member of the Committee while serving as such shall be eligible
for participation in the Plan. Any action of the Committee in administering the
Plan shall be final, conclusive and binding on all persons, including the
Company, its Subsidiaries, employees, Participants, persons claiming rights from
or through Participants and stockholders of the Company.
Subject to the provisions of the Plan, the Committee shall have full and final
authority in its discretion (a) to select the key employees and consultants who
will receive Awards pursuant to the Plan ("Participants"), (b) to determine the
type or types of Awards to be granted to each Participant, (c) to determine the
number of shares of Stock to which an Award will relate, the terms and
conditions of any Award granted under the Plan (including, but not limited to,
restrictions as to transferability or forfeiture, exercisability or settlement
of an Award and waivers or accelerations thereof, and waivers of or
modifications to performance conditions relating to an Award, based in each case
on such considerations as the Committee shall determine) and all other matters
to be determined in connection with an Award; (d) to determine whether, to what
extent, and under what circumstances an Award may be settled, or the exercise
price of an Award may be paid, in cash, Stock, other Awards or other property,
or an Award may be canceled, forfeited, or surrendered; (e) to determine
whether, and to certify that, performance goals to which the settlement of an
Award is subject are satisfied; (f) to correct any defect or supply any omission
or reconcile any inconsistency in the Plan, and to adopt, amend and rescind such
rules and regulations as, in its opinion, may be advisable in the administration
of the Plan; and (g) to make all other determinations as it may deem necessary
or advisable for the administration of the Plan. The Committee may delegate to
officers or managers of the Company or any Subsidiary or to unaffiliated service
providers the authority, subject to such terms as the Committee shall determine,
to perform administrative functions and to perform such other functions as the
Committee may determine, to the extent permitted under Rule 16b-3, Section
162(m) of the Code and applicable law.
Section 4. Participation in the Plan
Participants in the Plan shall be selected by the Committee from among the key
employees and consultants of the Company and its Subsidiaries, provided,
however, that only key employees shall be eligible to receive ISOs under the
Plan.
Section 5. Plan Limitations; Shares Subject to the Plan
(a) Subject to the provisions of Section 8(a) hereof, the aggregate number of
shares of common stock, par value $0.001 per share, of the Company (the "Stock")
available for issuance as Awards under the Plan shall not exceed 20,000,000
shares.
B-2
(b) Subject to the provisions of Section 8(a) hereof, the aggregate number of
Performance Units which may be awarded under the Plan shall not exceed 350,000.
If any Performance Units awarded under the Plan shall be forfeited or canceled,
such Performance Units shall thereafter be available for award under the Plan.
No Award may be granted if the number of shares to which such Award relates,
when added to the number of shares previously issued under the Plan and the
number of shares which may then be acquired pursuant to other outstanding,
unexercised Awards, exceeds the number of shares available for issuance pursuant
to the Plan. If any shares subject to an Award are forfeited or such Award is
settled in cash or otherwise terminates for any reason whatsoever without an
actual distribution of shares to the Participant, any shares counted against the
number of shares available for issuance pursuant to the Plan with respect to
such Award shall, to the extent of any such forfeiture, settlement, or
termination, again be available for Awards under the Plan; provided, however,
that the Committee may adopt procedures for the counting of shares relating to
any Award to ensure appropriate counting, avoid double counting, and provide for
adjustments in any case in which the number of shares actually distributed
differs from the number of shares previously counted in connection with such
Award.
Section 6. Awards
(a) General. Awards may be granted on the terms and conditions set forth in this
Section 6. In addition, the Committee may impose on any Award or the exercise
thereof, at the date of grant or thereafter (subject to Section 8(a)), such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine, including terms requiring forfeiture of
Awards in the event of termination of employment by the Participant; provided,
however, that the Committee shall retain full power to accelerate or waive any
such additional term or condition as it may have previously imposed. All Awards
shall be evidenced by an Award Agreement.
(b) Options. The Committee may grant Options to Participants on the following
terms and conditions:
(i) Exercise Price. The exercise price of each Option shall be determined by the
Committee at the time the Option is granted, but (except as provided in Section
7(a)) the exercise price of any ISO shall not be less than the Fair Market Value
(110% of the Fair Market Value in the case of a 10% shareholder, within the
meaning of Section 422(c)(5) of the Code) of the shares covered thereby at the
time the Option is granted.
(ii) 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, whether the
exercise price shall be paid in cash or by the surrender at Fair Market Value of
Stock, or by any combination of cash and shares of Stock, including, without
limitation, cash, Stock, other Awards, or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered or deemed
to be delivered to Participants.
(iii) Incentive Stock Options. The terms of any Option granted under the Plan as
an ISO shall comply in all respects with the provisions of Section 422 of the
Code, including, but not limited to, the requirement that no ISO shall be
granted more than ten years after the effective date of the Plan.
(c) Performance Units. The Committee is authorized to grant Performance Units to
Participants on the following terms and conditions:
(i) Performance Criteria and Period. At the time it makes an award of
Performance Units, the Committee shall establish both the performance goal or
goals and the performance period or periods applicable to the Performance Units
so awarded. A performance goal shall be a goal, expressed in terms of growth in
book value, earnings per share, return on equity or any other financial or other
measurement deemed appropriate by the Committee, or may relate to the results of
operations or other measurable progress of either the Company as a whole or the
Participant's Subsidiary, division or department. The performance period will be
the period of time over which one or more of the performance goals must be
achieved, which may be of such length as the Committee, in its discretion, shall
select. Neither the performance goals nor the performance periods need be
identical for all Performance Units awarded at any time or from time to time.
The Committee shall have the authority, in its discretion, to accelerate the
time at which any performance period will expire or waive or modify the
performance goals of any Participant or Participants. The Committee may also
make such adjustments, to the extent it deems appropriate, to the performance
goals for any Performance Units awarded to compensate for, or to reflect, any
material changes which may have occurred in accounting practices, tax laws,
other laws or regulations, the financial structure of the Company, acquisitions
or dispositions of business or Subsidiaries or any unusual circumstances outside
of management's control which, in the sole judgment of the Committee, alters or
affects the computation of such performance goals or the performance of the
Company or any relevant Subsidiary, division or department.
(ii) Value of Performance Units. The value of each Performance Unit at any time
shall equal the book value per share of the Company's Stock, as such value
appears on the consolidated balance sheet of the Company as of the end of the
fiscal quarter immediately preceding the date of valuation.
(d) Restricted Stock. The Committee is authorized to grant Restricted Stock to
Participants on the following terms and conditions:
(i) Restricted Period. Restricted Stock awarded to a Participant shall be
subject to such restrictions on transferability and other restrictions for such
periods as shall be established by the Committee, in its discretion, at the time
of such Award, which restrictions may lapse separately or in
B-3
combination at such times, under such circumstances, or otherwise, as the
Committee may determine.
(ii) Forfeiture. Restricted Stock shall be forfeitable to the Company upon
termination of employment during the applicable restricted periods. The
Committee, in its discretion, whether in an Award Agreement or anytime after an
Award is made, may accelerate the time at which restrictions or forfeiture
conditions will lapse or remove any such restrictions, including upon death,
disability or retirement, whenever the Committee determines that such action is
in the best interests of the Company.
(iii) Certificates for Stock. Restricted Stock granted under the Plan may be
evidenced in such manner as the Committee shall determine. If certificates
representing Restricted Stock are registered in the name of the Participant,
such certificates may bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock.
(iv) Rights as a Shareholder. Subject to the terms and conditions of the Award
Agreement, the Participant shall have all the rights of a stockholder with
respect to shares of Restricted Stock awarded to him or her, including, without
limitation, the right to vote such shares and the right to receive all dividends
or other distributions made with respect to such shares. If any such dividends
or distributions are paid in Stock, the Stock shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which the Stock has been distributed.
(e) Stock Appreciation Rights. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom it is
granted a right to receive, upon exercise thereof, the excess of (A) the Fair
Market Value of one share of Stock on the date of exercise over (B) the grant
price of the SAR as determined by the Committee as of the date of grant of the
SAR, which grant price (except as provided in Section 7(a)) shall not be less
than the Fair Market Value of one share of Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time or times at which an
SAR may be exercised in whole or in part, the method of exercise, method of
settlement, form of consideration payable in settlement, method by which Stock
will be delivered or deemed to be delivered to Participants, whether or not an
SAR shall be in tandem with any other Award, and any other terms and conditions
of any SAR. Limited SARs may be granted on such terms, not inconsistent with
this Section 6(e), as the Committee may determine. Limited SARs may be either
freestanding or in tandem with other Awards.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company or Subsidiary obligations to pay cash or deliver other property under
other plans or compensatory arrangements; provided that, in the case of
Participants subject to Section 16 of the Exchange Act, such cash amounts are
determined under such other plans in a manner that complies with applicable
requirements of Rule 16b-3 so that the acquisition of Stock or Awards hereunder
shall be exempt from Section 16(b) liability. Stock or Awards granted hereunder
shall be subject to such other terms as shall be determined by the Committee.
(g) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other
Stock-Based Awards in addition to those provided in Sections 6(b) and (d)
through (e) hereof, as deemed by the Committee to be consistent with the
purposes of the Plan. The Committee shall determine the terms and conditions of
such Awards. Stock delivered pursuant to an Award in the nature of a purchase
right granted under this Section 6(g) shall be purchased for such consideration
and paid for at such times, by such methods, and in such forms, including,
without limitation, cash, Stock, other Awards, or other property, as the
Committee shall determine.
(h) Cash Payments. The Committee is authorized, subject to limitations under
applicable law, to grant to Participants Tax Bonuses and other cash payments,
whether awarded separately or as a supplement to any Stock-Based Award. The
Committee shall determine the terms and conditions of such Awards.
Section 7. Additional Provisions Applicable to Awards
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted under
the Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan or any award granted under any other plan of the Company or any
Subsidiary, or any business entity acquired by the Company or any Subsidiary, or
any other right of a Participant to receive payment from the Company or any
Subsidiary. If an Award is granted in substitution for another Award or award,
the Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. Awards granted in addition to, or
in tandem with other Awards or awards may be granted either as of the same time
as, or a different time from, the grant of such other Awards or awards. The per
share exercise price of any Option, grant price of any SAR, or purchase price of
any other Award conferring a right to purchase Stock:
(i) granted in substitution for an outstanding Award or award, shall be not less
than the lesser of (A) the Fair Market Value of a share of Stock at the date
such substitute Award is granted or (B) such Fair Market Value at that date,
reduced to reflect the Fair Market Value at that date of the Award or award
required to be surrendered by the Participant as a condition to receipt of the
substitute Award; or
B-4
(ii) retroactively granted in tandem with an outstanding Award or award, shall
not be less than the lesser of the Fair Market Value of a share of Stock at the
date of grant of the later Award or at the date of grant of the earlier Award or
award.
(b) Exchange and Buy Out Provisions. The Committee may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
other Awards (subject to Section 7(a)), or other property based on such terms
and conditions as the Committee shall determine and communicate to a Participant
at the time that such offer is made.
(c) Performance Conditions. The right of a Participant to exercise or receive a
grant or settlement of any Award, and the timing thereof, may be subject to such
performance conditions as may be specified by the Committee.
(d) Term of Awards. The term of each Award shall, except as provided herein, be
for such period as may be determined by the Committee; provided, however, that
in no event shall the term of any ISO, or any SAR granted in tandem therewith,
exceed a period of ten years from the date of its grant (or such shorter period
as may be applicable under Section 422 of the Code).
(e) Form of Payment. Subject to the terms of the Plan and any applicable Award
Agreement, payments or transfers to be made by the Company or a Subsidiary upon
the grant or exercise of an Award may be made in such forms as the Committee
shall determine, including, without limitation, cash, Stock, other Awards, or
other property (and may be made in a single payment or transfer, in
installments, or on a deferred basis), in each case determined in accordance
with rules adopted by, and at the discretion of, the Committee. (Such payments
may include, without limitation, provisions for the payment or crediting of
reasonable interest on installments or deferred payments.) The Committee, in its
discretion, may accelerate any payment or transfer upon a change in control as
defined by the Committee. The Committee may also authorize payment upon the
exercise of an Option by net issuance or other cashless exercise methods.
(f) Loan Provisions. With the consent of the Committee, and subject at all times
to laws and regulations and other binding obligations or provisions applicable
to the Company, the Company may make, guarantee, or arrange for a loan or loans
to a Participant with respect to the exercise of any Option or other payment in
connection with any Award, including the payment by a Participant of any or all
federal, state, or local income or other taxes due in connection with any Award.
Subject to such limitations, the Committee shall have full authority to decide
whether to make a loan or loans hereunder and to determine the amount, terms,
and provisions of any such loan or loans, including the interest rate to be
charged in respect of any such loan or loans, whether the loan or loans are to
be with or without recourse against the borrower, the terms on which the loan is
to be repaid and the conditions, if any, under which the loan or loans may be
forgiven.
(g) Awards to Comply with Section 162(m). The Committee may (but is not required
to) grant an Award pursuant to the Plan to a Participant who, in the year of
grant, may be a "covered employee," within the meaning of Section 162(m) of the
Code, which is intended to qualify as "performance-based compensation" under
Section 162(m) of the Code (a "Performance-Based Award"). The right to receive a
Performance-Based Award, other than Options and SARs granted at not less than
Fair Market Value, shall be conditional upon the achievement of performance
goals established by the Committee in writing at the time such Performance-Based
Award is granted. Such performance goals, which may vary from Participant to
Participant and Performance-Based Award to Performance-Based Award, shall be
based upon the attainment by the Company or any Subsidiary, division or
department of specific amounts of, or increases in, one or more of the
following, any of which may be measured either in absolute terms or as compared
to another company or companies: revenues, earnings, cash flow, net worth, book
value, stockholders' equity, financial return ratios, market performance or
total stockholder return, and/or the completion of certain business or capital
transactions. Before any compensation pursuant to a Performance-Based Award is
paid, the Committee shall certify in writing that the performance goals
applicable to the Performance-Based Award were in fact satisfied.
The maximum amount which may be granted as Performance-Based Awards to any
Participant in any calendar year shall not exceed (i) Stock-Based Awards for
100,000 shares of Stock (whether payable in cash or stock), subject to
adjustment as provided in Section 8(a) hereof, (ii) 100,000 Performance Units,
(iii) a Tax Bonus payable with respect to the Stock-Based Awards described in
clause (i) and Performance Units described in clause (ii), and (iv) cash
payments (other than Tax Bonuses) of $1,000,000.
(h) Change of Control. In the event of a Change of Control of the Company, all
Awards granted under the Plan (including Performance-Based Awards) that are
still outstanding and not yet vested or exercisable or which are subject to
restrictions shall become immediately 100% vested in each Participant or shall
be free of any restrictions, as of the first date that the definition of Change
of Control has been fulfilled, and shall be exercisable for the remaining
duration of the Award. All Awards that are exercisable as of the effective date
of the Change of Control will remain exercisable for the remaining duration of
the Award.
Section 8. Adjustments upon Changes in Capitalization; Acceleration in Certain
Events
(a) In the event that the Committee shall determine that any stock dividend,
recapitalization, forward split or Reverse Stock Split, reorganization, merger,
consolidation, spin-off, combination, repurchase or share exchange, or other
similar corporate transaction or event, affects the Stock or the book value of
the Company such that an adjustment is appropriate in order to prevent dilution
or enlargement of the rights of Participants under the Plan, then the Committee
shall, in such manner as it may deem equitable, adjust any or all of (i) the
number and kind of shares of Stock which may thereafter be issued in connection
with Awards, (ii) the number and kind of shares of Stock issuable in respect of
outstanding Awards, (iii) the aggregate number and kind of shares of Stock
available under the Plan, (iv) the number of Performance
B-5
Units which may thereafter be granted and the book value of the Company with
respect to outstanding Performance Units, and (v) the exercise price, grant
price, or purchase price relating to any Award or, if deemed appropriate, make
provision for a cash payment with respect to any outstanding Award; provided,
however, in each case, that no adjustment shall be made which would cause the
Plan to violate Section 422(b)(1) of the Code with respect to ISOs or would
adversely affect the status of a Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.
(b) In addition, the Committee is authorized to make adjustments in the terms
and conditions of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including, without limitation, events described
in the preceding paragraph) affecting the Company or any Subsidiary, or in
response to changes in applicable laws, regulations, or accounting principles.
Notwithstanding the foregoing, no adjustment shall be made in any outstanding
Performance-Based Awards to the extent that such adjustment would adversely
affect the status of that Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.
Section 9. General Provisions
(a) Changes to the Plan and Awards. The Board of Directors of the Company may
amend, alter, suspend, discontinue, or terminate the Plan or the Committee's
authority to grant Awards under the Plan without the consent of the Company's
stockholders or Participants, except that any such amendment, alteration,
suspension, discontinuation, or termination shall be subject to the approval of
the Company's stockholders within one year after such Board action if such
stockholder approval is required by any federal or state law or regulation or
the rules of any stock exchange or automated quotation system on which the Stock
may then be listed or quoted, and the Board may otherwise, in its discretion,
determine to submit other such changes to the Plan to the stockholders for
approval; provided, however, that without the consent of an affected
Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may materially and adversely affect the rights of such
Participant under any Award theretofore granted and any Award Agreement relating
thereto. The Committee may waive any conditions or rights under, or amend,
alter, suspend, discontinue, or terminate, any Award theretofore granted and any
Award Agreement relating thereto; provided, however, that without the consent of
an affected Participant, no such amendment, alteration, suspension,
discontinuation, or termination of any Award may materially and adversely affect
the rights of such Participant under such Award.
The foregoing notwithstanding, any performance condition specified in connection
with an Award shall not be deemed a fixed contractual term, but shall remain
subject to adjustment by the Committee, in its discretion at any time in view of
the Committee's assessment of the Company's strategy, performance of comparable
companies, and other circumstances, except to the extent that any such
adjustment to a performance condition would adversely affect the status of a
Performance-Based Award as "performance-based compensation" under Section 162(m)
of the Code.
Notwithstanding the foregoing, if the Plan is ratified by the stockholders of
the Company at the Company's 2000 Annual Meeting of Stockholders, then unless
approved by the stockholders of the Company, no amendment will: (i) change the
class of persons eligible to receive Awards; (ii) materially increase the
benefits accruing to Participants under the Plan, or (iii) increase the number
of shares of Stock or the number of Performance Units subject to the Plan.
(b) No Right to Award or Employment. No employee or other person shall have any
claim or right to receive an Award under the Plan. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee any right to be
retained in the employ of the Company or any Subsidiary.
(c) Taxes. The Company or any Subsidiary is authorized to withhold from any
Award granted, any payment relating to an Award under the Plan, including from a
distribution of Stock or any payroll or other payment to a Participant amounts
of withholding and other taxes due in connection with any transaction involving
an Award, and to take such other action as the Committee may deem advisable to
enable the Company and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Stock or other property
and to make cash payments in respect thereof in satisfaction of a Participant's
tax obligations.
(d) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, encumbered, or
hypothecated to, or in favor of, or subject to any lien, obligation, or
liability of such Participants to, any party, other than the Company or any
Subsidiary, or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution, and such Awards and rights shall
be exercisable during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative. Notwithstanding the foregoing, the
Committee may, in its discretion, provide that Awards or other rights or
interests of a Participant granted pursuant to the Plan (other than an ISO) be
transferable, without consideration, to immediate family members (i.e.,
children, grandchildren or spouse), to trusts for the benefit of such immediate
family members and to partnerships in which such family members are the only
partners. The Committee may attach to such transferability feature such terms
and conditions as it deems advisable. In addition, a Participant may, in the
manner established by the Committee, designate a beneficiary (which may be a
person or a trust) to exercise the rights of the Participant, and to receive any
distribution, with respect to any Award upon the death of the Participant. A
beneficiary, guardian, legal representative or other person claiming any rights
under the Plan from or through any Participant shall be subject to all terms and
conditions of the Plan and any Award Agreement applicable to such Participant,
except as otherwise determined by the Committee, and to any additional
restrictions deemed necessary or appropriate by the Committee.
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(e) No Rights to Awards; No Stockholder Rights. No Participant shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Participants. No Award shall confer on any
Participant any of the rights of a stockholder of the Company unless and until
Stock is duly issued or transferred to the Participant in accordance with the
terms of the Award.
(f) Discretion. In exercising, or declining to exercise, any grant of authority
or discretion hereunder, the Committee may consider or ignore such factors or
circumstances and may accord such weight to such factors and circumstances as
the Committee alone and in its sole judgment deems appropriate and without
regard to the affect such exercise, or declining to exercise such grant of
authority or discretion, would have upon the affected Participant, any other
Participant, any employee, the Company, any Subsidiary, any stockholder or any
other person.
(g) Effective Date. The effective date of the Plan is May 30, 2000.
(h) Shareholder Approval. Unless and until the Plan is approved by the
stockholders of the Company at the Company's 2000 Annual Meeting of
Stockholders, no Stock-Based Award may be granted to any officer of the Company.
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APPENDIX C
AMEDIA NETWORKS, INC.
2002 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. Purpose. The Amedia Networks, Inc. 2002 Non-Employee Directors Stock Option
Plan (the "Plan") is designed to aid Amedia Networks, Inc., a Delaware
corporation (the "Company"), in retaining and attracting non-employee directors
(directors who are not employees of the Company or of any corporation,
partnership, joint venture or other business entity of which fifty percent (50%)
or more of the outstanding voting power is beneficially owned, directly or
indirectly, by the Company) of exceptional ability by enabling such non-employee
directors to purchase a proprietary interest in the Company, thereby stimulating
in such individuals an increased desire to render greater services that will
contribute to the continued growth and success of the Company.
2. Amount and Source of Stock. The total number of shares of the Company's
common stock, $.001 par value per share (the "Stock"), which may be the subject
of options granted pursuant to the Plan shall not exceed 4,000,000, subject to
adjustment as provided in paragraph 10. Such Stock may be reserved or made
available from the Company's authorized and unissued Stock or from Stock
reacquired and held in the Company's treasury. In the event that any option
granted hereunder shall terminate prior to its exercise in full for any reason,
then the Stock subject to such option shall be added to the Stock otherwise
available for issuance pursuant to the exercise of options under the Plan.
3. Administration of the Plan. The Plan shall be administered by the Board of
Directors of the Company (the "Board") or, if determined by the Board, a
committee selected by the Board and comprised solely of two or more members of
the Board, who are "Non-Employee Directors" as that term is defined in Rule
16b-3(b)(3) (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended. The corporate body administering the Plan is
hereinafter referred to as the "Administrative Body." The Administrative Body
shall have all the powers vested in it by the terms of the Plan. Such powers
include the authority to select the participants who will receive options under
the Plan, to prescribe the form of the individual option agreements, to grant
options under the Plan, to fix the vesting and other terms of each option grant,
to construe the Plan, to determine all questions arising thereunder, and to
adopt and amend such rules and regulations for the administration of the Plan as
it may deem desirable. Any decisions of the Administrative Body in the
administration of the Plan shall be final and conclusive.
4. Option Grants.
(a) Each non-employee director shall be eligible to receive grants of options at
such time or times and for such number of shares of Stock as the Administrative
Body, in its discretion, shall determine. The date on which an option is granted
under this subparagraph to a specified individual shall constitute the date of
grant of such option (the "Date of Grant").
(b) The terms relating to the vesting of the option shall be fixed by the
Administrative Body at the time of the grant of the option.
5. Option Price. The exercise price of the Stock purchasable under any option
granted pursuant to the Plan shall be equal to the Fair Market Value of a share
of Stock on the Date of Grant. For purposes of the Plan, the "Fair Market Value"
of a share of Stock shall mean (i) if the Stock is traded on a national
securities exchange or on the NASDAQ National Market System ("NMS"), the per
share closing price of the Stock on the principal securities exchange on which
they are listed or on NMS, as the case may be, on the Date of Grant (or if there
is no closing price for such Date of Grant, then the last preceding business day
on which there was a closing price); or (ii) if the Stock is traded on the
over-the-counter market and quotations are published on the NASDAQ quotations
system (but not on NMS), the per share closing bid price of the Stock on the
Date of Grant as reported by NASDAQ (or if there is no closing bid price for
such Date of Grant, then the last preceding business day on which there was a
closing bid price); or (iii) if the Stock is traded on the over-the-counter
market but bid quotations are not published on NASDAQ, the closing bid price per
share for the Stock as furnished by a broker-dealer which regularly furnishes
price quotations for the Stock; or (iv) if the Stock is not traded on a
securities exchange or the over-the-counter market, the valuation accorded to
each share of Stock by the Administrative Body.
6. Term of Option.
(a) Unless earlier terminated pursuant to the other provisions herein, the
option hereby granted shall terminate at the close of business on the date six
(6) years from the Date of Grant (the "Expiration Date").
(b) If the non-employee director is removed as a director of the Company for
cause (as determined in accordance with applicable law) by the stockholders of
the Company, the unexercised portion of the option will terminate simultaneously
with the non-employee director's removal as a director.
(c) If a non-employee director ceases to be a director of the Company on account
of his or her death or disability, then the option may be exercised at any time
prior to the earlier of the Expiration Date and twelve (12) months after the
date that the non-employee director ceases to be a director of the Company, and
any part of the option which is not so exercised within such period shall
thereupon terminate.
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(d) If a non-employee director ceases to be a director of the Company for any
reason (other than cause, death or disability), then the option may be exercised
at any time prior to the earlier of the Expiration Date and three (3) months
after the date that the non-employee director ceases to be a director of the
Company, and any part of the option which is not so exercised within such period
shall thereupon terminate.
(e) No option granted hereunder shall be exercisable unless and until the
non-employee director has entered into an individual option agreement with the
Company that shall set forth the terms and conditions of such option. Each such
agreement shall expressly incorporate by reference the provisions of this Plan
(a copy of which shall be made available for inspection by the optionee during
normal business hours at the principal office of the Company), and shall state
that in the event of any inconsistency between the provisions hereof and the
provisions of such agreement, the provisions of this Plan shall govern.
7. Exercise of Options. An option shall be exercised when written notice of such
exercise, signed by the person entitled to exercise the option, has been
delivered or transmitted by registered or certified mail to the Secretary (or
such other officer as is specified in the individual option agreement) of the
Company at its then principal office. Such notice shall specify the number of
shares of Stock for which the option is being exercised and shall be accompanied
by (i) such documentation, if any, as may be required by the Company as provided
in subparagraph 11(b), and (ii) payment of the aggregate option price. The
Administrative Body shall determine whether the exercise price for an option
shall be paid in cash, by the surrender at Fair Market Value of Stock (held for
at least six (6) months), by any combination of cash and shares of Stock,
including, without limitation, cash, Stock or other property (including notes or
other contractual obligations of non-employee directors to make payment on a
deferred basis), the means or methods of payment, including through "cashless
exercise" arrangements, to the extent permitted by applicable law, and the
methods by which, or the time or times at which, Stock will be delivered or
deemed to be delivered to non-employee directors upon the exercise of such
option. Delivery of such notice shall constitute an irrevocable election to
purchase the Stock specified in such notice, and the date on which the Company
receives the last of such notice, documentation and the aggregate option
exercise price for all of the Stock covered by the notice shall, subject to the
provisions of paragraph 11 hereof, be the date as of which the Stock so
purchased shall be deemed to have been issued. The person entitled to exercise
the option shall not have the right or status as a holder of the Stock to which
such exercise relates prior to receipt by the Company of the payment, notice and
documentation expressly referred to in this paragraph 7.
8. Right of the Company to Terminate Services of a Non-Employee Director.
Nothing contained herein or in any individual option agreement shall be
construed to confer on any non-employee director any right to continue as a
director of the Company or derogate from any right of the Company, the Board or
the stockholders of the Company to remove or not renominate such non-employee
director as a director of the Company, with or without cause.
9. Non-transferability of Options. No option granted under the Plan shall be
pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien,
obligation, or liability of such non-employee director to, any party, other than
the Company, or assigned or transferred by such non-employee director otherwise
than by will or the laws of descent and distribution, and such option shall be
exercisable during the lifetime of the non-employee director only by the
non-employee director or his or her guardian or legal representative.
Notwithstanding the foregoing, the Administrative Body may, in its discretion,
provide that an option of a non-employee director granted pursuant to the Plan
be transferable, without consideration, to immediate family members (i.e.,
children, grandchildren or spouse), to trusts for the benefit of such immediate
family members and to partnerships in which such family members are the only
partners. The Administrative Body may attach to such transferability feature
such terms and conditions as it deems advisable. In addition, a non-employee
director may, in the manner established by the Administrative Body, designate a
beneficiary (which may be a person or a trust) to exercise the rights of the
non-employee director, and to receive any distribution, with respect to any
option upon the death of the non-employee director. A beneficiary, guardian,
legal representative or other person claiming any rights under the Plan from or
through any non-employee director shall be subject to all terms and conditions
of the Plan and any individual option agreement applicable to such non-employee
director, except as otherwise determined by the Administrative Body, and to any
additional restrictions deemed necessary or appropriate by the Administrative
Body.
10. Adjustments Upon Certain Events. In the event that the Administrative Body
shall determine that any stock dividend, recapitalization, forward split or
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase or share exchange, or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of non-employee directors under the Plan,
then the Administrative Body shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock that may
thereafter be issued in connection with options, (ii) the number and kind of
shares of Stock issuable in respect of outstanding options, (iii) the aggregate
number and kind of shares of Stock available under the Plan, and (iv) the
exercise price, grant price, or purchase price relating to any option or, if
deemed appropriate, make provision for a cash payment with respect to any
outstanding option.
11. General Restrictions.
(a) No option granted hereunder shall be exercisable if the Company shall at any
time determine that (i) the listing upon any securities exchange, registration
or qualification under any state or federal law of any Stock otherwise
deliverable upon such exercise, or (ii) the consent or approval of any
regulatory body or the satisfaction of withholding tax or other withholding
liabilities, is necessary or appropriate in connection with such exercise. In
any of the events referred to in clause (i) or clause (ii) above, the
exercisability of such options shall be suspended and shall not be effective
unless and until such withholding, listing, registration, qualifications or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company in its sole discretion, notwithstanding any
termination of any option or any
C-2
portion of any option during the period when
exercisability has been suspended.
(b) The Administrative Body may require, as a condition to the right to exercise
an option, that the Company receive from the non-employee director holding the
option, at the time of any such exercise, representations, warranties and
agreements to the effect that the Stock is being purchased by the non-employee
director for investment only and without any present intention to sell or
otherwise distribute such Stock and that the non-employee director will not
dispose of such Stock in transactions which, in the opinion of counsel to the
Company, would violate the registration provisions of the Securities Act of
1933, as then amended, and the rules and regulations thereunder. The
certificates issued to evidence such Stock shall bear appropriate legends
summarizing such restrictions on the disposition thereof.
12. Changes to the Plan.
(a) The Board may amend, alter, suspend, discontinue, or terminate the Plan or
the Administrative Body's authority to grant options under the Plan without the
consent of the Company's stockholders or non-employee directors, except that any
such amendment, alteration, suspension, discontinuation, or termination shall be
subject to the approval of the Company's stockholders within one year after such
Board action if such stockholder approval is required by any Federal or state
law or regulation or the rules of any stock exchange or automated quotation
system on which the Stock may then be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such changes to the Plan
to the stockholders for approval; provided, however, that without the consent of
an affected non-employee director, no amendment, alteration, suspension,
discontinuation, or termination of the Plan may materially and adversely affect
the rights of such non-employee director under any option theretofore granted
and any individual option agreement relating thereto. Subject to applicable law,
the Administrative Body may waive any conditions or rights under, or amend,
alter, suspend, discontinue, or terminate, any option theretofore granted and
any individual option agreement relating thereto; provided, however, that
without the consent of an affected non-employee director, no such amendment,
alteration, suspension, discontinuation, or termination of any option may
materially and adversely affect the rights of such non-employee director under
such option.
(b) The Board 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.
13. Termination. Unless the Plan shall theretofore have been terminated, the
Plan shall terminate on December 31, 2012, and no options under the Plan shall
thereafter be granted.
14. Fractional Shares. The Company will not be required to issue any fractional
shares of Stock pursuant to the Plan. The Administrative Body may provide for
the elimination of fractions and for the settlement of fractions in cash.
15. Discretion. In exercising, or declining to exercise, any grant of authority
or discretion hereunder, the Administrative Body may consider or ignore such
factors or circumstances and may accord such weight to such factors and
circumstances as the Administrative Body alone and in its sole judgment deems
appropriate and without regard to the effect such exercise, or declining to
exercise such grant of authority or discretion, would have upon the affected
non-employee director, any other non-employee director, any employee, the
Company, any stockholder or any other person.
16. Adoption of the Plan and Effective Date. The Plan shall be adopted by the
requisite vote of the stockholders of the Company and shall be effective as of
such date.
C-3
APPENDIX D
CHARTER OF THE AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
AMEDIA NETWORKS INC.
I. AUDIT COMMITTEE PURPOSE
The Audit Committee of the Board of Directors of Amedia Networks Inc. (the
"Company") is appointed by the Board of Directors to assist the Board of
Directors in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
o Monitor and review the accuracy and fairness of the Company's financial
reports and monitor and ensure the adequacy of the Company's systems of
internal controls regarding finance, accounting, and legal compliance.
o Monitor the independence and performance of the Company's independent
auditors.
o Provide an avenue of communication between the independent auditors,
management, internal auditors and the Board of Directors.
The Audit Committee has the authority to conduct or authorize investigations
into any matter within the scope of its responsibilities and it shall have
direct access to the independent auditors as well as anyone in the organization.
The Audit Committee has the ability to retain, at the Company's expense, special
legal, accounting, or other consultants or advisors it deems necessary in the
performance of its duties or to assist in the conduct of any investigation.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
Audit Committee members shall meet the requirements of the National Association
of Securities Dealers and the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley
Act"). The Audit Committee shall be comprised of three or more directors as
determined by the Board of Directors, each of whom shall be independent
non-executive directors, free from any relationship that would interfere with
the exercise of his or her independent judgment. All members of the Audit
Committee shall have a basic understanding of finance and accounting and be able
to read and understand fundamental financial statements, and at least one member
of the Audit Committee shall have accounting or related financial management
expertise and be considered a "financial expert" within the meaning of the
Sarbanes-Oxley Act. Members of the Audit Committee may enhance their familiarity
with finance and accounting by participating in educational programs.
Audit Committee members shall be appointed by the Board of Directors. If the
Audit Committee Chair is not designated or present, the members of the Audit
Committee may designate a Chair by majority vote of the Audit Committee
membership.
The Audit Committee will have regular meetings at least five times per year
(four of which should coincide with, and precede, the Company's public
announcement of its quarterly and annual results) or more frequently as
circumstances dictate. The Audit Committee Chair shall prepare and/or approve an
agenda in advance of each meeting. The Audit Committee should meet privately and
separately, on a regular basis, with management and with the independent
auditors, to discuss any matters that the Audit Committee or each of these
groups believes should be discussed.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
REVIEW PROCEDURES
1. Review and reassess the adequacy of this Charter at least annually.
Submit this Charter to the Board of Directors for approval and have this Charter
published in a proxy or information statement at least every three years in
accordance with the Securities and Exchange Commission regulations.
2. Review the Company's annual audited financial statements and related
footnotes prior to filing or distribution. The review should include separate
discussions with management and with the independent auditors of significant
issues and disagreements regarding accounting principles, practices and
judgments, any significant difficulties encountered during the course of the
audit, including any restrictions on the scope of work or access to required
information and the effect of using different accounting principles, practices
and judgments.
3. Review the Company's quarterly earnings prior to filing or distribution
and discuss with management and with the independent auditors.
4. Review any reports or other documents that include public financial
disclosures prior to filing or distribution and discuss with management, if
appropriate, whether the information contained in these documents is consistent
with the information contained in the Company's financial statements.
D-1
5. In consultation with the management and the independent auditors,
consider the integrity of the Company's financial reporting processes and
adequacy of controls. Discuss significant financial risk exposures and the steps
management has taken to monitor, control and report such exposures. Review and
assess management's critical accounting estimates.
6. Review written reports and significant findings prepared by the
independent auditors, if any, including reports regarding the Company's critical
accounting policies, alternative treatments of financial information and
material communications between the independent auditor and management, and if
appropriate, discuss the information contained in the reports with the
independent auditors. Review management's responses, if any, to such reports and
findings, including the status of previous recommendations.
7. Receive copies of reports to management prepared by the internal
auditing department and management's responses to any such reports. Obtain
confirmation from internal auditors that the Company is in compliance with its
financial reporting requirements.
8. Review, annually, the procedures, organizational structure, and
qualifications of the internal audit department, and review and approve the
hiring of employees of the independent auditors who were engaged on the
Company's account. Discuss with independent auditors the performance of the
internal audit department and any recommendations the independent auditors may
have.
9. Review, annually, policies and procedures, as well as audit results,
associated with directors' and officers' expense accounts and perquisites, and
other uses of corporate assets. Review, annually, a summary of directors' and
officers' related party transactions and potential conflicts of interest.
INDEPENDENT AUDITORS AND INTERNAL AUDITORS
10. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors, and the Audit Committee has the ultimate
authority and responsibility to select and hire, evaluate and where appropriate,
replace the independent auditors. The Audit Committee shall review the
performance of the independent auditors; the experience and qualifications of
the senior members of the independent auditor team; and the quality control
procedures of the independent auditors.
11. Approve the fees and other significant compensation to be paid to the
independent auditors.
12. Review the non-audit services to determine whether they are prohibited
under the Sarabanes-Oxley Act. Pre-approve the provision of any permissible
non-audit services by the independent auditors and the related fees of the
independent auditors therefor. Consider whether the provision of these other
services is compatible with maintaining the auditors' independence.
13. On an annual basis, the Audit Committee should receive from the
independent auditors a formal written statement delineating all relationships
between the independent auditors and the Company and should discuss with the
independent auditors the disclosed relationships or services that may impact the
objectivity and independence of the auditors, and take, or recommend that the
Board of Directors take appropriate action to ensure the independence of the
auditors. Annually, the Audit Committee shall ensure receipt of a formal written
statement from the independent auditors with respect to their independence
consistent with all applicable standards.
14. Review the independent auditors audit plan - discuss scope, staffing,
locations, reliance upon management and internal audit and general audit
approach.
15. Discuss certain matters required to be communicated to audit committees
in accordance with the American Institute of Certified Public Accountants: A
Statement of Auditing Standards No. 61, including such matters as (i) the
consistency of application of the Company's accounting policies; (ii) the
completeness of information contained in the financial statements and related
disclosures; (iii) the selection of new or changes to the Company's accounting
policies; (iv) estimates, judgments and uncertainties; (v) unusual transactions
and (vi) accounting policies relating to significant financial statements items,
including the timing of transactions and the period in which they are recorded.
16. Obtain and consider the independent auditors' judgments about the
quality and appropriateness of the Company's accounting principles as applied in
its financial reporting; the discussion should include such issues as the
clarity of the Company's financial disclosures and degree of aggressiveness or
conservatism of the Company's accounting principles and underlying estimates and
other significant decisions made by the management in preparing the financial
disclosure.
17. Discuss and review with the internal audit department and the
independent auditors the effectiveness and coordination of the internal audit
effort to assure completeness of coverage and to avoid duplication of resources.
Review the annual internal audit plan and the processes used to develop the
plan; discuss the scope of the plan, staffing, reliance upon management, status
of activities, significant findings, and any recommendations.
18. The internal auditors will be responsible to the Board of Directors
through the Audit Committee. The Audit Committee shall annually review the
performance, objectivity and independence of the internal auditors and recommend
to the Board of Directors the appointment of the internal auditors and any
discharge of internal auditors when circumstances warrant.
D-2
19. Approve the fees and other significant compensation to be paid to the
internal auditors.
LEGAL COMPLIANCE
20. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the Company's financial
statements, the Company's compliance with applicable laws and regulations, and
inquiries received from regulators or governmental agencies.
OTHER AUDIT COMMITTEE RESPONSIBILITIES
21. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in the Company's annual
proxy statement.
22. Establish and maintain appropriate procedures for the receipt and
handling of anonymous submissions from employees of the Company regarding
questionable accounting practices.
23. Maintain minutes of meetings and report Audit Committee actions to the
Board of Directors on a regular basis including any recommendations the Audit
Committee deems appropriate.
24. Perform any other activities consistent with this Charter, the Company's
By-laws and governing law, as the Audit Committee or the Board of Directors
deems necessary or appropriate.
25. Periodically perform self-assessment of Audit Committee performance.
D-3