SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement |_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
[GRAPHIC OMITTED]
IMAGING TECHNOLOGIES CORPORATION
--------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
[GRAPHIC OMITTED]
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive o San Diego, California 92128
Telephone: (858) 613-1300 o Fax: (858) 207-6505
September 5, 2001
Dear Stockholder:
It is a pleasure to send to you the attached notice and proxy materials with
regard to the Annual Meeting of Stockholders (the "Meeting") of Imaging
Technologies Corporation (the "Company") scheduled to be held on September 28,
2001.
The matters to be considered at the Meeting include the following: election of
directors; approval of a stock option plan; approval of an employee stock
purchase plan; approval of an increase in the number of authorized shares of the
Company's common stock (the "Common Stock"); approval of a reverse split of the
Common Stock; approval of a change in the par value per share of the Company's
preferred stock; and approval of the Company's accountants.
The Company's board of directors unanimously recommends that you vote FOR all of
the above-mentioned proposals.
I hope you will be able to attend the Meeting. However, whether or not you plan
to attend the Meeting, we request that you sign, date and return the enclosed
Proxy card as soon as possible.
If you should have any questions in regard to any of the above-mentioned
proposals, please do not hesitate to call our Stockholder Relations Department
or me at (858) 613-1300.
We are grateful for the confidence you have shown in us.
Sincerely yours,
Brian Bonar
Chief Executive Officer
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive o San Diego, California 92128
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held September 28, 2001
---------------
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders (the
"Meeting") of IMAGING TECHNOLOGIES CORPORATION, a Delaware corporation (the
"Company"), will be held at the offices of the Company at 15175 Innovation
Drive, San Diego, California 92128, on Friday, September 28, 2001, at 10 a.m.,
local time, to consider and act upon the following:
1. The election of five persons named in the accompanying Proxy Statement to
serve as directors on the Company's board of directors (the "Board") and
until their successors are duly elected and qualified;
2. To approve the Company's 2001 Stock Option Plan (the "2001 Stock Option
Plan"), pursuant to which up to 5,000,000 shares of the Company's common
stock, par value $.005 per share (the "Common Stock") will be reserved or
may be reserved for issuance over the term of the 2001 Stock Option Plan;
3. To approve the Company's 2001 Employee Stock Purchase Plan (the "2001
Stock Purchase Plan"), pursuant to which up to 2,500,000 shares of Common
Stock will be reserved or may be reserved for issuance over the term of
the 2001 Stock Purchase Plan;
4. To approve an amendment to the Company's certificate of incorporation (the
"Certificate of Incorporation") to increase the number of the
------------------------------ Common Stock, authorized to be issued from
200,000,000 shares to 500,000,000 shares;
5. To approve an amendment to the Certificate of Incorporation in order to
effect a stock combination (reverse split) of the Common Stock in an
exchange ratio to be approved by the Board, ranging from one newly issued
share for each ten outstanding shares of Common Stock to one newly issued
share for each twenty outstanding shares of Common Stock;
6. To approve an amendment to the Certificate of Incorporation to decrease
the par value per share of the Company's Preferred Stock from $1,000 per
share to $0.01 per share;
7. To ratify the appointment of Boros & Farrington APC as the Company's
independent auditors for the fiscal year ending June 30, 2001; and
8. To consider and transact such other business as may properly come before
the Meeting or any adjournment(s) thereof.
A Proxy Statement, form of Proxy and the Annual Report to Stockholders of
the Company for the fiscal year ended June 30, 2000 are enclosed herewith. Only
holders of record of Common Stock at the close of business on August 3, 2001 are
entitled to receive notice of and to attend the Meeting and any adjournment(s)
thereof. The stock transfer books of the Company will remain open between the
record
date and the date of the Meeting. At least 10 days prior to the Meeting, a
complete list of the stockholders entitled to vote will be available for
inspection by any stockholder, for any purpose germane to the Meeting, during
ordinary business hours, at the executive offices of the Company. Should you
receive more than one Proxy because your shares are registered in different
names and addresses, each Proxy should be signed and returned to assure that all
your shares will be voted. You may revoke your Proxy at any time prior to the
Meeting. If you attend the Meeting and vote by ballot, your Proxy will be
revoked automatically and only your vote at the Meeting will be counted. If you
do not expect to be present at the Meeting, you are requested to fill in, date
and sign the enclosed Proxy, which is solicited by the Board of the Company, and
to mail it promptly in the enclosed envelope.
In the event there are not sufficient votes for a quorum or to approve or
ratify any of the foregoing proposals at the time of the Meeting, the Meeting
may be adjourned by a vote of the majority of the votes cast by the stockholders
entitled to vote thereon. Whether or not you expect to attend the Meeting, to
assure that a quorum is present at the Meeting or an adjournment thereof, and
there are sufficient votes to vote on all of the foregoing proposals, please
sign, date and return promptly your Proxy (even after September 28, 2001, the
original Meeting date) in the stamp-addressed envelope provided.
By Order of the Board of Directors
Brian Bonar
Chief Executive Officer
Dated: September 5, 2001
--------------------------------------------------------------------------------
IMPORTANT
THE RETURN OF YOUR SIGNED PROXY AS PROMPTLY AS POSSIBLE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE MEETING. NO POSTAGE IS REQUIRED IF THE PROXY IS
RETURNED IN THE ENVELOPE ENCLOSED FOR YOUR CONVENIENCE AND MAILED IN THE
UNITED STATES.
--------------------------------------------------------------------------------
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive
San Diego, California 92128-3401
----------------------------------------
Proxy Statement
Annual Meeting of Stockholders
September 28, 2001
----------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the board of directors (the "Board") of Imaging Technologies
Corporation, a Delaware corporation (the "Company"), to be voted at the Annual
Meeting of Stockholders of the Company (the "Meeting") which will be held at the
offices of the Company at 15175 Innovation Drive, San Diego, California 92128 on
Friday, September 28, 2001 at 10 a.m., local time, and any adjournment(s)
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders and in this Proxy Statement.
The principal executive offices of the Company are located at 15175
Innovation Drive, San Diego, California 92128-3401. The approximate date on
which this Proxy Statement and accompanying Proxy will first be sent or given to
stockholders is September 5, 2001.
VOTING SECURITIES
VOTING
The specific proposals to be considered and acted upon at the Meeting are
summarized in the accompanying Notice of Annual Meeting of Stockholders and are
described in more detail in this Proxy Statement. On August 3, 2001, the record
date for determination of stockholders entitled to notice of and to vote at the
Meeting, 170,901,065 shares of the Company's common stock, par value $.005 (the
"Common Stock") and 420.5 shares of 5% Convertible Preferred Stock, par value
$1,000 per share (the "5% Convertible Stock"), were issued and outstanding. Each
stockholder is entitled to one vote for each share of Common Stock and no vote
for each share of 5% Convertible Stock held by such stockholder on August 3,
2001.
The attendance, in person or by proxy, of the holders of a majority of the
outstanding voting shares of Common Stock entitled to vote at the Meeting is
necessary to constitute a quorum. A vote of the holders of a majority of the
number of outstanding shares of Common Stock, present, in person or represented
by proxy at the Meeting and entitled to vote at the Meeting, will be required
for the approval of each of the amendments to the Company's certificate of
incorporation (the "Certificate of Incorporation"), the election of directors,
approval of the stock option and stock purchase plans, and election of the
Company's accountants.
Although the Company is a Delaware corporation, under Section 2115 of the
California Corporations Code, certain provisions of the California Corporation
Code apply to the Company because of the residence of the Company's stockholders
and the extent of its business operations and assets in California. The
provisions pertaining to certain requirements of cumulative voting apply to the
Company.
Stockholders have cumulative voting rights when voting for directors.
Accordingly, any stockholder may multiply the number of votes he or she is
entitled to vote by the number of directors to be elected and allocate votes
among the candidates in any manner. However, no voting stockholder may
cumulative votes unless the name(s) of the director candidate or candidates have
been placed in nomination prior to the voting and the stockholder, prior to the
voting, has given notice at the Meeting of its intention to cumulate its shares.
If any one stockholder has given a notice of its intention to cumulate votes
then all stockholders may cumulate their votes for director candidates in
nomination. Stockholders may exercise such cumulative voting rights, either in
person or by proxy after providing the proper notice. The five director nominees
receiving the highest number of votes will be elected.
The Board intends to vote proxies equally for the five nominees unless
otherwise instructed on the Proxy Card. If you do not wish your votes to be
voted for particular nominees, please identify the exceptions in the designated
place on the Proxy Card. If at the time of the Meeting one or more of the
nominees have become unavailable to serve, votes represented by Proxies will be
voted for the remaining nominees and for any substitute nominee or nominees
designated by the Board. Directors elected at the Meeting will hold office until
the next Annual Meeting of Stockholders or until their successors have been
elected and qualified.
All votes will be tabulated by the inspector of election appointed for the
Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions will be counted towards the tabulations
of votes cast on proposals presented to the stockholders and will have the same
effect as negative votes except in regard to the election of directors. Broker
non-votes will not be counted towards the tabulations of votes cast on proposals
presented to the stockholders.
PROXIES
If the enclosed form of Proxy is properly signed and returned, the shares
represented thereby will be voted at the Meeting in accordance with the
instructions specified thereon. If the Proxy does not specify how the shares
represented thereby are to be voted, the Proxy will be equally voted FOR the
election of the five directors proposed by the Board unless the authority to
vote for the election of such directors is withheld and, if no contrary
instructions are given, the Proxy will be voted FOR the approval of Proposals 1,
2, 3, 4, 5, 6 and 7 described in the accompanying Notice and Proxy Statement.
You may revoke or change your Proxy at any time before the Meeting by filing
with the Secretary of the Company at the Company's principal executive offices
at 15175 Innovation Drive, San Diego, California 92128-3401, a notice of
revocation or another signed Proxy with a later date. You may also revoke your
Proxy by attending the Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the form of
Proxy and any additional solicitation materials furnished to the stockholders.
Copies of solicitation materials will be furnished to brokerage houses,
fiduciaries and custodians holding shares in their names that are beneficially
owned by others so that they may forward this solicitation material to such
beneficial owners. The Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. In addition to
the solicitation of Proxies by mail, Proxies may be solicited without extra
compensation paid by the Company by directors, officers and employees of the
Company by telephone, facsimile, telegraph or personal interview. The Company
also has engaged the proxy solicitation firm of Georgeson Shareholder - New
Jersey to solicit votes for the Meeting for a fee of approximately $9,000, plus
reimbursement of certain expenses.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2001 Annual Meeting of Stockholders must
be received by the Company at its executive offices not later than a reasonable
time before the Company begins to print and mail its proxy materials in order
that such proposals may be included in the Proxy Statement and form of Proxy
relating to such meeting.
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MATTERS TO BE CONSIDERED AT THE MEETING
PROPOSAL 1
ELECTION OF THE BOARD
NOMINEES FOR ELECTION AS DIRECTORS
The persons named below are nominees for director to serve until the next
annual meeting of stockholders and until their successors have been elected and
qualified. Management has selected five nominees, all of whom are currently
directors of the Company. Each person nominated for election has agreed to serve
if elected, and management has no reason to believe that any nominee will be
unavailable to serve. Unless otherwise instructed, the Proxy holders will vote
the Proxies received by them for the nominees named below. The proxies received
by the Proxy holders cannot be voted for more than five directors, and, unless
otherwise instructed, the Proxy holders will vote such proxies for the nominees
named below. The five candidates receiving the highest number of affirmative
votes of the shares entitled to vote at the Meeting will be elected directors of
the Company.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Meeting, the persons named in the enclosed
Proxy will exercise discretionary authority to vote for substitutes. The Board
is not aware of any circumstances that would render any nominee unavailable for
election.
The following table sets forth certain information regarding the nominees
for election as directors.
NAME AGE SINCE DIRECTOR TITLE
---- --- ----- --------------
Brian Bonar 54 1995 Chief Executive Officer
Richard H. Green 65 2000 Director
Robert A. Dietrich 56 2000 Director
Eric W. Gaer 53 2000 Director
Stephen J. Fryer 63 2000 Director
BRIAN BONAR has served as a director of the Company since August 1995 and
became the Company's Chairman of the Board in December 1999. From August 1992
through April 1994, Mr. Bonar served as the Company's Director of Technology
Sales and from April 1994 through September 1994 as the Company's Vice
President, Sales and Marketing. In September 1994, Mr. Bonar became the
Company's Executive Vice President and, in July 1997, was appointed as the
Company's President and Chief Operating Officer. In April 1998 Mr. Bonar assumed
the post of CEO. From 1991 to 1992, Mr. Bonar was Vice President of Worldwide
Sales and Marketing for Bezier Systems, Inc., a San Jose, California-based
manufacturer and marketer of laser printers. From 1990 to 1991, he was Worldwide
Sales Manager for Adaptec, Inc., a San Jose-based laser printer controller
developer. From 1988 to 1990, Mr. Bonar was Vice President of Sales and
Marketing for Rastek Corporation, a laser printer controller developed located
in Huntsville, Alabama. From 1984 to 1988, Mr. Bonar was employed as Executive
Director of Engineering at QMS, Inc., an Alabama-based developer and
manufacturer of high-performance color and monochrome printing solutions. Prior
to these positions, Mr. Bonar was employed by IBM, U.K. Ltd. for approximately
17 years.
DR. RICHARD H. GREEN has served as a director since September 2000. He is
currently the President of International Power & Environmental Company (IPEC), a
consulting company located in San Diego, California. From 1993 through 1995, he
served as Deputy Secretary of the State of California Environmental Protection
Agency (Cal/EPA). From 1988 through 1993 Dr. Green served as Manager of Program
Engineering and Review Office in the Office of Technology and Applications at
the Jet Propulsion Laboratory (JPL) in Pasadena, California, where he
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had held various management positions since 1967. From 1965 through 1967, Dr.
Green served as Senior Engineer for The Boeing Company, Space Division. From
1983 through 1985, Dr. Green held the Corwin D. Denny Chair as Professor of
Energy and Director of the Energy Institute at the University of LaVerne, and
from 1961 through 1964 served as Assistant Professor of Civil Engineering
(Environmental Sciences) at Washington State University. Dr. Green currently is
a member of the Governing Board of Pasadena City College. Dr. Green completed
his bachelor's degree at Whitman College in 1958, his Master of Science at
Washington State University in 1961, and his Ph.D. at Washington State
University, under a United States Public Health Services Career Development
Award, in 1965.
ROBERT A. DIETRICH has served as a director of the Company since January
2000. Mr. Dietrich is President and CEO of Cyberair Communications Inc., a
privately-held telecommunications company with strategic interests in Internet
communications and "bandwidth" expansion technologies, as well as domestic and
international telephone services, in Irvine, California. Recently, Mr. Dietrich
was named President and CEO of Semper Resources Corporation, a public natural
resources holding company in Irvine, California. From 1996 to 2000, Mr. Dietrich
was Managing Director and CFO of Ventana International, Ltd., Irvine,
California, a venture capital and private investment banking firm. From 1990 to
1994, Mr. Dietrich was Vice President and Chief Financial Officer of CEI, Inc.,
in Santa Ana, California, a commercial furnishings firm, prior to joining
Ventana. Mr. Dietrich is a graduate of the University of Notre Dame, with a
bachelor's degree in accounting, and the University of Detroit, with a master's
degree in finance. He served as a lieutenant in the U.S. Navy's Atlantic Command
Operations Control Center.
ERIC W. GAER has served as a director since March 2000. Since 1998, Mr.
Gaer has been the President and CEO of Arroyo Development Corporation, a
privately-held, San Diego-based management consulting company. From 1996 to
1998, he was Chairman, President and CEO of Greenland Corporation, a
publicly-held high technology company in San Diego, California. In 1995, he was
CEO of Ariel Systems, Inc., a privately-held engineering development company in
Vista, California. Over the past 25 years, Mr. Gaer has served in executive
management positions at a variety of high-technology companies, including ITEC,
Daybreak Technologies, Inc., Venture Software, Inc., and Merisel, Inc. In 1970,
he received a Bachelor of Arts degree in mass communications from California
State University, Northridge.
STEPHEN J. FRYER has served as a director of the Company since March 2000.
He is currently Chairman of the Board and CEO of Pen Interconnect, Inc. ("Pen"),
a high technology company in Irvine, California. He began his employment service
at Pen in 1997 as Senior Vice President of Sales ad Marketing. At Pen, he became
a director in 1995 and was appointed President and CEO in 1998. From 1989 to
1996, Mr. Fryer was a principal in Ventana International, Ltd., a venture
capital and private investment banking firm in Irvine, California. He has over
28 years experience in the computer industry in the United States, Asia and
Europe. Mr. Fryer graduated from te University of California in 1960 with a
bachelor's degree in mechanical engineering.
BOARD AND COMMITTEE MEETINGS
The Board held 5 meetings during the fiscal year ended June 30, 2000.
The Company's audit committee (the "Audit Committee"), composed of Messrs.
Robert A. Dietrich and Eric W. Gaer, met once during the fiscal year ended June
30, 2000, to review the Company's financial statements and to meet with the
Company's independent auditors.
The Company's compensation committee (the "Compensation Committee"),
composed of Mr. Stephen J. Fryer and Dr. Richard H. Green, met once during the
fiscal year ended June 30, 1999, to review executive compensation and the status
of the Company's employee stock option plans.
None of these individuals was an officer or employee of the Company at any
time during the fiscal year ended June 30, 2000, or at any other time.
No current executive officer of the Company has ever served as a member of
the board of directors or compensation committee of any other entity that has or
has had one or more executive officers serving as a member of the Board or
Compensation Committee.
4
DIRECTOR AND COMMITTEE COMPENSATION
Directors who are not employees of the Company or one of its subsidiaries
receive monthly fees of $2,500.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES LISTED ABOVE.
PROPOSAL 2
APPROVAL OF 2001 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve the 2001 Stock
Option Plan (the "2001 Stock Option Plan"), pursuant to which 5,000,000 shares
of Common Stock will be reserved for issuance. The Board has authorized the
implementation of the 2001 Stock Option Plan as a comprehensive equity incentive
program to attract and retain the services of those persons essential to the
Company's growth and financial success. The 2001 Stock Option Plan was adopted
by the Board on June 27, 2001, and would become effective if (i) either Proposal
4 or 5 is (A) approved by the required vote of stockholders and (B) implemented
by the Board and (ii) this Proposal 2 is approved by a majority of the shares of
Common Stock entitled to vote at the Meeting. In addition, if Proposal 5 is
approved by the stockholders and the Board effects a stock combination (reverse
split), the number of shares of Common Stock reserved for issuance will be
reduced to that number obtained by dividing 5,000,000 by that exchange ratio
determined by the Board. See "Proposal 5 - Approval of an Amendment of the
Company's Certificate of Incorporation to Effect a Reverse Split of common
Stock."
The following summary describes the material features of the 2001 Stock
Option Plan. The summary, however, does not purport to be a complete description
of all the provisions of the 2001 Stock Option Plan. A complete form of the 2001
Stock Option Plan has been attached hereto as Exhibit A.
The following is a summary of the material features of the 2001 Stock
Option Plan.
SHARES SUBJECT TO THE OPTION PLAN AND ELIGIBILITY
The 2001 Stock Option Plan authorizes the grant of options to purchase a
maximum of 5,000,000 shares of the Company's Common Stock (subject to adjustment
as described below) to employees and directors of, and consultants to, the
Company or any of its subsidiaries. Upon expiration, cancellation or termination
of unexercised options, the shares of the Company's Common Stock subject to such
options will again be available for the grant of options under the 2001 Stock
Option Plan.
TYPE OF OPTIONS
Options granted under the 2001 Stock Option Plan may either be incentive
stock options ("ISOs"), within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or nonqualified stock options,
which do not qualify as ISOs ("NQSOs"). ISOs, however, may only be granted to
employees.
ADMINISTRATION
The 2001 Stock Option Plan is to be administered by the Compensation
Committee, which will consist of "non-employee directors" within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). It is also expected that Compensation Committee members
will be "outside directors," within the meaning of Section 162(m) of the Code.
Those administering the 2001 Stock Option Plan are referred to as the
"Administrators."
Among other things, the Administrators are empowered to determine, within
the express limits contained in the 2001 Stock Option Plan, the employees,
consultants and directors to be granted options, whether an option granted to an
employee is to be an ISO or a NQSO, the number of shares of Common Stock to be
subject to each option, the exercise price of each option, the term of each
option, the date each option shall become exercisable as well as any terms and
conditions relating to the exercisability of each option, whether to accelerate
the date of
5
exercise of any option or installment and the form of payment of the exercise
price, to construe each stock option contract between the Company and an
optionee and, with the consent of the optionee, to cancel or modify an option.
The Administrators are also authorized to prescribe, amend and rescind rules and
regulations relating to the 2001 Stock Option Plan and make all other
determinations necessary or advisable for administering the 2001 Stock Option
Plan.
TERMS AND CONDITIONS OF OPTIONS
Options granted under the 2001 Stock Option Plan are subject to, among
other things, the following terms and conditions:
(a) The exercise price of each option is determined by the Administrators;
provided, however, that the exercise price of an ISO may not be less than the
fair market value of the Company's Common Stock on the date of grant (110% of
such fair market value if the optionee owns, or is deemed to own, more than 10%
of the voting power of the Company).
(b) Options may be granted for terms established by the Administrators;
provided, however, that the term of an ISO may not exceed 10 years (five years
if the optionee owns, or is deemed to own, more than 10% of the voting power of
the Company).
(c) The maximum number of shares of the Company's Common Stock for which
options may be granted to an employee in any calendar year is 250,000. In
addition, the aggregate fair market value of shares with respect to which ISOs
may be granted to an employee which are exercisable for the first time during
any calendar year may not exceed $100,000.
(d) The exercise price of each option is payable in full upon exercise or,
if the Administrators permit, in installments. Payment of the exercise price of
an option may be made in cash, or, if the Administrators permit (but only to the
extent permitted), in shares of the Company's Common Stock or any combination
thereof.
(e) Options may not be transferred other than by will or by the laws of
descent and distribution, and may be exercised during the optionee's lifetime
only by the optionee.
(f) Except as may otherwise be provided in the option contract related to
the option, if the optionee's relationship with the Company as an employee,
director or consultant is terminated for any reason other than death or
disability, the option may be exercised, to the extent exercisable at the time
of termination of such relationship at any time, within three months thereafter,
but in no event after the expiration of the term of the option; provided,
however, that if the relationship is terminated either for cause or without the
consent of the Company, the option will terminate immediately. Except as may be
provided in the option contract related to the option, an option is not affected
by a change in the status of an optionee so long as the optionee continues to be
an employee or director of, or a consultant to, the Company. Except as otherwise
provided in the optionee's option contract, in the case of the death of an
optionee while an employee, director or consultant (or, generally, within three
months after termination of such relationship, or within one year after
termination of such relationship by reason of disability), the optionee's legal
representative or beneficiary may exercise the option, to the extent exercisable
on the date of death, at any time within one year after such date, but in no
event after the expiration of the term of the option. Except as otherwise
provided in the optionee's option contract, an optionee whose relationship with
the Company is terminated by reason of disability may exercise the option, to
the extent exercisable at the effective date of such termination, at any time
within one year thereafter, but not after the expiration of the term of the
option.
(g) The Company may withhold cash and/or, with the consent of the
Administrators, shares of the Company's Common Stock having an aggregate value
equal to the amount which the Company determines is necessary to meet its
obligations to withhold any federal, state and/or local taxes or other amounts
incurred by reason of the grant, exercise or vesting of an option or the
disposition of shares acquired upon the exercise of the option. Alternatively,
the Company may require the optionee to pay the Company such amount in cash
promptly upon demand.
6
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
In the event of any change in the Company's Common Stock by reason of any
stock dividend, stock split, combination, reclassification, recapitalization,
merger in which the Company is the surviving corporation, spin-off, split-up,
exchange of shares or the like, the following adjustments to the 2001 Stock
Option Plan shall be made to:
o the number and kind of shares available under the 2001 Stock Option
Plan;
o the number and kind of shares subject to the 2001 Stock Option Plan;
o each outstanding option;
o the exercise prices of outstanding options; and
o the limitations on the number of shares that may be granted to any
employee in any calendar year.
Any outstanding options shall terminate upon the earliest occurrence of
any of the following events, unless other provision is made therefor in the
applicable event:
o the liquidation or dissolution of the Company; or
o a transaction (or series of related transactions) that is approved by a
majority of the members of the Board as elected by stockholders prior
to the first of such transactions (including, without limitation, a
merger, consolidation, sale of stock by the Company or its
stockholders, tender offer or sale of assets)
in which either:
o the voting power (in the election of directors generally) of the
Company's voting securities outstanding immediately prior to such
transaction ceases to represent at least 50% of the combined voting
power (in the election of directors generally) of the Company or such
surviving entity outstanding immediately after such transaction; or
o the registration of the Company's Common Stock under the Securities
Exchange Act of 1934 is terminated.
DURATION AND AMENDMENT OF THE 2001 STOCK OPTION PLAN
No option may be granted under the 2001 Stock Option Plan after January
24, 2010. The Board may at any time terminate or amend the 2001 Stock Option
Plan; provided, however, that, without the approval of the Company's
stockholders, no amendment may be made which would:
o except as a result of the anti-dilution adjustments described above,
increase the maximum number of shares for which options may be granted
under the 2001 Stock Option Plan or increase the maximum number of
shares covered by options that may be granted to an employee in any
calendar year;
o change the eligibility requirements for persons who may receive options
under the 2001 Stock Option Plan; or o make any change for which
applicable law requires stockholder approval.
No termination or amendment may adversely affect the rights of an optionee
with respect to an outstanding option without the optionee's consent.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain material federal income tax
consequences of the grant and exercise of the options under the 2001 Stock
Option Plan and the sale of any underlying security. This description is based
on current law which is subject to change, possibly with retroactive effect.
This discussion does not purport to address all tax considerations relating to
the grant and exercise of the options or resulting from the application of
special rules to a particular optionee (including an optionee subject to the
reporting and short-swing profit provisions under Section 16 of the Securities
Exchange Act of 1934, as amended), and state, local, foreign and other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the
7
underlying securities. An optionee should consult with the optionee's own tax
advisors with respect to the tax consequences inherent in the ownership and
exercise of stock options and the ownership and disposition of any underlying
security.
ISOs Exercised With Cash: No taxable income will be recognized by an
optionee upon the grant or exercise of an ISO. The optionee's tax basis in the
shares acquired upon the exercise of an ISO with cash will be equal to the
exercise price paid by the optionee for such shares.
If the shares received upon exercise of an ISO are disposed of more than
one year after the date of transfer of such shares to the optionee and more than
two years from the date of grant of the option, the optionee will recognize
long-term capital gain or loss on such disposition equal to the difference
between the selling price and the optionee's basis in the shares, and the
Company will not be entitled to a deduction. Long-term capital gain is generally
subject to more favorable tax treatment than short-term capital gain or ordinary
income.
If the shares received upon the exercise of an ISO are disposed of prior
to the end of the two-years-from-grant/one-year-after-transfer holding period (a
"disqualifying disposition"), the excess (if any) of the fair market value of
the shares on the date of transfer of such shares to the optionee over the
exercise price (but not in excess of the gain realized on the sale of the
shares) will be taxed as ordinary income in the year of such disposition, and
the Company generally will be entitled to a deduction in the year of disposition
equal to such amount. Any additional gain or any loss recognized by the optionee
on such disposition will be short-term or long-term capital gain or loss, as the
case may be, depending upon the period for which the shares were held.
NQSOS EXERCISED WITH CASH: No taxable income will be recognized by an
optionee upon the grant of a NQSO. Upon the exercise of a NQSO, the excess of
the fair market value of the shares received at the time of exercise over the
exercise price therefor will be taxed as ordinary income, and the Company will
generally be entitled to a corresponding deduction. The optionee's tax basis in
the shares acquired upon the exercise of such NQSO will be equal to the exercise
price paid by the optionee for such shares plus the amount of ordinary income so
recognized.
Any gain or loss recognized by the optionee on a subsequent disposition of
shares purchased pursuant to a NQSO will be short-term or long-term capital gain
or loss, depending upon the period during which such shares were held, in an
amount equal to the difference between the selling price and the optionee's tax
basis in the shares.
EXERCISES OF OPTIONS USING PREVIOUSLY ACQUIRED SHARES: If previously
acquired shares are surrendered in full or partial payment of the exercise price
of an option (whether an ISO or a NQSO), gain or loss generally will not be
recognized by the optionee upon the exercise of such option to the extent the
optionee receives shares which on the date of exercise have a fair market value
equal to the fair market value of the shares surrendered in exchange therefor
("Replacement Shares"). If the option exercised is an ISO or if the shares used
were acquired pursuant to the exercise of an ISO, the Replacement Shares are
treated as having been acquired pursuant to the exercise of an ISO.
However, if an ISO is exercised with shares which were previously acquired
pursuant to the exercise of an ISO but which were not held for the required
two-years-from-grant/one-year-after-transfer holding period, there is a
disqualifying disposition of such previously acquired shares. In such case, the
optionee would recognize ordinary income on such disqualifying disposition equal
to the difference between the fair market value of such shares on the date of
exercise of the prior ISO and the amount paid for such shares (but not in excess
of the gain realized). Special rules apply in determining which shares are
considered to have been disposed of and in allocating the basis among the
shares. No capital gain is recognized.
The optionee will have an aggregate basis in the Replacement Shares equal
to the basis of the shares surrendered, increased by any ordinary income
required to be recognized on the disposition of the previously acquired shares.
The optionee's holding period for the Replacement Shares generally includes the
period during which the surrendered shares were held.
Any shares received by the optionee on such exercise in addition to the
Replacement Shares will be treated in the same manner as a cash exercise of an
option for no consideration.
8
ALTERNATIVE MINIMUM TAX
In addition to the federal income tax consequences described above, an
optionee who exercises an ISO may be subject to the alternative minimum tax,
which is payable only to the extent it exceeds the optionee's regular tax
liability. For this purpose, upon the exercise of an ISO, the excess of the fair
market value of the shares over the exercise price is an adjustment which
increases the optionee's alternative minimum taxable income. In addition, the
optionee's basis in such shares is increased by such amount for purposes of
computing the gain or loss on disposition of the shares for alternative minimum
tax purposes. If the optionee is required to pay an alternative minimum tax, the
amount of such tax which is attributable to deferral preferences (including the
ISO adjustment) is allowable as a tax credit against the optionee's regular tax
liability (net of other non-refundable credits) in subsequent years. To the
extent the credit is not used, it is carried forward. An optionee holding an ISO
should consult with the optionee's tax advisors concerning the applicability and
effect of the alternative minimum tax.
VALUATION
As of August 2, 2001, the closing price of the Company's Common Stock on
the OTC Bulletin Board (the "OTC") was $0.058 per share.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Meeting is required
for approval of the 2001 Stock Option Plan. Should such stockholder approval not
be obtained, then the 2001 Stock Option Plan will terminate and all options
previously granted under the 2001 Stock Option Plan will terminate without
becoming exercisable for any of the shares of Common Stock subject to those
options and no further option grants or stock issuances will be made under the
2001 Stock Option Plan. The Company's 1998 Stock Option Plan will not be
affected by the stockholders' vote on the 2001 Stock Option Plan.
The Board believes that it is in the best interests of the Company to
implement a comprehensive equity incentive program for the Company, which will
provide a meaningful opportunity for officers, employees, and non-employee Board
members to acquire a substantial proprietary interest in the Company and thereby
encourage such individuals to remain in the Company's service and more closely
align their interests with those of the stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 3
APPROVAL OF 2001 EMPLOYEE STOCK PURCHASE PLAN
The Board has approved the adoption by the Compensation Committee of the
2001 Stock Purchase Plan, which enables employees to purchase shares of Common
Stock at not less than 85% of the fair market value on the date of purchase.
Employees of the Company who elect to participate in the 2001 Stock Purchase
Plan (the "Participating Employees") may do so by authorizing specified payroll
deductions to effect purchases pursuant to the 2001 Stock Purchase Plan. The
purpose of the 2001 Stock Purchase Plan is to secure for the Company and its
stockholders the benefits of the incentive inherent in the ownership of Common
Stock by current and future employees.
The 2001 Stock Purchase Plan was formally adopted by the Board on January
25, 2000, and would become effective if (i) either Proposal 4 or 5 is (A)
approved by the required vote of stockholders and (B) implemented by the Board
and (ii) this Proposal 3 is approved by a majority of the shares of Common Stock
entitled to vote at the Meeting. In addition, if Proposal 5 is approved by the
stockholders and the Board effects a stock combination (reverse split), the
number of shares of Common Stock reserved for issuance will be reduced to that
number obtained by dividing 2,500,000 by that exchange ratio determined by the
Board. See "Proposal 5 - Approval of an Amendment of the Company's Certificate
of Incorporation to Effect a Reverse Split of Common Stock."
9
The following is a summary of the 2001 Stock Purchase Plan, which is
qualified in its entirety by reference to the 2001 Stock Purchase Plan, a copy
of which is annexed hereto as Exhibit B. Capitalized terms not otherwise defined
in this summary shall have the meanings given to them in the 2001 Stock Purchase
Plan text as annexed hereto as Exhibit B.
SHARES RESERVED FOR THE 2001 STOCK PURCHASE PLAN
Shares of Common Stock to be delivered pursuant to the 2001 Stock Purchase
Plan shall be made available from currently or subsequently authorized but
unissued Common Stock, treasury shares of Common Stock or a combination thereof,
up to a maximum of 2,500,000 shares of Common Stock, subject to adjustment in
the event of a subdivision or consolidation of the outstanding shares of Common
Stock or stock dividend, on the outstanding shares of Common Stock.
VALUATION
As of August 2, 2001, the closing price of the Company's Common Stock as
reported on the OTC was $0.058.
ELIGIBILITY
All employees of the Company, including directors and officers of the
Company who are also employees of the Company, will be eligible to participate
in the 2001 Stock Purchase Plan beginning on the first day of each calendar
month coincident with or next following their date of hire and continuing for so
long as they remain employees of the Company. Approximately 43 employees of the
Company were eligible to participate in the 2001 Stock Purchase Plan as of July
27, 2001.
PURCHASE OF COMMON STOCK UNDER THE 2001 STOCK PURCHASE PLAN
Participating Employees shall direct the deduction of a specified amount
from their paycheck, to be used to effect the purchase of Common Stock under the
2001 Stock Purchase Plan. Such deduction may constitute from 1% to 15% of the
Participating Employee's eligible compensation. A Participating Employee may
increase or decrease the percentage of eligible compensation subject to payroll
deduction or discontinue participation in the 2001 Stock Purchase Plan at any
time upon written notice to the Company.
Unless the Company is so notified prior to the beginning of each 2001
Stock Purchase Plan year, the Participating Employee shall be deemed to have
authorized continued participation in the 2001 Stock Purchase Plan for each
subsequent 2001 Stock Purchase Plan year to the same extent as at the end of the
prior 2001 Stock Purchase Plan year.
The purchase price of a share of Common Stock shall be determined from
time to time by the Company but shall not be less than 85 percent of the fair
market value of such share. The Company shall advise employees of the purchase
price in advance of their enrollment in the 2001 Stock Purchase Plan and,
following their enrollment, in advance of any change in the purchase price.
All payroll deductions of a Participating Employee shall be credited on
the records and used by the Company to effect the purchases of Common Stock
under the 2001 Stock Purchase Plan. The Company shall effect such purchases by
making quarterly offerings of Common Stock, in amounts to be determined by the
Company until the maximum number of shares of Common Stock available under the
2001 Stock Purchase Plan have been issued and purchased pursuant to the 2001
Stock Purchase Plan's terms. On the date of each such offering, each
Participating Employee shall be deemed to have been granted the option to
purchase and to have exercised such option and purchased the number of shares of
Common Stock determined by dividing the amount credited to the Participating
Employee's payroll deduction account by the then-current purchase price for such
shares. All shares of Common Stock purchased by a Participating Employee under
the 2001 Stock Purchase Plan shall be held in an account administered by a
custodian selected by the Company. Upon termination of either the Participating
Employee's employment with the Company or participation in the 2001 Stock
Purchase Plan, all shares of Common Stock credited to such account, cash in lieu
of any fractional share and all uninvested cash credited pursuant to the
10
Participating Employee's payroll deductions shall be distributed to the
Participating Employee.
The Company will not grant to any Participating Employee any option to
purchase shares of Common Stock if the exercise of such option would permit the
fair market value of all shares of Common Stock purchased by the Participating
Employee under all employee stock purchase plans of the Company to exceed
$25,000 in any calendar year, or if such exercise would cause such Participating
Employee to own 5% or more of the combined voting power or value of all classes
of the Company's stock. The Board may also require, as a condition to the
exercise of any option granted pursuant to the 2001 Stock Purchase Plan, the
listing of the shares of the Common Stock reserved for issuance upon such
exercise on a national securities exchange and the registration of such shares
under the Securities Act of 1933, as amended, or a representation from the
Participating Employee satisfactory to the Company that such exercise and
purchase are for investment purposes only and not with a view toward resale or
distribution.
Options to purchase shares of Common Stock pursuant to the 2001 Stock
Purchase Plan are not transferable, except by will and the laws of descent and
distribution and may be exercised during the lifetime of the person to whom they
were granted only by such person. Shares of Common Stock purchased under the
2001 Stock Purchase Plan shall not be transferable for a period of 12 months
from the date of purchase of such shares and shall not be transferable without
the prior written consent of the Company for an additional 12-month period
following the expiration of the initial 12-month period.
AMENDMENT AND TERMINATION
Subject to the provisions of Section 423 of the Code, the Board has the
power to amend or terminate the 2001 Stock Purchase Plan, in its sole
discretion, at any time in any respect except that any amendment or termination
may not retroactively impair or otherwise adversely affect the rights of any
person to benefits that have already accrued under the 2001 Stock Purchase Plan.
The 2001 Stock Purchase Plan shall terminate at such time as Participating
Employees become entitled to purchase a number of shares of Common Stock greater
than the number of reserved shares of Common Stock available for such purchase.
NEW PLAN BENEFITS TABLE
A table listing the estimated dollar value and number of shares that will
be purchased under the 2001 Stock Purchase Plan, or would have been purchased
under the 2001 Stock Purchase Plan had the plan been in effect in 1999, by the
Company's officer and directors is indeterminable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal (and not
state and local) income tax consequences of stock purchases under the 2001 Stock
Purchase Plan. It is general in nature and is not intended to cover all tax
consequences that may apply to a particular 2001 Stock Purchase Plan participant
or to the Company. The provisions of the Code and the Treasury Regulations are
complicated and their impact in any one case may depend upon the particular
circumstances. Each participant in the 2001 Stock Purchase Plan should consult
the participant's own accountant, legal counsel or other financial advisor
regarding the tax consequences of participation in the 2001 Stock Purchase Plan.
This discussion is based on the Code as currently in effect.
The 2001 Stock Purchase Plan is intended to qualify under Section 423 of
the Code. Under Section 423 of the Code, an employee who purchases Common Stock
through the plan will not recognize any income, and the Company will not be
entitled to a deduction for tax purposes, at the time of the purchase for the
difference between the fair market value of the stock at the time of purchase
and the purchase price (i.e., the discount below fair market value). Generally,
if the employee holds the Common Stock for at least two years after the date of
sale or other disposition of the Common Stock the lesser of: (i) the amount by
which the fair market value of the Common Stock when purchased exceeds the
purchase price (i.e., the discount below fair market value); or (ii) the amount,
if any, by which the Common Stock's fair market value at the time of the sale or
other disposition exceeds the purchase price. The employee's tax basis in the
Common Stock will be increased by the amount recognized as compensation and any
further gain recognized on the sale or other taxable disposition will be
treated, under current tax rules, as long-term capital gain. In general, no
deduction will be allowed to the Company with respect to any such disposition.
11
However, if the employee disposes of shares of Common Stock acquired under the
2001 Stock Purchase Plan within two years after the date of purchase (a
"Disqualifying Disposition"), the employee will recognize compensation income,
and the Company (or one of its affiliates) will be entitled to a deduction for
tax purposes, in the amount of the excess of the fair market value of the shares
on the date of purchase over the purchase price (i.e., the discount below fair
market value) regardless of the amount received by the employee in connection
with the Disqualifying Disposition. The employee's tax basis in the shares
disposed of will be increased by the amount recognized as compensation and any
further gain or loss realized upon the Disqualifying Disposition will be
short-term or long-term capital gain or loss, depending upon the length of time
between the purchase and the Disqualifying Disposition of the shares.
If, in any year, an affected participant's total compensation from the
Company (including compensation related to purchases of Common Stock under the
Stock's Purchase Plan) exceeds $l,000,000, such compensation in excess of
$1,000,000 may not be deductible by the Company under Section 162(m) of the
Code. Affected participants are generally, if at all, the Company's chief
executive officer and the four most highly compensated employees of the Company
(other than the chief executive officer) at the end of the Company's taxable
year. Excluded from the calculation of total compensation for this purpose is
compensation that is "performance-based" within the meaning of Section 162(m) of
the Code. It is expected that compensation realized upon the purchase of Common
Stock under the 2001 Stock Purchase Plan may not be "performance-based" and,
therefore, that such compensation may only be deductible in accordance within
the limits of Section 162(m) of the Code.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Meeting is required
for approval of the 2001 Stock Purchase Plan. The Company's 1998 Stock Option
Plan and the 2001 Stock Option Plan will not be affected by the stockholders'
vote on the Stock Purchase Plan.
The Board believes that it is in the best interests of the Company to
implement this equity incentive program for the Company, which will provide,
with the 2001 Stock Option Plan, a meaningful opportunity for officers,
employees, and non-employee Board members to acquire a substantial proprietary
interest in the Company and thereby encourage such individuals to remain in the
Company's service and more closely align their interests with those of the
stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 4
APPROVAL OF AN AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO INCREASE
THE AUTHORIZED COMMON STOCK
GENERAL
On June 27, 2001, the Board unanimously adopted a resolution proposing,
declaring advisable and recommending a proposal to amend the Certificate of
Incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue from 200,000,000 to 500,000,000 shares. The Board
determined that such amendment is advisable and directed that the proposed
amendment be considered at the Meeting. The additional 300,000,000 shares of
Common Stock, if and when issued, will have the same rights and privileges as
the shares of Common Stock presently issued and outstanding. Each holder of
Common Stock is entitled to one vote per share on all matters submitted to a
vote of stockholders. The Common Stock does not have cumulative voting rights
except for those as may be required under California law. The holders of Common
Stock share ratably on a per share basis in any dividends when, as and if
declared by the Board out of funds legally available therefor and in all assets
remaining after the payment of liabilities in the event of the liquidation,
dissolution or winding up of the Company. There are no preemptive or other
subscription rights, conversion rights or redemption or sinking fund provisions
with respect to the Common Stock.
12
Reference is made to the proposed amendment to Article Fourth of the
Certificate of Incorporation which is attached hereto as Exhibit C to this Proxy
Statement.
The Certificate of Incorporation, as amended to date, authorizes the
Company to issue 200,000,000 shares of Common Stock, $.005 par value per share,
of which 170,901,065 shares were issued and outstanding as of July 27, 2001, and
100,000 shares of the Company's preferred stock, par value $1,000.00 per share
(the "Preferred Stock"), of which 420.5 shares of 5% Convertible Stock were
outstanding on such date. In addition to the 170,901,065 shares of Common Stock
outstanding as of July 27, 2001, 6,923,759 shares of Common Stock are reserved
for possible future issuances as follows:
o options to purchase 682,185 shares at exercise prices between $.30 and
$8.45 per share;
o warrants to purchase 6,229,559 shares at exercise prices between $1.00
and $7.50 per share; and
o 12,015 shares issuable upon conversion of 420.5 shares of 5%
Convertible Stock currently outstanding. The Company expects the
remaining shares of 5% Convertible Stock outstanding to be cancelled
and replaced by cash or equity, or a combination of both. The 5%
Convertible Stock is convertible into Common Stock at the discretion of
the holders.
The Company is contractually obligated to issue 2,272,375 shares of Common
Stock more than the 200,000,000 shares of Common Stock the Company is currently
authorized to issue. Accordingly, the Company is in violation of certain of its
contractual violations as it would be unable to issue any shares of Common Stock
pursuant to (a) the exercise of options or warrants or (b) the conversion of 5%
Convertible Stock, if any such issuance would cause the Company to issue more
than 200,000,000 shares of Common Stock. Breaches of such contractual
obligations could cause the Company to accrue substantial liabilities.
PURPOSES AND CERTAIN POSSIBLE EFFECTS OF INCREASING THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK
The Company has historically either publicly offered or privately placed
its capital stock to raise funds to finance its operations, including research
and development and product development activities, and has issued securities to
management, non-management employees and consultants. The Company expects to
continue to make substantial expenditures for research and product development
and in the development and marketing of products. The Company continues to
actively explore and negotiate additional financing that it requires. The
Company may also seek acquisitions of other companies, products and assets.
These activities are likely to require the Company to sell shares of Common
Stock or securities convertible into or exchangeable for Common Stock. The
Company has, at times in the past, sold shares or securities instruments
exercisable or convertible into shares at below the market price of its Common
Stock at the date of issuance and may be required to do so in the future in
order to raise financing.
The Board acknowledges that the increase in the number of authorized
shares of Common Stock at this time will provide the Company with the ability to
issue the shares of Common Stock it is currently obligated to issue pursuant to
the exercise and conversion of outstanding convertible securities and thereby
avoid certain contractual liabilities described above, and also provide it with
the flexibility of having an adequate number of authorized but unissued shares
of Common Stock available for future financing requirements, including for
funding research and product development, acquisitions and other corporate
purposes (including issuances pursuant to the 2001 Stock Option Plan) without
the expense or delay attendant in seeking stockholder approval at any special or
other annual meeting. The proposed amendment would provide additional authorized
shares of Common Stock that could be used from time to time, without further
action or authorization by the stockholders (except as may be required by law or
by any stock exchange or over-the-counter market on which the Company's
securities may then be listed).
Although it is not the purpose of the proposed amendment and the Board is
not aware of any pending or proposed effort to acquire control of the Company,
the authorized but unissued shares of Common Stock also could be used by the
Board to discourage, delay or make more difficult a change in control of the
Company.
This proposed amendment will not affect the rights of existing holders of
Common Stock except to the extent that further issuances of Common Stock will
reduce each existing stockholder's proportionate ownership.
13
In the event that stockholder approval of this proposed amendment of the
Certificate of Incorporation to increase the authorized Common Stock is not
obtained, the Company will be unable to satisfy its exercise and conversion
obligations under the terms of certain of its outstanding convertible securities
and holders of such convertible securities may commence legal proceedings
against us.
STOCKHOLDER APPROVAL
In accordance with the Delaware General Corporation Law and the
Certificate of Incorporation, the affirmative vote of a majority of the shares
represented and voting at the Meeting is required to adopt this proposed
amendment.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 5
APPROVAL OF AN AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE SPLIT
OF THE COMMON STOCK
GENERAL
The Board has unanimously adopted resolutions proposing, declaring
advisable and recommending that stockholders authorize an amendment to the
Certificate of Incorporation to: (i) effect a stock combination (reverse split)
of the Company's Common Stock in an exchange ratio to be approved by the Board,
ranging from one (1) newly issued share for each ten (10) outstanding shares of
Common Stock to one (1) newly issued share for each twenty (20) outstanding
shares of Common Stock (the "Reverse Split"); and (ii) provide that no
fractional shares or scrip representing fractions of a share shall be issued,
but in lieu thereof, each fraction of a share that any stockholder would
otherwise be entitled to receive shall be rounded up to the nearest whole share.
There will be no change in the number of the Company's authorized shares of
Common Stock and no change in the par value of a share of Common Stock.
If the Reverse Split is approved, the Board will have authority, without
further stockholder approval, to effect the Reverse Split pursuant to which the
Company's outstanding shares (the "Old Shares") of Common Stock would be
exchanged for new shares (the "New Shares") of Common Stock, in an exchange
ratio to be approved by the Board, ranging from one (1) New Share for each two
(2) Old Shares to one (1) New Share for each six (6) Old Shares. The number of
Old Shares for which each New Share is to be exchanged is referred to as the
"Exchange Number". The Exchange Number may, within such range, be a whole number
or a whole number and fraction of a whole number.
In addition, the Board will have the authority to determine the exact
timing of the effective date and time of the Reverse Split, which may be any
time prior to the filing of the Form 10-K for fiscal 2002, without further
stockholder approval. Such timing and Exchange Number will be determined in the
judgment of the Board, with the intention of maximizing the Company's ability to
comply with the listing requirements of The Nasdaq Stock Market, Inc.
("Nasdaq"), to raise financing, to issue shares of Common Stock pursuant to
outstanding contractual obligations, and for other intended benefits as the
Company finds appropriate. See "-- Purposes of the Reverse Split," below. The
text of this proposed amendment (subject to inserting the effective time of the
Reverse Split and the Exchange Number) is set forth in Exhibit D to this Proxy
Statement.
The Board also reserves the right, notwithstanding stockholder approval
and without further action by stockholders, to not proceed with the Reverse
Split if, at any time prior to filing this amendment with the Secretary of State
of the State of Delaware, the Board, in its sole discretion, determines that the
Reverse Split is no longer in the best interests of the Company and its
stockholders. The Board may consider a variety of factors in determining whether
or not to implement the Reverse Split and in determining the Exchange Number
including, but not limited to, the approval by the stockholders of Proposal 4
which would increase the number of the authorized Common Stock, overall trends
in the stock market, recent changes and anticipated trends in the per share
market price of the Common Stock, business and transactional developments and
the Company's actual and projected financial
14
performance.
PURPOSES OF THE REVERSE SPLIT
The Common Stock is quoted on the OTC but had been, prior to being
delisted on March 1, 2000, quoted on The Nasdaq SmallCap Market. In order for
the Common Stock to be relisted on The Nasdaq SmallCap Market, the Company and
its Common Stock are required to comply with various listing standards
established by Nasdaq. Among other things, as such requirements pertain to the
Company, the Company is required to have a market capitalization of at least
$50,000,000 and its Common Stock must (a) have an aggregate market value of
shares held by persons other than officers and directors of at least $5,000,000,
(b) be held by at least 300 persons who own at least 100 shares and (c) have a
minimum bid price of at least $4.00 per share.
Under Nasdaq listing requirements, to be listed or relisted, the Company
must demonstrate the ability to maintain a minimum bid price of at least $4.00
per share. Although there are no strict guidelines in regard to how such an
ability to maintain stock price is to be demonstrated, at least a month of
consistent closing prices of more than $4.00 per share may be necessary for
NASDAQ consideration. Furthermore, if relisted, under Nasdaq's listing
maintenance standards, if the closing bid price of the Common Stock falls under
$1.00 per share for 30 consecutive business days and does not thereafter regain
compliance for a minimum of 10 consecutive business days during the 90 calendar
days following notification by Nasdaq of failure to comply with listing
maintenance requirements, Nasdaq may again delist the Common Stock from trading
on The Nasdaq SmallCap Market. The closing bid price on August 2, 2001 was
$0.058 on the OTC. Prior to being delisted, the bid price of the Company's
Common Stock closed on The Nasdaq SmallCap Market below $1.00 per share from
July 29, 1999 to November 29, 1999 and did not again have a minimum closing bid
price of at least $1.00 for 10 consecutive days until the period between
February 10, 2000 and March 1, 2000. The principal purpose of the Reverse Split
is to increase the market price of the Common Stock in order that the market
price of the Common Stock is well above the Nasdaq minimum bid requirement for
relisting and if relisted could better maintain the $1.00 maintenance
requirement (which does not adjust for the Reverse Split). The OTC on which the
Common Stock is now traded is generally considered to be a less efficient
market.
The purpose of the Reverse Split also would be to increase the market
price of the Common Stock in order to make the Common Stock more attractive to
raise financing (and, therefore, both raise cash to support the Company's
operations and increase the Company's net tangible assets to facilitate
compliance with Nasdaq requirements), and as a possible currency for
acquisitions and other transactions. The Common Stock traded on the OTC from
approximately $0.05 to approximately $0.97 from April 1, 2000 through July 27,
2001. This has reduced the attractiveness of using the Common Stock or
instruments convertible or exercisable into Common Stock in order to raise
financing to support the Company's operations and to increase the Company's net
worth and as consideration for potential acquisitions (which, when coupled with
the Company's need to deploy its available cash for operations, has rendered
acquisitions difficult to negotiate). Furthermore, the Company believes that
relisting the Company's Common Stock on The Nasdaq SmallCap Market may provide
the Company with a broader market for its Common Stock and, therefore,
facilitate the use of the Common Stock in acquisitions and financing
transactions in which the Company may engage.
THERE CAN BE NO ASSURANCE, HOWEVER, THAT, EVEN AFTER CONSUMMATING THE
REVERSE SPLIT, THE COMPANY WILL MEET THE MINIMUM BID PRICE FOR RELISTING AND
OTHERWISE MEET THE REQUIREMENTS OF NASDAQ FOR INCLUSION FOR TRADING ON THE
NASDAQ SMALLCAP MARKET, OR THAT IT WILL BE ABLE TO UTILIZE ITS COMMON STOCK IN
ORDER TO EFFECTUATE FINANCING OR ACQUISITION TRANSACTIONS.
Furthermore, the Company is contractually obligated to issue 2,272,375
shares of Common Stock more than the 200,000,000 shares of Common Stock the
Company is currently authorized to issue. Accordingly, the Company is in
violation of certain of its contractual violations as it would be unable to
issue any shares of Common Stock pursuant to the exercise of options or warrants
or the conversion of 5% Convertible Stock if any such issuance would cause the
Company to issue more than 200,000,000 shares of Common Stock. A Reverse Split
would allow the Company to issue shares pursuant to its contractual obligations
as it would reduce the number of shares of Common Stock outstanding and make
available shares of authorized Common Stock to issue as required.
15
In addition, the Reverse Split would make available the required number of
authorized shares of Common Stock needed to implement the 2001 Stock Option
Plan.
Giving the Board authority to implement the Reverse Split will help avoid
the necessity of calling a special meeting of stockholders under time
constraints to authorize a reverse split should it become necessary in order to
seek to effectuate a financing or acquisition transaction or to meet Nasdaq's
listing maintenance criteria at a future time.
The Reverse Split will not change the proportionate equity interests of
the Company's stockholders, nor will the respective voting rights and other
rights of stockholders be altered, except for possible immaterial changes due to
rounding up to eliminate fractional shares. The Common Stock issued pursuant to
the Reverse Split will remain fully paid and nonassessable. The Company will
continue to be subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended.
CERTAIN EFFECTS OF THE REVERSE SPLIT
The following table illustrates the principal effects of the Reverse Split
to the 170,901,065 shares of Common Stock outstanding as of July 27, 2001:
After After After
Prior to 1-for-10 1-for-15 1-for-20
Reverse Reverse Reverse Reverse
Stock Stock Stock Stock
Number of Shares Split Split Split Split
---------------- ----- ----- ----- -----
Common Stock: 200,000,000 200,000,000 200,000,000 200,000,000
Authorized (1)................
Outstanding (2)............... 170,901,065 17,090,106 12,817,579 8,545,053
----------- ---------- ---------- ---------
Available for Future
Issuance................ 29,098,935 172,909,894 177,182,421 181,454,947
-----------------------------
(1) If Proposal 4 is approved by the stockholders, there would be 500,000,000
shares of Common Stock authorized.
(2) Gives effect to the Reverse Split, excluding New Shares to be issued in
lieu of fractional shares. Excludes, on a pre-Reverse Split basis: 12,015
shares of Common Stock subject to potential issuance upon conversion of
the outstanding shares of 5% Convertible Stock; approximately 6,911,744
shares of Common Stock which were subject to outstanding options and
warrants; and 7,500,000 additional shares of Common Stock which would be
available for the grant of future options if the 2001 Stock Option Plan
and 2001 Stock Purchase Plan were instituted. The number of shares of
Common Stock issuable upon conversion of the 5% Convertible Stock may be
dependent upon the market price of Common Stock. Accordingly, the actual
number of shares of Common Stock issued upon conversion of the 5%
Convertible Stock may not be determined at this time. Upon effectiveness
of the Reverse Split, each option and warrant would entitle the holder to
acquire a number of shares equal to the number of shares which the holder
was entitled to acquire prior to the Reverse Split divided by the Exchange
Number at the exercise price in effect immediately prior to the Reverse
Split multiplied by the Exchange Number.
16
Stockholders should recognize that, if the Reverse Split is effectuated,
they will own a fewer number of shares than they presently own (a number equal
to the number of shares owned immediately prior to the filing of the amendment
regarding the Reverse Split divided by the Exchange Number, as adjusted to
include New Shares to be issued in lieu of fractional shares). While the Company
expects that the Reverse Split will result in an increase in the market price of
the Common Stock, there can be no assurance that the Reverse Split will increase
the market price of the Common Stock by a multiple equal to the Exchange Number
or result in a permanent increase in the market price (which is dependent upon
many factors, including the Company's performance and prospects). Also, should
the market price of the Company's Common Stock decline after the Reverse Split,
the percentage decline may be greater than would pertain in the absence of the
Reverse Split. Furthermore, the possibility exists that liquidity in the market
price of the Common Stock could be adversely affected by the reduced number of
shares that would be outstanding after the Reverse Split. In addition, the
Reverse Split will increase the number of stockholders of the Company who own
odd-lots (less than 100 shares). Stockholders who hold odd-lots typically will
experience an increase in the cost of selling their shares, as well as greater
difficulty in effecting such sales. In addition, an increase in the number of
odd-lot holders will reduce the number of holders of round lots (100 or more
shares), which could adversely affect the Nasdaq listing requirement that the
Company have at least 300 round lot holders. Consequently, there can be no
assurance that the Reverse Split will achieve the desired results that have been
outlined above.
Stockholders should also recognize that, as indicated in the foregoing
table, there will be an increase in the number of shares which the Company will
be able to issue from authorized but unissued shares of Common Stock. As a
result of any issuance of shares, the equity and voting rights of holders of
outstanding shares may be diluted.
PROCEDURE FOR EFFECTING REVERSE SPLIT AND EXCHANGE OF STOCK CERTIFICATES
If this amendment is approved by the Company's stockholders, and if the
Board still believes that the Reverse Split is in the best interests of the
Company and its stockholders, the Company will file the amendment with the
Secretary of State of the State of Delaware at such time as the Board has
determined the appropriate Exchange Number and the appropriate effective time
for such split. The Board may delay effecting the Reverse Split until as late as
December 31, 2001 without resoliciting stockholder approval. The Reverse Split
will become effective on the date of filing the amendment at the time specified
in the amendment (the "Effective Time"). Beginning at the Effective Time, each
certificate representing Old Shares will be deemed for all corporate purposes to
evidence ownership of New Shares.
As soon as practicable after the Effective Time, stockholders will be
notified that the Reverse Split has been effected and of the exact Exchange
Number. The Company expects that its transfer agent will act as exchange agent
(the "Exchange Agent") for purposes of implementing the exchange of stock
certificates. Holders of Old Shares will be asked to surrender to the Exchange
Agent certificates representing Old Shares in exchange for certificates
representing New Shares in accordance with the procedures to be set forth in a
letter of transmittal to be sent by the Exchange Agent. No new certificates will
be issued to a stockholder until such stockholder has surrendered such
stockholder's outstanding certificate(s) together with the properly completed
and executed letter of transmittal to the Exchange Agent. Any Old Shares
submitted for transfer, whether pursuant to a sale or other disposition, or
otherwise, will automatically be exchanged for New Shares at the exchange ratio.
Stockholders should not destroy any stock certificate and should not submit any
certificate until requested to do so by the Company or the Exchange Agent.
FRACTIONAL SHARES
No scrip or fractional certificates will be issued in connection with the
Reverse Split. Any fraction of a share that any stockholders of record otherwise
would be entitled to receive shall be rounded up to the nearest whole share.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights
with respect to the proposed amendment.
17
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The following is a summary of certain material U.S. federal income tax
consequences of the Reverse Split and does not purport to be complete. It does
not discuss any state, local, foreign or minimum income or other U.S. federal
tax consequences. Also, it does not address the tax consequences to holders that
are subject to special tax rules, such as banks, insurance companies, regulated
investment companies, personal holding companies, foreign entities, nonresident
alien individuals, broker-dealers and tax-exempt entities. The discussion is
based on the provisions of the U.S. federal income tax law as of the date
hereof, which is subject to change retroactively as well as prospectively. This
summary also assumes that the Old Shares were, and the New Shares will be, held
as a "capital asset," as defined in the Code (generally, property held for
investment). The tax treatment of a stockholder may vary depending upon the
particular facts and circumstances of such stockholder. Each stockholder should
consult with such stockholder's own tax advisor with respect to the consequences
of the Reverse Split.
The Reverse Split is an isolated transaction and is not part of a plan to
periodically increase any stockholder's proportionate interest in the assets or
earnings and profits of the Company. As a result, no gain or loss should be
recognized by a stockholder of the Company upon such stockholder's exchange of
Old Shares for New Shares pursuant to the Reverse Split. The aggregate tax basis
of the New Shares received in the Reverse Split will be the same as the
stockholder's aggregate tax basis in the Old Shares exchanged therefor. The
stockholder's holding period for the New Shares will include the period during
which the stockholder held the Old Shares surrendered in the Reverse Split.
REQUIRED VOTE
In accordance with the Delaware General Corporation Law and the
Certificate of Incorporation, the affirmative vote of a majority of the shares
represented and voting at the Meeting is required to adopt this proposed
amendment. As a result, any shares not voted (whether by abstention, broker
non-vote or otherwise) will have the same effect as a vote against the proposal.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 6
APPROVAL OF AN AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO CHANGE THE
PAR VALUE OF THE PREFERRED STOCK
GENERAL
On June 27, 2001, the Board unanimously adopted a resolution proposing,
declaring advisable and recommending a proposal to amend the Certificate of
Incorporation to change the par value per share of the Company's Preferred Stock
from $1,000 per share to $0.01 per share. The Board determined that such
amendment is advisable and directed that the proposed amendment be considered at
the Meeting. The decrease in par value shall reduce state franchise taxes and
fees which are based on the par value of authorized capital.
Reference is made to the proposed amendment to Article Fourth of the
Certificate of Incorporation which is attached hereto as Exhibit C to this Proxy
Statement.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights
with respect to the proposed amendment.
REQUIRED VOTE
In accordance with the Delaware General Corporation Law and the
Certificate of Incorporation, the affirmative vote of a majority of the shares
represented and voting at the Meeting is required to adopt this proposed
18
amendment. As a result, any shares not voted (whether by abstention, broker
non-vote or otherwise) will have the same effect as a vote against the proposal.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 7
RATIFICATION OF INDEPENDENT AUDITORS
The accounting firm of Boros & Farrington APC served as the Company's
independent public auditors during the fiscal year ended June 30, 2000. A
representative of Boros & Farrington APC is expected to be present at the
Meeting, will have the opportunity to make a statement if he or she desires to
do so, and will be available to respond to appropriate questions.
Approval by the stockholders of the appointment of independent auditors is
not required but the Board deems it desirable to submit this matter to the
stockholders. If a majority of the common stock present and entitled to vote at
the meeting should not approve the selection of Boros & Farrington APC, the
Board shall reconsider the proposal.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Meeting. If any other matters properly come before the
Meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the shares they represent as the Board may recommend. Discretionary
authority with respect to such other matters is granted by the execution of the
enclosed Proxy.
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of Common Stock as of July 27, 2001, by
(i) all persons who are beneficial owners of five percent (5%) or more of the
Common Stock, (ii) each director and nominee for director, (iii) the applicable
executive officers named in the Summary Compensation Table of the Executive
Compensation and Other Information section of this Proxy Statement and (iv) all
current directors and executive officers as a group. Unless otherwise indicated,
each of the stockholders has sole voting and investment power with respect to
the shares beneficially owned, subject to community property laws, where
applicable.
Percentage
Shares of Common Of Shares Of Common
Stock Beneficially Stock Beneficially
Beneficial Ownership of Common Stock Owned Owned (1)
------------------------------------ ----- ---------
Brian Bonar (2) 625,000 *
Christopher McKee (3) 415,000 *
Philip Englund (4) 372,000 *
Richard H. Green * *
Robert A. Dietrich * *
19
Eric W. Gaer * *
Stephen J. Fryer * *
All current directors and executive 1,400,000 *
officers as a group (7 persons) (5)
----------------------------------------
* Less than one percent of the outstanding Common Stock
(1) Percentage of ownership is based on 170,901,065 shares of Common Stock
outstanding on July 27, 2001. Shares of Common Stock subject to stock
options warrants and convertible securities which are currently
exercisable or convertible or will become exercisable or convertible
within 60 days after July 27, 2001 are deemed outstanding for computing
the percentage of the person or group holding such options, warrants or
convertible securities but are not deemed outstanding for computing the
percentage of any other person or group.
(2) Includes 625,000 shares issuable upon exercise of options and warrants
that are currently exercisable or will become exercisable within 60 days
after July 27, 2001.
(3) Includes 415,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after July
27, 2001.
(4) Includes 360,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after July
27, 2001.
(5) Includes 1,400,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after July
27, 2001.
EXECUTIVE OFFICERS
The executive officers of the Company as of July 27, 2001, are as follows:
Name Age Position
---- --- --------
Brian Bonar 52 Chairman of the Board of
Directors and Chief
Executive Officer
Philip J. Englund 57 Senior Vice President,
General Counsel and
Secretary
Christopher W. McKee 52 President and Chief
Operating Officer
BRIAN BONAR has been nominated to serve as a director of the Company. See
"Proposal 1 - Election of the Board" for a discussion of Mr. Bonar's business
experience.
PHILIP J. ENGLUND has served as Senior Vice President, General Counsel and
Secretary of the Company since February 1999. Prior to joining the Company, Mr.
Englund served as general counsel to a number of companies on a contract basis
from October 1997 through February 1999, as he had done from April 1995 through
November 1996. He served as Senior Vice President, General Counsel and Secretary
to The Titan Corporation from November 1996 through October 1997; and as Vice
President and General Counsel to Optical Radiation Corporation from November
1986 through April 1995.
20
CHRISTOPHER W. MCKEE has served as President and Chief Operating Officer
of the Company since September, 2000, and served as Senior Vice President of
Finance and Operations of the Company from August 1998 to that date. Prior to
joining the Company, Mr. McKee spent 23 years with Flowserve Corporation and its
predecessor company, BW/IP, Inc., in various financial management positions,
including most recently as its Director of Information Technology and Baan
Implementation. Mr. McKee holds a masters in business administration from
Pepperdine University.
21
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning the
cash compensation and certain other compensation paid, awarded, or accrued, by
the Company to the Company's Chief Executive Officer and the two most highly
compensated executive officers who were serving at the end of the fiscal year
ended June 30, 2000 and two former executive officers who served during the
fiscal year ended June 30, 2000, each of whose salary and bonus exceeded
$100,000 for the fiscal year ended June 30, 2000 for services rendered in all
capacities to the Company and its subsidiaries for the fiscal years ended June
30, 1998, 1999 and 2000. The listed individuals shall be hereinafter referred to
as the "Named Officers."
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
------ ------------ ------
Other
Fiscal Annual Options/ Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) SARS(#) Compensation($)
--------------------------- ---- --------- -------- --------------- ------- ---------------
Brian Bonar 2000 178,333 -- -- -- --
Chairman of the 1999 250,570 -- -- 850,000 --
Boardand Chief 1998 -- -- 450,000 --
Executive Officer 235,243
Christopher McKee 2000 -- -- 76,000 --
President andChief 1999 104,125 20,000 -- 100,000 --
Operating Officer 1998 129,250 -- -- -- --
Philip J. Englund 2000 102,500 20,250 -- 96,000 --
Senior Vice 1999 55,741 -- -- 80,000 --
President, General 1998 0 -- -- -- --
Counsel and Secretary
-----------------------------
Option/SAR Grants in Last Fiscal Year
The following table provides information on Options/SARs granted in the
fiscal year ended June 30, 2000 to the Named Officers.
Potential Realizable
Value at Assumed
Number of Total Annual Rates of Stock
Securities Options/SARs Exercise Price Appreciation for
Underlying Granted to or Base Option Term
-----------------------
Options/SARS Employees in Price Expiration
Name Granted (#)(1) the Fiscal Year ($/share) Date 5%($) 10%($)
---------------- -------------- --------------- --------- ----------- ---------- ----------
Brian Bonar 0 0 -- -- -- --
Christopher W. McKee 76,000 44 0.91 7/26/09 0 0
Philip J. Englund 96,000 66 0.91 7/26/09 0 0
22
---------------
(1) Warrants/options become exercisable monthly over a 10 year period from
date of grant. Each warrant/option was issued at the then current market
price.
(2) Calculated based on the closing price of the Company's common stock on
July 27, 2001, which was $0.065.
Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Option/SAR Values
The following table provides information on option exercises in the fiscal
year ended June 30, 2000 by the Named Officers and the value of such Named
Officers' unexercised options at June 30, 2000. Warrants to purchase Common
Stock are included as options. No stock appreciation rights were exercised by
the Named Officers during the fiscal year ended June 30, 2000, and no stock
appreciation rights were held by them at the end of the fiscal year ended June
30, 2000.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-money Options/SARs
Options/SARs at FY-end(#) At Fiscal Year End ($)(1)
Shares ----------------------- --------------------------
Acquired on Value
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---------------- -------------- --------------- ----------- ----------- ---------- ------------
Brian Bonar 0 0 33,333 416,667 0 0
Christopher W. McKee 0 0 63,250 112,750 0 0
Philip J. Englund 0 0 50,667 125,333 0 0
------------------------------
23
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of cumulative total
stockholder returns for the Company, the Nasdaq Stock Market (U.S.) Index and
the Nasdaq Computer & Data Processing Index.
[GRAPHIC OMITTED]
24
CUMULATIVE TOTAL RETURN
--------------------------------------------------------------
6/95 6/96 6/97 6/98 6/99 6/00
---- ---- ---- ---- ---- ----
IMAGING TECHNOLOGIES CORPORATION 100.00 456.24 222.50 155.00 78.75 20.80
NASDAQ MARKET (U.S.) 100.00 128.38 156.12 205.48 295.56 436.97
NASDAQ COMPUTER & DATA PROCESSING 100.00 132.86 167.71 253.47 387.66 547.56
(1) The graph covers the period from July 1, 1994 to June 30, 2000.
(2) The graph assumes that $100 was invested in the Company on July 1, 1994,
in the Common Stock and in each index, and that all dividends were
reinvested. No cash dividends have been declared on the Common Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated by
reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
CERTAIN TRANSACTIONS
None.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board, the executive officers of the Company and
persons who hold more than 10 percent (10%) of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 which require them to file reports with respect
to their ownership of the Common Stock and their transactions in such Common
Stock. Based upon (i) the copies of Section 16(a) reports which the Company
received from such persons for their transactions in the fiscal year ended June
30, 2000 relating to the Common Stock and their Common Stock holdings, the
Company, to the best of the Company's knowledge, believes that certain of the
reporting requirements under Section 16(a) for such fiscal year were not met in
a timely manner by its directors, executive officers and greater than 10%
beneficial owners.
ANNUAL REPORT ON FORM 10-K
The Company filed an Annual Report on Form 10-K with the SEC on or about
October 13, 2000 and an amendment thereto on October 28, 2000. A copy of the
Form 10-K for the fiscal year ended June 30, 2000, has been mailed concurrently
with this Proxy Statement to all stockholders entitled to notice of and to vote
at the Meeting. The Form 10-K is not incorporated into this Proxy Statement and
is not considered proxy solicitation material.
25
Stockholders may obtain an additional copy of this report, without charge,
by writing to Philip J. Englund, Senior Vice President and General Counsel of
the Company, at the Company's principal executive offices located at 15175
Innovation Drive, San Diego, California 92128-3401.
26
Exhibit A
---------
PROPOSED FORM OF THE 2001 STOCK OPTION PLAN
2001 STOCK OPTION PLAN
Of
IMAGING TECHNOLOGIES CORPORATION
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) and directors of, and consultants to, IMAGING TECHNOLOGIES
CORPORATION, a Delaware corporation (the "Company"), or any Parent or Subsidiary
(as such terms are defined in Paragraph 19 hereof) of the Company, and to offer
an additional inducement in obtaining the services of such persons. The Plan
provides for the grant of "incentive stock options" ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and nonqualified stock options which do not qualify as ISOs ("NQSOs"). The
Company makes no representation or warranty, express or implied, as to the
qualification of any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12 hereof, the aggregate number of shares of Common Stock, $.005 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 5,000,000. Such shares of Common Stock may consist
either in whole or in part of authorized but unissued shares of Common Stock or
shares of Common Stock held in the treasury of the Company. Subject to the
provisions of Paragraph 13 hereof, any shares of Common Stock subject to an
option which for any reason expires, is canceled or is terminated unexercised or
which ceases for any reason to be exercisable, shall again become available for
the granting of options under the Plan. The Company shall at all times during
the term of the Plan reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee of the Company's Board of Directors (the "Committee"),
which Committee, to the extent required by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (as the same may be in effect and
interpreted from time to time, "Rule 16b-3"), shall consist of not less than two
(2) directors, each of whom shall be a non-employee director within the meaning
of Rule 16b-3 or an outside director within the meaning of Section 162(m) of the
Code. Unless otherwise provided in the By-laws of the Company or by resolution
of the Board of Directors, a majority of the members of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, and any acts approved in writing by all of
the members of the Committee without a meeting, shall be the acts of the
Committee. Those administering the Plan are referred to herein as the
"Administrators".
Subject to the express provisions of the Plan, the Administrators
shall have the authority, in their sole discretion, to determine: the employees,
consultants and directors who shall be granted options; whether an option to be
granted to a employee is to be in ISO or an NQSO (options to be granted to
consultants and directors who are not employees shall be NQSOs); the times when
an option shall be granted; the number of shares of Common Stock to be subject
to each option; the term of each option; the date each option shall become
exercisable; whether an option shall be exercisable in whole, in part or in
installments and, if in installments, the number of shares of Common Stock to be
subject to each installment, whether the installments shall be cumulative, the
date each installment shall become exercisable and the term of each installment;
whether to accelerate the date of exercise of any option or installment; whether
shares of Common Stock may be issued upon the exercise of an option as partly
paid and, if so, the dates when future installments of the exercise price shall
become due and the amounts of such installments; the exercise price of each
option; the form of payment of the exercise price; whether to restrict the sale
or other disposition of the shares of Common Stock acquired upon the exercise of
an option and, if so, whether and under what conditions to waive any such
restriction; whether and under what conditions to subject all or a portion of
the grant, the vesting or the exercise of an option or the shares acquired
pursuant to the exercise of an option to the fulfillment of certain restrictions
or contingencies as specified in the contract referred to in Paragraph 11 hereof
(the "Contract"), including, without limitation, restrictions or contingencies
relating to entering into a covenant not to compete with the Company, any of its
Subsidiaries or a Parent (as such term is defined
A-1
in Paragraph 19 hereof), to financial objectives for the Company, any of its
Subsidiaries or a Parent, a division of any of the foregoing, a product line or
other category, and/or to the period of continued employment of the optionee
with the Company, any of its Subsidiaries or a Parent, and to determine whether
such restrictions or contingencies have been met; whether an optionee is
Disabled (as such term is defined in Paragraph 19 hereof); the amount, if any,
necessary to satisfy the obligation of the Company, a Subsidiary or Parent to
withhold taxes or other amounts; the fair market value of a share of Common
Stock; to construe the respective Contracts and the Plan; with the consent of
the optionee, to cancel or modify an option, provided that the modified
provision is permitted to be included in an option granted under the Plan on the
date of the modification, and provided, further, that in the case of a
modification (within the meaning of Section 424(h) of the Code) of an ISO, such
option as modified would be permitted to be granted on the date of such
modification under the terms of the Plan; to prescribe, amend and rescind rules
and regulations relating to the Plan; to approve any provision of the Plan or
any option granted under the Plan, or any amendment to either, which under Rule
16b-3 or Section 162(m) of the Code requires the approval of the Board of
Directors, a committee of non-employee directors or the stockholders in order to
be exempt (unless otherwise specifically provided herein); and to make all other
determinations necessary or advisable for administering the Plan. Any
controversy or claim arising out of or relating to the Plan, any option granted
under the Plan or any Contract shall be determined unilaterally by the
Administrators in their sole discretion. The determinations of the
Administrators on the matters referred to in this Paragraph 3 shall be
conclusive and binding on the parties thereto. No Administrator or former
Administrator shall be liable for any action, failure to act or determination
made in good faith with respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Administrators may from time to time, in their
sole discretion, consistent with the purposes of the Plan, grant options to (a)
employees (including officers and directors who are employees) of, (b) directors
(who are not employees) of, and (c) consultants to, the Company or any Parent or
Subsidiary of the Company. Such options granted shall cover such number of
shares of Common Stock as the Administrators may determine, in their sole
discretion, as set forth in the applicable Contract; provided, however, that the
maximum number of shares subject to options that may be granted to any employee
during any calendar year under the Plan (the "162(m) Maximum") shall be 250,000
shares; and provided, further, that the aggregate market value (determined at
the time the option is granted in accordance with Paragraph 5 hereof) of the
shares of Common Stock for which any eligible employee may be granted ISOs under
the Plan or any other plan of the Company, or of a Parent or a Subsidiary of the
Company, which are exercisable for the first time by such optionee during any
calendar year shall not exceed $100,000. Such ISO limitation shall be applied by
taking ISOs into account in the order in which they were granted. Any option
granted in excess of such ISO limitation amount shall be treated as a NQSO to
the extent of such excess.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Administrators, in their sole
discretion, as set forth in the applicable Contract; provided, however, that the
exercise price of an ISO shall not be less than the fair market value of the
Common Stock subject to such option on the date of grant; and provided, further,
that if, at the time an ISO is granted, the optionee owns (or is deemed to own
under Section 424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, of any of its
Subsidiaries or of a Parent, the exercise price of such ISO shall not be less
than 110% of the fair market value of the Common Stock subject to such ISO on
the date of grant.
The fair market value of a share of Common Stock on any day shall be
(a) if actual sales price information is available with respect to the Common
Stock, the average of the highest and lowest sales prices per share of Common
Stock on such day, or (b) if such information is not available, the average of
the highest bid and lowest asked prices per share of Common Stock on such day as
reported by the market upon which the Common Stock is quoted, The Wall Street
Journal, the National Quotation Bureau Incorporated or an independent dealer in
the Common Stock, as determined by the Company; provided, however, that if
clauses (a) and (b) of this Paragraph are all inapplicable, or if no trades have
been made or no quotes are available for such day, the fair market value of the
Common Stock shall be determined by the Board of Directors by any method
consistent with applicable regulations adopted by the Treasury Department
relating to stock options.
6. TERM. The term of each option granted pursuant to the Plan shall be
such term as is established by the Administrators, in their sole discretion, as
set forth in the applicable Contract; provided, however, that the term of each
ISO granted pursuant to the Plan shall be for a period not exceeding ten (10)
years from the
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date of grant thereof; and provided, further, that if, at the time an ISO is
granted, the optionee owns (or is deemed to own under Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, any of its Subsidiaries or a Parent, the term
of the ISO shall be for a period not exceeding five (5) years from the date of
grant. Options shall be subject to earlier termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the applicable Contract permits
installment payments) (a) in cash or by certified check or (b) if the applicable
Contract permits, with previously acquired shares of Common Stock having an
aggregate fair market value on the date of exercise (determined in accordance
with Paragraph 5 hereof) equal to the aggregate exercise price of all options
being exercised or a combination of cash, certified check or shares of Common
Stock having such value. The Company shall not be required to issue any shares
of Common Stock pursuant to any such option until all required payments,
including payments for any required withholding amounts, have been made.
The Administrators may, in their sole discretion (in the Contract or
otherwise), permit payment of the exercise price of an option by delivery by the
optionee of a properly executed notice, together with a copy of his irrevocable
instructions to a broker acceptable to the Administrators to deliver promptly to
the Company the amount of sale or loan proceeds sufficient to pay such exercise
price. In connection therewith, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate for such shares
or, in the case of uncertificated shares, until the date an entry is made on the
books of the Company's transfer agent representing such shares; provided,
however, that until such stock certificate is issued or until such book entry is
made, any optionee using previously acquired shares of Common Stock in payment
of an option exercise price shall continue to have the rights of a stockholder
with respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose relationship with the
Company, its Subsidiaries and Parent as an employee, director or consultant has
terminated for any reason (other than as a result of the death or Disability (as
such term is defined in Paragraph 19 hereof) of the Optionee) may exercise such
option, to the extent exercisable on the date of such termination, at any time
within three months after the date of termination, but not thereafter and in no
event after the date the option would otherwise have expired; provided, however,
that if such relationship is terminated either (a) for Cause (as such term is
defined in Paragraph 19 hereof), or (b) without the consent of the Company, such
option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and the Company, any of its Subsidiaries
or a Parent if, at the time of the determination, the individual was an employee
of such corporation for purposes of Section 422(a) of the Code. As a result, an
individual on military, sick leave or other bona fide leave of absence shall
continue to be considered an employee for purposes of the Plan during such leave
if the period of the leave does not exceed 90 days or, if longer, so long as the
individual's right to reemployment with the Company, any of its Subsidiaries or
a Parent is guaranteed either by statute or by contract. If the period of leave
exceeds 90 days and the individual's right to reemployment is not guaranteed by
statute or by contract, the employment relationship shall be deemed to have
terminated on the 91st day of such leave.
Notwithstanding the foregoing, except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not be
affected by any change in the status of the optionee so long as the optionee
continues to be an employee or director of, or a consultant to, the Company, any
of its Subsidiaries or a Parent (regardless of having changed from one position
to another or having been transferred from one entity to another).
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Nothing in the Plan or in any option granted under the Plan shall
confer on any optionee any right to continue in the employ of, as a director of,
or as a consultant to, the Company, any of its Subsidiaries or a Parent, or
interfere in any way with any right of the Company, any of its Subsidiaries or a
Parent to terminate the optionee's relationship at any time for any reason
whatsoever without liability to the Company, any of its Subsidiaries or a
Parent.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee or director of, or a consultant to, the Company, any
of its Subsidiaries or a Parent, (b) within three months after the termination
of such relationship (unless such termination was for Cause or without the
consent of the Company or such Subsidiary or Parent) or (c) within one year
following the termination of such relationship by reason of Disability, the
optionee's option may be exercised, to the extent exercisable on the date of the
optionee's death, by the optionee's Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee or director of, or a
consultant to, the Company, any of its Subsidiaries or a Parent has terminated
by reason of Disability (without continuing in another such capacity) may
exercise the optionee's option, to the extent exercisable upon the effective
date of such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the exercise
of any option that either (a) a Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock to be issued upon such exercise shall be effective and current at the time
of exercise or (b) there is an exemption from registration under the Securities
Act for the issuance of the shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register shares subject to
any option under the Securities Act or to keep any Registration Statement
effective or current.
The Administrators may require, in their sole discretion, as a
condition to the receipt of an option or the exercise of any option that the
optionee execute and deliver to the Company such representations and warranties,
in form, substance and scope satisfactory to the Administrators, as the
Administrators determine are necessary or appropriate to facilitate the
perfection of an exemption from the registration requirements of the Securities
Act, applicable state securities laws or other legal requirement, including,
without limitation, that (a) the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the optionee for the optionee's own
account, for investment only and not with a view to the resale or distribution
thereof, and (b) any subsequent resale or distribution of shares of Common Stock
by such optionee will be made only pursuant to (i) a Registration Statement
under the Securities Act which is effective and current with respect to the
shares of Common Stock being sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the optionee shall, prior to any offer of sale or sale of such shares of Common
Stock, provide the Company with a favorable written opinion of counsel
satisfactory to the Company, in form, substance and scope satisfactory to the
Company, as to the applicability of such exemption to the proposed sale or
distribution.
In addition, if at any time the Administrators shall determine, in
their sole discretion, that the listing or qualification of the shares of Common
Stock subject to any option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental agency or
self-regulatory body, is necessary or desirable as a condition to, or in
connection with, the granting of an option or the issuing of shares of Common
Stock upon the exercise thereof, such option may not be granted and such option
may not be exercised in whole or in part unless such listing, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Administrators.
11. CONTRACTS. Each option shall be evidenced by an appropriate
Contract which shall be duly executed by the Company and the optionee, which
Contract shall contain such terms, provisions and conditions not inconsistent
herewith as may be determined by the Administrators. The terms of each option
and Contract need not be identical.
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12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any
other provision of the Plan, in the event of a stock dividend, stock split,
combination, reclassification, recapitalization, merger in which the Company is
the surviving corporation, spin-off, split-up or exchange of shares or the like
which results in a change in the number or kind of shares of Common Stock which
is outstanding immediately prior to such event, the aggregate number and kind of
shares subject to the Plan, the aggregate number and kind of shares subject to
each outstanding option and the exercise price thereof, and the 162(m) Maximum
shall be appropriately adjusted by the Board of Directors, whose determination
shall be conclusive and binding on all parties thereto. Such adjustment may
provide for the elimination of fractional shares which might otherwise be
subject to options without payment therefor.
In the event of (a) the liquidation or dissolution of the Company, or
(b) a transaction (or series of related transactions) that is approved by a
majority of the members of the Company's Board of Directors who were elected by
stockholders prior to the first of such transactions (including, without
limitation, a merger, consolidation, sale of stock by the Company or its
stockholders, tender offer or sale of assets) and in which either (i) the voting
power (in the election of directors generally) of the Company's voting
securities outstanding immediately prior to such transaction(s) cease to
represent at least 50% of the combined voting power (in the election of
directors generally) of the Company or such surviving entity outstanding
immediately after such transaction(s) or (ii) the registration of the Common
Stock under the Securities Exchange Act of 1934 is terminated, then all
outstanding options shall terminate upon the earliest of any such event, unless
other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors on June 27, 2001. No ISO may be granted under the Plan
after June 26, 2011. The Board of Directors, without further approval of the
Company's stockholders, may at any time suspend or terminate the Plan, in whole
or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, or to comply
with the provisions of Rule 16b-3, Section 162(m) of the Code or any change in
applicable law, regulations, rulings or interpretations of administrative
agencies; provided, however, that no amendment shall be effective without the
requisite prior or subsequent stockholder approval which would (a) except as
contemplated in Paragraph 12 hereof, increase the maximum number of shares of
Common Stock for which options may be granted under the Plan or the 162(m)
Maximum, (b) change the eligibility requirements to receive options hereunder or
(c) make any change for which applicable law requires stockholder approval. No
termination, suspension or amendment of the Plan shall, without the consent of
the optionee, adversely affect the optionee's rights under any option granted
under the Plan. The power of the Administrators to construe and administer any
option granted under the Plan prior to the termination or suspension of the Plan
nevertheless shall continue after such termination or during such suspension.
14. NON-TRANSFERABILITY. No option granted under the Plan shall be
transferable otherwise than by will or the laws of descent and distribution, and
options may be exercised, during the lifetime of the optionee, only by the
optionee or his Legal Representatives. Except to the extent provided in the
immediately preceding sentence, options may not be assigned, transferred,
pledged, hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process,
and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of no force or effect.
15. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may
withhold (a) cash or (b) with the consent of the Administrators (in the Contract
or otherwise), shares of Common Stock to be issued upon exercise of an option
having an aggregate fair market value on the relevant date (determined in
accordance with Paragraph 5 hereof) or a combination of cash and shares, in an
amount equal to the amount which the Administrators determine is necessary to
satisfy the obligation of the Company, a Subsidiary or Parent to withhold
Federal, state and local income taxes or other amounts incurred by reason of the
grant, vesting, exercise or disposition of an option, or the disposition of the
underlying shares of Common Stock. Alternatively, the Company, a Subsidiary or
Parent may require the holder to pay to it such amount, in cash, promptly upon
demand.
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16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend
or legends upon the certificates for shares of Common Stock issued upon exercise
of an option under the Plan and may issue such "stop transfer" instructions to
its transfer agent in respect of such shares as it determines, in its
discretion, to be necessary or appropriate to (a) prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
and any applicable state securities laws, (b) implement the provisions of the
Plan or any agreement between the Company and the optionee with respect to such
shares of Common Stock or (c) permit the Company to determine the occurrence of
a "disqualifying disposition," as described in Section 421(b) of the Code, of
the shares of Common Stock issued or transferred upon the exercise of an ISO
granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance
of shares of Common Stock upon the exercise of an option granted under the Plan,
as well as all fees and expenses incurred by the Company in connection with such
issuance.
17. USE OF PROCEEDS. The cash proceeds received upon the exercise of
an option under the Plan shall be added to the general funds of the Company and
used for such corporate purposes as the Board of Directors may determine, in its
discretion.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the Company's stockholders,
substitute new options for prior options of a Constituent Corporation (as such
term is defined in Paragraph 19 thereof) or assume the prior options of such
Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms shall
be defined as set forth below:
(a) "Cause" shall mean (i) in the case of an employee or
consultant, if there is a written employment or consulting agreement between the
optionee and the Company, any of its Subsidiaries or a Parent which defines
termination of such relationship for cause, cause as defined in such agreement,
and (ii) in all other cases, cause within the meaning of applicable state law.
(b) "Constituent Corporation" shall mean any corporation which
engages with the Company, any of its Subsidiaries or a Parent in a transaction
to which Section 424(a) of the Code applies (or would apply if the option
assumed or substituted were an ISO), or any Parent or any Subsidiary of such
corporation.
(c) "Disability" shall mean a permanent and total disability
within the meaning of Section 22(e)(3) of the Code.
(d) "Legal Representative" shall mean the executor, administrator
or other person who at the time is entitled by law to exercise the rights of a
deceased or incapacitated optionee with respect to an option granted under the
Plan.
(e) "Parent" shall have the same definition as "parent
corporation" in Section 424(e) of the Code.
(f) "Subsidiary" shall have the same definition as "subsidiary
corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, the options and Contracts
hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions.
Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
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21. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability
of any provision in the Plan, any option or Contract shall not affect the
validity, legality or enforceability of any other provision, all of which shall
be valid, legal and enforceable to the fullest extent permitted by applicable
law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person or by proxy and entitled to vote thereon
at the next duly held meeting of the Company's stockholders at which a quorum is
present. No options granted hereunder may be exercised prior to such approval;
provided, however, that the date of grant of any option shall be determined as
if the Plan had not been subject to such approval. Notwithstanding the
foregoing, if the Plan is not approved by a vote of the stockholders of the
Company on or before January 24, 2002, the Plan and any options granted
hereunder shall terminate.
EXHIBIT B
---------
PROPOSED FORM OF THE 2001 STOCK PURCHASE PLAN
2001 EMPLOYEE STOCK PURCHASE PLAN
OF
IMAGING TECHNOLOGIES CORPORATION
SECTION 1
Purpose
-------
The purpose of the Plan is to secure for the Company and its
stockholders the benefits of the incentive inherent in the ownership of Common
Stock by current and future Eligible Employees. The Plan is intended to comply
with the provisions of Code section 423 and shall be administered, interpreted
and construed in accordance with such provisions.
SECTION 2
Definitions
-----------
When used herein, the following terms shall have the following
meanings:
2.1 "Board of Directors" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute thereto.
2.3 "Committee" means the committee appointed by the Board of
Directors to administer the Plan pursuant to Section 12.
2.4 "Common Stock" means common stock, par value $0.005 per share, of
the Company.
2.5 "Common Stock Account" means the account established with, and
maintained by, the Custodian, for the purpose of holding Common Stock
purchased pursuant to this Plan.
2.6 "Company" means Imaging Technologies Corporation, and its
successors and assigns.
2.7 "Custodian" means the agent selected by the Company to hold Common
Stock purchased under the Plan.
2.8 "Eligible Compensation" means the sum of: (i) the total
compensation paid to an Eligible Employee by the Company and its
Subsidiaries that is subject to tax under Code section 3402 (or which would
be subject to tax thereunder if the employee were fully subject to Federal
income tax with respect to such compensation), plus (ii) any "elective
deferrals" contributed to the 401(k) Plan by such Eligible Employee, plus
(iii) amounts deferred under a plan intended to qualify under Code section
125.
2.9 "Eligible Employee" means each employee of the Company or any
Subsidiary.
2.10 "Entry Date" means the first day of each calendar month included
in a Plan Year.
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2.11 "Fair Market Value" means, on any day, (a) if actual sales price
information is available with respect to the Common Stock, the average of
the highest and lowest sales prices per share of Common Stock on such day,
or (b) if such information is not available, the average of the highest bid
and lowest asked prices per share of Common Stock on such day as reported
by the market upon which the Common Stock is quoted, The Wall Street
Journal, the National Quotation Bureau Incorporated or an independent
dealer in the Common Stock, as determined by the Company; provided,
however, that if clauses (a) and (b) of this Paragraph are all
inapplicable, or if no trades have been made or no quotes are available for
such day, the fair market value of the Common Stock shall be determined by
the Board of Directors by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options.
2.12 "Investment Date" means the last day of each Plan Year quarter
and such other dates as may be determined by the Committee in its sole
discretion.
2.13 "Participant" means an Eligible Employee who has met the
requirements of Section 3 and has elected to participate in the Plan
pursuant to Section 4.1.
2.14 "Payroll Deduction Account" means the bookkeeping entry
established by the Company for each Participant pursuant to Section 4.3.
2.15 "Plan" means the Imaging Technologies Corporation 2001 Employee
Stock Purchase Plan as set forth herein and as amended from time to time.
2.16 "Plan Year" means July 1, 2001 through December 31, 2001 and each
calendar year thereafter.
2.17 "Subsidiary" means any corporation designated by the Board of
Directors, in its sole discretion, of which the Company owns or controls,
directly or indirectly, not less than 50% of the total combined voting
power of all classes of stock and which constitutes a "subsidiary" of the
Company, within the meaning of Code section 424(f).
SECTION 3
Eligibility
-----------
3.1 General Rule. Subject to Section 3.3, each Eligible Employee shall
be eligible to participate in the Plan beginning on the Entry Date
coincident with or next following the Eligible Employee's date of hire by
the Company or any of its Subsidiaries.
3.2 Leave of Absence. Unless the Committee otherwise determines, a
Participant on a paid leave of absence shall continue to be a Participant
in the Plan so long as such Participant is on such paid leave of absence.
Unless otherwise determined by the Committee, a Participant on an unpaid
leave of absence shall not be entitled to participate in any offering
commencing after such unpaid leave has begun but shall not be deemed to
have terminated employment for the purposes of the Plan. A Participant who,
upon failing to return to work following a leave of absence, is deemed not
to be an employee, shall not be entitled to participate in any offering
commencing after such termination of employment and such Participant's
Payroll Deduction Account shall be paid out in accordance with Section 6.1.
3.3 Common Stock Account. As a condition to participation in this
Plan, each Eligible Employee shall be required to hold shares purchased
hereunder in a Common Stock Account and such employee's decision to
participate in the Plan shall constitute the appointment of the Custodian
as custodial agent for the purpose of holding such shares. Such Common
Stock Account shall be governed by, and subject to, the terms and
conditions of a written agreement with the Custodian.
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SECTION 4
Participation and Payroll Deductions
------------------------------------
4.1 Enrollment. Each Eligible Employee may elect to participate in the
Plan for a Plan Year by completing an enrollment form prescribed by the
Committee and returning it to the Company on or before the date specified
by the Committee, which date shall precede the Eligible Employee's Entry
Date.
4.2 Amount of Deduction. The enrollment form shall specify a payroll
deduction amount of from 1% to 15% (in whole numbers) of Eligible
Compensation, which shall be withheld from the Participant's regular
paychecks, including bonus paychecks, for the Plan Year. The Committee, in
its sole discretion, may authorize payment in respect of any option
exercised hereunder by personal check.
4.3 Payroll Deduction Accounts. Each Participant's payroll deduction
shall be credited, as soon as practicable following the relevant pay date,
to a Payroll Deduction Account, pending the purchase of Common Stock in
accordance with the provisions of the Plan. All such amounts shall be
assets of the Company and may be used by the Company for any corporate
purpose. No interest shall accrue or be paid on amounts credited to a
Payroll Deduction Account.
4.4 Subsequent Plan Years. Unless otherwise specified prior to the
beginning of any Plan Year on an enrollment form prescribed by the
Committee, a Participant shall be deemed to have elected to participate in
each subsequent Plan Year for which the Participant is eligible to the same
extent and in the same manner as at the end of the prior Plan Year.
4.5 Changes in Participation.
(a) At any time during a Plan Year, a Participant may cease
participation in the Plan by completing and filing the form prescribed by the
Committee with the Company. Such cessation will become effective as soon as
practicable following receipt of such form by the Company, whereupon no further
payroll deductions will be made and the Company shall pay to such Participant an
amount equal to the balance in the Participant's Payroll Deduction Account as
soon as practicable thereafter. To the extent then eligible, any Participant who
ceased to participate may elect to participate again on any subsequent Entry
Date in any calendar quarter after the quarter in which such Participant ceased
to participate.
(b) At any time during the Plan Year (but not more than once in any
calendar quarter) a Participant may increase or decrease the percentage of
Eligible Compensation subject to payroll deduction within the limits provided in
Section 4.2 by filing the form prescribed by the Committee with the Company.
Such increase or decrease shall become effective with the first pay period
following receipt of such form to which it may be practicably applied.
SECTION 5
Offerings
---------
5.1 Maximum Number of Shares. The Plan shall be implemented by making
offerings of common stock on each investment date until the maximum number
of shares of common stock available under the plan have been issued
pursuant to the exercise of options.
5.2 Grant and Exercise of Options.
(a) Subject to Section 5.3, on each Investment Date, each Participant
shall be deemed, subject to Section 5.4, to have been granted the option to
purchase, and shall be deemed, without any further action, to have exercised
such option and purchased, the number of shares of Common Stock determined by
dividing the
B-3
amount credited to the Participant's Payroll Deduction Account on such date by
the purchase price (as determined in paragraph (b) below). All such shares shall
be credited to the Participant's Common Stock Account.
(b) The purchase price for each share of Common Stock shall be equal
to eighty-five percent (85%) of the Fair Market Value of such share on the
Investment Date.
5.3 Oversubscription of Shares. If the total number of shares for
which options are exercised on any investment date exceeds the maximum
number of shares available for the applicable offering, the company shall
make an allocation of the shares available for delivery and distribution
among the participants in as nearly a uniform manner as shall be
practicable, and the balance of all participant's payroll deduction account
shall be refunded to the participant or, in the event of the participant's
death, to the participant's estate, as soon as practicable.
5.4 Limitations on Grant and Exercise of Options.
(a) No option granted under this Plan shall permit a participant to
purchase stock under all employee stock purchase plans (as defined by code
section 423(b)) of the Company and its subsidiaries at a rate which, in the
aggregate, exceeds $25,000 of the Fair Market Value (payroll deductions not in
excess of $21,250) of such stock (determined at the time the option is granted)
for each calendar year in which the option is outstanding at any time.
(b) No employee who would down, immediately after the option is
granted, stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or any Subsidiary (a "5%
owner") shall be granted an option. For purposes of determining whether an
employee is a 5% owner, the rules of Code section 424(d) shall apply in
determining the stock ownership of an individual and stock which the employee
may purchase under outstanding options shall be treated as stock owned by the
employee.
SECTION 6
Distributions of Common Stock Account
-------------------------------------
6.1 Termination of Employment. If a Participant's employment with the
Company and its Subsidiaries terminates for any reason during a Plan Year,
all shares credited to the participant's common stock account shall be
distributed, and any amount credited to the Participant's Payroll Deduction
Account shall be refunded to the Participant or, in the event of the
Participant's death, to the Participant's estate, as soon as practicable.
6.2 During Employment. Prior to the Participant's termination of
employment with the company and its Subsidiaries, a Participant may
withdraw some or all of the whole shares credited to the Participant's
Common Stock Account, subject to the provisions of Section 10.3.
SECTION 7
Dividends on Shares
-------------------
All cash dividends paid with respect to shares of Common Stock held in
a participant's Common Stock Account shall be invested automatically in shares
of Common Stock purchased at one-hundred percent (100%) of Fair Market Value on
the next Investment Date. All non-cash distributions paid on Common Stock held
in a Participant's Common Stock Account shall be paid to the Participant as soon
as practicable.
B-4
SECTION 8
Rights as a Stockholder
-----------------------
When a Participant purchases Common Stock pursuant to the plan or when
Common Stock is credited to a participant's Common Stock Account, the
participant shall have all of the rights and privileges of a stockholder of the
company with respect to the shares so purchased or credited, whether or not
certificates representing shares shall have been issued.
SECTION 9
Options Not Transferable
------------------------
Options granted under the Plan are not transferable by a Participant
other than by will or the laws of descent and distribution and are exercisable
during the Participant's lifetime only by the Participant.
SECTION 10
Common Stock
------------
10.1 Reserved Shares. There shall be reserved for issuance and
purchase under the Plan an aggregate of 2,500,000 shares of Common Stock,
subject to adjustment as provided in section 11. Shares subject to the Plan
may be shares now or hereafter authorized but unissued, treasury shares, or
both.
10.2 Restrictions on Exercise. In its sole discretion, the Board of
Directors may require as conditions to the exercise of any option that
shares of Common Stock reserved for issuance upon the exercise of an option
shall have been duly listed on any recognized national securities exchange,
and that either a registration statement under the Securities Act of 1933,
as amended, with respect to said shares shall be effective, or the
participant shall have represented at the time of purchase, in form and
substance satisfactory to the Company, that it is the participant's
intention to purchase the shares for investment only and not for resale or
distribution.
10.3 Restriction on Sale. Shares of Common Stock purchased hereunder
shall not be transferable by a participant for a period of 12 months
immediately following the Investment Date on which such shares were
purchased. In addition, upon the expiration of such 12-month period, shares
of Common Stock purchased hereunder shall not be transferable by a
Participant for an additional 12-month period, without prior written notice
to the Company on a form prescribed by the Committee.
SECTION 11
Adjustment Upon Changes in Capitalization
-----------------------------------------
In the event of a subdivision or consolidation of the outstanding
shares of Common Stock, or the payment of stock dividend thereon, the number of
shares reserved or authorized to be reserved under this plan shall be increased
or decreased, as the case may be, proportionately, and such other adjustments
shall be made as may be deemed necessary or equitable by the Board of Directors.
In the event of any other change affecting the common stock, such adjustments
shall be made as may be deemed equitable by the Board of Directors, in its sole
discretion, to give proper effect to such event, subject to the limitations of
Code section 424.
SECTION 12
Administration
12.1 Appointment. The Plan shall be administered by the Committee. The
Committee shall consist of two or more members who shall serve at the
pleasure of the Board of
B-5
Directors. The Board of Directors may from time to time appoint members of
the Committee in substitution for, or in addition to, members previously
appointed and may fill vacancies, however caused, in the Committee.
12.2 Authority. Subject to the express provisions of the Plan, the
Committee shall have authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable in administering the Plan, all of
which determinations shall be final and binding upon all persons. If and to
the extent required by Securities and Exchange Commission rule 16b-3 or any
successor exemption under which the Committee believes it is appropriate
for the plan to qualify, the Committee may restrict a participant's ability
to participate in the plan or sell any common stock received under the plan
for such period as the committee deems appropriate or may impose such other
conditions in connection with participation or distributions under the Plan
as the Committee deems appropriate.
12.3 Committee Procedures. The Committee may select one of its members
as its chairman and shall hold its meetings at such times and places as it
shall deem advisable and may hold telephonic meetings. A majority of its
members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. Any decision or determination
reduced to writing and signed by a majority of the members of the Committee
shall be as fully effective as if it had been made by a majority vote at a
meeting duly called and held. The Committee may request advice or
assistance or employ such other persons as are necessary for the proper
administration of the plan.
12.4 Duties of Committee. The committee shall establish and maintain
records of the plan and of each payroll deduction account and common stock
account established for any participant hereunder.
12.5 Plan Expenses. The company shall pay the fees and expenses of
accountants, counsel, agents and other personnel and all other costs of
administration of the plan.
12.6 Indemnification. To the maximum extent permitted by law, no
member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on such member's
behalf in such member's capacity as a member of the Committee or for any
mistake of judgment made in good faith, and the Company shall indemnify and
hold harmless, directly from its own assets (including the proceeds of any
insurance policy the premiums of which are paid from the Company's own
assets), each member of the Committee and each other officer, employee or
director of the Company to whom any duty or power relating to the
administration or interpretation of the plan or to the management or
control of the assets of the plan may be delegated or allocated, against
any cost or expense (including fees, disbursements and other charges of
legal counsel) or liability (including any sum paid in settlement of a
claim with the approval of the Company) arising out of any act or omission
to act in connection with the plan unless arising out of such person's own
fraud, willful misconduct or bad faith. The foregoing shall not be deemed
to limit the company's obligation to indemnify any member of the committee
under the Company's certificate of Incorporation or By-laws, or any other
agreement between the Company and such member.
SECTION 13
Amendment and Termination
-------------------------
13.1 Amendment. Subject to the provisions of Code Section 423, the
board of directors may amend the plan in any respect; provided, however,
that the plan may not be amended in any manner that will retroactively
impair or otherwise adversely affect the rights of any person to benefits
under the Plan which have accrued prior to the date of such action.
13.2 Termination. The Plan shall terminate on the Investment Date that
Participants become entitled to purchase a number of shares greater than
the number of reserved shares available for purchase. In addition, the Plan
may be terminated at any time, in the sole discretion of the Board of
Directors.
B-6
SECTION 14
Effective Date
--------------
The plan shall become effective on July 1, 2001, subject to approval
by the holders of the majority of shares of Common Stock present and represented
at an annual or special meeting of the stockholders held within 12 months of the
date the Plan is adopted.
SECTION 15
Governmental and Other Regulations
----------------------------------
The plan and the grant and exercise of options to purchase shares
hereunder, and the Company's obligation to sell and deliver shares upon the
exercise of options to purchase shares, shall be subject to all applicable
Federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as, in the opinion of counsel to the
Company, may be required.
SECTION 16
No Employment Rights
--------------------
The Plan does not create, directly or indirectly, any right for the
benefit of any employee or class of employees to purchase any shares under the
Plan, or create in any employee or class of employees any right with respect to
continuation of employment by the Company or any subsidiary, and it shall not be
deemed to interfere in any way with the Company's or any Subsidiary's right to
terminate, or otherwise modify, an employee's employment at any time.
SECTION 17
Withholding
-----------
As a condition to receiving shares hereunder, the Company may require
the Participant to make a cash payment to the Company of, or the Company may
withhold from, any shares distributable under the Plan, an amount necessary to
satisfy all Federal, state, city or other taxes as may be required to be
withheld in respect of such payments pursuant to any law or governmental
regulation or ruling.
SECTION 18
Offsets
-------
To the extent permitted by law, the Company shall have the absolute
right to withhold any amounts payable to any Participant under the terms of the
Plan to the extent of any amount owed for any reason by such participant to the
Company or any Subsidiary and to set off and apply the amounts so withheld to
payment of any such amount owed to the company or any subsidiary, whether or not
such amount shall then be immediately due and payable and in such order or
priority as among such amounts owed as the Committee, in its sole discretion,
shall determine.
SECTION 19
Notices, etc.
-------------
All elections, designations, requests, notices, instructions and other
communications from a participant to the committee or the company required or
permitted under the Plan shall be in such form as is prescribed from time to
time by the Committee, shall be mailed by first-class mail or delivered to such
location as
B-7
shall be specified by the Committee, and shall be deemed to have been given and
delivered only upon actual receipt thereof at such location.
SECTION 20
Captions, etc.
--------------
The captions of the sections and paragraphs of this Plan have been
inserted solely as a matter of convenience and in no way define or limit the
scope or intent of any provision of the Plan. Reference to sections herein are
to the specified sections of this Plan unless another reference is specifically
stated. Wherever used herein, a singular number shall be deemed to include the
plural unless a different meaning is required by the context.
SECTION 21
Effect of Plan
--------------
The provisions of the Plan shall be binding upon, and inure to the
benefit of, all successors of the Company and each Participant, including,
without limitation, such Participant's estate and the executors, administrators
or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Participant.
SECTION 22
Governing Law
-------------
The laws of the State of Delaware shall govern all matters relating to
this Plan except to the extent it is superseded by the laws of the United
States.
B-8
EXHIBIT C
---------
PROPOSED FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND
CHANGING THE PAR VALUE PER SHARE OF PREFERRED STOCK
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IMAGING TECHNOLOGIES CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Imaging Technologies Corporation.
2. The Certificate of Incorporation of the Corporation (hereinafter
called the "Certificate of Incorporation") is hereby further amended by deleting
the current first paragraph of the Fourth Article and replacing it with the
following:
"FOURTH: The aggregate number of shares of stock which the Corporation
shall have authority to issue is 500,100,000 shares divided into two classes;
500,000,000 shares of which shall be designated as Common Stock, $.005 par value
per share, and 100,000 shares of which shall be designated as Preferred Stock,
with $0.01 par value per share. There shall be no preemptive rights with respect
to any shares of capital stock of the Corporation."
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.
Dated: ___________, 2001
By:_________________________
Brian Bonar, President
ATTEST:
By:
----------------------------
Philip Englund, Secretary
C-1
EXHIBIT D
---------
PROPOSED FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION
EFFECTING A REVERSE SPLIT
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IMAGING TECHNOLOGIES CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Imaging Technologies Corporation.
2. The Certificate of Incorporation of the Corporation (hereinafter
called the "Certificate of Incorporation") is hereby further amended by deleting
the current first paragraph of the Fourth Article and replacing it with the
following:
"FOURTH: The aggregate number of shares of stock which the Corporation
shall have authority to issue is _________ shares divided into two classes;
_________ shares of which shall be designated as Common Stock, $.005 par value
per share, and _________ shares of which shall be designated as Preferred Stock,
with $0.01 par value per share. There shall be no preemptive rights with respect
to any shares of capital stock of the Corporation.
Effective 12:01 a.m. on __________, 2001 (the "Effective Time"), each
__ shares of Common Stock then issued shall be automatically combined into one
share of Common Stock of the Corporation. No fractional shares or scrip
representing fractions of a share shall be issued, but in lieu thereof, each
fraction of a share that any stockholder would otherwise be entitled to receive
shall be rounded up to the nearest whole share."
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.
Dated: ___________, 2001
By:_________________________
Brian Bonar, President
ATTEST:
By:
------------------------------
Philip Englund, Secretary
D-1
THE BOARD OF DIRECTORS OF
IMAGING TECHNOLOGIES CORPORATION
Dated: September 5, 2001
IMAGING TECHNOLOGIES CORPORATION PROXY SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints Brian Bonar and Philip J. Englund jointly
and severally, as proxies, with full power of substitution and resubstitution,
to vote all shares of stock which the undersigned is entitled to vote at the
Annual Meeting of Stockholders (the "Annual Meeting") of Imaging Technologies
Corporation (the "Company") to be held at the offices of the Company at 15175
Innovation Drive., San Diego, California 92128, on Friday, September 28, 2001,
at 10 a.m., local time, or at any postponements or adjournments thereof, as
specified below, and to vote in his or her discretion on such other business as
may properly come before the Annual Meeting and any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4, 5, 6 AND 7.
1. ELECTION OF DIRECTORS:
Nominees: Brian Bonar, Richard H. Green, Robert A. Dietrich, Eric W. Gaer, and
Stephen J. Fryer
|_| VOTE FOR ALL NOMINEES ABOVE |_| VOTE WITHHELD FROM ALL NOMINEE
(Except as withheld in the
space below)
Instruction: To withhold authority to vote for any individual nominee, check the
box "Vote FOR" and write the nominee's name on the line below.
--------------------------------------------------------------------------------
2. APPROVAL OF THE 2001 STOCK OPTION PLAN:
Approval of the 2001 Stock Option/Stock Issuance Plan, pursuant to which
5,000,000 shares of Common Stock will be reserved for issuance over the
term of such plan.
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
3. APPROVAL OF THE 2001 STOCK PURCHASE PLAN:
To approve the 2001 Stock Purchase Plan, pursuant to which 2,500,000
shares of Common Stock will be reserved or may be reserved for issuance
over the term of such plan.
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
4. APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION INCREASING THE COMPANY'S AUTHORIZED COMMON STOCK:
To approve an amendment to the Company's certificate of incorporation to
increase the number of Common Stock authorized to be issued from
200,000,000 shares to 500,000,000 shares.
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
5. APPROVAL OF REVERSE SPLIT OF THE COMPANY'S COMMON STOCK:
To approve an amendment to the Company's certificate of incorporation in
order to effect a stock combination (reverse split) of the Common Stock in
an exchange ratio to be approved by the Board, ranging from one newly
issued share for each ten outstanding shares of Common Stock to one newly
issued share for each twenty outstanding shares of Common Stock.
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
6. APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION CHANGING THE PAR VALUE OF THE COMPANY'S PREFERRED STOCK:
To approve an amendment to the Company's certificate of incorporation to
change the par value per share of the Company's Preferred Stock from
$1,000 per share to $0.01 per share.
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
7. RATIFICATION OF ACCOUNTANTS:
Ratification and approval of the selection of Boros & Farrington APC as
independent auditors for the fiscal year ending June 30, 2001.
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
(PLEASE SIGN AND DATE ON REVERSE SIDE)
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, 4, 5, 6 AND 7, AND WILL BE VOTED BY THE PROXY HOLDERS AT
THEIR DISCRETION AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE ANNUAL
MEETING OR ANY ADJOURNMENT(S) THEREOF TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS JUST SIGN BELOW, NO BOXES NEED BE CHECKED.
DATED: ____________________, 2001
SIGNATURE OF STOCKHOLDER
--------------------------------------------------------------------------------
PRINTED NAME OF STOCKHOLDER
--------------------------------------------------------------------------------
TITLE (IF APPROPRIATE)
--------------------------------------------------------------------------------
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. IF SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH, AND, IF
SIGNING FOR A CORPORATION, GIVE YOUR TITLE. WHEN SHARES ARE IN THE NAMES OF MORE
THAN ONE PERSON, EACH SHOULD SIGN.
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. |_|
[GRAPHIC OMITTED]
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive o San Diego, California 92128
Telephone: (858) 613-1300 o Fax: (858) 207-6505