SCHEDULE 14A INFORMATION
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Mind Arrow Systems, Inc.
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[LOGO] MINDARROW SYSTEMS
101 Enterprise, Suite 340
Aliso Viejo, California 92656
Dear Shareholder:
On behalf of your Board of Directors and Management, you are cordially
invited to attend the Annual Meeting of Shareholders to be held on Thursday,
August 30, 2001, at 10:00 a.m., at the offices of the Company, located at 101
Enterprise, Suite 340, Aliso Viejo, California.
The enclosed Notice and Proxy Statement contain details concerning the
business to come before the meeting. You will note that the Board of Directors
of the Company recommends a vote "FOR" the election of the nominated directors
to serve until the next Annual Meeting of Shareholders and "FOR" the amendments
to the 2000 Stock Option Plan.
Whether or not you attend the Annual Meeting, please vote as soon as
possible by returning the enclosed proxy card. Your vote is important, and
voting by written proxy will ensure your representation at the Annual Meeting.
You may revoke your proxy in accordance with the procedures described in the
Proxy Statement at any time prior to the time it is voted.
It is important that your shares be represented and voted at the Annual
Meeting even if you cannot attend in person. Please sign, date, and return your
proxy card in the enclosed envelope.
Thank you for your continued support.
Cordially,
/s/ Robert I. Webber
Robert I. Webber
President and Chief Executive Officer
MINDARROW SYSTEMS, INC.
___________
Notice of Annual Meeting of Shareholders
To Be Held August 30, 2001
___________
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of MindArrow
Systems, Inc., a Delaware corporation (the "Company"), will be held on Thursday,
August 30, 2001 at 10:00 a.m. at the offices of the Company, located at Summit
Office, 101 Enterprise Suite 340, Aliso Viejo, California, for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified;
2. To approve certain amendments to the Company's 2000 Stock Option Plan,
including an amendment to increase the number of shares available
under the plan and an amendment to increase the annual individual
grant limit under the plan;
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on July 5, 2001 are
entitled to receive notice of and to vote at the Annual Meeting or at any
adjournment of the meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
shareholder attending the Annual Meeting may vote in person even if he or she
previously returned a proxy.
By Order of the Board of Directors,
/s/ Quynh N. Trinh
Quynh N. Trinh
Secretary
Aliso Viejo, California
July 20, 2001
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YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE
REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
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TABLE OF CONTENTS
PROXY STATEMENT........................................................ 1
QUESTIONS AND ANSWERS.................................................. 1
PROPOSAL NO.1: ELECTION OF DIRECTORS.................................. 4
Nominees.......................................................... 4
Board Meetings and Committees..................................... 6
Director Compensation............................................. 7
Executive Officers................................................ 7
Executive Compensation............................................ 8
SUMMARY COMPENSATION TABLE............................................. 8
Fiscal 2000 Stock Option Grants to Executives..................... 9
Stock Option Exercises And Year-End Value Table................... 10
Employment Agreements............................................. 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......... 10
TRANSACTIONS WITH MANAGEMENT AND OTHERS................................ 13
COMPENSATION COMMITTEE................................................. 14
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION................ 14
Impact of Section162(m) of the Internal Revenue Code.............. 15
Conclusion........................................................ 15
AUDIT COMMITTEE INDEPENDENCE........................................... 16
AUDIT COMMITTEE REPORT................................................. 16
Audit Fees........................................................ 16
All Other Fees.................................................... 17
Independent Public Accountants.................................... 17
STOCK PERFORMANCE GRAPH................................................ 17
PROPOSAL NO. 2: APPROVAL OF AMENDMENTS TO THE 2000 STOCK OPTION PLAN.. 19
Summary Description of the 2000 Plan.............................. 19
Vote Required..................................................... 22
WHERE YOU CAN FIND MORE INFORMATION.................................... 23
OTHER MATTERS.......................................................... 23
i
Section 16(a) Beneficial Ownership Reporting Compliance........... 23
Annual Report to Shareholders..................................... 23
Advance Notice Procedures for Next Year's Annual Meeting.......... 24
Other Business.................................................... 24
ii
MINDARROW SYSTEMS, INC.
101 Enterprise Suite 340
Aliso Viejo, California 92656
(949) 916-8705
___________
PROXY STATEMENT
___________
The enclosed proxy is solicited on behalf of the Board of Directors of
MindArrow Systems, Inc., a Delaware corporation ("MindArrow" or the "Company"),
for use at MindArrow's annual meeting of shareholders (the "Annual Meeting") to
be held on Thursday, August 30, 2001 at 10:00 a.m., and at any adjournments
thereof. The purposes of the Annual Meeting are set forth in this Proxy
Statement and in the accompanying Notice of Annual Meeting of Shareholders. The
Annual Meeting will be held at the offices of the Company, located at 101
Enterprise Suite 340, Aliso Viejo, California. These proxy solicitation
materials were mailed on or about July 20, 2001 to all shareholders entitled to
vote at the Annual Meeting.
QUESTIONS AND ANSWERS
Q: What may I vote on?
A: (1) The election of nominees to serve on the Board of Directors; and
(2) The approval of certain amendments to the Company's 2000 Stock
Option Plan, including an amendment to increase the number of
shares available under the plan and an amendment to increase the
annual individual grant limit under the plan.
Q: How does the Board recommend I vote on the proposals?
A: The Board of Directors recommends a vote FOR each proposal.
Q: Who is entitled to vote?
A: Shareholders as of the close of business on July 5, 2001 (the "Record
Date") are entitled to vote at the Annual Meeting.
Q: How do I vote? Can I revoke my proxy later?
A: Sign and date each proxy card you receive and return it in the
prepaid envelope. You have the right to revoke your proxy at any time
before the Annual Meeting by:
(1) notifying the Secretary of the Company in writing;
(2) voting in person; or
(3) returning a later-dated proxy card.
Q: Who will count the vote?
A: U.S. Stock Transfer Corporation, the Company's transfer agent, will
count the votes and act as the inspector of election.
1
Q: What shares are included on the proxy card(s)?
A: The shares on your proxy card(s) represent ALL of your shares. If you
do not return your proxy card(s), your shares will not be voted.
Q: What does it mean if I get more than one proxy card?
A: If your shares are registered differently and are in more than one
account, or if you own more than one class of shares, you will
receive more than one proxy card. Sign and return all proxy cards to
ensure that all your shares are voted. We encourage you to have all
accounts registered in the same name and address (whenever possible).
You can accomplish this by contacting our transfer agent, U.S. Stock
Transfer Corporation or, if your shares are held in "street name," by
contacting the broker or bank who holds your shares.
Q: How many shares can vote?
A: As of the Record Date, 11,456,666 shares of Common stock, 1,004,949
shares of Series B Preferred stock, and 779,775 shares of Series C
Preferred stock, the only voting securities of the Company, were
issued and outstanding. Every holder of Common stock is entitled to
one vote for each share of Common stock held; and each share of
Series B and Series C Preferred entitles the holder to one vote per
share of Preferred stock held, except when voting on an as converted
basis with holders of Common stock. When voting on an as converted
basis, Preferred shares are entitled to that number of votes equal to
the number of shares of Common stock into which the share of Series B
or Series C Preferred is convertible as of the Record Date. The
conversion ratio of the Series B Preferred is currently one-to-one,
and the conversion ratio of the Series C Preferred is currently one-
to-two.
Q: What is a "quorum"?
A: A "quorum" is a majority of the outstanding shares entitled to vote.
They may be present in person or represented by proxy. For the
purposes of determining a quorum, shares held by brokers or nominees
will be treated as present even if the broker or nominee does not
have discretionary power to vote on a particular matter or if
instructions were never received from the beneficial owner. These
shares are called "broker non-votes." Abstentions will be counted as
present for quorum purposes.
Q: What is required to approve each proposal?
A: For the election of directors, the Series B Preferred shares are
entitled to elect one director and the Series C Preferred shares are
entitled to elect two directors. The remaining directors will be
elected by the shares of Common stock, and the Series B and Series C
Preferred shares voting on an as converted basis. Once a quorum has
been established, the nominees for director who receive a plurality
of the shares and as converted shares entitled to vote in their
election will be selected as the directors of the Company.
Directors are elected by a plurality of votes cast. Shareholders may
not cumulate their votes for any one of the nominees for election as
directors, provided, however, that under Section 2115 of the
California Corporations Code (which is currently applicable to the
Company), a shareholder may cumulate votes in the election of
directors if the candidates' names have been placed in nomination
prior to the voting and the shareholder
2
has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate the shareholder's votes, in which
case all shareholders may cumulate their votes.
To approve the amendments to the 2000 Stock Option Plan, a majority
of the shares represented at the Annual Meeting, either in person or
by proxy, on an as converted basis, must be voted in favor of the
proposal.
If a broker indicates on its proxy that it does not have
discretionary authority to vote on a particular matter, the affected
shares will be treated as not present and entitled to vote with
respect to that matter, even though the same shares may be considered
present for quorum purposes and may be entitled to vote on other
matters.
Q: What happens if I abstain?
A: Proxies marked "abstain" will be counted as shares present for the
purpose of determining the presence of a quorum, but for purposes of
determining the outcome of a proposal, shares represented by such
proxies will not be treated as affirmative votes. For proposals
requiring an affirmative vote of a majority of the shares present, an
abstention is equivalent to a "no" vote.
Q: How will voting on any other business be conducted?
A: Although we do not know of any business to be considered at the
Annual Meeting other than the proposals described in this Proxy
Statement, if any other business is presented at the Annual Meeting,
your signed proxy card gives authority to the proxyholders, Robert I.
Webber and Michael R. Friedl, to vote on such matters at their
discretion.
Q: Who are the largest principal shareholders?
A: For information regarding holders of more than 5% of the outstanding
Common stock, see "Security Ownership of Certain Beneficial Owners
and Management."
Q: How will the Company solicit proxies?
A: U.S. Stock Transfer Corporation, the Company's transfer agent, has
been engaged to assist in the distribution of proxy materials and
solicitation of votes. We estimate that our costs will be
approximately $4,000. We also reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable out-of-
pocket expenses for forwarding proxy and solicitation materials to
shareholders. Proxies may also be solicited in person, by telephone,
or by facsimile by directors, officers, and employees of the Company
without additional compensation.
3
PROPOSAL NO. 1: ELECTION OF DIRECTORS
(Item 1 on Proxy Card)
At the Annual Meeting, six directors are to be elected. The holders of the
Series B Preferred are entitled to elect one person to serve on the Company's
board of directors, and holders of the Series C Preferred are entitled to elect
two persons to serve on the Company's board of directors. The remaining members
of the board are to be elected by the holders of Common stock and by the holders
of Series B and Series C Preferred voting on an as converted basis.
The Series B Preferred director nominee is Joel Schoenfeld. The Series C
Preferred nominees are Thomas Quick and Joseph Matlock. The Common director
nominees are Thomas Blakeley, Robert Webber and Bruce Maggin.
Unless otherwise instructed, the proxyholders will vote the proxies
received by them for the six nominees named above. If any nominee of the Company
is unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for any nominee designated by the present board of
directors to fill the vacancy. It is not presently expected that any of the
nominees named below will be unable or will decline to serve as a director. If
additional persons are nominated for election as directors, the proxyholders
intend to vote all proxies received by them in a manner to assure the election
of as many of the nominees listed below as possible. In such event, the specific
nominees to be voted for will be determined by the proxyholders. The term of
office of each person elected as a director will continue until the next annual
meeting of shareholders or until a successor has been elected and duly
qualified.
Nominees
Biographical summaries and ages as of the date hereof of individuals
nominated by the board of directors for election as directors are provided
below. See "Security Ownership of Certain Beneficial Owners and Management" for
data with respect to the number of shares beneficially owned by each of them,
directly or indirectly, as of the Record Date. There is no family relationship
among any directors or executive officers of the Company.
Director
Name, Principal Occupation and Directorships Age Since
-------------------------------------------- ---- -----
Thomas J. Blakeley, Director 42 1999
Mr. Blakeley co-founded MindArrow Systems, and currently serves as Chairman of the
board. Mr. Blakeley served as President, Chief Executive Officer and Chairman of the
Board of MindArrow until June 2000, and as Co-Chairman of the Board until April 2001.
From 1998 until founding the Company, Mr. Blakeley served as Vice President of Marketing
for Zap International, which was subsequently acquired by eCommercial.com. From 1996 to
1998, he served as director of marketing and sales for Cubic Videocomm, creators of CVideo
-Mail. From 1987 until 1996, he was a principal of Blakeley & Associates, a marketing
consulting and training organization which produced training seminars for marketing
executives. From 1991 until 1996, he was also the president of Travel Edge Solutions,
a company which he founded.
4
Director
Name, Principal Occupation and Directorships Age Since
-------------------------------------------- ---- -----
Robert I. Webber, Chief Executive Officer, President, and Director 42 2000
Mr. Webber joined the Company in June 2000 as President, Chief Operating Officer
and a director of the Company and was appointed Chief Executive Officer on June 30,
2000. From 1998 until joining MindArrow, Mr. Webber served as president, CEO and
director of Silicon Film Technologies, a developer of digital imaging software and
hardware products, for which he continues to serve on the board of directors. From
1997 to 1998, Mr. Webber was president and a director of Inari Inc. (formerly
Intelogis), a Novell spin-off that develops and sells power-line networking products
for the OEM and consumer markets. Mr. Webber also serves on the board of directors of
NewCore Networks, a developer of telecom switching equipment in Silicon Valley. From
1993 to 1997, he was an executive at the international management consulting firm
McKinsey & Company. Previously, he worked as a corporate and securities attorney at
Skadden, Arps, Slate, Meagher & Flom. Mr. Webber holds a B.A. from Brigham Young
University, a J.D. from Columbia Law School, and an M.B.A. from the Harvard Business
School.
Joel Schoenfeld, Director 50 2000
Mr. Schoenfeld was elected to our board of directors in June 2000. Mr. Schoenfeld has
been a principal of Schoenfeld Consulting since April 2000. From 1989 until March 2000,
he served as Senior Vice President and General Counsel of BMG Entertainment. From 1977
until 1989, he served as Executive Vice President and General Counsel of the Recording
Industry Artists Association. He currently serves on the board of directors of TouchTunes
Music Corporation and he has been elected to the board of directors of Thinkpath, Inc. Mr.
Schoenfeld also currently serves as a member of the executive board and central board of
directors of IFPI, the international trade federation for the worldwide music business and
the Music for Youth Foundation. He holds a B.A. in Political Science and International
Relations from Syracuse University and a J.D. from New York Law School. Mr. Schoenfeld was
elected to our board as a representative of the Series B Preferred shareholders.
Thomas C. Quick, Director 46 2000
Mr. Quick, who joined our board on August 3, 2000, is President, Chief Operating
Officer and a director of Quick & Reilly/Fleet Securities, Inc., successor to The
Quick & Reilly Group, Inc., a holding company for four financial services
businesses. Mr. Quick has held this position since 1996. From 1985 to 1996,
he was President of Quick & Reilly, Inc., a national discount brokerage firm. Mr.
Quick serves as a trustee for the Securities Industry Foundation for Economic Education.
He is also a member of the board of directors of Best Buddies, and a member of the
board of trustees, the investment advisory board and the endowment committee for St.
Jude Children's Hospital. He is a trustee and treasurer of the National Corporate
Theater Fund, the United World Colleges and the Alcoholism Council of New York, and
a Trustee of Fairfield University. He is a graduate of Fairfield University.
5
Director
Name, Principal Occupation and Directorships Age Since
-------------------------------------------- ---- -----
Joseph N. Matlock, Jr., Director 52 2001
Mr. Matlock, who joined our board in February 2001, has been the chairman and CEO
of Iliad Partners since 1998, and is currently an active board member of several
Texas-based technology investment entities. Mr. Matlock also serves as a director
and on the audit and compensation committees of DSI Toys, Inc., and has served as a
director and consultant for Texas Heritage Bank, which was recently acquired by
Regions Financial Corp. He is the founder of Afford America Inc., which specializes
in land development and home ownership for the working poor. Prior to undertaking
his present duties, Mr. Matlock served as chairman, president and CEO of Franklin
Federal, from 1987 to 1994, and as executive vice president of Bank of
America-Texas, from 1996 to 1998. Mr. Matlock received his BBA and MBA from the
University of Texas at Austin, and now serves at his alma mater as senior advisor to
the College of Business Administration and advisor to the College of Fine Arts. Mr.
Matlock was elected to our board as a representative of the Series C Shareholders.
Bruce Maggin 58 --
Mr. Maggin is currently a principal of The H.A.M. Media Group, LLC, a media
investment company, and Chief Executive Officer of TDN, Inc. (d/b/a at TV Media,
Inc.), a marketer of interactive television advertising. Prior to forming The
H.A.M. Media Group, Mr. Maggin headed the Capital Cities/ABC Multimedia Group, one
of the five divisions of Capital Cities/ABC, Inc. Mr. Maggin joined ABC originally
in 1970 as part of the company's corporate planning department. He left ABC to work
as a merger and acquisition consultant for a major Wall Street bank and subsequently
became Vice President of Ziff Corporation, the parent company of Ziff-Davis
Publishing and Broadcasting. He returned to ABC in 1982. Mr. Maggin has been a
member of the Board of Directors of several companies including cable networks,
Lifetime and ESPN, and the software companies Creative Wonders and O.T. Sports. He
is currently a Director of Phillips-Van Heusen Corporation (NYSE: PVH) and Chief
Executive of TDN, Inc. Mr. Maggin is a member of the New York State Bar. He
received a BA degree from Lafayette College and JD and MBA degrees from Cornell
University.
The Board of Directors recommends that the shareholders vote "FOR" the six
nominees listed above. Proxies received will be voted for each of the nominees
unless shareholders specify otherwise in the proxy.
Board Meetings and Committees
The board of directors of the Company held a total of six meetings during
the fiscal year ended September 30, 2000. During that period, no incumbent
director who was then a member of our board attended fewer than 75% of the sum
of the total number of meetings of the board of directors and the total number
of meetings of all committees of the board of directors on which that director
served. See "Director Compensation" for information on the compensation of non-
employee directors. The board of
6
directors has an Audit Committee and a Compensation Committee, but does not have
a nominating committee or any committee performing a similar function.
The audit committee consists of Messrs. Schoenfeld, Matlock and Quick. The
audit committee recommends to the board of directors the appointment of
independent auditors, reviews and approves the scope of the annual audit and
other non-audit services performed by the independent auditors, reviews the
findings and recommendations of the independent auditors and periodically
reviews major accounting policies and significant internal accounting control
procedures. The Audit Committee did not hold any meetings during fiscal 2000.
The Audit Committee is also responsible for maintaining a line of communication
between the Board of Directors and the Company's independent accountants.
The Compensation Committee, which currently consists of Messrs. Webber,
Schoenfeld and Matlock, is primarily responsible for making recommendations to
the board of directors regarding the Company's executive compensation policy and
incentive compensation for employees and consultants to the Company. In
addition, the Compensation Committee administers our 1999 Stock Option Plan and
our 2000 Stock Option Plan. The Compensation Committee did not hold any meetings
during fiscal 2000.
Director Compensation
We may reimburse directors for reasonable expenses pertaining to attending
meetings, including travel, lodging and meals but we do not pay directors cash
compensation for their services as directors. Messrs. Quick, Schoenfeld and
Matlock have each been granted options to purchase 50,000 shares of our Common
stock, vesting quarterly over three years, at prices ranging from $5 to $8.
Additionally, Messrs. Quick, Schoenfeld and Matlock have each been granted
options to purchase 10,000 shares of our Common stock for Audit Committee
service; Messrs. Schoenfeld and Matlock have each been granted options to
purchase 10,000 shares of our Common stock for Compensation Committee service;
and Mr. Schoenfeld has been granted an option to purchase 15,000 shares of our
Common stock for service on a Special Committee. The stock options granted to
Messrs. Quick, Matlock and Schoenfeld for committee service have an exercise
price of $2.00, and vest quarterly over one year, and the stock options granted
to Mr. Schoenfeld for Special Committee service vested immediately on the date
of grant.
Executive Officers
The following information is provided with respect to the Company's current
executive officers.
Robert I. Webber, age 42, was appointed Chief Executive Officer in June
2000. See "ELECTION OF DIRECTORS - Nominees" for his background.
Michael R. Friedl, CPA, age 37, Chief Financial Officer, Treasurer. Mr.
Friedl joined the Company as Chief Financial Officer and Treasurer in May 1999.
Prior to joining us, Mr. Friedl served as President of DialRight Software, Inc.,
a database utility company for which he continues to serve as a member of its
board of directors. Prior to joining DialRight, Mr. Friedl was the Chief
Financial Officer of V-Systems, Inc., a software company that spun out DialRight
as a separate venture. From 1995 to 1997, Mr. Friedl served as Chief Financial
Officer for publicly held Grip Technologies, Inc., an Irvine, California
manufacturer of golf club components. Previously, Mr. Friedl worked in public
accounting, most recently for Arthur Andersen & Co. where he served as an Audit
Manager. Mr. Friedl holds a BBA from Kent State University and is a Certified
Public Accountant licensed in Ohio and California.
7
Steve J. Lair, age 57, Vice President of Sales and Marketing. Mr. Lair
joined us as Vice President of Sales and Marketing in April 2001. Prior to
joining us, he served as vice president of Phoenix Technologies' PC Business
Unit, and as the founder and CEO of a software technology company, which he
sold. From May 1995 to April 1997, Mr. Lair served as vice president of
worldwide marketing and sales for Texas Instruments Inc, supervising a global
sales and marketing force of more than 800 people. From February 1992 to April
1995, Mr. Lair was vice president of marketing for Toshiba America. Mr. Lair
previously served as vice president and director of Dataquest's MicroComputer
Systems Group, and directed the firm's worldwide personal computer and software
research and consulting practice. Previously, he worked for 15 years in various
sales and marketing management positions for Hewlett Packard. Mr. Lair holds a
Bachelor of Science degree in Engineering and an MBA in International Marketing
from California State University, Northridge.
Executive Compensation
The following table sets forth information concerning compensation for the
period ended September 30, 1999 and the year ended September 30, 2000 received
by our Chief Executive Officer; our former Chief Executive Officer; and five of
our other most highly compensated executive officers who were serving as
executive officers during the 2000 fiscal year. These individuals are referred
to as the "Named Executive Officers" here and elsewhere in this Proxy Statement.
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary Bonus Other Options
---------------------------- ---- ------ ----- ----- -------
Robert I. Webber,
President and Chief Executive Officer /(1)/.. 2000 $ 80,000 -- $100,000/(2)/ 300,000
Michael R. Friedl,
Chief Financial Officer and Treasurer........ 2000 $168,958 -- -- 50,000
1999/(3)/ 38,333 3,000 -- 100,000
Donald J. Howren,
Executive Vice President of Sales /(4)/...... 2000 $144,183 -- -- 90,000
Richard R. McEwan,
Chief Technology Officer/(5)/................ 2000 $142,375 -- -- --
1999/(3)/ 45,000 2,000 -- 226,000
Mark Grundy,
President - Travel & Leisure Division/(6)/... 2000 $223,250 -- -- 100,000
1999/(3)/ 64,000 10,000 -- 175,000
Thomas J. Blakeley,
Director /(7)/............................... 2000 $223,042 -- 22,917/(8)/ --
1999/(3)/ 65,667 -- -- --
Eric A. McAfee,
Director /(9)/.............................. 2000 $155,917 -- 66,250/(10)/ --
1999/(3)/ 48,667 -- -- --
----------------
(1) Mr. Webber joined the Company in June 2000.
(2) Represents a payment for consulting services rendered by Mr. Webber prior
to his employment with the Company.
(3) Partial year from March 26, 1999 (inception) to September 30, 1999.
(4) Mr. Howren joined the Company in January 2000 and left the Company in May
2001.
(5) Mr. McEwan left the Company in April 2001.
8
(6) Mr. Grundy left the Company in December 2000.
(7) Effective June 2000, Mr. Blakeley resigned as Chief Executive Officer, but
continues to serve on our board.
(8) Represents payments for consulting services rendered by Mr. Blakeley.
Effective December 2000, Mr. Blakeley's position as a consultant was
terminated.
(9) Effective June 2000, Mr. McAfee resigned as an officer of the Company.
(10) Represents payments for consulting services rendered by Mr. McAfee.
Effective December 2000, Mr. McAfee's position as a consultant to the
Company was terminated. Effective April 6, 2001, Mr. McAfee resigned from
the Board of Directors.
Fiscal 2000 Stock Option Grants to Executives
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during fiscal 2000.
Number of % of Total Potential Realization
Securities Options Market Value at Assumed
Underlying Granted to Exercise Price on Annual Rates of Stock
Options Employees in Price Per Grant Expiration Price Appreciation for
Name Granted 2000 Share Date Date Option Term
------------------------------- ------------ ------------ ---------- -------- ---------- ---------------------
5% 10%
------ ---------
Robert I. Webber................ 300,000/(1)/ 22% $ 8.00 $ 8.00 2005 $816,230 $1,851,746
Michael R. Friedl............... 50,000/(2)/ 4% 12.50 12.50 2004 212,560 482,226
Donald J. Howren................ 90,000/(2)/ 7% 8.00 8.00 2005 244,869 555,524
Richard R. McEwan............... -- -- -- -- -- -- --
Mark Grundy..................... 50,000/(3)/ 4% 12.50 12.50 2006 172,676 381,569
50,000/(4)/ 4% 10.00 10.00 2006 170,048 385,781
Thomas J. Blakeley.............. -- -- -- -- -- -- --
Eric A. McAfee.................. -- -- -- -- -- -- --
Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent hypothetical gains
that could be achieved for the respective options if exercised at the end of the
option term. The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission and
do not represent our estimate or projection of our future Common stock prices.
These amounts represent assumed rates of appreciation in the value of the Common
stock from the fair market value on the date of grant. Actual gains, if any, on
stock option exercises are dependent on the future performance of our Common
stock and overall stock market conditions. The amounts reflected in the table
may not necessarily be achieved.
-----------------
(1) This option was granted in August 2000, 25,000 shares of which vested on the
date of grant, with the remainder vesting quarterly over three years.
(2) These options were granted in December 1999 and vested one-third in December
2000 with the remainder vesting quarterly over the following two years.
(3) This option was granted in December 1999 and is fully vested.
(4) This option was granted in June 2000 and was forfeited on December 31, 2000
when Mr. Grundy left the Company.
9
Stock Option Exercises And Year-End Value Table
The following table reflects the number of shares covered by both
exercisable and non-exercisable stock options as of September 30, 2000 for the
Named Executive Officers. Values for "in-the-money" options represent the
spread between the exercise price of existing options and the market value for
our Common stock on September 30, 2000, which was $7 per share.
Shares Number of Securities Number of Unexercised In-the
Acquired on Value Underlying Unexercised Money Options at
Name Exercise Realized Options at September 30, 2000 September 30, 2000
--------------------------------- ----------- ---------- ------------------------------ --------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------ ------------- ----------- ---------------
Robert I. Webber................. -- -- 25,000 275,000 -- --
Michael R. Friedl................ 7,500 $46,406 69,166 73,334 $414,996 $140,004
Donald J. Howren................. -- -- -- 90,000 -- --
Richard R. McEwan................ -- -- 191,671 34,329 1,150,026 209,974
Mark Grundy...................... -- -- 275,000 50,000 1,050,000 --
Thomas J. Blakeley............... -- -- -- -- -- --
Eric A. McAfee................... -- -- -- -- -- --
-----------------
Employment Agreements
As of September 30, 2000, each of the Named Executive Officers was a party
to a Change in Control Agreement with us, which provides for payment of two
years' salary to the executive if we are acquired by another company and he
loses his job for other than cause, as defined in the agreement.
In addition, effective June 2000, we entered into a three-year employment
contract with Robert Webber, our President and CEO. Mr. Webber's employment
agreement provides for a base salary of $240,000 per year and payment in the
amount of one year's salary if we terminate his employment for other than cause.
In addition, the contract provides a $1 million life insurance policy. Further,
Mr. Webber received a payment of $100,000 for consulting services provided prior
to his employment and an $85,000 loan, which will be forgiven over the course of
three years. If he leaves us during the three year term, any remaining balance
shall be due and payable.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, information relating
to the beneficial ownership of Common stock by each person known by the Company
to be the beneficial owner of more than five percent of the outstanding shares
of Common stock, by each director and nominee for director, by each of the
executive officers named in the Summary Compensation Table, and by all directors
and executive officers as a group. The number of shares beneficially owned by
each director or executive officer is determined under rules of the Securities
and Exchange Commission (the "Commission"), and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the individual
has the sole or shared voting power or investment power and also any shares
which the individual has the right to acquire within 60 days of the Record Date
through the exercise of any stock option, warrant, or other right. Unless
otherwise noted, the Company believes that each person has sole investment and
voting power (or shares such powers with his or her spouse) with respect to the
shares set forth in the following table. As of the Record Date, there were
11,456,666 shares of Common stock, 1,004,949 shares of Series B and 779,775
shares of Series C preferred stock outstanding.
10
Common Stock:
Name and Address of Owner /(1)/ Number of Shares of Percent of Class
Common Stock/(2)/
---------------------------------------------------------------------------------- ---------------------- ------------------
Thomas J. Blakeley, Director....................................................... 1,281,161 11.1%
Robert I. Webber, President, CEO, Director /(3)/................................... 554,600 4.6
Joel Schoenfeld, Director /(4)/.................................................... 34,713 0.3
Thomas C. Quick, Director /(5)/.................................................... 54,500 0.5
Joseph N. Matlock, Jr. Director.................................................... 8,333 0.1
Michael R. Friedl, CFO, Treasurer /(6)/............................................ 107,168 0.9
All directors and executive officers taken as a group /(7)/........................ 2,040,475 16.7
Clyde Berg......................................................................... 800,333 7.0
10050 Bandley Drive, Cupertino, California 95014
Privet Row, Inc. /(8)/............................................................. 610,375 5.1
950 Mo Pac Expressway, Barton Oaks Plaza, Suite 100, Austin, Texas 78746
Series B Preferred:
Name and Address of Owner /(1)/ Number of Shares of Percent of Class
Series B Preferred/(2)/
----------------------------------------------------------------------------------- ------------------------- ------------------
Robert I. Webber, President, CEO, Director......................................... 250,000 24.9 %
Joel Schoenfeld, Director.......................................................... 3,375 0.3
All directors and executive officers taken as a group.............................. 253,375 25.2
Alignment Capital Management, LLC.................................................. 125,000 12.4
One American Center, 600 Congress Ave., Suite 200, Austin, Texas 78701
11
Series C Preferred:
Name and Address of Owner Number of Shares of Percent of Class
Series C Preferred/(2)/
----------------------------------------------------------------------------------- ----------------------- ----------------
Thomas C. Quick, Director.......................................................... 20,000 2.6%
All directors and executive officers taken as a group.............................. 20,000 2.6
Privet Row, Inc. /(9)/............................................................. 180,000 23.1
950 Mo Pac Expressway, Barton Oaks Plaza, Suite 100, Austin, Texas 78746
Highline Capital /(10)/............................................................ 100,000 12.8
1270 Avenue of the Americas, 12/th/ Floor, Rockefeller Center, New York, New
York 10020
AC-eCom Two LP..................................................................... 80,000 10.3
One American Center, 600 Congress Ave., Suite 200, Austin, Texas 78701
Privet MindArrow Partners LP /(11)/................................................ 80,000 10.3
950 Mo Pac Expressway, Barton Oaks Plaza, Suite 100, Austin, Texas 78746
PSINet Consulting Solutions Holdings, Inc.......................................... 80,000 10.3
4400 Post Oak Parkway, Suite 1100, Houston, Texas 77027-3413
Point West Ventures................................................................ 60,000 7.7
1700 Montgomery, Suite 250, San Francisco, California 94111
Control Simon, LLC................................................................. 60,000 7.7
c/o William E. Simon & Sons
310 South Street, P.O. Box 1913, Morristown, New Jersey 07962
International Network Group........................................................ 52,000 6.7
1279 Lake Worth Lane, N. Palm Beach, Florida 33408
Kevin & Ulla Parker................................................................ 40,000 5.1
941 Park Ave, New York, New York 10028
___________________
(1) Except as otherwise noted, the address for each person is c/o MindArrow
Systems, Inc., 101 Enterprise, Suite 340, Aliso Viejo, California 92656.
(2) Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
listed as beneficially owned by them. A person is deemed to be the
beneficial holder of securities that can be acquired within 60 days from
the Record Date upon the exercise of warrants or options. Each beneficial
owner's percentage ownership is determined by including shares, underlying
options or warrants which are exercisable currently, or within 60 days
following the Record Date, and excluding shares underlying options and
warrants held by any other person.
(3) 25,000 and 278,600 of these shares result from warrants and options,
respectively, that are exercisable within 60 days.
(4) 338 and 30,000 of these shares result from warrants and options,
respectively, that are exercisable within 60 days.
(5) 2,000 and 12,500 of these shares result from warrants and options,
respectively, that are exercisable within 60 days.
(6) All of these shares result from options that are exercisable within 60
days.
(7) 27,338 and 493,601 of these shares result from warrants and options,
respectively, that are exercisable within 60 days.
(8) 31,250 and 360,000 of these shares are issuable upon the conversion of
Series B and Series C Preferred Stock, respectively. 219,125 of these
shares result from warrants that are exercisable within 60 days. Of the
360,000 shares issuable upon conversion of Series C Preferred Stock,
160,000 shares are directly held by Privet MindArrow Partners LP. Of the
219,125 shares issuable upon the exercise of warrants that are
12
exercisable within 60 days of the Record Date, 16,000 shares represent
shares issuable upon the exercise of warrants that are directly held by
Privet MindArrow Partners LP. Privet Row, Inc. has voting and dispositive
power over the shares and warrants held by Privet MindArrow Partners LP.
(9) 80,000 of these shares are directly held by Privet MindArrow Partners LP.
Privet Row, Inc. has voting and dispositive power over these shares.
(10) 30,000 of these shares are beneficially owned by Highline Capital
International, an affiliate of Highline Capital.
(11) Privet Row, Inc. has voting and dispositive power over these shares.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During the last fiscal year, there were certain transactions that occurred
between the Company and its officers and directors, which are reported below.
With respect to each transaction, the Company has determined that the terms of
each arrangement were no less fair to the Company than those which could have
been obtained from unaffiliated persons.
In September 1999, we entered into a non-cancelable five-year sublease for
a satellite office in Cupertino, California. The sublease called for minimum
monthly rental payments ranging from $10,091 per month at the start of the lease
and gradually increasing to $13,358 per month by the end of the lease. The
sublessor was a company related to Clyde Berg, a significant shareholder and
Eric McAfee, a former officer and director. The sublease terms were identical to
the terms of the sublessor's lease with the landlord. Effective July 31, 2000,
we closed our Cupertino office and were permitted to cancel the lease without
penalty.
In June 2000, Eric McAfee resigned as Executive Vice President.
Concurrently, we canceled his employment contract and entered into a consulting
contract under which he was to be paid $265,000 per year through September 30,
2002. The Company terminated, effective December 31, 2000, the consulting
contract. Mr. McAfee was paid $44,167 in cash and the amount due under the
indemnity agreement described below was reduced by $370,205.
On June 30, 2000, Thomas Blakeley resigned as Chief Executive Officer.
Concurrently, we canceled his employment contract and entered into a consulting
contract under which he was to be paid $285,000 per year through September 30,
2002. In December 2000, we cancelled the consulting contract and issued a non-
interest bearing note payable through March 2002. Additionally, in January
2001, options to purchase 57,000 shares of Common stock at an exercise price of
$5 per share were granted in connection with this contract cancellation.
In September 2000, we paid $1.5 million to settle a pending lawsuit.
Pursuant to an indemnity agreement, Eric McAfee agreed to indemnify us for
$1,703,000 representing the $1.5 million settlement and an additional $203,000
in attorney fees. Mr. McAfee's obligation to us under this indemnity agreement
was reduced by $370,205 in December 2000, in connection with the termination of
his consulting contract with us. Mr. McAfee satisfied the remaining obligation
by tendering 296,177 shares of Common stock for cancellation.
In February 2001, the Company determined that between May 21, 1999 and
April 7, 2000 stock certificates representing 1,107,951 shares (the "Discrepant
Shares") were illegally authenticated by the Company's prior transfer agent. In
order to offset the impact of recognizing additional shares in the hands of
innocent purchasers, Messrs. Blakeley and McAfee entered into an agreement with
the Company
13
pursuant to which they agreed to contribute for cancellation by the Company
1,107,951 shares owned by them. This contribution of shares was made concurrent
with the exchange of new shares for the wrongly authenticated certificates. The
agreement provides that in the event that any of the Discrepant Shares are
recovered by the Company, an equivalent number of shares shall be issued to
Messrs. Blakeley and McAfee. In the event that the Company recovers cash or
property other than the Discrepant Shares, then the Company shall issue shares
of its Common Stock for every $4.50 in property or cash recovered. In no event
shall the Company be obligated to issue more than 1,107,951 shares pursuant to
the agreement.
COMPENSATION COMMITTEE
The Company's Compensation Committee consists of Messrs. Webber, Matlock
and Schoenfeld. Mr. Webber is our President and Chief Executive Officer.
Neither of Messrs. Matlock or Schoenfeld is an officer or employee of the
Company.
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE SHALL NOT BE DEEMED TO
BE SOLICITING MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF
1934 OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
To the Board of Directors:
The Compensation Committee of the Board of Directors administers the
Company's executive compensation program. The Compensation Committee is
responsible for approving the compensation package of each executive officer and
recommending it to the Board of Directors as well as administering the 1999 and
2000 Stock Option Plans. In making decisions regarding executive compensation,
the Compensation Committee considers the input of the Company's management and
other directors.
The Company's executive compensation program consists of a mixture of base
salary, cash bonuses, and incentive stock awards. In determining the total
amount and mixture of the compensation package for each executive officer, the
Compensation Committee and the Board of Directors subjectively consider the
overall value to the Company of each executive officer in light of numerous
factors such as competitive position, individual performance, including past and
expected contribution to the Company's goals of each executive officer, and the
Company's long-term needs and goals, including attracting and retaining key
management personnel.
The Compensation Committee periodically reviews the individual base
salaries of the executive officers, and adjusts salaries based on individual job
performance and changes in that officer's duties and responsibilities. In
making salary decisions, the Compensation Committee exercises its discretion and
judgment based on these factors. No specific formula is applied to determine
the weight of each factor.
Long-term incentive compensation is realized through granting of stock
options to most employees, including eligible executive officers. The Company
has no other long-term incentive plans. Stock options are granted by the
Company to aid in the retention of employees and to align the interests of
employees with those of the shareholders. In addition, the Compensation
Committee believes that the grant of an equity interest serves to link
management interests with shareholder interest and to motivate executive
officers to make long-term decisions that are in the best interests of the
Company and the
14
shareholders as well as provides an incentive to maximize shareholder value.
Stock options have value for an employee only if the price of Common stock
increases above the exercise price on the grant date and the employee remains in
the Company's employ for the period required for the stock option to be
exercisable, thus providing an incentive to remain in the Company's employ.
Impact of Section 162(m) of the Internal Revenue Code
The Company does not believe Section 162(m) of the Internal Revenue Code of
1986, as amended, which disallows a tax deduction for certain compensation in
excess of $1 million, will generally have an effect on the Company. The
Compensation Committee reviews the potential effect of Section 162(m)
periodically and will consider various alternatives for preserving the
deductibility of compensation payments. However, the Compensation Committee
will not necessarily limit compensation to that which is deductible.
Conclusion
The Compensation Committee has reviewed each element of compensation for
each of the executive officers for fiscal 2000. The Compensation Committee
reported to the Board of Directors that in the Compensation Committee's opinion,
the compensation of each executive officer is reasonable in view of the
Company's performance and the Compensation Committee's subjective evaluation of
the contribution of each executive officer to that performance.
Respectfully Submitted by the Compensation
Committee of the Board of Directors
Robert I. Webber
Joel Schoenfeld
Joseph N. Matlock
15
AUDIT COMMITTEE INDEPENDENCE
The Company's Audit Committee consists of Messrs. Schoenfeld, Matlock and
Quick. No member of the Audit Committee is either an officer or employee of the
Company. The members of the Audit Committee are independent as defined in the
Nasdaq listing standards.
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE AND THE PERFORMANCE GRAPH THAT
APPEARS IMMEDIATELY AFTER SUCH REPORT SHALL NOT BE DEEMED TO BE SOLICITING
MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1934 OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.
AUDIT COMMITTEE REPORT
To: The Board of Directors:
As members of the Audit Committee, we are responsible for oversight of all
aspects of the Company's financial reporting, internal control and audit
functions. We adopted a charter in October 2000, which was approved by the Board
of Directors and subsequently amended in May 2001. A copy of the Audit Committee
Charter, as amended, is included as Appendix A to this Proxy Statement.
Management has the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls. The Audit
Committee has reviewed and discussed the audited financial statements with
management.
The Audit Committee has received the written confirmation from Grant
Thornton LLP of their independence within the meaning of the Securities Act and
as required by Independence Standards Board Standard No. 1 (Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees),
as may be modified or supplemented. We have discussed with Grant Thornton LLP
the matters required to be discussed by Statement on Auditing Standards 61
(Codification of Statements on Auditing Standards, AU (S) 380), as may be
modified or supplemented.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's annual report on Form 10-K for the fiscal year ended
September 30, 2000.
Respectfully Submitted by the Audit
Committee of the Board of Directors
Joel Schoenfeld
Thomas Quick
Joseph N. Matlock
Audit Fees
The aggregate fees billed for professional services rendered by Grant
Thornton LLP for the audit of the Company's annual financial statements for the
fiscal year ended September 30, 2000 and the
16
review of the financial statements included in the Company's Form 10-Qs for such
fiscal year were approximately $41,700.
All Other Fees
The aggregate fees for professional services rendered by Grant Thornton LLP
other than the services referred to above were approximately $3,500 for the
fiscal year ended September 30, 2000. The Audit Committee considered whether
the provision of these services is compatible with maintaining the independence
of Grant Thornton LLP.
Independent Public Accountants
The firm of Grant Thornton LLP, the Company's independent accountants for
the year ended September 30, 1999, was recommended by the Audit Committee, whose
selection was approved by the Board of Directors to act in such capacity for the
fiscal year ending September 30, 2000. Grant Thornton has been selected by the
Board of Directors, after recommendation of the Audit Committee, to be the
independent auditors for the Company for fiscal year 2001.
Grant Thornton LLP has served as the principal independent accountants for
the Company since 1999. There are no affiliations between the Company and Grant
Thornton LLP, its partners, associates or employees, other than as pertain to
the engagement of Grant Thornton LLP as independent accountants for the Company.
A representative of Grant Thornton LLP will be available by telephone at
the Annual Meeting, will be given the opportunity to make a statement if he so
desires, and will be available to respond to appropriate questions.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Common stock of the Company with the cumulative total return of the Composite
Index for The Nasdaq Stock Market (U.S. Companies) (the "Nasdaq Index") and the
following group of peer companies selected by the Company (the "Peer Group
Index"): DoubleClick, Inc.; 24/7 Media, Inc.; Digital Impact, Inc.; MessageMedia
Inc.; PopMail.com, Inc.; MyPoints.com, Inc. The information is provided for the
period from June 30, 1999 through September 30, 2000, the end of fiscal 2000.
This graph assumes the investment of $100 on June 30, 1999 in the Company's
Common stock, the Nasdaq Index and the peer group and assumes dividends are
reinvested. Measurement points are at the last trading day of the fiscal
quarters represented below.
17
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG MINDARROW SYSTEMS, INC.
NASDAQ INDEX AND PEER GROUP INDEX
[GRAPHIC]
June 30, Sept. 30, Dec. 31, Mar. 31, June 31, Sept. 30,
1999 1999 1999 2000 2000 2000
-------- --------- -------- -------- -------- ---------
MindArrow Systems, Inc. ................... 100.0 81.3 240.6 400.0 65.0 70.0
Peer Group Index .......................... 100.0 85.5 180.1 134.2 51.1 27.0
Nasdaq Index .............................. 100.0 102.2 151.5 151.5 147.7 136.7
ASSUMES $100 INVESTED ON JUNE 30, 1999, DIVIDENDS REINVESTED,
TOTAL RETURN THROUGH SEPTEMBER 30, 2000
18
PROPOSAL NO. 2: APPROVAL OF AMENDMENTS
TO THE 2000 STOCK OPTION PLAN
(Item 2 on Proxy Card)
At the Annual Meeting, shareholders will be asked to approve certain
amendments (the "Amendments") to the 2000 Stock Option Plan (as previously
amended and as modified by the Amendments, the "2000 Plan," unless the context
otherwise dictates). The Board approved the Amendments, subject to shareholder
approval, on May 9, 2001.
The 2000 Plan provides for a limit on the aggregate number of shares of the
Company's Common stock that may be issued or delivered pursuant to awards
thereunder. The aggregate share limit is currently 1,000,000 shares. As of
June 30, 2001, no shares had been issued under the 2000 Plan, 927,811 shares
were subject to outstanding but unexercised options granted under the 2000 Plan,
and 72,189 shares remained available for additional award purposes under the
2000 Plan (plus any shares which may become available because outstanding
options expire, are cancelled, or otherwise terminate before being exercised).
The 2000 Plan also currently provides that the maximum number of shares of
Common Stock subject to awards that may be granted to any individual during any
calendar year is 100,000 shares.
The Amendments, if they are approved by shareholders, will increase the
aggregate share limit under the 2000 Plan by an additional 1,000,000 shares, for
a proposed new aggregate share limit of 2,000,000 shares (subject to customary
adjustments for recapitalizations and similar events, described below). The
Amendments, if they are approved by shareholders, also will increase the annual
individual grant limit under the 2000 Plan by an additional 900,000 shares, for
a proposed new annual individual grant limit of 1,000,000 shares (subject to
customary adjustments for recapitalizations and similar events, described
below).
The Board approved the Amendments based, in part, on a belief that the
number of shares that remained available for additional award grants under the
2000 Plan was insufficient to adequately provide for future incentives for the
Company's management and that the annual individual grant limit did not provide
sufficient flexibility for the Company to structure management incentives.
We also maintain a 1999 Stock Option Plan (the "1999 Plan"). As of June
30, 2001, 487,500 shares had been issued under the 1999 Plan, 2,404,583 shares
were subject to outstanding but unexercised options granted under the 1999 Plan,
and a total of 107,917 shares remained available for grant purposes under the
1999 Plan (plus any shares which may become available because outstanding
options expire, are cancelled, or otherwise terminate before being exercised).
The Amendments will not affect the shares available for award purposes under the
1999 Plan.
The principal terms of the 2000 Plan are summarized below. The following
summary is qualified in its entirety by the full text of the 2000 Plan, which is
an appendix to the copy of this Proxy Statement that was filed electronically
with the Securities and Exchange Commission and can be reviewed on the
Securities and Exchange Commission's Web site at http://www.sec.gov. A copy of
the 2000 Plan may also be obtained by contacting Quynh N. Trinh, the Company's
Secretary, at 101 Enterprise Suite 340, Aliso Viejo, California 92656 (telephone
number (949) 916-8705).
Summary Description of the 2000 Plan
The purpose of the 2000 Plan is to promote the success of the Company by
providing an additional means to attract, motivate, retain and reward key
personnel, including officers and directors,
19
through the grant of options and other awards that provide added long term
incentives for high levels of performance and for significant efforts to improve
the financial performance of the Company.
Awards. The 2000 Plan authorizes stock options (incentive or nonqualified)
and restricted stock awards.
Administration. The 2000 Plan is administered by either the Board or a
committee of the Board (the "Administrator"). The Administrator determines the
number of shares that are to be subject to awards and the terms and conditions
of such awards, including the price (if any) to be paid for the shares or the
award. The Board has appointed the Compensation Committee as the 2000 Plan's
Administrator.
Eligibility. Persons eligible to receive awards under the 2000 Plan include
officers, directors, key employees and consultants of the Company or any of its
subsidiaries. All officers and key employees of the Company, including all of
the Company's Named Executive Officers, and non-employee directors of the
Company are considered eligible under the 2000 Plan at the present time, subject
to the power of the Administrator to determine eligible persons to whom awards
will be granted.
Limits on Awards; Authorized Shares. As referenced above, the limit on the
number of shares of Common stock that may be issued or delivered pursuant to
awards granted under the 2000 Plan is currently 1,000,000 shares. If
shareholders approve the Amendment, this limit will be 2,000,000 shares. Also
as referenced above, the maximum number of shares of Common stock subject to
awards that may be granted to any individual during any calendar year is
currently 100,000 shares. If shareholders approve the Amendments, this limit
will be 1,000,000 shares.
As is customary in incentive plans of this nature, the number and kind of
shares available under the 2000 Plan and the then outstanding awards, as well as
exercise or purchase prices, are subject to adjustment in the event of certain
reorganizations, mergers, combinations, consolidations, recapitalizations,
reclassifications, stock splits, stock dividends, asset sales or other similar
events, or extraordinary dividends or distributions of property to shareholders.
Shares that are subject to or underlie awards which expire or fail to vest or
which are cancelled, terminated, forfeited, or not paid or delivered under the
2000 Plan for any reason, as well as reacquired shares, become available, except
to the extent prohibited by law, for additional awards under the 2000 Plan.
The 2000 Plan will not limit the authority of the Board or the Compensation
Committee to grant awards or authorize any other compensation, with or without
reference to the Common stock, under any other plan or authority (including,
without limitation, the 1999 Plan).
Transfer Restrictions. Subject to certain exceptions contained in the 2000
Plan (which generally include transfer to the Company, a participant's
designation of a beneficiary, and the exercise of a participant's award by the
participant's legal representative in the event of the participant's
disability), awards under the 2000 Plan are not transferable by the recipient
other than by will or the laws of descent and distribution and are generally
exercisable, during the recipient's lifetime, only by him or her. Any amounts
payable or shares issuable pursuant to an award will be paid only to the
recipient or the recipient's beneficiary or representative. The Administrator
may, however, permit the transfer of an award if the transferor presents
satisfactory evidence that the transfer is a gift to a family member.
Stock Options. A stock option is the right to purchase shares of Common
stock at a future date at a specified price (the "exercise price" of the
option). An option may either be an "incentive stock option" or a "nonqualified
stock option." Incentive stock option benefits are taxed differently than
nonqualified stock option benefits, as described under "Federal Income Tax
Consequences" below. Incentive stock
20
options are also subject to more restrictive terms and are limited in amount by
the Code and the 2000 Plan.
The exercise price of options granted under the 2000 Plan will be
determined by the Administrator, but, in the case of nonqualified stock options,
may be no less than 85% of the fair market value of a share on the date of grant
and, in the case of incentive stock options, may be no less than the fair market
value of a share on the date of grant; provided, however, that the exercise
price may be no less than 110% of fair market value for incentive stock options
granted to an employee who owns 10% or more of the outstanding Common stock.
Full payment for shares purchased on the exercise of any option must be made at
the time of such exercise in a manner approved by the Administrator (which may
include cash, a check, a promissory note, notice and third party payment, or
delivery of previously owned Common stock, subject to certain limitations set
forth in the 2000 Plan). Options granted under the 2000 Plan may be exercised at
the time or times determined by the Administrator, but in no event may options
be exercised after ten years from the date of grant; provided, however, that
incentive stock options granted to an employee who owns 10% or more of the
outstanding Common stock may not be exercised after five years from the date of
grant.
Restricted Stock Awards. A restricted stock award is an award typically for
a fixed number of shares of Common stock subject to restrictions. The
Administrator specifies the price, if any, the participant must pay for such
shares and the restrictions (which may include, for example, continued service
only and/or performance standards) imposed on such shares.
Acceleration of Awards; Possible Early Termination of Awards. Unless prior
to a Change in Control Event the Administrator determines that, upon its
occurrence, benefits will not be accelerated, then generally upon the Change in
Control Event each option will become immediately exercisable and restricted
stock will vest. A "Change in Control Event" under the 2000 Plan generally
includes (subject to certain exceptions) certain mergers or consolidations,
Board or shareholder approval of a liquidation of the Company or sale of
substantially all of the Company's assets, or certain persons acquiring more
than 50% of the combined voting power of the Company's outstanding securities.
Effect of Termination of Employment. Options which have not yet become
exercisable will generally lapse upon the date a participant is no longer
employed by the Company. Options which have become exercisable generally must be
exercised within 30 days after such date if the participant quits or otherwise
resigns from the Company. The 30-day period is generally extended to three
months for a termination of a participant's employment by the Company other than
a termination for cause. The 30-day period is generally extended to one year
for a termination of employment due to death, disability, or retirement. In the
event a participant is discharged for cause, all options will lapse immediately
upon such termination of employment. A participant's rights and benefits (if
any) with respect to a restricted stock award granted under the 2000 Plan in the
event of a termination of employment will be determined by the Administrator,
which may make distinctions based upon the cause of termination and the nature
of the award. The Administrator may increase the portion of a participant's
award available to the participant in connection with a participant's
termination of employment (other than a termination by the Company for cause).
Amendments. The Board may amend or terminate the 2000 Plan at any time.
Shareholder approval for an amendment will only be required (1) if such approval
is required as a matter of law, or (2) if the Board determines that shareholder
approval is otherwise advisable. Outstanding awards may be amended, subject,
however, to the consent of the holder if the amendment materially and adversely
affects the holder. Unless previously terminated by the Board, the 2000 Plan
will terminate on August 2, 2010.
21
Securities Underlying Awards. The market value of a share of Common stock
as of July 17, 2001 was $ 1.20 per share.
Federal Income Tax Consequences. With respect to nonqualified stock
options, the Company is generally entitled to deduct an amount equal to the
difference between the option exercise price and the fair market value of the
shares at the time of exercise. With respect to incentive stock options, the
Company is generally not entitled to a similar deduction either upon grant of
the option or at the time the option is exercised. If incentive stock option
shares are not held for specified qualifying periods, however, the difference
between the fair market value of the shares at the date of exercise (or, if
lower, the sale price) and the cost of such shares is taxed as ordinary income
(and the Company will receive a corresponding deduction) in the year the shares
are sold. Non-transferable restricted stock subject to a substantial risk of
forfeiture results in income recognition only at the time the restrictions lapse
(unless the recipient elects to accelerate recognition as of the date of grant)
and the Company will generally have a corresponding deduction at the time the
participant recognizes income.
If an award is accelerated under the 2000 Plan in connection with a change
in control (as this term is used in the Internal Revenue Code), the Company may
not be permitted to deduct the portion of the compensation attributable to the
acceleration ("parachute payments") if it exceeds certain threshold limits under
the Internal Revenue Code (and certain excise taxes may be triggered). Further,
if the compensation attributable to awards is not "performance-based" within the
meaning of Section 162(m) of the Internal Revenue Code, the Company may not be
permitted to deduct the aggregate non performance-based compensation in excess
of $1,000,000 in certain circumstances.
The above tax summary discusses general tax principles applicable to, and
income tax consequences of, the 2000 Plan under current federal law, which is
subject to change. This summary is not intended to be exhaustive and, among
other considerations, does not describe state, local, or international tax
consequences.
Specific Benefits. For information regarding options granted to directors
and executive officers of the Company, see the material under the headings
"Director Compensation" and "Executive Officer Compensation" above.
The number, amount and type of awards to be received by or allocated to
eligible persons in the future under the 2000 Plan cannot be determined at this
time. At this time, the Company is not considering any additional awards under
the 2000 Plan. If the Amendments had been in effect previously, the Company
expects that the grants would not have been substantially different from those
described in the sections referred to above.
The Board believes that the additional shares to be made available under
the 2000 Plan, if shareholders approve the Amendment, will promote the interests
of the Company and its shareholders and continue to enable the Company to
attract, retain and reward persons important to the Company's success and to
provide incentives based on the attainment of corporate objectives and increases
in shareholder value.
Vote Required
A majority of the shares of Common stock and the Series B Preferred and
Series C Preferred, voting on an as converted basis with the Common stock, is
required for ratification of the Amendment to the 2000 Stock Option Plan.
22
Shareholders should note that because the directors are eligible to receive
options under the 2000 Plan, the directors may have a personal interest in
shareholder approval of this proposal. 2000 Plan, the directors may have a
personal interest in shareholder approval of this proposal. However, the
members of the Board believe that the Amendments to the 2000 Plan are in the
best interest of the Company and its shareholders.
The Board recommends that shareholders vote FOR the approval of the
Amendments to the 2000 Plan as described above.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. Copies of the reports, proxy statements and other
information filed by us may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a website that contains reports, proxy statements and other
information regarding us. The address of this website is http://www.sec.gov.
This document does not constitute an offer to sell, or a solicitation of an
offer to purchase, the Common stock of MindArrow or the solicitation of a proxy,
in any jurisdiction to or from any person to whom or from whom it is unlawful to
make the offer, solicitation of an offer or proxy solicitation in that
jurisdiction. Neither the delivery of this document nor any distribution of
securities means, under any circumstances, that there has been no change in the
information set forth in this document or in the affairs of MindArrow since the
date of this document.
You should rely only on the information contained in this proxy statement
or that we have referred you to. We have not authorized anyone to provide you
with information that is different.
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon our review of forms filed by directors, officers and certain
beneficial owners of our common stock (the "Section 16 Reporting Persons")
pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, we
have identified the following filings that were filed late by the Section 16
Reporting Persons during and with respect to the fiscal year ended September 30,
2000: (i) Thomas Blakeley filed a Form 4 reporting three transactions late and
an amended Form 4 reporting one additional transaction late; (ii) Eric McAfee
filed one late Form 4 with respect to two transactions and an amended Form 4
reporting four additional transactions late; and (iii) Joel Schoenfeld, John
Troiano and Richard McEwan were each late in filing one Form 3. We are not
aware of any failures by the Section 16 Reporting Persons to file the forms
required to be filed by them pursuant to Section 16 of the Exchange Act.
23
Annual Report to Shareholders
Enclosed with this Proxy Statement is the Annual Report of the Company on
Form 10-K for the 2000 fiscal year. Additionally, enclosed is a copy of the
Company's most recent quarterly report on Form 10-Q. The Annual Report and
quarterly report are enclosed for the convenience of shareholders only and
should not be viewed as part of the proxy solicitation material.
Advance Notice Procedures for Next Year's Annual Meeting
The Company hereby advises shareholders that, until further notice,
proposals of shareholders that are intended to be presented at the next annual
meeting of shareholders must be received by MindArrow at its principal executive
offices by March 21, 2002 to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting under the rules of the SEC. Any such
proposals must also comply with the applicable requirements of the federal
securities laws. Shareholder proposals intended to be presented at the next
annual meeting of shareholders but submitted outside the processes of Rule 14a-8
under the Securities Exchange Act of 1934 (i.e., a proposal which is not
submitted for inclusion in the Company's proxy statement) must be received by
MindArrow at its principal executive offices by June 8, 2002 to be considered
timely under the SEC's proxy rules.
Other Business
The Company knows of no other matters to be submitted to the shareholders
at the Annual Meeting. If any other matters properly come before the
shareholders at the Annual Meeting, it is the intention of the persons named on
the enclosed proxy card to vote the shares they represent as the Board of
Directors may recommend.
Dated: July 20, 2001
By Order of the Board of Directors,
/s/ Quynh N. Trinh
Quynh N. Trinh
Secretary
24
APPENDIX A
----------
MINDARROW SYSTEMS, INC.
AUDIT COMMITTEE CHARTER
1. Formation. The Board of Directors (the "Board") of MindArrow Systems,
---------
Inc. (the "Corporation") has established the Audit Committee (the "Committee")
pursuant to the Delaware General Corporation Law and the Corporation's Bylaws.
2. Statement of purpose. The Committee will assist the Board in
--------------------
fulfilling its oversight responsibilities. The Committee will review the
financial reporting process, the system of internal control, the audit process,
and the Corporation's process for monitoring compliance with laws and
regulations and its Corporate Code of Conduct. To effectively perform his or her
role, each Committee member will obtain an understanding of the responsibilities
of Committee membership as well as the Corporation's business, operations, and
risks.
The Committee is not responsible, in the ordinary course, for planning or
conducting audits or determining that the Corporation's financial statements are
accurate and are in accordance with generally accepted accounting principles.
This duty is the responsibility of management and the external auditors. Nor is
it the duty of the Committee to independently verify information presented to
it, unless special circumstances require such verification.
3. Relationship With External Auditors. The external auditors are
-----------------------------------
ultimately accountable to the Board and the Committee, who have the authority
and responsibility to select, evaluate and, where appropriate, replace the
external auditors. The Committee is responsible for ensuring that the external
auditors submit on a periodic basis to the Committee a formal written statement
delineating all relationships between the external auditors and the Corporation
and for actively engaging in a dialogue with the external auditors with respect
to any disclosed relationships or services that may impact the objectivity and
independence of the external auditors. The Committee is also responsible for
recommending that the Board take appropriate action in response to the external
auditors' statement to satisfy itself of the external auditors' independence.
4. Composition and Qualifications. The Committee shall be comprised of
------------------------------
not less than three members of the Corporation's Board. Subject to the
foregoing, the exact number of members of the Committee shall be fixed and may
be changed from time to time by resolution duly adopted by the Board. One of the
members of the Committee shall be designated by vote of the members of the
Committee as the chairperson (the "Chairperson") of the Committee. The Board
shall appoint the members of the Committee to serve until their successors have
been duly designated. The Board for any reason and at any time may remove
members of the Committee. The Board shall fill vacancies on the Committee. The
members of the Committee shall meet the standards of independence and other
qualifications required by the National Association of Securities Dealers, Inc.,
which are set forth in Exhibit 1 hereto.
A-1
5. Oversight. The Committee shall have responsibilities in the following
---------
areas:
(a) Internal Controls
. Review with management and the external auditors the
internal accounting controls and procedures, including
computer systems and applications, the security of such
systems and applications, and the contingency plan for
processing financial information in the event of a systems
breakdown.
. Review and instruct the external auditors to keep the
Committee informed about the adequacy of the internal
controls to expose any payments, transactions or procedures
that might be illegal or otherwise improper fraud, about
illegal acts, deficiencies in internal control, and certain
other matters.
. Inquire about internal control recommendations made by
internal and external auditors and whether management has
implemented them.
(b) Financial Reporting
. Review significant accounting and reporting issues and
judgments and their impact on the financial statements, as
presented by management for the auditors.
. Review periodically with the internal and external auditors
significant risks and exposures and the plans to monitor,
control and minimize such risks and exposures.
. Review significant findings and recommendations made by the
internal and external auditors and discuss them on a timely
basis.
. Instruct the external auditors to communicate to the
Committee any required changes affecting the presentation of
financial statements and the responsibilities of the
Committee.
. Meet with management and the external auditors to review the
annual financial statements and the results of the audit.
. Request and review an analysis by internal and external
auditors about significant financial reporting issues,
including any complex and/or unusual transactions,
significant valuation issues, reserve adequacy and
significant judgments made in the preparation of the
financial statements.
A-2
. Review and evaluate management's handling of proposed audit
adjustments identified and presented to the Committee by the
external auditors.
. Review with management and require the external auditors to
review the financial information included in the
Corporation's interim financial statements prior to filing
SEC reports, including a review by the Committee and the
Corporation's external auditors of each report on Form 10-Q
prior to the filing of such report by the Corporation with
the SEC.
(c) Compliance with Laws and Regulations and Code of Conduct
. Periodically obtain reports from management, auditors,
general counsel, and tax advisor regarding regulatory
compliance by the Corporation, transactions with affiliates,
and other legal matters that may have a material impact on
financial statements and the consideration of those matters
in preparing the financial statements.
. Review the effectiveness of the system for monitoring
compliance with laws and regulations and the results of
management's investigation and follow-up (including
disciplinary action) on any fraudulent acts or accounting
irregularities.
. Review the findings of any examinations by regulatory
agencies.
. Review Corporation policies and procedures for distribution
of and monitoring compliance with the Corporation's Code of
Conduct.
(d) Internal Audit
. Review the activities, organizational structure and
qualifications of the internal audit function.
. Participate in decisions regarding appointment, replacement,
reassignment, or dismissal of the director of internal
audit.
. Review the effectiveness of the internal audit function,
including the scope of the internal auditors'
responsibilities, their access to management and the
Committee, their resources, staffing, and budget, and their
follow-up experience in implementing prior audit
recommendations.
A-3
(e) External Audit
. Articulate the external auditors' ultimate accountability to
the board and the Committee.
. Review the external auditors' proposed audit scope and
approach.
. Review annual engagement proposal for retention of the
external auditors and level of fees to be paid to external
auditors.
. Review and evaluate the performance of the external auditors
and recommend to the board of directors the appointment or
discharge of the external auditors.
. Review and discuss the independence of the external
auditors, the nonaudit services provided and the auditors'
disclosures concerning and assertion of their independence
in accordance with professional standards and as required by
applicable standards.
. Review with the external auditors any problems or
difficulties they may have encountered, any management
letter provided by the external auditors, and the
Corporation's response to that letter, including:
. Any difficulties encountered in the course of the audit
work, including any restrictions on the scope of
activities or access to required information.
. Any changes required in the planned scope of the
internal audit.
. The internal audit department responsibilities, budget and
staffing.
. Discuss the matters required to be discussed by Statement of
Accounting Standards No. 61 as it may be modified or
supplemented from time to time ("SAS 61").
. Obtain from the external auditors assurance that Section 10A
of the Private Securities Litigation Reform Act of 1995 has
not been implicated.
(f) Reporting Responsibilities
. Regularly update the board of directors about Committee
activities and make appropriate recommendations.
A-4
. Prepare for inclusion in the proxy statement the disclosures
about the Committee and its functioning required under
applicable SEC rules./1/
(g) Other responsibilities
. Meet with the external auditors, director of internal audit
and management in separate executive sessions to discuss any
matters that the Committee or these groups believe should be
discussed privately.
. If necessary, institute special investigations and, if
appropriate, hire special counsel or experts to assist.
. Review summary data on executive officer and director
expense accounts and review related party transactions and
actual or potential conflicts of interest.
. Perform other oversight functions as requested by the full
board.
. Annually review and (if appropriate) update this charter,
subject to board approval of changes.
. Meet at least quarterly with the officer of the Corporation
designated by the Board as responsible for monitoring the
Corporation's relationship with its transfer agent, and
review summary reports prepared by such officer regarding
(i) the Corporation's shareholder list and (ii) a summary of
transfer instructions provided by the Corporation to its
transfer agent during the preceding quarter.
6. Meetings
--------
(a) Frequency
The Committee shall hold regular meetings on such days as it
shall determine at least four times per year. Special meetings of the
Committee will be held at the request of the Chairperson of the
Committee or any two other Committee members. The internal audit
staff shall draft minutes of Committee proceedings and present them to
the chairperson of the Committee. Following the chairperson's review,
the minutes shall be presented to the Committee for
_____________________
/1/ Proxy statement disclosures include (1) a report of the audit committee
disclosing whether the audit committee reviewed and discussed certain matters
with management and the external auditors, received disclosures concerning and
discussed their independence and whether, based on such review and discussion,
it recommended to the board that the audited financial statements be included in
the annual report filed with the SEC, (2) whether the audit committee has a
written charter, and (3) certain information about the independence of the
members and any audit committee member who is not independent, as defined in the
applicable standards.
A-5
approval. The Corporation's Secretary shall maintain the minutes and
records of the proceedings of the Committee.
(b) Agenda
Prior to each regularly scheduled meeting, the Committee members
will receive notice of and an agenda for the meeting. Other topics
for discussion may be introduced at the meeting or by notice to the
Chairperson at the request of any Committee member.
(c) Attendance
The Committee may regularly or from time-to-time ask corporate
officers and other employees of the Corporation to attend the
meetings. With the permission of the chairperson of the Committee,
directors who are not members of the Committee may also attend
Committee meetings.
(d) Procedures
The Committee may adopt rules for its meetings and activities.
In the absence of any such rules, the Committee actions shall be
governed by the Corporation's Bylaws and applicable law, as applicable
to Board meetings and activities. In all cases, a quorum of the
Committee shall be a majority of the persons then serving as members
of the Committee. Meetings of the Committee may be undertaken in
person and telephonically.
7. Outside Assistance
------------------
The Committee shall have the authority to request and receive access to any
internal or external information it requires to fulfill its duties and
responsibilities. The Committee is authorized to engage such outside
professional or other services as in its discretion may be required to fulfill
its responsibilities.
A-6
EXHIBIT 1
NASDAQ NATIONAL MARKET INDEPENDENCE STANDARDS AND
QUALIFICATION REQUIREMENTS
The Committee must consist of not less than three members of the Corporation's
Board.
The qualifications of the Committee membership must be as follows:
No member shall have any relationship to the Corporation that, in the
determination of the Board, may interfere with his or her exercise of
independence from management and the Corporation. The following persons shall
not be considered independent:
. A director who is, or has been in any of the past three years, an
employee or officer of the Corporation or any of its affiliates;
. A director who accepted any compensation from the Corporation or any
of its affiliates in excess of $60,000 during the previous fiscal
year, other than compensation for board service, benefits under a tax-
qualified retirement plan, or non-discretionary compensation;
. A director who is an immediate family member of an individual who is,
or has been in any of the past three years, employed by the
Corporation or any of its affiliates as an executive officer;
. A director who is a partner in, or controlling shareholder or
executive officer of, any for-profit business organization to which
the Corporation made, or from which the Corporation received, in any
of the past three years, payments (other than those arising solely
from investments in the Corporation's securities) that exceed 5% of
the Corporation's or business organization's consolidated gross
revenues for that year or $200,000, whichever is more; and
. A director who is employed as an executive of another entity if any of
the Corporation's executives serve on that entity's compensation
committee.
Notwithstanding the foregoing, the Board may, under exceptional and limited
circumstances, appoint to the Committee one individual who is not
"independent" as defined above and is not a current employee or an immediate
family member of such employee if the Board determines in its business
judgment that membership on the Committee by the individual is required by the
Corporation's and shareholder's best interests, and the Board discloses, in
the next annual proxy statement subsequent to such determination, the nature
of the relationship and the reasons for that determination.
. Each member shall be able to read and understand fundamental financial
statements, including a corporation's balance sheet, income statement,
and cash flow statement, or shall become able to do so within a
reasonable period of time after his or her appointment to the
Committee.
A-7
. At least one member of the Committee must have past employment
experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or
background that results in the individual's financial sophistication,
including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities.
The term "immediate family member" includes a person's spouse, parents,
children, siblings, mothers-in-law and fathers-in-law, sons and daughters-in-
law, brothers and sisters-in-law, and anyone (other than employees) who shares
such person's home.
A-8
MINDARROW SYSTEMS, INC.
2000 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
Page
1. The Plan .............................................................................................. 1
1.1 Purpose........................................................................................... 1
1.2 Administration and Authorization; Power and Procedure............................................. 1
1.3 Participation..................................................................................... 2
1.4 Shares Available for Awards; Share Limits......................................................... 2
1.5 No Transferability; Limited Exception to Transfer Restrictions.................................... 3
1.6 Acceptance of Notes to Finance Exercise/Purchase.................................................. 4
2. Options................................................................................................ 5
2.1 Option Grants..................................................................................... 5
2.2 Vesting; Term; Exercise Procedure................................................................. 5
2.3 Option Price...................................................................................... 6
2.4 Limitations on Grant and Terms of Incentive Stock Options......................................... 7
2.5 Limits on 10% Holders............................................................................. 8
2.6 Effects of Termination of Employment; Termination of Subsidiary Status; Discretionary Provisions.. 8
2.7 Option Repricing/Cancellation and Regrant/Waiver of Restrictions.................................. 10
2.8 Options in Substitution for Stock Options Granted by Other Corporations........................... 11
3. Restricted Stock Awards................................................................................ 11
3.1 Grants............................................................................................ 11
3.2 Award Agreement................................................................................... 11
3.3 Vesting........................................................................................... 11
3.4 Term.............................................................................................. 11
3.5 Purchase Price.................................................................................... 12
3.6 Stock Certificates; Fractional Shares............................................................. 12
3.7 Restrictions...................................................................................... 12
3.8 Return to the Corporation......................................................................... 13
3.9 Other Sections Applicable to Restricted Stock Awards.............................................. 13
3.10 Waiver of Restrictions........................................................................... 13
4. Other Provisions....................................................................................... 13
-i-
TABLE OF CONTENTS
(continued)
Page
4.3 Compliance with Laws.............................................................................. 16
4.4 Tax Withholding................................................................................... 18
4.5 Plan and Award Amendments, Termination and Suspension............................................. 19
4.6 Privileges of Stock Ownership..................................................................... 20
4.7 Effective Date of the Plan........................................................................ 20
4.8 Term of the Plan.................................................................................. 20
4.9 Governing Law/Severability........................................................................ 20
4.10 Captions.......................................................................................... 20
4.11 Non-Exclusivity of Plan........................................................................... 20
4.12 No Restriction on Corporate Powers................................................................ 20
4.13 Other Company Compensation or Benefit Programs.................................................... 21
5. Definitions............................................................................................ 21
-ii-
MINDARROW SYSTEMS, INC.
2000 STOCK INCENTIVE PLAN
As amended and restated to reflect the amendment submitted to the Company's
stockholders at the 2001 Annual Meeting.
1. The Plan.
--------
1.1 Purpose. The purpose of this Plan is to promote the success of the Company
-------
and the interests of its stockholders by attracting, motivating, retaining
and rewarding certain officers, employees, directors and other eligible
persons with awards and incentives for high levels of individual
performance and improved financial performance of the Company. Capitalized
terms used herein are defined in Section 5.
1.2 Administration and Authorization; Power and Procedure.
-----------------------------------------------------
1.2.1 Committee. This Plan will be administered by and all Awards will be
---------
authorized by the Committee. Action of the Committee with respect to
its authority under this Plan shall be taken pursuant to a majority
vote or by unanimous written consent of its members.
1.2.2 Plan Awards; Interpretation; Powers of Committee. Subject to the
------------------------------------------------
express provisions of this Plan and any express limitations on the
delegated authority of a Committee, the Committee will have the
authority to:
(a) determine eligibility and the particular Eligible Persons
who will receive Awards;
(b) grant Awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons,
and determine the other specific terms and conditions of
Awards consistent with the express limits of this Plan,
establish the installments (if any) in which such Awards will
become exercisable or will vest, and the respective
consequences thereof, or determine that no delayed
exercisability or vesting is required, and establish the
events of termination or reversion of such Awards;
(c) approve the forms of Award Agreements, which need not be
identical either as to type of Award or among Participants;
(d) construe and interpret this Plan and any Award or other
agreements defining the rights and obligations of the Company
and Participants under this Plan, further define the terms
used in this Plan, and prescribe, amend and rescind rules and
regulations relating to the administration of this Plan;
(e) cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards
1
held by Eligible Persons, subject to any required consent
under Section 4.5;
(f) accelerate or extend the exercisability or extend the term of
any or all outstanding Awards within the maximum ten-year term
of Awards under Sections 2.2.2 and 3.4;
(g) determine the duration and purposes of leaves of absence that
may be granted to Participants without constituting a
termination of their employment for purposes of this Plan; and
(h) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable
for the administration of this Plan and the effectuation of
its purposes.
1.2.3 Binding Determinations. Any action taken by, or inaction of, the
----------------------
Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan will be within the absolute discretion of that
entity or body and will be conclusive and binding upon all persons.
Subject only to compliance with the express provisions hereof, the
Board and Committee may act in their absolute discretion in matters
within their authority related to this Plan.
1.2.4 Reliance on Experts. In making any determination or in taking or not
-------------------
taking any action under this Plan, the Committee or the Board, as
the case may be, may obtain and may rely upon the advice of experts,
including employees of and professional advisors to the Corporation.
1.2.5 Delegation. The Committee may delegate ministerial, non-
----------
discretionary functions to individuals who are officers or employees
of the Company.
1.2.6 No Liability. No director, officer or agent of the Company will be
------------
liable for any action, omission or decision under the Plan taken,
made or omitted in good faith.
1.3 Participation. Awards may be granted by the Committee only to those persons
-------------
that the Committee determines to be Eligible Persons. An Eligible Person
who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee so determines.
1.4 Shares Available for Awards; Share Limits.
-----------------------------------------
1.4.1 Shares Available. Subject to the provisions of Section 4.2, the
----------------
capital stock that may be delivered under this Plan will be shares
of the Corporation's authorized but unissued Common Stock and any of
its shares of Common Stock held as treasury shares. The shares may
be delivered for any lawful consideration.
1.4.2 Share Limits. The maximum number of shares of Common Stock that may
------------
be delivered pursuant to Awards granted under this Plan will not
exceed 2,000,000
2
shares/1/ (the "Share Limit"). The maximum number of shares subject
to Options that are granted during any calendar year to any one
individual will be limited to 1,000,000/1/ shares and the maximum
individual limit on the number of shares in the aggregate subject to
all Awards that during any calendar year are granted under this Plan
to any one individual will be 1,000,000/1/ shares. Each of the
foregoing numerical limits will be subject to adjustment as
contemplated by this Section 1.4 and Section 4.2.
1.4.3 Share Reservation; Replenishment and Reissue of Unvested Awards.
---------------------------------------------------------------
Shares subject to outstanding Awards shall be reserved for issuance.
No Award may be granted under this Plan unless, on the date of
grant, the sum of (a) the maximum number of shares of Common Stock
issuable at any time pursuant to such Award, plus (b) the number of
shares of Common Stock that have previously been issued pursuant to
Awards granted under this Plan, other than reacquired shares
available for reissue consistent with any applicable legal
limitations, plus (c) the maximum number of shares of Common Stock
that may be issued at any time after such date of grant pursuant to
Awards that are outstanding on such date, does not exceed the Share
Limit. Shares of Common Stock that are subject to or underlie Awards
that expire or for any reason are canceled or terminated, are
forfeited, fail to vest, or for any other reason are not paid or
delivered under this Plan, as well as reacquired shares, will again,
except to the extent prohibited by law (or the provisions of the
Code, in the case of Incentive Stock Options) or the terms of this
Plan, (or, in the case of Incentive Stock Options, the provisions of
the Internal Revenue Code) be available for subsequent Awards under
this Plan. Accordingly, shares of Common Stock issued pursuant to
the terms hereof (including shares of Common Stock offset in
satisfaction of applicable withholding taxes or the exercise price
of an Award) in respect of an Award shall reduce on a share-for-
share basis the number of shares of Common Stock remaining available
under this Plan and the number of shares remaining subject to the
Award.
1.5 No Transferability; Limited Exception to Transfer Restrictions.
--------------------------------------------------------------
1.5.1 Limit On Exercise and Transfer. Unless otherwise expressly provided
------------------------------
in (or pursuant to) this Section 1.5, by applicable law and by the
Award Agreement, as the same may be amended:
(a) all Awards are non-transferable and will not be subject in any
manner to sale, transfer, anticipation, alienation,
assignment, pledge, encumbrance or charge;
(b) Awards will be exercised only by the Participant; and
(c) amounts payable or shares issuable pursuant to an Award will
be delivered only to (or for the account of) the Participant.
_______________________
/1/ Subject to stockholder approval at 2001 Annual Meeting.
3
In addition, the shares shall be subject to the restrictions set
forth in the applicable Award Agreement.
1.5.2 Further Exceptions to Limits On Transfer. The exercise and transfer
----------------------------------------
restrictions in Section 1.5.1 will not apply to:
(a) transfers to the Corporation or, with the express written
approval of the Committee, transfers by gift to "immediate
family" as that term is defined in SEC Rule 16a-1(e)
promulgated under the Exchange Act;
(b) the designation of a beneficiary to receive benefits if the
Participant dies or, if the Participant has died, transfers to
or exercises by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will
or the laws of descent and distribution; or
(c) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by the
Participant's duly authorized legal representative.
Notwithstanding anything else in this Section 1.5.2 to the contrary,
Incentive Stock Options and Restricted Stock Awards will be subject
to any and all transfer restrictions under the Code applicable to
such awards or necessary to maintain the intended tax consequences
of such Awards.
1.6 Acceptance of Notes to Finance Exercise/Purchase. The Corporation may,
------------------------------------------------
with the Committee's approval in each specific case, accept one or more
notes from any Eligible Person in connection with the exercise, purchase or
acquisition of any Award; provided that any such note shall be subject to
the following terms and conditions:
(a) The principal of the note shall not exceed the amount required
to be paid to the Corporation upon the exercise, purchase or
acquisition of one or more Awards under the Plan and the note
shall be delivered directly to the Corporation in
consideration of such exercise, purchase or acquisition.
(b) The initial term of the note shall be determined by the
Committee; provided that the term of the note, including
extensions, shall not exceed a period of five years.
(c) The note shall provide for full recourse to the Participant
and shall bear interest at a rate determined by the Committee,
but not less than the interest rate necessary to avoid the
imputation of interest under the Code and to avoid any adverse
accounting consequences in connection with the exercise,
purchase or acquisition.
(d) If the employment or services of the Participant by or to the
Company terminates, the unpaid principal balance of the note
shall become due and payable on the 30th business day after
such termination; provided, however, that if a sale of such
shares would cause such Participant to incur
4
liability under Section 16(b) of the Exchange Act, the unpaid
balance shall become due and payable on the 10th business day
after the first day on which a sale of such shares could have
been made without incurring such liability assuming for these
purposes that there are no other transactions (or deemed
transactions) in securities of the Corporation by the
Participant subsequent to such termination.
(e) If required by the Committee or by applicable law, the note
shall be secured by a pledge of any shares or rights financed
thereby or other collateral, in compliance with applicable
law.
(f) The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note shall
conform with all applicable rules and regulations, including
those of the Federal Reserve Board and under the Delaware
Corporations Code, as then in effect.
2. Options.
-------
2.1 Option Grants.
-------------
2.1.1 Approval; Number of Shares. The Committee may grant one or more
--------------------------
Options under this Plan to any Eligible Person. Subject to the
express provisions of this Plan, the Committee will determine the
number of shares of Common Stock subject to each Option.
2.1.2 Award Agreement. Each Option will be evidenced by an Award Agreement
---------------
signed by the Corporation and, to the extent required by the
Committee, by the Participant and the Participant's spouse. The
Award Agreement evidencing an Option shall contain the terms
established by the Committee for that Option, as well as any other
terms, provisions, or restrictions that the Committee may impose on
the Option or any shares of Common Stock subject to the Option.
2.1.3 Type of Options. The Committee will designate each Option granted
---------------
under this Plan as either an Incentive Stock Option or a
Nonqualified Stock Option and such designation shall be set forth in
the applicable Award Agreement. Any Option granted hereunder that is
not designated as an Incentive Stock Option will be deemed to be
designated a Nonqualified Stock Option under this Plan and not an
incentive stock option under the Code. Incentive Stock Options shall
be subject to the provisions of Section 2.4 in addition to the
provisions hereof applicable to Options generally.
2.2 Vesting; Term; Exercise Procedure.
---------------------------------
2.2.1 Vesting. An Option may be exercised only to the extent that it is
-------
vested and exercisable. The Committee will determine the vesting
and/or exercisability provisions of each Option, which provisions
will be set forth in the applicable Award Agreement. Unless the
Committee otherwise expressly provides, no Option will be
exercisable or will vest until at least six months after the initial
5
Award Date, and once exercisable an Option will remain exercisable
until the expiration or earlier termination of the Option. To the
extent required to satisfy applicable securities laws and subject to
Section 2.6, no Option (except an Option granted to an officer,
director, or consultant of the Company) shall vest and become
exercisable at a rate of less than 20% per year over five years
after the date the Option is granted.
2.2.2 Term. Each Option shall expire not more than 10 years after its date
----
of grant. Each Option will be subject to earlier termination as
provided in or pursuant to Sections 2.6 or 4.2. Any payment of cash
or delivery of stock in payment of or pursuant to an Option may be
delayed until a future date if specifically authorized by the
Committee in writing and by the Participant.
2.2.3 Exercise Procedure. Any exercisable Option will be deemed to be
------------------
exercised when the Corporation receives written notice of such
exercise from the Participant (on a form and in such manner as may
be required by the Committee), together with any required payment
made in accordance with Section 2.3.2 and Section 4.4 and any
written statement required pursuant to Section 4.3.
2.2.4 Fractional Shares/Minimum Issue. Fractional share interests will be
-------------------------------
disregarded, but may be accumulated. The Committee, however, may
determine that cash, other securities, or other property will be
paid or transferred in lieu of any fractional share interests. No
fewer than 100 shares may be purchased on exercise of any Option at
one time unless the number purchased is the total number at the time
available for purchase under the Option.
2.3 Option Price.
------------
2.3.1 Pricing Limits. Subject to the following provisions of this Section
--------------
2.3.1, the Committee will determine the purchase price per share of
the Common Stock covered by each Option (the "exercise price" of the
Option) at the time of the grant of the Option, which purchase price
will be set forth in the applicable Award Agreement. In no case will
the exercise price of an Option be less than the greater of:
-------
(a) the par value of the Common Stock;
(b) in the case of a Nonqualified Stock Option and subject to
clause (d) below, 85% of Fair Market Value of the Common Stock
on the date of grant;
'
(c) in the case of an Incentive Stock Option and subject to clause
(d) below, 100% of the Fair Market Value of the Common Stock
on the date of grant; or
(d) in the case of an Option (incentive or nonqualified) granted
to a Participant described in Section 2.5, 110% of the Fair
Market Value of the Common Stock on the date of grant.
6
2.3.2 Payment Provisions. The Corporation will not be obligated to deliver
------------------
certificates for the shares of Common Stock to be purchased on
exercise of an Option unless and until it receives full payment of
the exercise price therefor, all related withholding obligations
under Section 4.4 have been satisfied, and all other conditions to
the exercise of the Option set forth herein or in the Award
Agreement have been satisfied. The purchase price of any shares of
Common Stock purchased on exercise of an Option must be paid in full
at the time of each purchase in one or a combination of the
following methods:
(a) in cash or by electronic funds transfer;
(b) by certified or cashier's check payable to the order of the
Corporation;
(c) by notice and third party payment in such manner as may be
authorized by the Committee;
(d) by the delivery of shares of Common Stock already owned by the
Participant; provided that the Committee may, in its absolute
--------
discretion, limit the Participant's ability to exercise an
Option by delivering previously owned shares, and any shares
of Common Stock delivered that were initially acquired from
the Corporation upon exercise of a stock option or otherwise
must have been owned by the Participant at least 6 months as
of the date of delivery; or
(e) if authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant
consistent with the requirements of Section 1.6.
Shares of Common Stock used to satisfy the exercise price of an
Option will be valued at their Fair Market Value on the date of
exercise.
2.4 Limitations on Grant and Terms of Incentive Stock Options.
---------------------------------------------------------
2.4.1 $100,000 Limit. To the extent that the aggregate "Fair Market Value"
--------------
of stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000,
taking into account both Common Stock subject to Incentive Stock
Options under this Plan and stock subject to incentive stock options
under all other plans of the Company or any parent corporation, such
options will be treated as Nonqualified Stock Options. For this
purpose, the "Fair Market Value" of the stock subject to options
will be determined as of the date the options were awarded. In
reducing the number of options treated as incentive stock options to
meet the $100,000 limit, the most recently granted options will be
reduced (recharacterized as Nonqualified Stock Options) first. To
the extent a reduction of simultaneously granted options is
necessary to meet the $100,000 limit, the Committee may, in the
manner and to the extent permitted by law, designate which shares of
Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.
7
2.4.2 Other Code Limits. Incentive Stock Options may only be granted to
-----------------
employees of the Corporation or a Subsidiary that satisfy the other
eligibility requirements of the Code. Any Award Agreement relating
to Incentive Stock Options will contain or shall be deemed to
contain such other terms and conditions as from time to time are
required in order that the Option be an "incentive stock option" as
that term is defined in Section 422 of the Code.
2.4.3 ISO Notice of Sale Requirement. Any Participant who exercises an
------------------------------
Incentive Stock Option shall give prompt written notice to the
Corporation of any sale or other transfer of the shares of Common
Stock acquired on such exercise if the sale or other transfer occurs
(a) within one year after the exercise date of the Option, or (b)
two years after the grant date of the Option.
2.5 Limits on 10% Holders. No Option may be granted to any person who, at the
---------------------
time the Option is granted, owns (or is deemed to own under Section 424(d)
of the Code) shares of outstanding stock of the Corporation (or a parent or
subsidiary of the Corporation) possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation (or a
parent or subsidiary of the Corporation), unless the exercise price of such
Option is at least 110% of the Fair Market Value of the stock subject to
the Option and, in the case of an Incentive Stock Option grated to such a
person, such Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.
2.6 Effects of Termination of Employment; Termination of Subsidiary Status;
-----------------------------------------------------------------------
Discretionary Provisions.
------------------------
2.6.1 Dismissal for Cause. Unless otherwise provided in the Award
-------------------
Agreement and subject to earlier termination pursuant to or as
contemplated by Section 2.2.2 or 4.2, if a Participant's employment
by or service to the Company is terminated by the Company for Cause,
the Participant's Option will terminate on the Participant's
Severance Date, whether or not the Option is then vested and/or
exercisable.
2.6.2 Resignation. Unless otherwise provided in the Award Agreement
-----------
(consistent with applicable securities laws) and subject to earlier
termination pursuant to or as contemplated by Section 2.2.2 or 4.2,
if a Participant voluntarily terminates his or her employment by or
service to the Company (other than because of his or her Total
Disability or Retirement):
(a) the Participant will have until the date that is 30 days after
the Participant's Severance Date to exercise his or her Option
(or portion thereof) to the extent that it was vested and
exercisable on the Severance Date;
(b) the Option, to the extent not vested and exercisable on the
Participant's Severance Date, shall terminate on the
Severance Date; and
8
(c) the Option, to the extent exercisable for the 30-day period
following the Participant's Severance Date and not exercised
during such period, shall terminate at the close of business on
the last day of the 30-day period.
2.6.3 Layoff or Other Involuntary Termination. Unless otherwise provided in
---------------------------------------
the Award Agreement (consistent with applicable securities laws) and
subject to earlier termination pursuant to or as contemplated by
Section 2.2.2 or 4.2, if a Participant is laid off or the
Participant's employment by or service to the Company is otherwise
terminated at the will of the Company (other than in circumstances
constituting a termination because of death, Total Disability,
Retirement, or a termination by the Company for Cause):
(a) the Participant will have until the date that is three (3)
months after the Participant's Severance Date to exercise his
or her Option (or portion thereof) to the extent that it was
vested and exercisable on the Severance Date;
(b) the Option, to the extent not vested and exercisable on the
Participant's Severance Date, shall terminate on the Severance
Date; and
(c) the Option, to the extent exercisable for the 3-month period
following the Participant's Severance Date and not exercised
during such period, shall terminate at the close of business on
the last day of the 3-month period.
2.6.4 Death, Disability, or Retirement. Unless otherwise provided in the
--------------------------------
Award Agreement (consistent with applicable securities laws) and
subject to earlier termination pursuant to or as contemplated by
Section 2.2.2 or 4.2, if a Participant's employment by or service to
the Company terminates as a result of the Participant's Total
Disability, death, or Retirement:
(a) the Participant (or his or her Personal Representative or
Beneficiary, in the case of the Participant's Total Disability
or death, respectively), will have until the date that is 12
months after the Participant's Severance Date to exercise the
Participant's Option (or portion thereof) to the extent that it
was vested and exercisable on the Severance Date;
(b) the Option, to the extent not vested and exercisable on the
Participant's Severance Date, shall terminate on the Severance
Date; and
(c) the Option, to the extent exercisable for the 12-month period
following the Participant's Severance Date and not exercised
during such period, shall terminate at the close of business on
the last day of the 12-month period.
2.6.5 Events Not Deemed a Termination of Employment. Unless Company policy
---------------------------------------------
or the Committee otherwise provides, a Participant's employment or
service relationship with the Company shall not be considered
terminated solely due to any sick leave, military leave, or any other
leave of absence authorized by the Company or the Committee; provided
--------
that, unless reemployment upon the
----
9
expiration of such leave is guaranteed by contract or law, such
leave is for a period of not more than 90 days. In the case of any
Eligible Person on an approved leave of absence, continued vesting
of the Award while on leave from the employ of or service with the
Company may be suspended until the employees returns to service,
unless the Committee otherwise provides or applicable law otherwise
requires. In no event shall an Award be exercised after the
expiration of the term of the Award set forth in the Award
Agreement.
2.6.6 Effect of Change of Subsidiary Status. For purposes of this Plan and
-------------------------------------
any Award, if an entity ceases to be a Subsidiary, a termination of
employment or service will be deemed to have occurred with respect
to each Eligible Person in respect of such Subsidiary who does not
continue as an Eligible Person in respect of another entity within
the Company.
2.6.7 Committee Discretion. Notwithstanding the foregoing provisions of
--------------------
this Section 2.6, in the event of, or in anticipation of, a
termination of employment or service with the Company for any
reason, other than a discharge for Cause, the Committee may
accelerate the vesting and exercisability of all or a portion of the
Participant's Award, and/or, subject to the provisions of Sections
2.2.2 and 4.2, extend the exercisability period of the Participant's
Option upon such terms as the Committee determines and as expressly
set forth in or by amendment to the Award Agreement.
2.6.8 Determination of Severance Date. Notwithstanding the definition of
-------------------------------
"Severance Date," the Committee may authorize by express provision
in or pursuant to an Award an extension of the date of termination
of the Participant's employment by or services to the Company if the
Participant's status after grant of the Award changes from one
category of Eligible Person to another (for example, employee to
consultant or visa versa), or in other circumstances that the
Committee deems appropriate).
2.6.9 Termination of Consulting or Affiliate Services. If the Participant
-----------------------------------------------
is not an Eligible Employee or a director of the Corporation, and
provides services as an Other Eligible Person, the Committee shall
be the sole judge of whether the Participant continues to render
services to the Company, unless a written contract or the Award
Agreement otherwise provides. If, in these circumstances, the
Company notifies the Participant in writing that a termination of
the Participant's services to the Company has occurred for purposes
of this Plan, then (unless the contract or the Award Agreement
otherwise expressly provides), the Participant's termination of
services with the Company for purposes of this Plan shall be the
date which is 10 days after the Company's mailing of the notice or,
in the case of a termination for Cause, the date of the mailing of
the notice.
2.7 Option Repricing/Cancellation and Regrant/Waiver of Restrictions. Subject
----------------------------------------------------------------
to Section 1.4 and Section 4.5 and the specific limitations on Options
contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible
Person, any adjustment in the exercise price, the vesting
10
schedule, the number of shares subject to, or the term of, an Option
granted under this Plan by cancellation of an outstanding Option and
a subsequent regranting of the Option, by amendment, by substitution
of an outstanding Option, by waiver or by other legally valid means.
Such amendment or other action may result in, among other changes,
an exercise price that is higher or lower than the exercise price of
the original or prior Option, provide for a greater or lesser number
of shares of Common Stock subject to the Option, or provide for a
longer or shorter vesting or exercise period.
2.8 Options in Substitution for Stock Options Granted by Other
----------------------------------------------------------
Corporations. Options may be granted to Eligible Persons under this
------------
Plan in substitution for employee stock options granted by other
entities, in connection with a distribution, merger or
reorganization by or with the granting entity or an affiliated
entity, or the acquisition by the Company, directly or indirectly,
of all or a substantial part of the stock or assets of the employing
entity.
3. Restricted Stock Awards.
-----------------------
3.1 Grants. The Committee may grant one or more Restricted Stock Awards
------
to any Eligible Person. Subject to the provisions of this Plan, the
Committee will determine the number of shares of Common Stock
subject to each Restricted Stock Award. Each Restricted Stock Award
will be evidenced by an Award Agreement signed by the Corporation
and, to the extent required by the Committee, by the Participant and
the Participant's spouse. Upon issuance of the Restricted Stock
Award, the Participant may be required to provide such further
assurances and documents as the Committee may require to enforce the
restrictions thereon.
3.2 Award Agreement. Each Restricted Stock Award Agreement will specify
---------------
the number of shares of Common Stock to be issued to the
Participant, the date of such issuance, the consideration for such
shares (but not less than the minimum lawful consideration under
applicable state law) to be paid by the Participant for the shares,
the extent (if any) to which and the time (if ever) at which the
Participant will be entitled to dividends, voting and other rights
in respect of the shares prior to vesting, and the restrictions
(which may be based on performance criteria, passage of time or
other factors or any combination thereof) imposed on such shares and
the conditions of release or lapse of such restrictions.
3.3 Vesting. The restrictions imposed on the shares of Common Stock
-------
subject to a Restricted Stock Award will not lapse earlier than six
months after the Award Date, except to the extent the Committee may
otherwise provide. To the extent required to satisfy applicable
securities laws, the restrictions imposed on the shares of Common
Stock subject to a Restricted Stock Award (other than an Award
granted to an officer, director, or consultant of the Company, which
may include more restrictive provisions) shall lapse as to such
shares, subject to Section 3.8, at a rate of at least 20% of the
shares subject to the Award per year over the five years after the
date the Award is granted.
3.4 Term. Any Restricted Stock Award shall either vest or be forfeited
----
not more than 10 years after the date of grant. Each Restricted
Stock Award will be subject to earlier
11
termination as provided in or pursuant to Section 4.2. Any payment
of cash or delivery of stock in payment for a Restricted Stock Award
may be delayed until a future date if specifically authorized by the
Committee in writing and by the Participant.
3.5 Purchase Price.
--------------
3.5.1 Pricing Limits. Subject to the following provisions of this
--------------
Section 3.5, the Committee will determine the purchase price
per share of the Common Stock covered by each Restricted
Stock Award at the time of grant of the Award. In no case
will such purchase price be less than the greater of:
-------
(a) 85% of the Fair Market Value of the Common Stock on the
date of grant, or at the time the purchase is
consummated; or
(b) 100% of the Fair Market Value of the Common Stock on the
date of grant, or at the time the purchase is
consummated, in the case of any person who owns stock
possessing more than 10% of the total combined voting
power of all classes of stock of the Corporation, its
parent, or a Subsidiary.
3.5.2 Payment Provisions. The Corporation will not be obligated to
------------------
issue certificates evidencing shares of Restricted Stock
pending the lapse of restrictions ("Restricted Shares')
unless and until it receives full payment of the purchase
price therefor and all other conditions to the purchase, as
determined by the Committee, have been satisfied. The
purchase price of any Restricted Shares must be paid in full
at the time of the purchase in one or a combination of the
methods set forth in clauses (a) through (e) in Section
2.3.2.
3.6 Stock Certificates; Fractional Shares. Stock certificates evidencing
-------------------------------------
Restricted Shares will bear a legend making appropriate reference to
the restrictions imposed hereunder and will be held by the
Corporation or by a third party designated by the Committee until
the restrictions on such shares have lapsed and the shares have
vested in accordance with the provisions of the Award and Section
3.3 and any related loan has been repaid. Fractional share interests
will be disregarded, but may be accumulated. The Committee, however,
may determine that cash, other securities, or other property will be
paid or transferred in lieu of any fractional share interests.
3.7 Restrictions.
------------
3.7.1 Pre-Vesting Restraints. Except as provided in Section 3.1,
----------------------
Restricted Shares comprising any Restricted Stock Award may
not be sold, assigned, transferred, pledged or otherwise
disposed of or encumbered, either voluntarily or
involuntarily, until the restrictions on such shares have
lapsed and the shares have become vested.
3.7.2 Dividend and Voting Rights. Unless otherwise provided in the
--------------------------
applicable Award Agreement, a Participant receiving a
Restricted Stock Award will be entitled to cash dividend and
voting rights for all Restricted Shares issued even
12
though they are not vested, but such rights will terminate
immediately as to any Restricted Shares which cease to be
eligible for vesting.
3.7.3 Cash Payments. The Award Agreement shall specify whether and
-------------
to what extent cash or other property received in respect of
Restricted Shares must be returned (with or without an
earnings factor) if the Restricted Shares fail to vest and
must be returned to the Corporation in accordance with
Section 3.8.
3.8 Return to the Corporation. Unless the Committee otherwise expressly
-------------------------
provides, Restricted Shares subject to a Participant's Restricted Stock
Award that remain subject to restrictions at the time the Participant's
employment by or service to the Company terminates, or are subject to other
conditions to vesting that have not been satisfied by the time specified in
the applicable Award Agreement, will not vest and will be reacquired by the
Corporation in such manner and on such terms as the Committee provides,
which terms shall include return or repayment of the lower of the Fair
Market Value or the original purchase price of the Restricted Shares,
without interest, to the Participant to the extent not prohibited by law.
The Restricted Stock Award shall specify any other terms r conditions of
the repurchase if the Award fails to vest.
3.9 Other Sections Applicable to Restricted Stock Awards . The provisions of
-----------------------------------------------------
Sections 2.6.5 through 2.6.8 are applicable to Restricted Stock Awards as
well as Options.
3.10 Waiver of Restrictions. Subject to Section 1.4 and 4.5 and the specific
----------------------
limitations on Restricted Stock Awards contained in this Plan, the
Committee from time to time may authorize, generally or in specific cases
only, for the benefit of any Eligible Person, any adjustment in the vesting
schedule, or the restrictions upon or the term of, a Restricted Stock Award
granted under this Plan by amendment, by substitution of an outstanding
Restricted Stock Award, by waiver or by other legally valid means.
4. Other Provisions.
----------------
4.1 Rights of Eligible Persons, Participants and Beneficiaries.
----------------------------------------------------------
4.1.1 Employment Status. Status as an Eligible Person will not be
-----------------
construed as a commitment that any Award will be granted under this
Plan to an Eligible Person or to Eligible Persons generally.
4.1.2 No Employment/Service Contract. Nothing contained in this Plan (or
------------------------------
in any other documents under this Plan or related to any Award)
shall confer upon any Eligible Employee or other Participant any
right to continue in the employ or other service of the Company,
constitute any contract or agreement of employment or other service
or affect an employee's status as an employee at will, nor shall
interfere in any way with the right of the Company to change such
person's compensation or other benefits, or to terminate his or her
employment or other service, with or without cause at any time.
Nothing in this Section 4.1.2, or in Section 4.2.2 or 4.12, however,
is intended to adversely affect any express independent right of
such person under a separate employment or service contract. An
Award Agreement shall not constitute a contract of employment or
service.
13
4.1.3 Plan Not Funded. Awards payable under this Plan will be payable in
---------------
shares of Common Stock or from the general assets of the
Corporation, and (except as provided in Section 1.4.3) no special or
separate reserve, fund or deposit will be made to assure payment of
such Awards. No Participant, Beneficiary or other person will have
any right, title or interest in any fund or in any specific asset
(including shares of Common Stock) of the Company by reason of any
Award hereunder. Neither the provisions of this Plan (or of any
related documents), nor the creation or adoption of this Plan, nor
any action taken pursuant to the provisions of this Plan will
create, or be construed to create, a trust of any kind or a
fiduciary relationship between the Company and any Participant,
Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive payment
pursuant to any Award hereunder, such right will be no greater than
the right of any unsecured general creditor of the Company.
4.1.4 Charter Documents. The Certificate of Incorporation and By-Laws of
-----------------
the Corporation, as either of them may lawfully be amended from time
to time, may provide for additional restrictions and limitations
with respect to the Common Stock (including additional restrictions
and limitations on the voting or transfer of Common Stock) or
priorities, rights and preferences as to securities and interests
prior in rights to the Common Stock. To the extent that these
restrictions and limitations are greater than those set forth in
this Plan or any Award Agreement, such restrictions and limitations
shall apply to any shares of Common Stock acquired pursuant to the
exercise of Awards and are incorporated herein by this reference.
4.2 Adjustments; Acceleration.
-------------------------
4.2.1 Adjustments. Upon or in contemplation of any reclassification,
-----------
recapitalization, stock split (including a stock split in the form
of a stock dividend) or reverse stock split; any merger,
combination, consolidation or other reorganization; any split-up;
spin-off, or similar extraordinary dividend distribution ("spin-
off") in respect of the Common Stock (whether in the form of
securities or property); any exchange of Common Stock or other
securities of the Corporation, or any similar, unusual or
extraordinary corporate transaction in respect of the Common Stock;
or a sale of substantially all the assets of the Corporation as an
entirety ("asset sale"); then the Committee shall, in such manner,
to such extent (if any) and at such time as it deems appropriate and
equitable in the circumstances:
(a) proportionately adjust any or all of (1) the number of
shares of Common Stock or the number and type of other
securities that thereafter may be made the subject of Awards
(including the specific maxima and numbers of shares set
forth elsewhere in this Plan), (2) the number, amount and
type of shares of Common Stock (or other securities or
property) subject to any or all outstanding Awards, (3) the
grant, purchase, or exercise price of any or all outstanding
Awards, or (4) the securities, cash or other
14
property deliverable upon exercise or vesting of any
outstanding Awards, or
(b) make provision for a settlement by a cash payment or for the
substitution or exchange of any or all outstanding Awards
for cash, securities or other property (or for other awards)
based upon the distribution or consideration payable to
holders of the Common Stock upon or in respect of such
event.
The Committee may adopt such valuation methodologies for outstanding
Awards as it deems reasonable in the event of a cash, securities or
other property settlement. In the case of Options, but without
limitation on other methodologies, the Committee may base such
settlement solely upon the excess (if any) of the amount payable
upon or in respect of such event over the exercise price of the
Option to the extent of the then vested and exercisable shares
subject to the Option. In the case of Restricted Shares, but without
limiting other methodologies, the Committee may limit the payment to
either (1) the purchase price previously paid by the Participant, or
(2) the Fair Market Value of the shares, or (3) the price to be paid
in the transaction for unrestricted shares.
The Committee may make adjustments to and/or accelerate the
exercisability of Options in a manner that disqualifies the Options
as Incentive Stock Options without the written consent of the Option
holders affected thereby.
In any of such events, the Committee may take such action prior to
such event to the extent that the Committee deems the action
necessary to permit the Participant to realize the benefits intended
to be conveyed with respect to the underlying shares in the same
manner as is or will be available to stockholders generally.
4.2.2 Acceleration of Awards Upon Change in Control. Subject to Sections
---------------------------------------------
4.2.3 through 4.2.6, unless prior to a Change in Control Event the
Committee determines that, upon its occurrence, benefits under any
or all Awards will not accelerate or determines that only certain or
limited benefits under any or all Awards will be accelerated and the
extent to which they will be accelerated, and/or establishes a
different time in respect of such event for such acceleration, then
upon (or, as may be necessary to effectuate the purposes of this
acceleration, immediately prior to) the occurrence of a Change in
Control Event:
(a) each Option will become immediately vested and exercisable,
and
(b) Restricted Stock will immediately vest free of restrictions.
The Committee may override the limitations on acceleration in this
Section 4.2.2 by express provision in the Award Agreement and may
accord any Eligible Person a right to refuse any acceleration,
whether pursuant to the Award Agreement or otherwise, in such
circumstances as the Committee may approve. Any acceleration of
Awards will comply with applicable legal requirements and, if
necessary to accomplish the purposes of the acceleration or if the
circumstances otherwise require, may be deemed by the Committee to
occur (subject to Sections
15
4.2.4 through 4.2.6) not more than 30 days before or only upon the
consummation of the event. Any acceleration of an Incentive Stock
Option may disqualify the Option as an Incentive Stock Option and
does not require the written consent of the holder of the Option,
whether or not the holder is adversely affected thereby.
4.2.3 Possible Early Termination of Accelerated Awards. Without any
------------------------------------------------
limitation on the Committee's authority under Section 4.2.1, if the
vesting of any Option under this Plan has been fully accelerated as
required or permitted by Section 4.2.2 but is not exercised prior to
(a) a dissolution of the Corporation, (b) an event described in
Section 4.2.1 that the Corporation does not survive, or (c) the
consummation of a Change in Control Event approved by the Board, the
Option shall terminate, subject to any provision that has been
expressly made by the Board or the Committee for the survival,
substitution, assumption, exchange or other settlement of the
Option.
4.2.4 Possible Rescission of Acceleration. If the vesting of an Award has
-----------------------------------
been accelerated in anticipation of an event or upon stockholder
approval of an event and the Committee or the Board later determines
that the event will not occur, the Committee may rescind the effect
of the acceleration as to any then outstanding and unexercised or
otherwise unvested Awards.
4.2.5 Pooling Exception. Any discretion with respect to the events
-----------------
addressed in this Section 4.2, including any acceleration of
vesting, shall be limited to the extent required by applicable
accounting requirements in the case of a transaction intended to be
accounted for as a pooling of interests transaction.
4.2.6 Golden Parachute Limitations. Unless otherwise specified in an Award
----------------------------
Agreement or otherwise authorized by the Board in the specific case,
no vesting of or lapse or restrictions imposed on an Award will be
accelerated under this Plan to an extent or in a manner that would
result in payments that are not fully deductible by the Company for
federal income tax purposes because of Section 280G of the Code. If
a Participant would be entitled to benefits or payments hereunder
and under any other plan or program that would constitute "parachute
payments" as defined in Section 280G of the Code, then the
Participant may by written notice to the Company designate the order
in which such parachute payments will be reduced or modified so that
the Company is not denied any federal income tax deductions for any
"parachute payments" because of Section 280G of the Code.
4.3 Compliance with Laws.
--------------------
4.3.1 General. This Plan, the granting and vesting of Awards under this
-------
Plan, and the offer, issuance and delivery of shares of Common
Stock, the acceptance of promissory notes and/or the payment of
money under this Plan or under Awards are subject to compliance with
all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities laws, and
federal margin requirements) and to such approvals by any listing,
regulatory or
16
governmental authority as may, in the opinion of counsel for the
Corporation, be necessary or advisable in connection therewith. In
addition, any securities delivered under this Plan may be subject to
any special restrictions that the Committee may require to preserve
a pooling of interests under generally accepted accounting
principles. The person acquiring any securities under this Plan
will, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Committee may deem
necessary or desirable to assure compliance with all applicable
legal and accounting requirements.
4.3.2 Compliance with Securities Laws. No Participant shall sell, pledge
-------------------------------
or otherwise transfer shares of Common Stock acquired pursuant to an
Award or any interest in such shares except in accordance with the
express terms of this Plan and the applicable Award Agreement. Any
attempted transfer in violation of this Section 4.3 shall be void
and of no effect. Without in any way limiting the provisions set
forth above, no Participant shall make any disposition of all or any
portion of shares of Common Stock acquired or to be acquired
pursuant to an Award, except in compliance with all applicable
federal and state securities laws and unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration
statement; or
(b) such disposition is made in accordance with Rule 144 under
the Securities Act; or
(c) such Participant notifies the Corporation of the proposed
disposition and furnishes the Corporation with a statement
of the circumstances surrounding the proposed disposition,
and, if requested by the Corporation, furnishes to the
Corporation an opinion of counsel acceptable to the
Corporation's counsel, that such disposition will not
require registration under the Securities Act and will be in
compliance with all applicable state securities laws.
Notwithstanding anything else herein to the contrary, the Company
has no obligation to register the Common Stock or file any
registration statement under either federal or state securities
laws, nor does the Company make any representation concerning the
likelihood of a public offering of the Common Stock or any other
securities of the Company.
4.3.3 Share Legends . All certificates evidencing shares of Common Stock
--------------
issued or delivered under this Plan shall bear the following legends
and/or any other appropriate or required legends under applicable
laws:
"OWNERSHIP OF THIS CERTIFICATE, THE SHARES EVIDENCED BY THIS
CERTIFICATE AND ANY INTEREST THEREIN ARE SUBJECT TO
17
SUBSTANTIAL RESTRICTIONS ON TRANSFER UNDER APPLICABLE LAW AND UNDER
AGREEMENTS WITH THE CORPORATION, INCLUDING RESTRICTIONS ON SALE,
ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION."
"THE SHARES ARE SUBJECT TO THE CORPORATION'S RIGHT OF FIRST REFUSAL
AND CALL RIGHTS TO REPURCHASE THE SHARES UNDER THE CORPORATION'S
STOCK INCENTIVE PLAN AND AGREEMENTS WITH THE CORPORATION THEREUNDER,
COPIES OF WHICH ARE AVAILABLE FOR REVIEW AT THE OFFICE OF THE
SECRETARY OF THE CORPORATION."
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), NOR
HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF
ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE
ACT, OR IN THE OPINION OF COUNSEL TO THE CORPORATION, REGISTRATION
UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY
WITH THE ACT AND WITH APPLICABLE STATE SECURITIES LAWS."
4.3.4 Delivery of Financial Statements. The Corporation shall deliver
--------------------------------
annually to Participants such financial statements of the
Corporation as are required to satisfy applicable securities laws.
4.3.5 Confidential Information. Any financial or other information
------------------------
relating to the Corporation obtained by Participants in connection
with or as a result of this Plan or their Awards shall be treated as
confidential.
4.4 Tax Withholding.
---------------
4.4.1 Tax Withholding. Upon any exercise, vesting, or payment of any Award
---------------
or upon the disposition of shares of Common Stock acquired pursuant
to the exercise of an Incentive Stock Option prior to satisfaction
of the holding period requirements of Section 422 of the Code, the
Company shall have the right at its option to:
(a) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for
payment of the amount of any taxes which the Company may be
required to withhold with respect to such Award event or
payment;
(b) deduct from any amount payable to the Participant (or
Personal Representative or Beneficiary, as the case may be)
in cash or equivalent (in respect of an Award or otherwise)
the amount of any taxes which the
18
Company may be required to withhold with respect to such
Award event or payment; or
(c) reduce the number of shares of Common Stock to be delivered
by (or otherwise reacquire shares held by the Participant at
least 6 months) the appropriate number of shares of Common
Stock, valued at their then Fair Market Value, to satisfy
the minimum withholding obligation.
The Committee may, in its sole discretion (subject to Section 4.3),
grant (either at the time of grant of the Award or thereafter) to
the Participant the right to elect, pursuant to such rules and
subject to such conditions as the Committee may establish, to have
the Corporation utilize the withholding offset under clause (c)
above.
In no event will the value of shares withheld under (c) above exceed
the minimum amount of required withholding under applicable law.
4.4.2 Tax Loans. If so provided in the Award Agreement or otherwise
---------
authorized by the Committee, the Corporation may, to the extent
permitted by law, authorize a loan to an Eligible Person in the
amount of any taxes that the Company may be required to withhold
with respect to shares of Common Stock received (or disposed of, as
the case may be) pursuant to a transaction described in Section
4.4.1. Such a loan will be for a term not greater than 12 months and
at a rate of interest and pursuant to such other terms and
conditions as the Corporation may establish, subject to compliance
with applicable law. Such a loan need not otherwise comply with the
provisions of Section 2.3.3.
4.5 Plan and Award Amendments, Termination and Suspension.
-----------------------------------------------------
4.5.1 Board Authorization. The Board may, at any time, terminate or, from
-------------------
time to time, amend, modify or suspend this Plan, in whole or in
part. No Awards may be granted during any suspension of this Plan or
after termination of this Plan. Unless otherwise expressly provided
in this Plan or in an applicable Award Agreement, any Award granted
prior to the termination or suspension of this Plan may extend
beyond the date of such termination or suspension, and all authority
of the Committee with respect to Awards hereunder, including the
authority to amend an Award, will continue during any suspension of
this Plan and in respect of Awards outstanding upon or following the
termination of this Plan.
4.5.2 Stockholder Approval. This Plan and any amendment to this Plan shall
--------------------
be subject to stockholder approval to the extent then required under
Section 422 or 424 of the Code or any other applicable law, or
deemed necessary or advisable by the Board.
4.5.3 Amendments to Awards. Without limiting any other express authority
--------------------
of the Committee under but subject to the express limits of this
Plan, the Committee by resolution or otherwise may make changes to
the terms and conditions of Awards and the Plan.
19
4.5.4 Limitations on Amendments to Plan and Awards. The Board and the
--------------------------------------------
Committee may not, without the written consent of the Participant
affected thereby, amend, terminate or suspend this Plan in any
manner materially adverse to the Participant's rights or benefits
under an outstanding Award or amend the Participant's Award in any
manner materially adverse to the Participant's rights or benefits
thereunder. Changes contemplated by Section 4.2 or Section 4.5.5 do
not and will not be deemed to constitute changes or amendments for
purposes of this Section 4.5.
4.6 Privileges of Stock Ownership. Except as otherwise expressly authorized by
-----------------------------
the Committee or this Plan or in the Award Agreement, a Participant will
not be entitled to any privilege of stock ownership as to any shares of
Common Stock not actually delivered to and held of record by the
Participant. No adjustment will be made for dividends or other rights as a
stockholder for which a record date is prior to such date of delivery.
4.7 Effective Date of the Plan. This Plan is effective upon the date of its
--------------------------
approval by the Board (the "Effective Date"), subject to approval by the
stockholders of the Corporation within twelve months after the date of
Board approval.
4.8 Term of the Plan. Unless earlier terminated by the Board, this Plan will
----------------
terminate at the close of business on the day before the 10th anniversary
of the Effective Date.
4.9 Governing Law/Severability.
--------------------------
4.9.1 Choice of Law. This Plan, the Awards, all documents evidencing
-------------
Awards and all other related documents will be governed by, and
construed in accordance with, the laws of the state of Delaware.
4.9.2 Severability. If it is determined that any provision of this Plan or
------------
an Award Agreement is invalid and unenforceable, the remaining
provisions of this Plan and/or the Award Agreement, as applicable,
will continue in effect provided that the essential economic terms
of this Plan and the Award can still be enforced.
4.10 Captions. Captions and headings are given to the sections and subsections
--------
of this Plan solely as a convenience to facilitate reference. Such
headings will not be deemed in any way material or relevant to the
construction or interpretation of this Plan or any provision thereof.
4.11 Non-Exclusivity of Plan. Nothing in this Plan will limit or be deemed to
-----------------------
limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.
4.12 No Restriction on Corporate Powers. The existence of the Plan, the Award
----------------------------------
Agreements, and the Awards granted hereunder, shall not limit, affect or
restrict in any way the right or power of the Board or the stockholders of
the Corporation to make or authorize: (a) any adjustment, recapitalization,
reorganization or other change in the
20
Corporation's or any Subsidiary's capital structure or its business; (b)
any merger, amalgamation, consolidation or change in the ownership of the
Corporation or any Subsidiary; (c) any issue of bonds, debentures, capital,
preferred or prior preference stocks ahead of or affecting the
Corporation's capital stock or the rights thereof; (d) any dissolution or
liquidation of the Corporation or any Subsidiary; (e) any sale or transfer
of all or any part of the Corporation or any Subsidiary's assets or
business; or (f) any other corporate act or proceeding by the Corporation
or any Subsidiary. No Participant, Beneficiary or any other person shall
have any claim under any Award or Award Agreement against any member of the
Board or the Committee, or the Corporation or any employees, officers or
agents of the Corporation or any Subsidiary, as a result of any such
action.
4.13 Other Company Compensation or Benefit Programs. Payments and other
-----------------------------------------------
benefits received by a Participant under an Award made pursuant to this
Plan shall not be deemed a part of a Participant's compensation for
purposes of the determination of benefits under any other employee welfare
or benefit plans or arrangements, if any, provided by the Corporation or
any Subsidiary, except where the Committee or the Board expressly otherwise
provides or authorizes in writing. Awards under this Plan may be made in
addition to, in combination with, as alternatives to or in payment of
grants, awards or commitments under any other plans or arrangements of the
Corporation or any Subsidiary.
5. Definitions.
-----------
"Award" means an award of any Option or Restricted Stock, or any combination
thereof, whether alternative or cumulative, authorized by and granted under this
Plan.
"Award Agreement" means any writing, approved by the Committee, setting forth
the terms of an Award that has been duly authorized and approved.
"Award Date" means the date upon which the Committee took the action granting an
Award or such later date as the Committee designates as the Award Date at the
time of the grant of the Award.
"Beneficiary" means the person, persons, trust or trusts designated by a
Participant, or, in the absence of a designation, entitled by will or the laws
of descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
"Board" means the Board of Directors of the Corporation.
"Cause" with respect to a Participant means (unless otherwise expressly provided
in the applicable Award Agreement, or another applicable contract with the
Participant that defines such term for purposes of determining the effect that a
"for cause" termination has on the Participant's stock options and/or restricted
stock awards) a termination of employment or service based upon a finding by the
Company, acting in good faith and based on its reasonable belief at the time,
that the Participant:
21
(a) has been negligent in the discharge of his or her duties to the
Company, has refused to perform stated or assigned duties or is
incompetent in or (other than by reason of a disability or analogous
condition) incapable of performing those duties; or
(b) has been dishonest or committed or engaged in an act of theft,
embezzlement or fraud, a breach of confidentiality, an unauthorized
disclosure or use of inside information, customer lists, trade secrets
or other confidential information; or
(c) has breached a fiduciary duty, or willfully and materially violated
any other duty, law, rule, regulation or policy of the Company or an
affiliate; or has been convicted of, or plead guilty or nolo
contendere to, a felony or misdemeanor (other than minor traffic
violations or similar offenses); or
(d) has materially breached any of the provisions of any agreement with
the Company or an affiliated entity; or
(e) has engaged in unfair competition with, or otherwise acted
intentionally in a manner injurious to the reputation, business or
assets of, the Company or an affiliate; or
(f) has improperly induced a vendor or customer to break or terminate any
contract with the Company or an affiliate or induced a principal for
whom the Company or an affiliate acts as agent to terminate such
agency relationship.
A termination for Cause shall be deemed to occur (subject to reinstatement upon
a contrary final determination by the Committee) on the date on which the
Company first delivers written notice to the Participant of a finding of
termination for Cause.
"Change in Control Event" means any of the following:
(a) Approval by the Board and by stockholders of the Corporation (or, if
no stockholder approval is required, by the Board alone) of the
dissolution or liquidation of the Corporation, other than in the
context of a transaction that does not constitute a Change in Control
Event under clause (b) below;
(b) Consummation of a merger, consolidation, or other reorganization, with
or into, or the sale of all or substantially all of the Corporation's
business and/or assets as an entirety to, one or more entities that
are not Subsidiaries or other affiliates of the Company (a "Business
Combination"), unless (1) as a result of the Business Combination,
------
more than 50% of the outstanding voting power generally in the
election of directors of the surviving or resulting entity or a parent
thereof (the "Successor Entity") immediately after the reorganization
are, or will be, owned, directly or indirectly, by holders of the
Corporation's voting securities immediately before the Business
Combination; and (2) no "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), excluding the Successor Entity
or an Excluded Person, beneficially owns, directly or indirectly, more
than 50% of the outstanding shares or the combined voting power of the
outstanding
22
voting securities of the Successor Entity, after giving effect to the
Business Combination, except to the extent that such ownership existed
prior to the Business Combination; or
(c) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) other than an Excluded Person becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing more than
50% of the combined voting power of the Corporation's then outstanding
securities entitled to then vote generally in the election of
directors of the Corporation, other than as a result of (1) an
acquisition directly from the Company, (2) an acquisition by the
Company, or (3) an acquisition by an entity pursuant to a transaction
which is expressly excluded under clause (b) above.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Commission" means the Securities and Exchange Commission.
"Committee" means the Board or one or more committees of director(s) appointed
by the Board to administer all or certain aspects of this Plan, each committee
to be comprised solely of one or more directors or such greater number of
directors as may be required under applicable law.
"Common Stock" means the shares of the Corporation's Common Stock, $0.001 par
value, and such other securities or property as may become the subject of
Awards, or become subject to Awards, pursuant to an adjustment made under
Section 4.2 of this Plan.
"Company" means the Corporation and its Subsidiaries.
"Corporation" means MindArrow Systems, Inc., a Delaware corporation, and its
successors.
"Eligible Employee" means an officer (whether or not a director) or employee of
the Company.
"Eligible Person" means an Eligible Employee, or any Other Eligible Person,
designated by the Committee in its discretion.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time.
"Excluded Person" means (a) any person described in and satisfying the
conditions of Rule 13d-1(b)(1) under the Exchange Act, (b) the Company, (c) an
employee benefit plan (or related trust) sponsored or maintained by the Company
or the Successor Entity, or (d) any person who is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of more than 25% of the Common
Stock on the Effective Date (or an affiliate, successor, heir, descendant, or
related party of or to such person).
"Fair Market Value" on any date means:
(a) if the stock is listed or admitted to trade on a national securities
exchange, the closing price of the stock on the Composite Tape, as
published in the Western
23
Edition of The Wall Street Journal, of the principal national
securities exchange on which the stock is so listed or admitted to
trade, on such date, or, if there is no trading of the stock on such
date, then the closing price of the stock as quoted on such Composite
Tape on the next preceding date on which there was trading in such
shares;
(b) if the stock is not listed or admitted to trade on a national
securities exchange, the last/closing price for the stock on such
date, as furnished by the National Association of Securities Dealers,
Inc. ("NASD") through the NASDAQ National Market Reporting System or a
similar organization if the NASD is no longer reporting such
information;
(c) if the stock is not listed or admitted to trade on a national
securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked price for the
stock on such date, as furnished by the NASD or a similar
organization; or
(d) if the stock is not listed or admitted to trade on a national
securities exchange, is not reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by
the NASD or a similar organization, the value as established by the
Committee at such time for purposes of this Plan.
Any determination as to fair market value made pursuant to this Plan shall
be determined without regard to any restriction other than a restriction
which, by its terms, will never lapse, and shall be conclusive and binding
on all persons.
"Incentive Stock Option" means an Option that is designated and intended as an
incentive stock option within the meaning of Section 422 of the Code, the award
of which contains such provisions (including but not limited to the receipt of
stockholder approval of this Plan, if the award is made prior to such approval)
and is made under such circumstances and to such persons as may be necessary to
comply with that section.
"Nonqualified Stock Option" means an Option that is not an incentive stock
option within the meaning of Section 442 of the code and includes an Option
designated as a Nonqualified Stock Option and any Option intended as an
Incentive Stock Option that fails to meet the applicable legal requirements
thereof.
"Option" means an option to purchase Common Stock granted under this Plan. The
Committee will designate any Option granted to an employee of the Corporation or
a Subsidiary as a Nonqualified Stock Option or an Incentive Stock Option.
"Other Eligible Person" means any director of, or any individual consultant or
advisor who renders or has rendered bona fide services (other than services in
---- ----
connection with the offering or sale of securities of the Company in a capital
raising transaction or as a market maker or promoter of the Company's
securities) to, the Company, and who is selected to participate in this Plan by
the Committee. An advisor or consultant may be selected as an Other Eligible
Person only if such person's participation in this Plan would not adversely
affect (a) the Corporation's eligibility to rely on the Rule 701 from
registration under the Securities Act for the offering of
24
shares issuable under this Plan by the Company, or (b) the Corporation's
compliance with any other applicable laws.
"Participant" means an Eligible Person who has been granted and holds an Award
under this Plan.
"Personal Representative" means the person or persons who, upon the disability
or incompetence of a Participant, has acquired on behalf of the Participant, by
legal proceeding or otherwise, the power to exercise the rights or receive
benefits under this Plan by virtue of having become the legal representative of
the Participant.
"Plan" means this MindArrow Systems, Inc. 2000 Stock Incentive Plan, as it may
hereafter be amended from time to time.
"Public Offering Date" means the date the Common Stock is first registered under
the Exchange Act and listed or quoted on a recognized national securities
exchange or in the NASDAQ National Market Quotation System.
"Restricted Shares" or "Restricted Stock" means shares of Common Stock awarded
to a Participant under this Plan, subject to payment of such consideration and
such conditions on vesting (which may include, among others, the passage of
time, specified performance objectives or other factors) and such transfer and
other restrictions as are established in or pursuant to this Plan and the
related Award Agreement, to the extent such remain unvested and restricted under
the terms of the applicable Award Agreement.
"Retirement" means retirement with the consent of the Company or, from active
service as an employee or officer of the Company on or after attaining (a) age
55 with ten or more years of employment with the Company, or (b) age 65.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Severance Date" means (a) in the case of an Award granted to an Eligible
Employee, the date the Eligible Employee's employment by the Company terminates
for any reason whatsoever, (b) in the case of an Award granted to an Other
Eligible Person who is a director of the Corporation, the date the director
ceases to be a director of the Corporation for any reason whatsoever, or (c) in
the case of any other Other Eligible Person, the date the person's services to
the Company terminate for any reason whatsoever.
"Severance Date" means the date the Participant's employment by or services to
the Company terminate (for any reason whatsoever).
"Subsidiary" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned, directly or
indirectly, by the Corporation.
"Total Disability" means a "total and permanent disability" within the meaning
of Section 22(e)(3) of the Code and, with respect to Awards other than Incentive
Stock Options, such other disabilities, infirmities, afflictions, or conditions
as the Committee may include.
25
REVOCABLE PROXY FOR COMMON STOCK
MINDARROW SYSTEMS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR ANNUAL MEETING OF SHAREHOLDERS, AUGUST 30, 2001
The undersigned shareholder(s) of MindArrow Systems, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated July 20, 2001, and hereby appoints
Robert I. Webber and Michael R. Friedl, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the Annual Meeting
of Shareholders of MindArrow Systems, Inc., to be held on August 30, 2001, at
10:00 a.m., local time, at MindArrow's principal executive offices located at
101 Enterprise, Suite 340, Aliso Viejo, California 92656 and at any
adjournment(s) thereof, on all matters coming before said meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. Election of Directors
[_] VOTE FOR all nominees [_] VOTE WITHHELD from all nominees
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below.)
Thomas J. Blakeley Robert I. Webber Bruce Maggin
2. Approval of amendments to the Company's 2000 Stock Option Plan to increase
the aggregate share limit under that plan by an additional 1,000,000 shares,
from 1,000,000 shares to 2,000,000 shares, and (2) to increase the annual
individual award grant limit under that plan by an additional 900,000 shares,
from 100,000 shares to 1,000,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on reverse side)
3. In their discretion, upon such other business as may properly come before
the meeting or at any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREBY
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. IF ANY NOMINEE BECOMES UNAVAILABLE FOR ANY REASON,
THE PERSONS NAMED AS PROXIES SHALL VOTE FOR THE ELECTION OF SUCH OTHER PERSON
AS THE BOARD OF DIRECTORS MAY PROPOSE TO REPLACE SUCH NOMINEE.
(This proxy should be marked,
dated, signed by the stockholder(s)
exactly as his or her name appears
hereon, and returned promptly in
the enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate. If shares are
held by joint tenants or as
community property, both should
sign. If signing in any other
capacity, please indicate your full
title.)
____________________________________
Signature
____________________________________
Signature
Date________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
REVOCABLE PROXY FOR SERIES B PREFERRED STOCK
MINDARROW SYSTEMS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR ANNUAL MEETING OF SHAREHOLDERS, AUGUST 30, 2001
The undersigned shareholder(s) of MindArrow Systems, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated July 20, 2001, and hereby appoints
Robert I. Webber and Michael R. Friedl, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the Annual Meeting
of Shareholders of MindArrow Systems, Inc., to be held on August 30, 2001, at
10:00 a.m., local time, at MindArrow's principal executive offices located at
101 Enterprise, Suite 340, Aliso Viejo, California 92656 and at any
adjournment(s) thereof, on all matters coming before said meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. Election of Directors
[_] VOTE FOR all nominees [_] VOTE WITHHELD from all nominees
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below.)
Joel Schoenfeld (Series B Preferred Nominee)
Thomas J. Blakeley Robert I. Webber Bruce Maggin
2. Approval of amendments to the Company's 2000 Stock Option Plan (1) to
increase the aggregate share limit under that plan by an additional 1,000,000
shares, from 1,000,000 shares to 2,000,000 shares, and (2) to increase the
annual individual award grant limit under that plan by an additional 900,000
shares, from 100,000 shares to 1,000,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on reverse side)
3. In their discretion, upon such other business as may properly come before
the meeting or at any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREBY
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. IF ANY NOMINEE BECOMES UNAVAILABLE FOR ANY REASON,
THE PERSONS NAMED AS PROXIES SHALL VOTE FOR THE ELECTION OF SUCH OTHER PERSON
AS THE BOARD OF DIRECTORS MAY PROPOSE TO REPLACE SUCH NOMINEE.
(This proxy should be marked,
dated, signed by the stockholder(s)
exactly as his or her name appears
hereon, and returned promptly in
the enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate. If shares are
held by joint tenants or as
community property, both should
sign. If signing in any other
capacity, please indicate your full
title.)
____________________________________
Signature
____________________________________
Signature
Date________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
REVOCABLE PROXY FOR SERIES C PREFERRED STOCK
MINDARROW SYSTEMS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR ANNUAL MEETING OF SHAREHOLDERS, AUGUST 30, 2001
The undersigned shareholder(s) of MindArrow Systems, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated July 20, 2001, and hereby appoints
Robert I. Webber and Michael R. Friedl, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the Annual Meeting
of Shareholders of MindArrow Systems, Inc., to be held on August 30, 2001, at
10:00 a.m., local time, at MindArrow's principal executive offices located at
101 Enterprise, Suite 340, Aliso Viejo, California 92656 and at any
adjournment(s) thereof, on all matters coming before said meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. Election of Directors
[_] VOTE FOR all nominees [_] VOTE WITHHELD from all nominees
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below.)
Thomas C. Quick Joseph N. Matlock, Jr.
(Series C Preferred Nominee) (Series C Preferred Nominee)
Thomas J. Blakeley Robert I. Webber Bruce Maggin
2. Approval of an amendment to the Company's 2000 Stock Option Plan (1) to
increase the aggregate share limit under that plan by an additional 1,000,000
shares, from 1,000,000 shares to 2,000,000 shares, and (2) to increase the
annual individual award grant limit under that plan by an additional 900,000
shares, from 100,000 shares to 1,000,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on reverse side)
3. In their discretion, upon such other business as may properly come before
the meeting or at any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREBY
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. IF ANY NOMINEE BECOMES UNAVAILABLE FOR ANY REASON,
THE PERSONS NAMED AS PROXIES SHALL VOTE FOR THE ELECTION OF SUCH OTHER PERSON
AS THE BOARD OF DIRECTORS MAY PROPOSE TO REPLACE SUCH NOMINEE.
(This proxy should be marked,
dated, signed by the stockholder(s)
exactly as his or her name appears
hereon, and returned promptly in
the enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate. If shares are
held by joint tenants or as
community property, both should
sign. If signing in any other
capacity, please indicate your full
title.)
____________________________________
Signature
____________________________________
Signature
Date________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE