SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. __)
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
V-ONE Corporation
--------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11:
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing is calculated and state how it was determined):
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement Number:
3) Filing Party:
4) Date Filed:
V-ONE [LOGO]
Security for a Connected World
April 13, 2004
Dear Shareholder:
On behalf of the Board of Directors, I cordially invite you to attend the
Annual Meeting of Shareholders of V-ONE Corporation ("Company"). The annual
meeting will be held at the Holiday Inn-Gaithersburg, 2 Montgomery Village
Avenue, Gaithersburg, Maryland 20879 on Thursday, May 13, 2004, at 10:00 a.m.
Gaithersburg, Maryland time.
At the meeting, you will be asked to (i) elect one director for a
three-year term expiring in 2007, (ii) approve an amendment to the Company's
Amended and Restated Certificate of Incorporation to effect a reverse stock
split pursuant to which two shares of Company common stock will be combined into
one share of Company common stock, (iii) approve an amendment to the Company's
1998 Amended Incentive Stock Plan increasing shares of common stock authorized
and reserved for issuance under the plan from 5,000,000 shares to 6,000,000
shares, and (iv) ratify the appointment of Aronson & Company, independent public
accountants, as the auditors of the Company for the year ending December 31,
2004. The Board of Directors has unanimously approved these proposals and we
urge you to vote in favor of these proposals and in accordance with the Board's
recommendation on such other matters as may be submitted to you for a vote at
the meeting.
Your vote is very important, regardless of the number of shares you own.
Please sign and return each proxy card that you receive in the postage-paid
return envelope, which is provided for your convenience. The return of your
proxy card will not prevent you from voting in person but will assure that your
vote is counted if you are unable to attend the annual meeting. We look forward
to seeing you on May 13.
Sincerely,
/s/ Margaret E. Grayson
Margaret E. Grayson
Director, President,
Chief Executive Officer and
Principal Financial Officer
20300 Century Boulevard, Suite 200, Germantown, Maryland 20874 (301) 515-5200
V-ONE CORPORATION
20300 CENTURY BOULEVARD, SUITE 200 GERMANTOWN, MARYLAND 20874 (301) 515-5200
NOTICE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 2004
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting of Shareholders of
V-ONE Corporation ("Company") will be held on Thursday, May 13, 2004, at 10:00
a.m. Gaithersburg, Maryland time, at the Holiday Inn-Gaithersburg, 2 Montgomery
Village Avenue, Gaithersburg, Maryland 20879, for the following purposes:
1. To elect one director for a three-year term expiring in 2007;
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to effect a reverse stock split pursuant
to which two shares of Company common stock will be combined into one
share of Company common stock;
3. To approve an amendment to the Company's 1998 Amended Incentive Stock
Plan increasing shares of common stock authorized and reserved for
issuance under the plan from 5,000,000 shares to 6,000,000 shares;
4. To ratify the appointment of Aronson & Company, independent public
accountants, as the auditors of the Company for the year ending
December 31, 2004; and
5. To transact any other business as may properly come before the annual
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 31, 2004
as the record date for the determination of shareholders entitled to notice of
and to vote at the annual meeting and at any adjournment thereof. A complete
list of shareholders of record of the Company on the record date will be
available for examination by any shareholder, for any purpose germane to the
annual meeting, during ordinary business hours, for the ten-day period prior to
the annual meeting, at the executive offices of the Company, 20300 Century
Boulevard, Suite 200, Germantown, Maryland 20874.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Joseph D. Gallagher
Joseph D. Gallagher
Secretary
Germantown, Maryland
April 13, 2004
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR
NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING, OR IN
PERSON, AT ANY TIME PRIOR TO ITS EXERCISE.
V-ONE CORPORATION
20300 CENTURY BOULEVARD, SUITE 200 GERMANTOWN, MARYLAND 20874 (301) 515-5200
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 2004
The enclosed proxy is solicited by the Board of Directors of V-ONE
Corporation, a Delaware corporation ("Company"), for use at the Annual Meeting
of Shareholders on Thursday, May 13, 2004, and at any adjournment thereof. The
approximate date of mailing of this Proxy Statement and the form of proxy is
April 13, 2004.
INFORMATION RELATING TO VOTING AT THE ANNUAL MEETING
The securities to be voted at the annual meeting consist of (i) shares of
common stock of the Company, $0.001 par value per share ("Common Stock"), with
each share entitling its record owner to one vote on each of the proposals and
on all other matters properly brought before the annual meeting, (ii) shares of
Series C Preferred Stock, $0.001 par value per share ("Series C Stock"), with
each share entitling its record owner to 10 votes on Proposals 2, 3 and 4 and on
all other matters properly brought before the annual meeting, except with
respect to the election of directors for which record holders of Series C Stock
are not entitled to vote, and (iii) Series D Preferred Stock, $0.001 par value
per share ("Series D Stock"), with each share entitling its record owner to one
vote on each of the proposals and on all other matters properly brought before
the annual meeting. The close of business on March 31, 2004 has been fixed by
the Board of Directors as the record date for determination of shareholders
entitled to notice of, and to vote at, the annual meeting. As of the record
date, there were 249 record holders of Common Stock and 30,284,045 shares of
Common Stock outstanding and eligible to be voted at the annual meeting, 4
record holders of Series C Stock and 42,904 shares of Series C Stock outstanding
and eligible to be voted at the annual meeting and 19 record holders of Series D
Stock and 3,021,000 shares of Series D Stock outstanding and eligible to be
voted at the annual meeting. The Common Stock, Series C Stock and Series D Stock
(collectively "Voting Stock") are the only outstanding voting securities of the
Company.
The presence, in person or by proxy, of at least a majority of the total
number of outstanding shares of Voting Stock entitled to vote at the annual
meeting is necessary to constitute a quorum at the annual meeting. If less than
a majority of the outstanding shares entitled to vote are present at the annual
meeting, either in person or by proxy, a majority of the shares so represented
may vote to adjourn the annual meeting from time to time without further notice.
With respect to Proposal 1, directors receiving a plurality of votes will
be elected in the order of the number of votes received. There is no cumulative
voting in the election of directors. With respect to Proposal 2, the vote
required for approval shall be the affirmative vote of the holders of at least a
majority of the issued and outstanding shares of Common Stock entitled to vote
at the annual meeting. With respect to Proposals 3 and 4 and to any other matter
properly brought before the annual meeting or any adjournment thereof, the vote
required for approval shall be the affirmative vote of a majority of the total
number of votes that those present at the annual meeting, in person or by proxy,
are entitled to cast.
All shares entitled to vote represented by a properly executed and
unrevoked proxy received in time for the annual meeting will be voted at the
annual meeting in accordance with the instructions given. In the absence of
instructions to the contrary, such shares will be voted FOR Proposals 1, 2, 3
and 4. If any other matters properly come before the annual meeting, the persons
named as proxies will vote upon such matters as determined by a majority of the
Board of Directors.
Under Delaware law, shares represented at the annual meeting (either by
properly executed proxies or in person) that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee that are represented at the
annual meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions as to any proposal will have the same effect as votes
against the proposal. With respect to Proposals 1, 3 and 4, broker non-votes
will be treated as unvoted for purposes of determining approval of such
proposals (and therefore will reduce the absolute number - although not the
percentage - of votes needed for approval) and will not be counted as votes for
or against the proposals. With respect to Proposal 2, however, broker non-votes
will have the same effect as votes against the proposal.
The cost of soliciting proxies will be borne by the Company. In addition
to use of the mails, proxies may be solicited personally or by telephone or
telegraph by officers, directors or employees of the Company who will not be
specially compensated for such solicitation activities. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries for
forwarding solicitation materials to the beneficial owners of shares held of
record by such persons, and the Company will reimburse such persons for their
related reasonable expenses.
A shareholder may revoke his or her proxy at any time prior to its
exercise by (i) filing written notice thereof with Joseph D. Gallagher,
Secretary, V-ONE Corporation, 20300 Century Boulevard, Suite 200, Germantown,
Maryland 20874, (ii) submitting a duly executed proxy bearing a later date or
(iii) appearing at the annual meeting and giving the Secretary notice of his or
her intention to vote in person. Unless previously revoked or otherwise
instructed thereon, proxies will be voted at the annual meeting on the proposals
as described above.
STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The number of shares of Voting Stock held as of March 31, 2004 by each
holder of more than 5% of the outstanding Voting Stock of the Company, each
director of the Company, each nominee for reelection as a director, each
executive officer named in the Summary Compensation Table on page 6 of this
Proxy Statement and all directors and executive officers of the Company as a
group is set forth below. The names of the Company's directors and executive
officers named in the Summary Compensation Table appear in italics. Unless
otherwise indicated, all of the shares shown in the following table are shares
of Common Stock and are owned both of record and beneficially by the person
named. Unless otherwise indicated, the person named possesses sole voting and
investment power.
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS (1) OF BENEFICIAL OWNERSHIP (2) OF CLASS(3)
-------------------- --------------------------- -----------
James F. Chen 2,512,552 (4) 8.3%
Joseph Lupo 2,854,098 (5) 9.4%
758 Oneida Trail
Franklin Lakes, New Jersey 07417
Molly G. Bayley** 142,500 (6) *
Christopher T. Brook 171,871 (7) *
Margaret E. Grayson 1,008,856 (8) 3.3%
Heidi B. Heiden 307,500 (9) 1.0%
Douglas M. Hurt 108,610 (10) *
Merle B. Miller 93,897 (11) *
Michael D. O'dell 142,500 (12) *
William E. Odom 331,566 (13) 1.1%
Directors and Executive Officers as 2,307,300 7.6%
a group (6)(7)(8)(9)(10)
(11)(12)(13)
* Less than 1%.
** Nominee.
(1) Unless otherwise indicated, the mailing address of each shareholder is c/o
V-ONE Corporation, 20300 Century Boulevard, Suite 200, Germantown,
Maryland 20874.
(2) In accordance with Rule 13d-3 of the Securities Exchange Act of 1934
("Exchange Act"), a person is deemed to be the beneficial owner of a
security if he or she has or shares voting power or investment power with
respect to such security or has the right to acquire such ownership within
60 days. Each director, executive officer and beneficial owner possesses
sole voting and investment power with respect to the shares of Voting
Stock listed, except as otherwise indicated. The number of shares
beneficially owned by each director, executive officer and beneficial
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owner is determined under rules promulgated under the Exchange Act by the
Securities and Exchange Commission ("SEC"), 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 currently has sole or shared voting power or investment power
and also any shares which the individual has the right to acquire by
conversion of preferred stock or notes into Common Stock, by exercise of
options or warrants to purchase Common Stock or otherwise, within 60 days
after March 31, 2004. As of March 31, 2004, the Company had 30,284,045
shares of Common Stock outstanding.
(3) Number of shares of Voting Stock deemed outstanding includes shares
issuable upon exercise or conversion of stock options, warrants, preferred
stock or notes beneficially owned by the person in question that are
currently exercisable or convertible or become exercisable or convertible
within 60 days after March 31, 2004.
(4) Does not include 600,000 shares of Common Stock held in a family limited
partnership, the general partner of which is a corporation controlled by
Mr. Chen's daughter, Irene Chen. Does not include 71,110 shares of Common
Stock registered in the name of Mary S. Chen as Trustee under trusts for
the benefit of Mr. Chen's children with respect to which Mary S. Chen
possesses voting and investment power.
(5) According to the most recent Schedule 13D filed with the SEC by Joseph
Lupo, represents 896,700 shares of Common Stock, 1,282,720 shares of
Series D Stock and warrants to purchase 256,544 shares of Common Stock
held in a Roth IRA account for the benefit of Mr. Lupo. Also represents
1,746 shares of Common Stock, 346,990 shares of Series D Stock and
warrants to purchase 69,398 shares of Common Stock held in a profit
sharing plan for the benefit of Mr. Lupo.
(6) Represents options to purchase 142,500 shares of Common Stock.
(7) Includes options to purchase 163,550 shares of Common Stock.
(8) Includes options to purchase 853,750 shares of Common Stock.
(9) Includes options to purchase 182,500 shares of Common Stock and warrants
to purchase 25,000 shares of Common Stock held by the Heidi B. and Kay V.
Heiden Family LP.
(10) Includes options to purchase 102,500 shares of Common Stock.
(11) Includes options to purchase 92,250 shares of Common Stock.
(12) Represents options to purchase 142,500 shares of Common Stock.
(13) Includes options to purchase 324,166 shares of Common Stock. Does not
include 20,000 shares of Common Stock held by General Odom's wife, Anne C.
Odom.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Company's restated bylaws provide for a Board of Directors consisting
of up to seven members serving staggered terms. The term of office of Molly G.
Bayley will expire at the annual meeting. Molly G. Bayley has been nominated by
the Board to serve for a three-year term.
There are no arrangements or understandings between the Company and any
person pursuant to which such person has been elected as a director or selected
as a nominee.
If the nominee becomes unavailable for any reason, or if any other vacancy
in the directors to be elected at the annual meeting should occur before the
election, the shares represented by proxy will be voted for the person, if any,
who is designated by the Board to replace the nominee or to fill such other
vacancy on the Board. The Board has no reason to believe that the nominee will
be unavailable or that any other vacancy on the Board will occur. The nominee
has consented to be named and has indicated her intent to serve if elected.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE NOMINEE FOR REELECTION AS
DIRECTOR SET FORTH ABOVE.
3
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The directors of the Company are currently divided into three classes that
are elected on a staggered basis. Each director serves for a three-year term and
until his or her successor is duly elected and qualified. Michael D. O'Dell, a
director whose term expires in 2006, resigned his position on the Board
effective February 20, 2004. The current members of the Board are set forth
below:
DIRECTOR
OF THE
COMPANY TERM POSITION(S) CURRENTLY
NAME SINCE EXPIRES HELD WITH THE COMPANY
---- ----- ------- ---------------------
Molly G. Bayley (1)(2) 2001 2004 Director
Margaret E. Grayson 1999 2006 Director, President and Chief
Executive Officer
Heidi B. Heiden (1)(3) 2000 2005 Director
William E. Odom (3) 1996 2005 Chairman of the Board
(1) Member of the Audit Committee
(2) Nominee for reelection
(3) Member of the Compensation Committee
Biographical information regarding the directors of the Company is as
follows:
MOLLY G. BAYLEY (59) was appointed a director of the Company in March 2001 to
fill a vacancy on the Board. Since July 2002, Ms. Bayley has been an
international consultant to emerging capital markets. Previously, she was
Executive Vice President of X-Change Corporation (OTCBB: XCHC). From 1998
through 2000, Ms. Bayley served as Vice President of Exchange Relations for
OptiMark Technologies. From 1989 through 1997, she was an international
consultant on capital markets development in emerging markets. Also from 1993 to
1996, Ms. Bayley was Chief of Party and Regulatory Advisor for Arthur Andersen
in Manila, the Philippines. From 1984 through 1989, Ms. Bayley was Executive
Director of the Commodity Futures Trading Commission. From 1971 through 1984,
Ms. Bayley held various positions within Nasdaq, culminating as Vice President
of Nasdaq Operations. Ms. Bayley holds a B.A. in French from Wellesley College.
MARGARET E. GRAYSON (57) was elected President and CEO of the Company in
November 2000. She had served as the Company's Senior Vice President and Chief
Financial Officer since May 1999. Ms. Grayson was elected to the Board of
Directors in August 1999. Prior to joining V-ONE Corporation, Ms. Grayson served
as Vice President of Finance and Administration and Chief Financial Officer for
SPACEHAB, Inc. (Nasdaq: SPAB) from September 1994 to October 1998. Immediately
prior to joining SPAB, Ms. Grayson served as Chief Financial Officer for CD
Radio, Inc. in Washington, D.C., an early entrant in the satellite radio mobile
communications market. Previously, Ms. Grayson served as a senior executive and
consultant to high-technology start-up companies. Ms. Grayson holds an M.B.A.
from the University of South Florida and a B.S. in Accounting from the State
University of New York at Buffalo.
HEIDI B. HEIDEN (65) has been a director of V-ONE Corporation since June 2000.
In June 2001, Mr. Heiden retired from Zephion Networks, Inc., a private company,
where he had been Chairman and CEO since January 2001. Mr. Heiden became a
director of Broadview Networks, a private company, in January 2000. Mr. Heiden
retired from UUNET, Inc., an MCI WorldCom company, in January 1999, where he was
Senior Vice President of Operations and Technology. Mr. Heiden joined UUNET in
September 1995. His professional career includes a five-year term as Senior
Operating Officer at Salomon Brothers in New York City. He also served as Senior
Vice President for the Wollongong Group. In the mid-1980's, Mr. Heiden was
employed at Trusted Information Systems, a computer and network security
company. Prior to entering the commercial arena, Mr. Heiden served in the United
States Army and led diverse technology programs. Mr. Heiden also created and ran
the Defense Data Network consisting of many worldwide computer networks that
formed the basis of what is now known as the Internet. Mr. Heiden is a graduate
of West Point Military Academy.
LIEUTENANT GENERAL WILLIAM E. ODOM, ARMY (RET) (71) was elected Chairman of the
Company's Board of Directors in November 2000, and has been a director of the
Company since June 1996. Since October 1988, General Odom has served as Director
of National Security Studies at the Hudson Institute. He has been an adjunct
professor at Yale University since January 1989. Prior to his retirement from
the military in 1988, General Odom held several military posts including
Director of the National Security Agency, Assistant Chief of Staff for
Intelligence for the Department of the Army, and Military Assistant to the
National Security Advisor in the Carter White House. He is Chairman of the Board
of American Science & Engineering. General Odom holds a M.A. and a Ph.D from
Columbia University and a B.S. from the United States Military Academy at West
Point.
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COMPENSATION OF DIRECTORS
Each non-employee director is entitled to receive a $1,000 monthly stipend
and annual stock options to purchase 17,500 shares of Common Stock. The Chairman
of the Board is entitled to receive a $2,000 monthly stipend and annual stock
options to purchase 17,500 shares of Common Stock. On March 7, 2002, the Board
of Directors determined to defer cash compensation retroactive to January 2002
and until further notice. The Company also reimburses directors for travel
expenses incurred in connection with their attendance at meetings of the Board
and its committees.
BOARD OF DIRECTORS AND COMMITTEES
Meetings of the Board are held regularly each quarter and as required. In
2003, the Board held 16 meetings. Molly Bayley and Michael O'Dell participated
in 60% of these meetings and 100% of the meetings of the committees on which
they serve. All other directors participated in greater than 75% of these Board
meetings and of the meetings of the committees on which they serve.
The Company encourages its Board members to attend the Company's annual
meeting of shareholders. Four of five directors attended the 2003 annual meeting
of shareholders.
The Board has established an Audit Committee to recommend the firm to be
appointed as independent public accountants to audit the Company's financial
statements and to perform services related to the audit, review the scope and
results of the audit with the independent accountants, review with management
and the independent accountants the Company's year-end operating results and
consider the adequacy of the internal accounting procedures. The Audit Committee
met separately once during 2003, and the full board, including the members of
the Audit Committee, met several times during the year to discuss the financial
position of the Company, provide recommendations and guidance to management and
evaluate strategies and financial opportunities and initiatives. In 2003, the
Audit Committee consisted of Molly G. Bayley, Heidi B. Heiden and Michael D.
O'Dell, none of whom is an employee of the Company. The Company does not have an
audit committee financial expert serving on its Audit Committee because the
Company has not identified an individual with the required expertise and
experience. Mr. O'Dell resigned from the Board of Directors effective February
20, 2004.
The Board has also established a Compensation Committee. The Compensation
Committee reviews and recommends the compensation arrangements for all directors
and officers, approves such arrangements for other senior level employees and
administers and takes such other actions as may be required in connection with
certain compensation and incentive plans of the Company. In 2003, the
Compensation Committee consisted of Mr. Heiden and General Odom, both
independent directors. The Compensation Committee met once in 2003.
The Company currently has no standing nominating committee. Given the size
of the Company and its resources, the Board of Directors believes that this is
appropriate. A director can be nominated by a member of the Board or by written
notice to the Board not less than 120 calendar days in advance of the
anniversary date of the Company's previous year's proxy statement for its annual
meeting of shareholders.
The Board of Directors has not established a set process for shareholders
to send communications to the Board. Given the size of the Company and its
resources, the Board of Directors believes that this is appropriate.
INFORMATION CONCERNING EXECUTIVE OFFICERS
The Company's executive officers are elected each year by the Board of
Directors, unless the Board determines, upon appointing an officer, that he or
she shall serve for a different term. Any executive officer may be removed at
any time, with or without cause, by the Board. Biographical information with
respect to Margaret E. Grayson is provided above. See "Information Concerning
the Board of Directors." Biographical information regarding the other executive
officers of the Company is as follows:
CHRISTOPHER T. BROOK (63) has been serving as Vice President of Engineering of
the Company since April 2001. He has been with V-ONE Corporation since February
1996, most recently as Vice President, Wireless. Prior to that, he was Vice
President of Product Development. Mr. Brook was with GE Information Services,
Inc. for approximately 27 years prior to joining the Company. While with GE, Mr.
Brook held a number of technology-related positions, most recently as Manager of
Emerging Technology. Mr. Brook graduated from Clifton College (Bristol, England)
with an emphasis in Classics.
DOUGLAS M. HURT (50) is Vice President, Sales & Marketing, and has 25 years
large account experience in commercial and government information technology
sales. Mr. Hurt joined V-ONE Corporation in February 1999 as Director of Federal
Sales, was promoted to Vice President of Federal Sales in October 2000, to Vice
President of U.S. Sales in October 2001 and to Vice President, Sales & Marketing
5
in April 2002. Prior to joining the Company, Mr. Hurt was a national sales
manager for Siemens Information and Communication Corporation from 1985 through
1999, with sales responsibility for selected Department of Defense, intelligence
and civil agencies. Mr. Hurt also held sales positions with Data General
Corporation (federal sales) and Burroughs Corporation (commercial sales). He
holds a B.S. in Business Administration, Marketing from Old Dominion University.
MERLE B. MILLER (49) is Vice President, Administration and Treasurer, and has
over 25 years experience in general accounting and management information
systems, as well as customer/supplier relationships. Ms. Miller joined V-ONE
Corporation in June 2000 as Director, Business Development and was promoted to
Vice President of Administration in October 2001. Prior to joining the Company,
from March 1999 to March 2000, Ms. Miller served as Director, Operations and
Finance with Zabacom, Inc., a start-up company. Prior to that, she was with
Hayes Microcomputer Products, Inc. (formerly Access Beyond, Inc./Penril
Datability Networks) for approximately 24 years. During her tenure with Hayes,
Ms. Miller held various positions in accounting and management information
systems, culminating as Accounting/MIS Manager.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid by the Company for the last
three fiscal years to its Chief Executive Officer and the Company's other most
highly compensated executive officers whose salary plus bonus exceeded $100,000
during the year ended December 31, 2003 ("Named Executives").
ANNUAL COMPENSATION LONG-TERM
------------------- ---------
COMPENSATION
------------
AWARDS
------
Name and Securities
Principal Position Year Salary ($) Bonus($)(1) Underlying Options (#)
------------------ ---- ---------- ----------- ----------------------
Margaret E. Grayson 2003 $228,787 - 200,000 (2)
President and Chief 2002 $284,580 - 300,000 (3)
Executive Officer 2001 $275,000 $96,276 400,000 (4)
Christopher T. Brook 2003 $104,406 - 100,000 (5)
Vice President 2002 $145,626 - 100,000 (6)
Engineering 2001 $157,300 $13,147 20,000 (7)
Douglas M. Hurt 2003 $130,252 - 100,000 (8)
Vice President 2002 $142,386 - 100,000 (9)
Sales and Marketing 2001 $132,258 $7,500 20,000 (10)
Merle B. Miller 2003 $81,204 - 100,000 (11)
Vice President 2002 $111,459 - 100,000 (12)
Administration 2001 $101,597 $5,000 20,000 (13)
(1) Includes bonus paid in cash, stock or taxes in 2002 unless otherwise
provided.
(2) Represents options to purchase 200,000 shares of Common Stock at an
exercise price of $.08 per share granted under the 1998 Amended Incentive
Stock Plan ("1998 Plan"). These options vest as to 25% of the shares on
the first anniversary of the date of grant and as to an additional 25% of
the shares on the second, third and fourth anniversaries of the date of
grant. The options become fully vested in the event of a change in control
of the Company.
(3) Represents options to purchase 150,000 shares of Common Stock at an
exercise price of $.69 per share granted under the 1998 Plan and options
to purchase 150,000 shares of Common Stock at an exercise price of $.25
per share granted under the 1996 Incentive Stock Plan ("1996 Plan"). These
options vest as to 25% of the shares on the first anniversary of the date
of grant and as to an additional 25% of the shares on the second, third
and fourth anniversaries of the date of grant. The options become fully
6
vested in the event of a change in control of the Company.
(4) Represents options to purchase 300,000 shares of Common Stock at an
exercise price of $.625 per share granted under the 1998 Plan and options
to purchase 100,000 shares of Common Stock at an exercise price of $1.4062
per share granted under the 1996 Plan. These options vest as to 25% of the
shares on the first anniversary of the date of grant and as to an
additional 25% of the shares on the second, third and fourth anniversaries
of the date of grant. The options become fully vested in the event of a
change in control of the Company.
(5) Represents options to purchase 100,000 shares of Common Stock at an
exercise price of $.08 per share granted under the 1998 Plan. These
options vest as to 25% of the shares on the first anniversary of the date
of grant and as to an additional 25% of the shares on the second, third
and fourth anniversaries of the date of grant. The options become fully
vested in the event of a change in control of the Company.
(6) Represents options to purchase 50,000 shares of Common Stock at an
exercise price of $.69 per share granted under the 1998 Plan and options
to purchase 50,000 shares of Common Stock at an exercise price of $.25 per
share granted under the 1996 Plan. These options vest as to 25% of the
shares on the first anniversary of the date of grant and as to an
additional 25% of the shares on the second, third and fourth anniversaries
of the date of grant. The options become fully vested in the event of a
change in control of the Company.
(7) Represents options to purchase 20,000 shares of Common Stock at an
exercise price of $1.4062 per share granted under the 1996 Plan. These
options vest as to 25% of the shares on the first anniversary of the date
of grant and as to an additional 25% of the shares on the second, third
and fourth anniversaries of the date of grant. The options become fully
vested in the event of a change in control of the Company.
(8) Represents options to purchase 100,000 shares of Common Stock at an
exercise price of $.08 per share granted under the 1998 Plan. These
options vest as to 25% of the shares on the first anniversary of the date
of grant and as to an additional 25% of the shares on the second, third
and fourth anniversaries of the date of grant. The options become fully
vested in the event of a change in control of the Company.
(9) Represents options to purchase 50,000 shares of Common Stock at an
exercise price of $.69 per share granted under the 1998 Plan and options
to purchase 50,000 shares of Common Stock at an exercise price of $.25 per
share granted under the 1996 Plan. These options vest as to 25% of the
shares on the first anniversary of the date of grant and as to an
additional 25% of the shares on the second, third and fourth anniversaries
of the date of grant. The options become fully vested in the event of a
change in control of the Company.
(10) Represents options to purchase 20,000 shares of Common Stock at an
exercise price of $1.4062 per share granted under the 1996 Plan. These
options vest as to 25% of the shares on the first anniversary of the date
of grant and as to an additional 25% of the shares on the second, third
and fourth anniversaries of the date of grant. The options become fully
vested in the event of a change in control of the Company.
(11) Represents options to purchase 100,000 shares of Common Stock at an
exercise price of $.08 per share granted under the 1998 Plan. These
options vest as to 25% of the shares on the first anniversary of the date
of grant and as to an additional 25% of the shares on the second, third
and fourth anniversaries of the date of grant. The options become fully
vested in the event of a change in control of the Company.
(12) Represents options to purchase 50,000 shares of Common Stock at an
exercise price of $.69 per share granted under the 1998 Plan and options
to purchase 50,000 shares of Common Stock at an exercise price of $.25 per
share granted under the 1996 Plan. These options vest as to 25% of the
shares on the first anniversary of the date of grant and as to an
additional 25% of the shares on the second, third and fourth anniversaries
of the date of grant. The options become fully vested in the event of a
change in control of the Company.
(13) Represents options to purchase 10,000 shares of Common Stock at an
exercise price of $1.4062 per share and options to purchase 10,000 shares
of Common Stock at an exercise price of $1.62 per share, granted under the
1996 Plan. These options vest as to 25% of the shares on the first
anniversary of the date of grant and as to an additional 25% of the shares
on the second, third and fourth anniversaries of the date of grant. The
options become fully vested in the event of a change in control of the
Company.
7
STOCK OPTIONS GRANTED
The following tables set forth further information regarding the grant of
options to the Named Executives of the Company in 2003. No stock appreciation
rights were granted to any Named Executive during 2003.
Individual Grants Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Option Term
---------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (#) Year ($/Sh) (1) Date 5% 10%
-------------------------------------------------------------------------------------------------------
Margaret E. Grayson 200,000 22% $.08 1/31/2013 $10,062 $25,500
Christopher T. Brook 100,000 11% $.08 1/31/2013 $5,031 $12,750
Douglas M. Hurt 100,000 11% $.08 1/31/2013 $5,031 $12,750
Merle B. Miller 100,000 11% $.08 1/31/2013 $5,031 $12,750
(1) Represents fair market value on date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 2003 OPTION
VALUES
The following table summarizes the value realized upon exercise of
outstanding stock options and the value of the outstanding options held by the
Named Executives at December 31, 2003.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 31, December 31,
Acquired 2003 (#) 2003 ($) (1)
on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------- ------------- -------------
Margaret E. Grayson 0 0 728,750/701,250 0/0
Christopher T. Brook 0 0 120,550/191,850 0/0
Douglas M. Hurt 0 0 62,500/187,500 0/0
Merle B. Miller 0 0 52,250/190,750 0/0
(1) Based on the closing sales price of $.15 on Tuesday, December 31, 2003.
RELATED TRANSACTIONS
In July and August 2002, the Company closed on approximately $1,188,000 in
a private placement of 8% Secured Convertible Notes with detachable warrants,
due 180 days after issuance with an additional 180-day extension available at
the option of the Company or the note holders. The note holders may convert
their notes at any time into the Company's Common Stock at a conversion price
equal to the greater of $0.25 per share or 60% of the average closing sales
price of the Company's Common Stock for the five trading day period immediately
preceding the Company's receipt of the note holders notification of conversion.
Detachable five year warrants, exercisable at $0.50 per share, are included to
provide 100% warrant coverage to the note holders. In January 2003, in
connection with its efforts to raise capital, the Company agreed to adjust the
exercise price of the warrants from $0.50 per share to $0.15 per share. Ms.
Grayson, Mr. Heiden and General Odom participated in the private placement of
the notes in the amounts of $25,000, $25,000 and $10,000, respectively. Each
immediately converted his or her notes into Common Stock. In November 2003,
General Odom exercised the warrant attached to his note. In December 2003, Ms.
8
Grayson exercised the warrant attached to her note. Mr. Heiden has not exercised
the warrant attached to his note.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2003 with respect to
the shares of the Company's Common Stock that may be issued under the Company's
existing equity compensation plans.
A B C
Number of Number of Securities
Securities to be Remaining Available for
Issued upon Future Issuance Under
Exercise of Weighted Average Equity Compensation Plans
Outstanding Exercise Price of (Excluding Securities
Plan Category Options (2) Outstanding Options Reflected in Column A)
------------- ---------------------------------------------------------------------
Equity Compensation Plans Approved by Shareholders (1) 4,908,532 $0.57 3,584,012
Equity Compensation Plans Not Approved by Shareholders - - -
---------------------------------------------------------------------
Total 4,908,532 $0.57 3,584,012
---------------------------------------------------------------------
(1) Consists of the Company's 1995 Stock Option Plan, 1996 Incentive Stock Plan, 1998 Amended Incentive Stock Plan and 2001 Employee
Stock Purchase Plan.
(2) Excludes purchase rights accruing under the Company's 2001 Employee Stock Purchase Plan (the "Purchase Plan") which has a
shareholder approved reserve of 2,500,000 shares. Under the Purchase Plan, each eligible employee may purchase shares of Common
stock at quarterly intervals at a purchase price per share equal to 85% of the lower of (i) the fair market value of Common
Stock on the first day of the quarterly offering period or (ii) the fair market value of Common Stock on the last day of the
quarterly offering period.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
In June 1996, the Board established the Compensation Committee, which
makes recommendations concerning the compensation arrangements for all directors
and executive officers. In 2003, the Compensation Committee consisted of Mr.
Heiden and General Odom, both independent directors. The Compensation Committee
met once in 2003.
Compensation for executive officers currently consists primarily of base
salary, cash and stock bonuses and grants of stock options pursuant to the
Company's stock option plans. Base salaries are determined by evaluating the
responsibilities of the position and the experience and knowledge of the
individual. Bonuses and annual salary adjustments, if any, are determined by
evaluating performance taking into account such factors as achievement of the
Company's strategic goals, assumption of additional responsibilities, attainment
of specific individual objectives, and the compensation paid to other senior
executives in the Company's industry. The Compensation Committee believes that
stock ownership by management is especially beneficial in aligning the interests
of management and shareholders in the Company.
Grants of Company stock options are intended to align the interest of
executives, key employees and others with the long-term interests of the
Company's shareholders and to encourage executives and key employees to remain
with the Company. The Board initially authorized the Compensation Committee to
grant stock options to key employees and others under the Company's stock option
plans. Currently, the Board is administering the Company's stock option plans
and Ms. Grayson recommends to the Board levels of stock option grants based upon
the same factors as those used for bonus and salary adjustments.
Bonus.
-----
Bonus compensation of the Chief Executive Officer and other Named
Executives is tied to certain performance goals reasonably established from time
to time by the Company. On March 25, 2004 the Board of Directors determined that
no performance bonuses would be paid for the year ended December 31, 2003.
9
Section 162(m).
--------------
Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code"),
imposes a limitation on the deductibility of nonperformance-based compensation
in excess of $1 million paid to the Named Executives. Currently, no executive
officer of the Company is paid compensation in excess of $1 million per year and
it is not anticipated that any executive officer will be paid in excess of $1
million in 2004. The Company's 1998 Incentive Stock Plan and 1996 Incentive
Stock Plan provide for awards that can be made in compliance with Section
162(m).
SUBMITTED BY THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
Heidi B. Heiden
William E. Odom
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 2003, the Company's Compensation Committee consisted of Heidi B. Heiden
and William E. Odom.
The Company has adopted a policy providing that all material transactions
(other than compensation arrangements that must be approved by the Compensation
Committee) between the Company and its directors, officers and other affiliates
(i) must be approved by a majority of the disinterested members of the Board or
a committee thereof (following disclosure to the Board of the material facts of
the relationship and the transaction), and (ii) must be on terms no less
favorable to the Company than can be obtained from unaffiliated third parties.
In July and August 2002, the Company closed on approximately $1,188,000 in
a private placement of 8% Secured Convertible Notes with detachable warrants,
due 180 days after issuance with an additional 180-day extension available at
the option of the Company or the note holders. The note holders may convert
their notes at any time into the Company's Common Stock at a conversion price
equal to the greater of $0.25 per share or 60% of the average closing sales
price of the Company's Common Stock for the five trading day period immediately
preceding the Company's receipt of the note holders notification of conversion.
Detachable five year warrants, exercisable at $0.50 per share, are included to
provide 100% warrant coverage to the note holders. In January 2003, in
connection with its efforts to raise capital, the Company agreed to adjust the
exercise price of the warrants from $0.50 per share to $0.15 per share. Ms.
Grayson, Mr. Heiden and General Odom participated in the private placement of
notes in the amounts of $25,000, $25,000 and $10,000, respectively. Each
immediately converted his or her notes into Common Stock. In November 2003,
General Odom exercised the warrant attached to his note. In December 2003, Ms.
Grayson exercised the warrant attached to her note. Mr. Heiden has not exercised
the warrant attached to his note.
STOCK PERFORMANCE GRAPH
The following graph compares the change in the Company's total return on
its Common Stock with (i) the change in the total return on the stock included
in the CRSP Total Return Index for the Nasdaq Stock Market (U.S.) and (ii) the
change in the total return on the stocks included in the Company's peer group.
The companies in the peer group are Check Point Software Technologies Ltd., RSA
Security, Inc., Cyberguard Corporation and SafeNet, Inc. The peer group as
previously reported included Cylink Corporation which was acquired by SafeNet,
Inc. on February 6, 2003. The Company has replaced Cylink Corporation with
Cyberguard Corporation for its peer group and has provided information beginning
in 1998.
These comparisons assume an investment of $100 made on December 31, 1998
and compare relative values on an annual basis for the years ended December 31,
1999, 2000, 2001, 2002 and 2003. All of these total returns are computed
assuming the reinvestment of dividends at the frequency with which dividends
were paid during this period. The Common Stock price performance shown below
should not be viewed as being indicative of future performance.
10
[GRAPH OMITTED]
SOURCES: NASDAQ DEC. 1998 DEC. 1999 DEC. 2000 DEC. 2001 DEC. 2002 DEC. 2003
V-ONE CORPORATION $100 $168 $18 $41 $5 $3
NASDAQ TOTAL RETURN INDEX $100 $262 $158 $125 $61 $49
PEER GROUP (4 COMPANIES) $100 $324 $378 $125 $87 $38
EMPLOYMENT AGREEMENTS
The Company originally entered into an employment agreement with Ms.
Grayson in July 1999 when she was the Company's Senior Vice President and Chief
Financial Officer. In November 2000, the Board of Directors elected Ms. Grayson
President and Chief Executive Officer and extended her employment agreement. The
employment agreement has a one-year term and is automatically renewed for
additional one-year terms on the anniversary date and each successive
anniversary date thereafter. However, either the Company or Ms. Grayson may
serve written notice of an intention not to renew not less than 90 days prior to
the expiration of the then current term, in which case the employment agreement
terminates on such termination date. In June 2002, Ms. Grayson assumed the
responsibilities of Principal Financial Officer in addition to those of
President and Chief Executive Officer. Effective July 15, 2002, Ms. Grayson's
employment agreement was amended to reduce her base salary from $300,000 to
$200,000 plus 2% of the Company's gross revenues. Ms. Grayson's base salary is
subject to periodic review by the Board and may be increased at the Board's
discretion. Under the employment agreement, Ms. Grayson is eligible for a cash
bonus if the Company meets certain performance objectives as outlined in the
Report of the Compensation Committee on Executive Compensation.
If the Company terminates Ms. Grayson's employment for cause, she is not
entitled to any severance payment. Ms. Grayson is deemed to be terminated for
cause if, in the reasonable determination of the Board, she, among other things,
is convicted of a felony or a crime involving moral turpitude, participates in a
fraud against the Company, or willfully discloses the Company's trade secrets or
other confidential information to any of its competitors. If the Company
terminates Ms. Grayson's employment other than for cause (or fails to renew the
employment agreement other than for cause), Ms. Grayson receives a severance
payment equal to one year's salary plus any projected bonus that would have been
paid during that year, and all options previously granted become immediately
exercisable.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock to file initial reports of ownership and reports of changes in ownership
with the SEC. Directors, executive officers and greater than 10% shareholders
(collectively, "Reporting Persons") are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
11
Based solely on review of the copies of such forms provided to the Company
and written representations by the Reporting Persons, the Company believes that,
for the year ended December 31, 2003, all Section 16(a) filing requirements
applicable to the Reporting Persons were met.
AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO EFFECT A
ONE-FOR-TWO REVERSE STOCK SPLIT OF COMMON STOCK
(PROPOSAL 2)
The Company's Board of Directors has unanimously adopted resolutions to
approve, and to submit to shareholders for approval, a reverse stock split of
the Company's outstanding shares of Common Stock, $0.001 par value ("Old Common
Stock"), on the basis of combining two shares of Old Common Stock into one share
of new Common Stock. Subject to the approval of shareholders, the foregoing
action would be effected by an amendment to the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Amendment"). The Company has
decided not to reduce the authorized number of shares of Common Stock so that it
will continue to have an adequate number of shares available for future
issuance, as required.
The form of the proposed Certificate of Amendment to effect the reverse
stock split is attached to this Proxy Statement as Appendix A. Assuming adoption
of the proposal, a Certificate of Amendment amending the Amended and Restated
Certificate of Incorporation will be filed with the Secretary of State of the
State of Delaware as promptly as practicable following shareholder approval at
the annual meeting of shareholders. The amendment and the proposed reverse stock
split would become effective as of the date of such filing.
GENERAL
The Company is presently authorized to issue 75,000,000 shares of Old
Common Stock, of which 30,284,045 shares were outstanding and 27,686,240 shares
were reserved for issuance at March 31, 2004. If this Proposal 2 were approved,
the Company would have 75,000,000 shares of Common Stock, $0.001 par value ("New
Common Stock"), authorized, of which, as of March 31, 2004, approximately
15,142,023 shares would have been outstanding, and 13,843,120 shares would have
been reserved for issuance.
In addition to Common Stock, the Amended and Restated Certificate of
Incorporation authorizes the issuance of 13,333,333 shares of preferred stock,
$0.001 par value (the "Preferred Stock"). At March 31, 2004, there were
3,063,904 shares of Preferred Stock issued and outstanding and 10,269,429 shares
of Preferred Stock were available for future issuance. The authorized and
outstanding number of shares of Preferred Stock, the par value thereof and the
number of shares of Preferred Stock available for future issuance will not
change as a result of approval of this Proposal 2.
PRINCIPAL EFFECTS OF THE PROPOSED REVERSE STOCK SPLIT
Based upon the 30,284,045 shares of Old Common Stock outstanding at March
31, 2004, the proposed one-for-two reverse stock split would decrease the
outstanding shares of Common Stock by 50%, and immediately thereafter 15,142,023
shares of New Common Stock would be outstanding. The proposed reverse stock
split will not affect any common shareholder's proportionate equity interest in
the Company, subject to the provisions relating to the elimination of fractional
shares as described below.
At March 31, 2004, there were outstanding options to purchase an aggregate
of 5,917,532 shares of Old Common Stock under the Company's stock option and
stock purchase plans. An aggregate of 64,124 shares were available for grant
under the Company's stock option plans and an aggregate of 2,372,588 shares were
available for issuance under the Company's stock purchase plan. The Company has
reserved 8,354,244 shares for issuance upon the exercise of the options granted
under the stock option and stock purchase plans and upon exercise of options
that may be granted in the future. The Company's stock option and stock purchase
plans provide for adjustment in the event of a reverse stock split so that the
amount of shares issuable upon exercise of outstanding options, the number of
shares available for grant and the number of shares reserved for issuance will
be reduced to one-half of the amount issuable prior to the effective date of the
reverse stock split, and the exercise prices of the granted options would become
twice the present exercise prices.
At March 31, 2004, there were outstanding warrants to purchase an
aggregate of 9,477,663 shares of Old Common Stock and 9,477,663 shares of Old
12
Common Stock were reserved for issuance at such date for the warrants. The
provisions of the relevant instruments pursuant to which the warrants were
issued provide for automatic adjustment in the event of a reverse stock split so
that the amount of shares issuable upon exercise of the warrants will be reduced
to one-half of the amount issuable prior to the effective date of the reverse
stock split, and the exercise prices will become twice the present exercise
prices. Accordingly, 4,738,832 shares of New Common Stock will be reserved for
issuance on the effective date of the reverse stock split for the warrants.
At March 31, 2004, there were outstanding debt and equity securities
convertible into 9,854,333 shares of Old Common Stock and 9,854,333 shares of
Old Common Stock were reserved for issuance at such date for the convertible
securities. The provisions of the relevant instruments pursuant to which the
convertible securities were issued provide for automatic adjustment in the event
of a reverse stock split so that the amount of shares issuable upon conversion
of such securities will be reduced to one-half of the amount issuable prior to
the effective date of the reverse stock split, and the conversion prices will
become twice the present conversion prices. Accordingly, 4,927,167 shares of New
Common Stock will be reserved for issuance on the effective date of the reverse
stock split for the convertible securities. The Company's outstanding
convertible equity securities bear cumulative compounding dividends that may be
paid in cash, or at the option of the Company, in shares of Common Stock at the
fair market value at the declaration date. At the price per share at March 31,
2004 of $.289, the dividends payable on such securities, if paid in shares of
Common Stock, totaled 8,711,990 shares.
POTENTIAL ANTI-TAKEOVER EFFECT
While the increased proportion of unissued authorized shares to issued
shares could, under certain circumstances, have an anti-takeover effect (for
example, by permitting issuances that would dilute the stock ownership of a
person seeking to effect a change in the composition of the Company's Board of
Directors or contemplating a tender offer or other transaction for the
combination of the Company with another company), the reverse stock split
proposal is not being proposed in response to any effort of which the Company is
aware to accumulate the Company's shares of Common Stock or obtain control of
the Company, nor is it part of a plan by management to recommend a series of
similar amendments to the Company's Board and shareholders. Other than the
reverse stock split proposal, the Board of Directors does not currently
contemplate recommending the adoption of any other amendments to the Company's
Amended and Restated Certificate of Incorporation that could be construed to
affect the ability of third parties to take over or change the control of the
Company.
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT
The principal reason for the reverse stock split is that the relatively
low per share market price of the Old Common Stock impairs the acceptability of
the Old Common Stock to institutional investors and other members of the
investing public. Theoretically the number of shares outstanding should not, by
itself, affect the marketability of the Old Common Stock, the type of investor
who acquires it, or the Company's reputation in the financial community. In
practice this is not necessarily the case, as many institutional investors look
upon low-priced stock as unduly speculative in nature and, as a matter of
policy, avoid investment in such stock. Also, many leading brokerage firms are
reluctant to recommend low-priced stock to their clients, and a variety of
brokerage house policies and practices tend to discourage individual brokers
within those firms from dealing in low-priced stocks. Some of those policies and
practices pertain to the payment of brokers' commissions and to time-consuming
procedures that function to make the handling of low-priced stock unattractive
to brokers from an economic standpoint. The structure of trading commissions
also tends to have an adverse impact upon holders of low-priced stock because
the brokerage commission on a sale of low-priced stock generally represents a
higher percentage of the sales price than the commission on a relatively higher
priced stock. In addition, option and derivative instrument exchanges prohibit
contracts on stocks selling for under certain prices per share.
In addition, the reverse stock split, in combination with the Company's
determination not to reduce the authorized number of shares of Common Stock
under its Amended and Restated Certificate of Incorporation, will increase the
number of authorized shares of Common Stock available for issuance to meet
various business needs as they may arise and to enhance the Company's
flexibility in connection with possible future actions. Those business needs and
actions may include additional financing, stock dividends, stock splits,
employee benefit programs, corporate business combinations and other corporate
purposes. While the Company currently has no arrangements, understandings or
commitments with respect to the issuance of any additional shares of Common
Stock, it is considered advisable to have sufficient authorized and unissued
shares available to enable the Company, as the need may arise, to move promptly
to take advantage of market conditions and the availability of other favorable
opportunities without the delay and expense involved in calling a special
meeting of shareholders. Unless otherwise required by applicable law or
regulation, the additional shares of Common Stock will be issuable without
further authorization by vote or consent of the shareholders and on such terms
and for such consideration as may be determined by the Board of Directors.
13
Although the reverse stock split is designed to result in a per share
market price of the Common Stock equal to two times the market price immediately
preceding the reverse stock split, some investors may view the reverse stock
split negatively since it reduces the number of shares available in the public
market and could have an adverse effect on the liquidity of the Common Stock,
which could result in an actual per share market price of less than two times
the market price immediately preceding the reverse stock split. In addition,
other reasons such as the Company's financial results, market conditions, the
market perception of the Company's business and other factors may adversely
affect the market price of the Common Stock. As a result, there can be no
assurances that the reverse stock split, if completed, will result in the
benefits described above, or that the per share market price of the Common Stock
will not decline in the future.
Although the reverse stock split would not, by itself, affect the
Company's assets or prospects, the reverse stock split could result in a
decrease in the Company's aggregate market capitalization due to a decrease in
the market price of the Common Stock following the effective date. Also, if
approved and implemented, the reverse stock split may result in some
shareholders owning "odd lots" of less than 100 shares of Common Stock. Odd lot
shares may be more difficult to sell, and brokerage commissions and other costs
of transactions in odd lots are generally somewhat higher than the costs of
transactions in "round lots" of even multiples of 100 shares. The Board of
Directors believes, however, that these potential effects are outweighed by the
benefits of the reverse stock split.
ACCOUNTING MATTERS
The reverse stock split will not affect the par value of the Company's Common
Stock. As a result, on the effective date of the reverse stock split, the
Company will reduce the balance of its Common Stock account in the equity
section of its balance sheet down to 50% of its present amount, and increase the
additional paid-in capital account by the same amount. The Company will also
proportionately increase the per share loss and net book value of its Common
Stock because there will be fewer shares of Common Stock outstanding.
EXCHANGE OF STOCK CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
Commencing on the effective date of the reverse stock split, each Old
Common Stock certificate will be deemed for all corporate purposes to evidence
ownership of the reduced number of shares of New Common Stock resulting from the
reverse stock split. As soon as practicable after the effective date of the
reverse stock split, the Company will notify its shareholders that the reverse
stock split has been effected. The Company expects that its transfer agent,
American Stock Transfer Company, will act as exchange agent for purposes of
implementing the exchange of stock certificates. Holders of shares of Old Common
Stock will be asked to surrender to the exchange agent certificates representing
shares of Old Common Stock in exchange for certificates representing shares of
New Common Stock in accordance with the procedures to be set forth in a letter
of transmittal the Company will send to its shareholders. No new certificates
will be issued to any shareholder until the shareholder has surrendered such
shareholder's outstanding certificate(s), together with the properly completed
and executed letter of transmittal, to the exchange agent. Any shares of Old
Common Stock submitted for transfer, whether pursuant to a sale, other
disposition or otherwise, will automatically be exchanged for shares of New
Common Stock.
The Company would not issue fractional shares or scrip in connection with
the reverse stock split. If a shareholder would otherwise be entitled to receive
fractional shares because the shareholder holds a number of shares not evenly
divisible by two, such shareholder would instead receive cash upon surrender of
the certificates as described in the paragraph above. The cash amount would
equal the resulting fractional interest multiplied by the closing trading price
of the Company's Common Stock on the effective date of the reverse stock split
(as adjusted for the reverse stock split, if the trading price has not yet given
effect to the reverse split).
APPRAISAL AND DISSENTER'S RIGHTS
Under the Delaware General Corporation Law, the Company's shareholders are
not entitled to dissenter's rights with respect to the reverse stock split, and
the Company will not independently provide shareholders with any such right.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences of the
reverse stock split is based on the Internal Revenue Code of 1986, as amended,
the applicable Treasury Regulations promulgated thereunder, judicial authority
and current administrative rulings and practices as in effect on the date of
this Proxy Statement, all of which are subject to change (possibly with
retroactive effect) and to differing interpretations. It generally applies to
U.S. persons that hold this stock as a capital asset for federal income tax
purposes. This discussion is for general information only and does not address
all the tax consequences that may be relevant to shareholders in light of their
particular tax circumstances or to shareholders who may be subject to special
tax treatment (including, without limitation, shareholders who hold this stock
14
as part of a straddle, hedge, conversion or other risk reduction transaction,
persons who have a functional currency other than the U.S. dollar, foreign
persons, broker-dealers, tax-exempt organizations, financial institutions,
insurance companies, holders of warrants or those shareholders who acquired this
stock pursuant to the exercise of compensatory stock options or otherwise as
compensation). We have not sought, and will not seek, an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the reverse stock split. Furthermore, no foreign, state or local
tax consequences are discussed herein. ACCORDINGLY, EACH SHAREHOLDER IS URGED TO
CONSULT ITS, HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE REVERSE STOCK SPLIT TO SUCH HOLDER.
Except with respect to any cash received for fractional shares, the
reverse stock split should be treated as a tax-free recapitalization for the
Company and its shareholders. The combination of shares of Old Common Stock into
shares of New Common Stock should not result in recognition of gain or loss to
shareholders except to the extent of cash, if any, received in lieu of
fractional shares. See "Cash in Lieu of Fractional Shares" below. The aggregate
tax basis of the New Common Stock held immediately after the reverse stock split
should be equal to the aggregate tax basis of the Old Common Stock exchanged
therefore, reduced by the basis allocable to any fractional shares that the
shareholder is treated as having sold for cash. See "Cash in Lieu of Fractional
Shares" below. The holding period of the New Common Stock should include the
holding period of the Old Common Stock.
No gain or loss should be recognized by the Company as a result of the
reverse stock split.
CASH IN LIEU OF FRACTIONAL SHARES. A holder of Old Common Stock who
receives cash in lieu of a fractional share of New Common Stock generally should
be treated as having received such fractional share pursuant to the reverse
stock split and then as having sold it. The amount of any gain or loss should be
equal to the difference between the ratable portion of the tax basis of the Old
Common Stock exchanged in the reverse stock split that is allocated to such
fractional share and the cash received in lieu thereof. Any such gain or loss
should constitute long-term capital gain or loss if such Old Common Stock shares
have been held by the holder for more than one year at the time of the reverse
stock split.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE REVERSE STOCK SPLIT
AS SET FORTH ABOVE.
AMENDMENT TO 1998 AMENDED INCENTIVE STOCK PLAN
(PROPOSAL 3)
At the March 25, 2004 meeting of the Board of Directors, the Board
approved an amendment to the Company's 1998 Amended Incentive Stock Plan (the
"1998 Plan") to increase the maximum number of shares of Common Stock reserved
for issuance under the 1998 Plan from 5,000,000 shares to 6,000,000 shares. The
Board approved this amendment in order to allow it to continue to provide
long-term incentives to employees and consultants to the Company. A copy of the
proposed amended 1998 Plan is attached to this Proxy Statement as Appendix B and
the description of the 1998 Plan is qualified by reference to Appendix B. A
summary of the 1998 Plan follows.
SUMMARY
The Board adopted the 1998 Plan in February 1998 and the Company's
shareholders approved it in May 1998. In June 2000, after Board recommendation
and shareholder approval, the Company amended the 1998 Plan to increase the
maximum number of shares of Common Stock reserved for issuance under the 1998
Plan from 2,500,000 shares to 5,000,000 shares. The Company is currently
soliciting shareholder approval of an amendment to the 1998 Plan to increase the
maximum number of shares of Common Stock reserved for issuance under the 1998
Plan from 5,000,000 shares to 6,000,000 shares. The Company is seeking this
approval so that, among other reasons, the 1998 Plan complies with the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended,
and the Company's ability to deduct compensation paid to executive officers
under the 1998 Plan is preserved. The proposed amendment to the 1998 Plan will
not be effective unless and until it is approved by the Company's shareholders.
PURPOSE
The purpose of the 1998 Plan is to advance the interests of the Company by
encouraging and providing for the acquisition of an equity interest in the
Company by non-employee directors, officers, key employees and consultants
through the grant of awards with respect to shares of Common Stock. The 1998
Plan enables the Company to retain the services of non-employee directors,
officers, key employees and consultants upon whose judgment, interest, and
special effort the successful conduct of its operations are largely dependent
and to compete effectively with other enterprises for the services of
non-employee directors, officers, key employees and consultants as may be needed
for the continued improvement of its business. The consideration for issuance of
the awards is the continued services of the non-employee directors, officers,
15
key employees and consultants to the Company. The 1998 Plan is not subject to
the provisions of the Employee Retirement Income Security Act of 1974, as
amended.
AWARDS AVAILABLE UNDER THE 1998 PLAN
Pursuant to the 1998 Plan, 5,000,000 shares of Common Stock were reserved
for future issuance by the Company to non-employee directors, officers, key
employees and consultants through the grant of incentive stock options and
non-qualified stock options to purchase Common Stock of the Company and
restricted share awards. Such shares of Common Stock may be newly issued or
treasury shares and have an aggregate market value of approximately $1,344,000
based on the price per share at March 31, 2004 of $.289. As of March 31, 2004,
options for 4,651,465 shares of Common Stock were granted under the 1998 Plan.
In the event the purchase price of an option is paid or tax or withholding
payments relating to an award are satisfied, in whole or in part through the
delivery of shares of Common Stock, a participant is deemed to have received an
award with respect to those shares of Common Stock. The Common Stock covered by
any unexercised portions of terminated options, shares of Common Stock forfeited
and shares of Common Stock subject to awards that are otherwise surrendered by a
participant without receiving any payment or other benefit with respect thereto
may again be subject to new awards under the 1998 Plan.
Awards to officers, key employees and consultants under the 1998 Plan may
take the form of both stock options and restricted share awards; however, no
employee may receive awards with respect to more than 500,000 shares of Common
Stock under the 1998 Plan. As of March 31, 2004, approximately 29 directors,
officers and employees were eligible to receive awards under the 1998 Plan.
Awards under the 1998 Plan may be granted alone or in combination with other
awards. Non-employee directors may only receive non-discretionary stock option
awards (described in more detail below) under the 1998 Plan.
1998 PLAN ADMINISTRATION
The 1998 Plan may be administered by a committee of the Board
("Committee") or the Board. If the Committee administers the 1998 Plan, the
Committee must be composed of at least two directors of the Company, each of
whom is a "non-employee director" as defined in Rule 16b-3, as promulgated by
the SEC under the Exchange Act, and an "outside director" within the meaning of
Section 162(m) of the Code. If, however, at least two of the Company's directors
are not both "non-employee directors" and "outside directors," the Plan is
administered by the Board. The 1998 Plan is currently administered by the Board.
The Committee or the Board determines, among other things, the officers,
key employees and consultants who are eligible for and granted awards,
determines the amount and type of awards, determines the duration of the options
(which may not exceed ten years), establishes rules and guidelines relating to
the 1998 Plan, establishes, modifies and terminates terms and conditions of
awards and takes such other action as may be necessary for the proper
administration of the 1998 Plan.
STOCK OPTIONS
Stock options ("Incentive Stock Options") meeting the requirements of
Section 422 of the Code and stock options that do not meet such requirements
("Non-Qualified Options") are both available for grant under the 1998 Plan. The
term of each option is determined by the Committee or the Board, but no option
may be exercisable more than ten years after the date of grant. Options are
subject to restrictions on exercise, such as exercise in periodic installments,
as determined by the Committee or the Board. The exercise price for an Incentive
Stock Option must be at least 100% of the fair market value of a share of Common
Stock on the date of grant of such option (and 110% in the case of Incentive
Stock Options granted to a shareholder who owns in excess of 10% of the
Company's voting stock). There is no minimum exercise price for Non-Qualified
Options (other than par value per share). The exercise price is payable in cash,
in shares of Common Stock owned by a participant for at least six months, with
respect to Non-Qualified Options only, a promissory note payable to the Company,
or by cashless exercise with a participant's broker, as determined by the
Committee or the Board.
Stock options granted under the 1998 Plan are not transferable except by
will or the laws of descent and distribution. Unless otherwise provided in the
relevant option agreement, options may only be exercisable within three months
of any termination of employment (and then only to the extent the option was
exercisable on the date of termination of employment) other than termination for
"cause" or termination due to death or disability. Unless otherwise provided in
the relevant option agreement, options may be exercisable in full (unless
previously exercised) by a participant or beneficiary, as the case may be,
within one year of a termination of employment by reason of death or disability.
16
If a participant's employment is terminated for "cause," his or her options will
no longer be exercisable after the date of such termination of employment unless
the option agreement provides otherwise. In no event, however, may an option be
exercised after the end of its term.
The Committee or the Board may provide that, if a participant surrenders
already owned shares of Common Stock in full or partial payment of an option,
then, concurrent with such surrender, the participant, subject to the
availability of shares of Common Stock under the 1998 Plan, will be granted a
new Non-Qualified Option (a "Reload Option") covering a number of shares of
Common Stock equal to the number so surrendered. A Reload Option may be granted
in connection with the exercise of an option that is itself a Reload Option.
Each Reload Option will have the same expiration date as the original option and
an exercise price equal to the fair market value of the Company's shares of
Common Stock on the date of grant of the Reload Option. A Reload Option is
exercisable immediately or at such time or times as the Committee or Board
determines and will be subject to such other terms and conditions as the
Committee or the Board may prescribe.
RESTRICTED SHARES
The Committee or the Board may award restricted shares to a participant.
Such a grant gives a participant the right to receive shares of Common Stock
subject to a risk of forfeiture based upon certain conditions. The forfeiture
restrictions on the shares of Common Stock may be based upon performance
standards, length of service, or other criteria as the Committee or the Board
may determine. Until all restrictions are satisfied, lapsed, or waived, the
Company will maintain control over the restricted shares but the participant
will be able to vote the shares of Common Stock and generally will be entitled
to dividends on the shares of Common Stock. Upon termination of employment, the
participant generally forfeits the right to the shares of Common Stock to the
extent the applicable performance standards, length of service requirements or
other measurement criteria have not been met.
NON-EMPLOYEE DIRECTOR OPTIONS
The 1998 Plan provides for the automatic grant of a Non-Qualified Option
to purchase 10,000 shares of Common Stock to each non-employee director on the
date he or she is elected to the Board by the Company's shareholders. In
addition, if a non-employee director receives, after the effective date of the
1998 Plan, an option to purchase shares of Common Stock under the Company's 1996
Incentive Stock Plan, the number of shares subject to the option granted under
the 1998 Plan will be reduced by the number of shares covered by the option
granted under the 1996 Incentive Stock Plan.
The option price of a non-employee director option granted under the 1998
Plan is the fair market value of a share of Common Stock on the date of grant of
such option. All such options have a five-year term and are exercisable in full
on the date of grant.
If a non-employee director's service with the Company terminates by reason
of death, his or her option may be exercised for a period of one year from the
date of death or until the expiration of the option, whichever is shorter. If a
non-employee director's service with the Company terminates other than by reason
of death, his or her option may be exercised for a period of three months from
the date of such termination, or until the expiration of the stated term of the
option, whichever is shorter.
CHANGE IN CONTROL
Upon the occurrence of a change in control of the Company, all options
become immediately exercisable, to the extent not previously exercised, and all
restrictions on restricted shares lapse. A change in control includes:
(i) approval of the Company's shareholders of a consolidation or merger of
the Company with any third party, unless the Company is the entity surviving
such merger or consolidation;
(ii) approval of the Company's shareholders of a transfer of all or
substantially all of the assets of the Company to a third party or a complete
liquidation or dissolution of the Company;
(iii) a third party (other than James F. Chen and his affiliates or
Advantage Fund Limited, Advantage Fund II Ltd. and/or their affiliates),
directly or indirectly, through one or more subsidiaries or transactions or
acting in concert with one or more persons or entities: (a) acquiring any
combination of beneficial ownership of the Company's voting stock and
irrevocable proxies representing more than 20% of the Company's voting stock,
(b) acquiring the ability to control in any manner the election of a majority of
the directors of the Company or (c) acquiring the ability to directly or
indirectly exercise a controlling influence over the management or policies of
the Company;
17
(iv) any election of persons to the Board that causes a majority of such
Board to consist of persons other than (a) persons who were members of the Board
on February 2, 1998 and/or (b) persons who were nominated for election as
members of the Board by the Board (or a committee of the Board) at a time when
the majority of the Board (or of such committee) consisted of persons who were
members of the Board on February 2, 1998; or
(v) a determination made by the SEC or any similar agency having
regulatory control over the Company that a change in control, as defined in the
securities laws or regulations then applicable to the Company, has occurred.
TERMINATION AND AMENDMENT
The 1998 Plan will remain in effect until February 2, 2008 unless
terminated earlier by the Board. The Board may amend or terminate the 1998 Plan
and the Committee or the Board may amend or alter the terms of awards under the
1998 Plan but no such action shall affect or in any way impair the rights of a
participant under any award previously granted without such participant's
consent. No amendment may be made, without shareholder approval, that would
require shareholder approval under any applicable law or rule unless the Board
determines that compliance with such law or rule is no longer desired.
ANTIDILUTION PROVISIONS
The number of shares of Common Stock authorized to be issued under the
1998 Plan and subject to outstanding awards (and the purchase or exercise price
thereof), the number of non-employee director options and the per employee limit
on awards will be adjusted to prevent dilution or enlargement of rights in the
event of any stock dividend, stock split, combination or exchange of shares,
merger, consolidation or other change in capitalization with a similar
substantive effect upon the 1998 Plan or the awards.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of awards under the 1998 Plan based upon current federal income tax
laws.
A participant is not generally subject to federal income tax either at the
time of grant or at the time of exercise of an Incentive Stock Option. However,
upon exercise, the difference between the fair market value of the shares of
Common Stock and the exercise price may be includable in the participant's
alternative minimum taxable income. If a participant does not dispose of shares
of Common Stock acquired through the exercise of an Incentive Stock Option
within one year after their receipt and within two years after the date of the
option's grant, any gain or loss upon the disposition will be taxed as long-term
capital gain or loss.
The Company will not receive any tax deduction on the exercise of an
Incentive Stock Option or, if the holding requirements are met, on the sale of
the underlying shares of Common Stock. If a disqualifying disposition occurs
(I.E., one of the holding requirements is not met), the participant will be
treated as receiving compensation subject to ordinary income tax in the year of
the disqualifying disposition, and the Company will be entitled to a deduction
for compensation expense in an amount equal to the amount the participant
includes in income. In such event, the amount includable in the participant's
income (and deductible by the Company) generally will be equal to the difference
between the fair market value of the shares of Common Stock at the time of
exercise and the exercise price or, if less, the gain the participant realized
on the sale of the shares. Any appreciation in value after the time of exercise
will be taxed as long-term or short-term capital gain (depending on how long the
shares are held after exercise) and will not result in any additional deduction
by the Company.
There are no federal income tax consequences to participants at the time
of grant of a Non-Qualified Option. Upon exercise of the option, the participant
must pay tax on ordinary income equal to the difference between the exercise
price and the fair market value of the underlying shares on the date of
exercise. The Company will receive a commensurate tax deduction at the time of
exercise. Any appreciation in value after the time of exercise will be taxed
upon the disposition of the shares as long-term or short-term capital gain
(depending on how long the shares are held after exercise), and will not result
in any additional deduction by the Company. Non-employee director options will
receive the same federal income tax treatment as other Non-Qualified Options.
Except as described below, a grant of restricted shares does not
constitute a taxable event for either a participant or the Company. However, the
participant will be subject to tax, at ordinary income rates, when any
restrictions on ownership of the shares of Common Stock lapse. The amount
subject to tax will be equal to the fair market value of the shares at the time
the restrictions lapse reduced by the amount (if any) paid for such shares by
the participant. The Company will be entitled to take a commensurate deduction
18
at that time.
A participant may elect to recognize taxable ordinary income at the time
restricted shares are awarded in an amount equal to the fair market value of the
shares of Common Stock at the time of grant, determined without regard to any
forfeiture restrictions. If such an election is made, the Company will be
entitled to a deduction at that time in the same amount. Future appreciation on
the shares of Common Stock will be taxed when the shares are sold as short-term
or long-term capital gain (depending on how long the shares are held after
exercise) and will not result in any additional deduction by the Company. If,
after making such an election, the shares of Common Stock are forfeited, the
participant will be unable to claim a deduction.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE 1998 AMENDED INCENTIVE STOCK PLAN.
AUDIT COMMITTEE REPORT
The following is the report of the Audit Committee with respect to the
Company's audited financial statements for the fiscal year ended December 31,
2003, which include the balance sheets of the Company as of December 31, 2003
and 2002, and the related statements of operations, changes in shareholders'
equity and cash flows for the years in the period ended December 31, 2003, 2002
and 2001 and the notes thereto. THE INFORMATION CONTAINED IN THIS REPORT SHALL
NOT BE DEEMED TO BE "SOLICITING MATERIAL" OR TO BE "FILED" WITH THE SECURITIES
AND EXCHANGE COMMISSION, NOR SHALL SUCH INFORMATION BE INCORPORATED BY REFERENCE
INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE
COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE IN SUCH FILING.
REVIEW WITH MANAGEMENT
The Audit Committee has reviewed and discussed the Company's audited
financial statements with management.
REVIEW AND DISCUSSIONS WITH INDEPENDENT AUDITORS
The Audit Committee has discussed with Aronson & Company ("Aronson"), the
Company's independent public accountants for 2003, the matters required to be
discussed by SAS 61 (Codification of Statements on Accounting Standards) which
include, among other items, matters related to the conduct of the audit of the
Company's financial statements.
The Audit Committee has received written disclosures and the letter from
Aronson required by Independence Standards Board Standard No. 1 (which relates
to the accountant's independence from the Company and its related entities) and
has discussed with Aronson its independence from the Company.
The Audit Committee has adopted a charter for the Committee. All members
of the Audit Committee are independent as defined under the NASD rules.
CONCLUSION
Based on the review and discussions referred to above, the Audit Committee
recommended to the Company's Board that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2003.
SUBMITTED BY THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
Molly G. Bayley
Heidi B. Heiden
19
APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL 4)
The Audit Committee recommended and the Board of Directors approved the
appointment of the accounting firm Aronson & Company, independent public
accountants, as the Company's auditors for the fiscal year 2004, subject to
shareholder ratification.
On October 2, 2003, the Company determined to dismiss its independent
auditors, Ernst & Young LLP, and to engage the services of Aronson as its new
independent auditors. This determination followed the Company's efforts to
contain costs and seek an independent public accounting firm better suited to
its size, and was approved by the Company's Board of Directors upon the
recommendation of its Audit Committee. Aronson audited the Company's financial
statements for the fiscal years ended December 31, 2002 and 2003.
During the fiscal year ended December 31, 2001 and the fiscal year ended
December 31, 2002 (which was not audited by Ernst & Young LLP), and the
subsequent interim period through October 2, 2003, there were no disagreements
between the Company and Ernst & Young LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to Ernst & Young LLP's satisfaction, would
have caused Ernst & Young LLP to make reference to the subject matter of the
disagreement in connection with its reports on the financial statements of the
Company for the year ended December 31, 2001. There were no "reportable events"
as that term is described in Item 304(a)(1)(v) of Regulation S-K.
The audit reports of Ernst & Young LLP on the financial statements of the
Company as of and for the fiscal years ended December 31, 2000 and 2001 did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles.
During the two fiscal years of the Company ended December 31, 2002, and
the subsequent interim period through October 2, 2003, the Company did not
consult with Aronson regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
AUDIT FEES
Audit fees for the fiscal years ended December 31, 2002 and 2003 were
$95,000 and approximately $45,000, respectively.
AUDIT RELATED FEES
Audit related fees for the fiscal years ended December 31, 2002 and 2003
were approximately $27,000 and $24,000, respectively. Audit related services
generally include fees for pension and statutory audits, business acquisitions,
accounting consultations, internal audits and SEC reporting obligations.
TAX FEES
Tax fees for the fiscal years ended December 31, 2002 and 2003 were $0.
ALL OTHER FEES
All other fees for products and services provided by the Company's principal
accountant for the fiscal years ended December 31, 2002 and 2003 were $0.
All audit related services were pre-approved by the Audit Committee, which
concluded that the provision of such services by Aronson was compatible with the
maintenance of that firm's independence in the conduct of its auditing
functions. The Board has appointed Aronson to serve as the Company's auditors
for the fiscal year ending December 31, 2004. Representatives of Aronson will be
present at the annual meeting where they will have the opportunity to make a
statement if they desire to do so and where they will be available to respond to
any appropriate questions.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF
ARONSON & COMPANY, INDEPENDENT PUBLIC ACCOUNTANTS, AS THE COMPANY'S AUDITORS FOR
THE YEAR ENDING DECEMBER 31, 2004.
20
ANNUAL REPORT
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2003 ACCOMPANIES THIS PROXY STATEMENT. UPON
WRITTEN REQUEST, THE COMPANY WILL PROVIDE TO ANY SHAREHOLDER, FREE OF CHARGE, A
COPY OF ITS ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. REQUESTS FOR COPIES OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K SHOULD BE DIRECTED TO MERLE B. MILLER, VICE PRESIDENT
ADMINISTRATION, V-ONE CORPORATION, 20300 CENTURY BOULEVARD, SUITE 200,
GERMANTOWN, MARYLAND 20874.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2005 Annual
Meeting of Shareholders must be received by the Company no later than December
1, 2004 to be considered for inclusion in the Company's Proxy Statement and form
of proxy relating to such meeting. Proposals of shareholders received by the
Company after December 1, 2004 will be considered untimely.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no business
other than that described herein that will be presented for consideration at the
annual meeting. If, however, any other business shall properly come before the
annual meeting, the proxy holders intend to vote the proxies as determined by a
majority of the Board.
By Order of the Board of Directors
/s/ Joseph D. Gallagher
Joseph D. Gallagher
Secretary
April 13, 2004
APPENDIX A
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
V-ONE CORPORATION
V-ONE CORPORATION, a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY as follows:
FIRST: The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended to insert the following paragraph immediately
following the second paragraph of Article FOURTH of the Amended and Restated
Certificate of Incorporation:
Effective at 4:30 p.m. Eastern Standard Time on the filing date of
this Certificate of Amendment to the Amended and Restated
Certificate of Incorporation, every two (2) outstanding shares of
Common Stock shall be combined into one (1) outstanding share of
Common Stock (the "Reverse Stock Split"). The number of authorized
shares of Common Stock of the Corporation and the par value of the
Common Stock shall not be affected by the Reverse Stock Split. No
fractional shares shall be issued by reason of the Reverse Stock
Split, and the number of shares of stock to be issued to each
stockholder shall be rounded down to the nearest whole number and
any remaining fractional share shall be paid out in cash.
SECOND: The amendment set forth above has been duly approved by the Board
of Directors of the Corporation and by the stockholders of the Corporation
entitled to vote thereon.
THIRD: The amendment set forth above has been duly adopted in accordance
with Section 242 of the General Corporation Law of the State of Delaware.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed and attested by its duly authorized officers as of this
____ day of May, 2004.
V-ONE CORPORATION
By:
---------------------------------------------
Margaret E. Grayson
President and Chief Executive Officer
ATTEST:
--------------------------------------------
Merle B. Miller
Vice President, Administration and Treasurer
A-2
APPENDIX B
V-ONE CORPORATION
1998 AMENDED INCENTIVE STOCK PLAN
EFFECTIVE MAY 13, 2004
ARTICLE I. PURPOSE, ADOPTION AND TERM OF THE PLAN
1.01 PURPOSE. The purpose of the V-ONE Corporation 1998 Amended
Incentive Stock Plan (hereinafter referred to as the "Plan") is to advance the
interests of the Company (as hereinafter defined) and its Subsidiaries (as
hereinafter defined), if any, by encouraging and providing for the acquisition
of an equity interest in the Company by non-employee directors, officers, key
employees and consultants through the grant of awards with respect to shares of
Common Stock (as hereinafter defined). The Plan will enable the Company to
retain the services of non-employee directors, officers, key employees and
consultants upon whose judgment, interest, and special effort the successful
conduct of its operations is largely dependent and to compete effectively with
other enterprises for the services of non-employee directors, officers, key
employees and consultants as may be needed for the continued improvement of its
business.
1.02 ADOPTION AND TERM. The Plan shall become effective on February 2,
1998 ("Effective Date"), subject to the approval of a simple majority of the
holders of Voting Stock (as hereinafter defined) represented, by person or by
proxy, and entitled to vote at an annual or special meeting of the holders of
Voting Stock. The Plan shall terminate on February 2, 2008, or such earlier date
as shall be determined by the Board (as hereinafter defined); PROVIDED, HOWEVER,
that, in the event the Plan is not approved by a simple majority of the holders
of Voting Stock at or before the Company's 1998 annual meeting of holders of
Voting Stock, the Plan shall terminate on such date and any Awards (as
hereinafter defined) made under the Plan prior to such date shall be void and of
no force and effect.
ARTICLE II. DEFINITIONS
For purposes of the Plan, capitalized terms shall have the following
meanings:
2.01 "Award" means (a) any grant to an Employee or a Consultant
Participant of any one or a combination of Non-Qualified Stock Options or
Incentive Stock Options described in Article VI, or Restricted Shares described
in Article VII, or (b) any grant to a Non-Employee Director of a Non-Employee
Director Option described in Article VIII.
2.02 "Award Agreement" means a written agreement between the Company and
a Participant or a written acknowledgment from the Company specifically setting
forth the terms and conditions of an Award granted to a Participant under the
Plan.
2.03 "Beneficiary" means an individual, trust or estate who or that, by
will or the laws of descent and distribution, succeeds to the rights and
obligations of the Participant under the Plan and an Award Agreement upon the
Participant's death.
2.04 "Board" means the Board of Directors of the Company.
2.05 "Cause" means, with respect to an Employee Participant or a
Consultant Participant, termination for, as determined by the Committee in its
sole and absolute discretion, (i) dishonest or fraudulent conduct relating to
the Company or any of its Subsidiaries or their businesses; (ii) conviction of
any felony that involves moral turpitude or otherwise reflects on the Company or
any of its Subsidiaries in a significantly adverse way; or (iii) gross neglect
by the Participant in the performance of his or her duties as an employee or a
consultant, or any material breach by a Participant under any employment
agreement or consulting agreement with the Company or any of its Subsidiaries.
2.06 "Change in Control" means the occurrence, after the Effective Date,
of any of the following events, directly or indirectly or in one or more series
of transactions:
(i) Approval of the Company's shareholders of a consolidation or merger
of the Company with any Third Party, unless the Company is the entity
surviving such merger or consolidation;
(ii) Approval of the Company's shareholders of a transfer of all or
substantially all of the assets of the Company to a Third Party or a
complete liquidation or dissolution of the Company;
(iii) A Third Party (other than James F. Chen and his affiliates or
Advantage Fund Limited, Advantage Fund II Ltd. and/or their affiliates),
directly or indirectly, through one or more subsidiaries or transactions or
acting in concert with one or more persons or entities:
(A) acquires beneficial ownership of more than 20% of the
Voting Stock;
(B) acquires irrevocable proxies representing more than
20% of the Voting Stock;
(C) acquires any combination of beneficial ownership of
Voting Stock and irrevocable proxies representing more than 20% of
the Voting Stock;
(D) acquires the ability to control in any manner the
election of a majority of the directors of the Company; or
(E) acquires the ability to directly or indirectly
exercise a controlling influence over the management or policies of
the Company;
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(iv) any election has occurred of persons to the Board that causes a
majority of the Board to consist of persons other than (A) persons who were
members of the Board on the Effective Date and/or (B) persons who were
nominated for election as members of the Board by the Board (or a committee
of the Board) at a time when the majority of the Board (or of such
committee) consisted of persons who were members of the Board on the
Effective Date; provided, however, that any persons nominated for election
by the Board (or a committee of the Board), a majority of whom are persons
described in clauses (A) and/or (B), or are persons who were themselves
nominated by such Board (or a committee of such Board), shall for this
purpose be deemed to have been nominated by a Board composed of persons
described in clause (A); or
(v) A determination is made by the SEC or any similar agency having
regulatory control over the Company that a change in control, as defined in
the securities laws or regulations then applicable to the Company, has
occurred.
Notwithstanding any provision contained herein, a Change in Control shall not
include any of the above described events if they are the result of a Third
Party's inadvertently acquiring beneficial ownership or irrevocable proxies or a
combination of both for more than 20% of the Voting Stock, and the Third Party
as promptly as practicable thereafter divests itself of beneficial ownership or
irrevocable proxies for a sufficient number of shares so that the Third Party no
longer has beneficial ownership or irrevocable proxies or a combination of both
for more than 20% of the Voting Stock.
2.07 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto. References to a section of the Code
shall include that section and any comparable section or sections of any future
legislation that amends, supplements, or supersedes said section.
2.08 "Committee" means a committee of the Board as may be appointed,
from time to time, by the Board. The Board may, from time to time, appoint
members of the Committee in substitution for those members who were previously
appointed and may fill vacancies, however caused, in the Committee. The
Committee shall be composed of at least two directors of the Company, each of
whom is a "non-employee director" as defined in Rule 16b-3, as promulgated by
the SEC under the Exchange Act, and an "outside director" within the meaning of
Section 162(m). The Committee shall have the power and authority to administer
the Plan in accordance with Article III. If, however, at least two of the
Company's directors are not both "non-employee directors" and "outside
directors," the Plan shall be administered by the Board and the term "Committee"
as used herein shall mean the Board.
2.09 "Common Stock" means the Common Stock, par value $.001 per share,
of the Company.
2.10 "Company" means V-ONE Corporation, a corporation organized under
the laws of the State of Delaware, and its successors.
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2.11 "Consultant Participant" means a Participant who is a consultant to
the Company or one of its Subsidiaries.
2.12 "Date of Grant" means the date designated by the Plan or the
Committee as the date as of which an Award is granted, which shall not be
earlier than the date on which the Committee approves the granting of such
Award.
2.13 "Disability" means any physical or mental injury or disease of a
permanent nature that renders an Employee or a Consultant Participant incapable
of meeting the requirements of the employment or other work that the Employee or
Consultant Participant performed immediately before that disability commenced.
The determination of whether an Employee or a Consultant Participant is disabled
and when an Employee or a Consultant Participant becomes disabled shall be made
by the Committee in its sole and absolute discretion.
2.14 "Disability Date" means the date which is six months after the date
on which an Employee or a Consultant Participant is first absent from active
employment or work with the Company due to a Disability.
2.15 "Employee Participant" means a Participant who is an employee of
the Company or one of its Subsidiaries.
2.16 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.17 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.18 "Fair Market Value" of a share of Common Stock means, as of any
given date, the closing sales price of a share of Common Stock on such date on
the principal national securities exchange on which the Common Stock is then
traded or, if the Common Stock is not then traded on a national securities
exchange, the closing sales price or, if none, the average of the bid and asked
prices of the Common Stock on such date as reported on the National Association
of Securities Dealers Automated Quotation System ("Nasdaq"); PROVIDED, HOWEVER,
that, if there were no sales reported as of such date, Fair Market Value shall
be computed as of the last date preceding such date on which a sale was
reported; PROVIDED, FURTHER, that, if any such exchange or quotation system is
closed on any day on which Fair Market Value is to be determined, Fair Market
Value shall be determined as of the first date immediately preceding such date
on which such exchange or quotation system was open for trading. In the event
the Common Stock is not admitted to trade on a securities exchange or quoted on
Nasdaq, the Fair Market Value of a share of Common Stock as of any given date
shall be as determined by the Committee in its sole and absolute discretion,
which determination may be based on, among other things, the opinion of one or
more independent and reputable appraisers qualified to value companies in the
Company's line of business.
2.19 "Incentive Stock Option" means an Option designated as an incentive
stock option and that meets the requirements of Section 422 of the Code.
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2.20 "Non-Employee Director" means each member of the Board who is not
an employee of the Company or of any of its Subsidiaries.
2.21 "Non-Employee Director Option" means an Option granted in
accordance with Article VIII.
2.22 "Non-Qualified Stock Option" means an Option that is not an
Incentive Stock Option.
2.23 "Option" means any option to purchase Common Stock granted to a
Participant pursuant to Article VI or to a Non-Employee Director pursuant to
Article VIII.
2.24 "Participant" means any employee of or consultant to the Company or
any of its Subsidiaries selected by the Committee to receive an Option under the
Plan in accordance with Article VI and/or Restricted Shares under the Plan in
accordance with Article VII and, solely to the extent provided in Article VIII,
any Non-Employee Director.
2.25 "Plan" means the V-ONE Corporation 1998 Incentive Stock Plan as set
forth herein, and as the same may be amended from time to time.
2.26 "Reload Option" shall have the meaning set forth in Section 6.03(e)
of the Plan.
2.27 "Restricted Shares" means shares of Common Stock subject to
restrictions imposed in connection with Awards granted under Article VII.
2.28 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under Section
16 of the Exchange Act and any successor rule.
2.29 "SEC" means the Securities and Exchange Commission.
2.30 "Section 162(m)" means Section 162(m) of the Code and the
regulations thereunder.
2.31 "Subsidiary" means a company more than 50% of the equity interests
of which are beneficially owned, directly or indirectly, by the Company.
2.32 "Ten Percent Shareholder" means a Participant who, at the time of
grant of an Option, owns (or is deemed to own under Section 424(d) of the Code)
more than 10% of the Voting Stock.
2.33 "Termination of Employment" means, with respect to an Employee
Participant, the voluntary or involuntary termination of a Participant's
employment with the Company or any of its Subsidiaries for any reason,
including, without limitation, death, Disability, retirement or as the result of
the sale or other divestiture of the Participant's employer or any similar
transaction in which the Participant's employer ceases to be the Company or one
of its Subsidiaries. Whether entering military or other government service shall
constitute Termination of Employment, and whether a Termination of Employment is
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a result of Disability, shall be determined in each case by the Committee in its
sole and absolute discretion. Termination of Employment means, with respect to a
consultant, termination of his or her services as a consultant to the Company or
one of its Subsidiaries.
2.34 "Third Party" includes a single person or a group of persons or
entities acting in concert not wholly owned directly or indirectly by the
Company.
2.35 "Voting Stock" means the classes of stock of the Company entitled
to vote generally in the election of directors of the Company.
ARTICLE III. ADMINISTRATION
3.01 COMMITTEE. The Plan shall be administered by the Committee, which
shall have exclusive and final authority in each determination, interpretation,
or other action affecting the Plan and its Participants. The Committee shall
have the sole and absolute discretion to interpret the Plan, to establish and
modify administrative rules for the Plan, to select the officers, other key
employees and consultants to whom Awards may be granted, to determine the terms
and provisions of the respective Award Agreements (which need not be identical),
to determine all claims for benefits under the Plan, to impose such conditions
and restrictions on Awards as it determines appropriate, to determine whether
the shares offered with respect to an Award will be treasury shares or will be
authorized but previously unissued shares, and to take such steps in connection
with the Plan and Awards granted hereunder as it may deem necessary or
advisable. No action of the Committee will be effective if it contravenes or
amends the Plan in any respect.
3.02 ACTIONS OF THE COMMITTEE. Except when the "Committee" is the
"Board" in the circumstance described on the last sentence of Section 2.08, all
determinations of the Committee shall be made by a majority vote of its members.
Any decision or determination reduced to writing and signed by all of the
members shall be fully as effective as if it had been made at a meeting duly
called and held. The Committee shall also have express authorization to hold
Committee meetings by conference telephone, or similar communication equipment
by means of which all persons participating in the meeting can hear each other.
ARTICLE IV. SHARES OF COMMON STOCK
4.01 NUMBER OF SHARES OF COMMON STOCK ISSUABLE. Subject to adjustments
as provided in Section 9.05, 6,000,000 shares of Common Stock shall be available
for Awards granted under the Plan. The Common Stock to be offered under the Plan
shall be authorized and unissued Common Stock, or issued Common Stock that shall
have been reacquired by the Company and held in its treasury.
4.02 CALCULATION OF NUMBER OF SHARES OF COMMON STOCK AWARDED TO ANY
PARTICIPANT. In the event the purchase price of an Option is paid, or tax or
withholding payments relating to an Award are satisfied, in whole or in part
through the delivery of shares of Common Stock, a Participant will be deemed to
have received an Award with respect to those shares of Common Stock.
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4.03 SHARES OF COMMON STOCK SUBJECT TO TERMINATED AWARDS. The Common
Stock covered by any unexercised portions of terminated Options, shares of
Common Stock forfeited as provided in Section 7.02(a) and shares of Common Stock
subject to Awards that are otherwise surrendered by the Participant without
receiving any payment or other benefit with respect thereto may again be subject
to new Awards under the Plan.
ARTICLE V. PARTICIPATION
5.01 ELIGIBLE PARTICIPANTS. Participants in the Plan shall include such
officers, other key employees of and consultants to the Company or its
Subsidiaries, whether or not directors of the Company, as the Committee, in its
sole and absolute discretion, may designate from time to time. In making such
designation, the Committee may take into account the nature of the services
rendered by the officers, key employees and consultants, their present and
potential contributions to the success of the Company, and such other factors as
the Committee, in its sole and absolute discretion, may deem relevant. The
Committee's designation of a Participant in any year shall not require the
Committee to designate such person to receive Awards in any other year. The
Committee shall consider such factors as it deems pertinent in selecting
Participants and in determining the type and amount of their respective Awards.
A Participant may hold more than one Award granted under the Plan. During the
term of the Plan, no Employee Participant may receive Awards with respect to
more than 500,000 shares of Common Stock.
Non-Employee Directors shall receive Non-Employee Director Options in
accordance with Article VIII, the provisions of which are automatic and
non-discretionary in operation. Non-Employee Directors shall not be eligible to
receive any other Awards under the Plan unless they are no longer Non-Employee
Directors on the Date of Grant of such Awards.
ARTICLE VI. STOCK OPTIONS
6.01 GRANT OF OPTION. Any Option granted under this Article VI shall
have such terms as the Committee may, from time to time, approve, and the terms
and conditions of Options need not be the same with respect to each Participant.
Under this Article VI, the Committee may grant to any Employee or Consultant
Participant one or more Incentive Stock Options, Non-Qualified Stock Options or
both types of Options; PROVIDED, HOWEVER, that Incentive Stock Options may only
be granted to Employee Participants. To the extent any Option does not qualify
as an Incentive Stock Option (whether because of its provisions, the time or
manner of its exercise or otherwise), that Option or the portion thereof that
does not so qualify shall constitute a separate Non-Qualified Stock Option.
6.02 INCENTIVE STOCK OPTIONS. In the case of any grant of an Incentive
Stock Option, whenever possible, each provision hereof and in any Award
Agreement relating to such Option shall be interpreted to entitle the holder
thereof to the tax treatment afforded by Section 422 of the Code, except (a) in
connection with the exercise of Options following a Participant's Termination of
Employment, (b) in accordance with a specific determination of the Committee
with the consent of the affected Participant and (c) to the extent that the
operation of Section 9.05 would cause an Option to no longer be entitled to such
treatment. If any provision hereof or that Award Agreement is held not to comply
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with requirements necessary to entitle that Option to that tax treatment, then
except as otherwise provided in the preceding sentence: (i) that provision shall
be deemed to have contained from the outset such language as is necessary to
entitle the Option to the tax treatment afforded under Section 422 of the Code;
and (ii) all other provisions hereof and of that Award Agreement remain in full
force and effect. Except as otherwise specified in the first sentence of this
Section 6.02, if any Award Agreement covering an Option the Committee designates
to be an Incentive Stock Option hereunder does not explicitly include any term
required to entitle that Incentive Stock Option to the tax treatment afforded by
Section 422 of the Code, all such terms shall be deemed implicit in the
designation of that Option, and that Option shall be deemed to have been granted
subject to all such terms.
6.03 TERMS OF OPTIONS. Options granted under this Article VI shall be
subject to the following terms and conditions and shall be in such form and
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Common Stock
purchasable under an Option shall be determined by the Committee at the
time of grant but, if the Option is an Incentive Stock Option, the option
price per share shall not be less than 100% of the Fair Market Value of a
share of Common Stock on the Date of Grant; PROVIDED, HOWEVER, that, if an
Incentive Stock Option is granted to a Ten Percent Shareholder, the option
price per share shall be at least 110% of the Fair Market Value of a share
of Common Stock on the Date of Grant and PROVIDED, FURTHER, that, except as
otherwise required under the Code with respect to Incentive Stock Options
and as required by Rule 16b-3 with respect to Options granted to persons
subject to Section 16 of the Exchange Act, no amendment of an Option shall
be deemed to be the grant of a new Option for purposes of this Section
6.03(a). Notwithstanding the foregoing, the option price per share of
Common Stock of an Option shall never be less than par value per share.
(b) OPTION TERM. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than ten years after its
Date of Grant; PROVIDED, HOWEVER, that, if an Incentive Stock Option is
granted to a Ten Percent Shareholder, the Option shall not be exercisable
more than five years after its Date of Grant.
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(c) EXERCISABILITY. An Award Agreement with respect to Options
may contain such performance targets, waiting periods, exercise dates,
restrictions on exercise (including, but not limited to, a requirement that
an Option is exercisable in periodic installments), and restrictions on the
transfer of the underlying shares of Common Stock, if any, as may be
determined by the Committee at the time of grant. To the extent not
exercised, installments shall cumulate and be exercisable, in whole or in
part, at any time after becoming exercisable, subject to the limitations
set forth in Sections 6.03(b), (g) and (h). If an Option is an Incentive
Stock Option and if required by Section 422 of the Code, the aggregate Fair
Market Value of the shares of Common Stock underlying such Option and all
other incentive stock options granted to the Employee Participant
(determined at the time the Option is granted) that become exercisable in
any one calendar year shall not exceed $100,000.
(d) METHOD OF EXERCISE. Subject to whatever installment exercise
and waiting period provisions that apply under Section 6.03(c) above,
Options may be exercised in whole or in part at any time during the term of
the Option, by giving written notice of exercise to the Company specifying
the number of shares of Common Stock to be purchased. Such notice shall be
accompanied by payment in full of the purchase price in such form as the
Committee may accept (including payment in accordance with a cashless
exercise program approved by the Committee). If and to the extent the
Committee determines in its sole and absolute discretion at or after grant,
payment in full or in part may also be made in the form of shares of Common
Stock already owned by the Participant (and for which the Participant has
good title, free and clear of any liens or encumbrances) based on the Fair
Market Value of the shares of Common Stock on the date the Option is
exercised; PROVIDED, HOWEVER, that any already owned Common Stock used for
payment must have been held by the Participant for at least six months. No
Common Stock shall be issued on exercise of an Option until payment, as
provided herein, therefor has been made. A Participant shall generally have
the right to dividends or other rights of a stockholder with respect to
Common Stock subject to the Option only when certificates for shares of
Common Stock are issued to the Participant.
(e) RELOAD OPTIONS. The Committee shall have the authority to
specify, at the time of grant or, with respect to Non-Qualified Stock
Options, at or after the time of grant, that an Employee or a Consultant
Participant shall be granted a Non-Qualified Stock Option (a "Reload
Option") in the event such Participant exercises all or a part of an Option
(an "Original Option") by surrendering in accordance with Section 6.03(d)
of the Plan already owned shares of Common Stock in full or partial payment
of the purchase price under the Original Option, subject to the
availability of shares of Common Stock under the Plan at the time of such
exercise; PROVIDED, HOWEVER, that no Reload Option shall be granted to a
Non-Employee Director. Each Reload Option shall cover a number of shares of
Common Stock equal to the number of shares of Common Stock surrendered in
payment of the purchase price under such Original Option, shall have a
purchase price per share of Common Stock equal to the 100% of the Fair
Market Value of a share of Common Stock on the Date of Grant of such Reload
Option, and shall expire on the stated expiration date of the Original
Option. A Reload Option shall be exercisable at any time and from time to
time after the Date of Grant of such Reload Option (or, as the Committee in
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its sole and absolute discretion shall determine, at or after the Date of
Grant, at such time or times as shall be specified in the Reload Option).
Any Reload Option may provide for the grant, when exercised, of subsequent
Reload Options to the extent and upon such terms and conditions, consistent
with this Section 6.03(e), as the Committee in its sole and absolute
discretion shall specify at or after the Date of Grant of such Reload
Option. A Reload Option shall contain such other terms and conditions,
which may include a restriction on the transferability of the shares of
Common Stock received upon exercise of the Original Option representing at
least the after-tax profit received upon exercise of the Original Option,
as the Committee in its sole and absolute discretion shall deem desirable,
and which may be set forth in rules or guidelines adopted by the Committee
or in the Award Agreements evidencing the Reload Options.
(f) NON-TRANSFERABILITY OF OPTIONS. No Option shall be
transferable by the Participant otherwise than by will or the laws of
descent and distribution.
(g) ACCELERATION OR EXTENSION OF EXERCISE TIME. The Committee,
in its sole and absolute discretion, shall have the right (but shall not in
any case be obligated) to permit purchase of Common Stock subject to any
Option granted to an Employee or a Consultant Participant prior to the time
such Option would otherwise become exercisable under the terms of the Award
Agreement. In addition, the Committee, in its sole and absolute discretion,
shall have the right (but shall not in any case be obligated) to permit any
Option granted to an Employee or a Consultant Participant to be exercised
after its expiration date, subject, however to the limitation set forth in
Section 6.03(b).
(h) Exercise of Options Upon Termination of Employment. The
following provisions apply to Options granted to Employee and Consultant
Participants:
(i) EXERCISE OF VESTED OPTIONS UPON TERMINATION OF
EMPLOYMENT.
(A) TERMINATION. Unless the Committee, in its sole
and absolute discretion, provides for a shorter or longer
period of time in the Award Agreement or a longer period of
time in accordance with Section 6.03(g), upon an Employee or
a Consultant Participant's Termination of Employment other
than by reason of death or Disability, an Employee or a
Consultant Participant may, within three months from the
date of such Termination of Employment, exercise all or any
part of his or her Options as were exercisable on the date
of Termination of Employment if such Termination of
Employment is not for Cause. If such Termination of
Employment is for Cause, the right of the Employee or
Consultant Participant to exercise such Options shall
terminate on the date of Termination of Employment. In no
event, however, may any Option be exercised later than the
date determined pursuant to Section 6.03(b).
(B) DISABILITY. Unless the Committee, in its sole
and absolute discretion, provides for a shorter or longer
period of time in the Award Agreement or a longer period of
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time in accordance with Section 6.03(g), upon an Employee or
a Consultant Participant's Disability Date, the Employee or
Consultant Participant may, within one year after the
Disability Date, exercise all or a part of his or her
Options, whether or not such Option was exercisable on the
Disability Date, but only to the extent not previously
exercised. In no event, however, may any Option be exercised
later than the date determined pursuant to Section 6.03(b).
(C) DEATH. Unless the Committee, in its sole and
absolute discretion, provides for a shorter or longer period
of time in the Award Agreement or a longer period of time in
accordance with Section 6.03(g), in the event of the death
of an Employee or a Consultant Participant while employed by
the Company or a Subsidiary, the right of the Employee or
Consultant Participant's Beneficiary to exercise the Option
in full (whether or not all or any part of the Option was
exercisable as of the date of death of the Employee or
Consultant Participant, but only to the extent not
previously exercised) shall expire upon the expiration of
one year from the date of the Employee or Consultant
Participant's death or on the date of expiration of the
Option determined pursuant to Section 6.03(b), whichever is
earlier.
(ii) EXPIRATION OF UNVESTED OPTIONS UPON TERMINATION OF
EMPLOYMENT. Subject to Sections 6.03(g) and 6.03(h)(i)(B) and (C),
to the extent all or any part of an Option granted to an Employee
or a Consultant Participant was not exercisable as of the date of
Termination of Employment, such right shall expire at the date of
such Termination of Employment. Notwithstanding the foregoing, the
Committee, in its sole and absolute discretion and under such terms
as it deems appropriate, may permit an Employee or a Consultant
Participant who will continue to render significant services to the
Company or a Subsidiary after his or her Termination of Employment
to continue to accrue service with respect to the right to exercise
his or her Options during the period in which the individual
continues to render such services.
ARTICLE VII. RESTRICTED SHARES
7.01 RESTRICTED SHARE AWARDS. Restricted Shares may be issued either
alone or in addition to other Awards granted under the Plan. The Committee may
grant to any Employee or Consultant Participant an Award of shares of Common
Stock in such number, and subject to such terms and conditions relating to
forfeitability and restrictions on delivery and transfer (whether based on
performance standards, periods of service or otherwise) as the Committee shall
establish. The terms of any Restricted Share Award granted under the Plan shall
be set forth in an Award Agreement, which shall contain provisions determined by
the Committee and not inconsistent with the Plan. The provisions of Restricted
Share Awards need not be the same for each Participant receiving such Awards.
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(a) ISSUANCE OF RESTRICTED SHARES. As soon as practicable after
the Date of Grant of a Restricted Share Award by the Committee, the Company
shall cause to be transferred on the books of the Company shares of Common
Stock, registered on behalf of the Participant in nominee form, evidencing
the Restricted Shares covered by the Award, but subject to forfeiture to
the Company retroactive to the Date of Grant if an Award Agreement
delivered to the Participant by the Company with respect to the Restricted
Shares covered by the Award is not duly executed by the Participant and
timely returned to the Company. Each Participant, as a condition to the
receipt of a Restricted Share Award, shall pay to the Company in cash the
par value of a share of Common Stock multiplied by the number of shares of
Common Stock covered by such Restricted Share Award. All shares of Common
Stock covered by Awards under this Article VII shall be subject to the
restrictions, terms and conditions contained in the Plan and the Award
Agreement entered into by and between the Company and the Participant.
Until the lapse or release of all restrictions applicable to an Award of
Restricted Shares, the stock certificates representing such Restricted
Shares shall be held in custody by the Company or its designee. Upon the
lapse or release of all restrictions with respect to an Award as described
in Section 7.01(d), one or more stock certificates, registered in the name
of the Participant, for an appropriate number of shares of Common Stock as
provided in Section 7.01(d), free of any restrictions set forth in the Plan
and the Award Agreement, shall be delivered to the Participant.
(b) SHAREHOLDER RIGHTS. Beginning on the Date of Grant of the
Restricted Share Award and subject to execution of the Award Agreement as
provided in Section 7.01(a), the Participant shall become a shareholder of
the Company with respect to all shares of Common Stock subject to the Award
Agreement and shall have all of the rights of a shareholder, including, but
not limited to, the right to vote such shares of Common Stock and, except
as otherwise determined by the Committee and specified in the applicable
Award Agreement, the right to receive dividends (or dividend equivalents);
PROVIDED, HOWEVER, that any shares of Common Stock distributed as a
dividend or otherwise with respect to any Restricted Shares as to which the
restrictions have not yet lapsed shall be subject to the same restrictions
as such Restricted Shares and shall be held in custody by the Company as
prescribed in Section 7.01(a).
(c) RESTRICTION ON TRANSFERABILITY. None of the Restricted
Shares may be assigned or transferred (other than by will or the laws of
descent and distribution), pledged or sold prior to lapse or release of the
restrictions applicable thereto.
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(d) DELIVERY OF SHARES OF COMMON STOCK UPON RELEASE OF
RESTRICTIONS. Upon expiration or earlier termination of the forfeiture
period without a forfeiture and the satisfaction of or release from any
other conditions prescribed by the Committee, the restrictions applicable
to the Restricted Shares shall lapse. As promptly as administratively
feasible thereafter, subject to the requirements of Section 9.04, the
Company shall deliver to the Participant or, in case of the Participant's
death, to the Participant's Beneficiary, one or more stock certificates for
the appropriate number of shares of Common Stock, free of all such
restrictions, except for any restrictions that may be imposed by law.
7.02 TERMS OF RESTRICTED SHARES.
(a) FORFEITURE OF RESTRICTED SHARES. Subject to Section 7.02(b),
all Restricted Shares shall be forfeited and returned to the Company and
all rights of the Participant with respect to such Restricted Shares shall
terminate unless the Participant continues in the service of the Company or
any Subsidiary of the Company as an employee or consultant, as the case may
be, until the expiration of the forfeiture period for such Restricted
Shares and satisfies any and all other conditions set forth in the Award
Agreement. The Committee, in its sole and absolute discretion, shall
determine the forfeiture period (which may, but need not, lapse in
installments) and any other terms and conditions applicable with respect to
any Restricted Share Award.
(b) WAIVER OF FORFEITURE PERIOD. Notwithstanding anything
contained in this Article VII to the contrary, the Committee may, in its
sole and absolute discretion, waive the forfeiture period and any other
conditions set forth in any Award Agreement under appropriate circumstances
(including the death, Disability or retirement of the Participant or a
material change in circumstances arising after the Date of Grant of an
Award) and subject to such terms and conditions (including forfeiture of a
proportionate number of Restricted Shares) as the Committee shall deem
appropriate, provided that the Participant shall at that time have
completed at least one year of employment or service as a consultant after
the Date of Grant.
ARTICLE VIII. NON-EMPLOYEE DIRECTOR OPTIONS
8.01 GRANT OF NON-EMPLOYEE DIRECTOR OPTIONS. On the earlier to occur of
(a) the date a Non-Employee Director is elected as such for the first time by
the holders of Voting Stock and (b) the date this Plan is approved by a simple
majority of the holders of Voting Stock, each Non-Employee Director shall be
granted a Non-Employee Director Option consisting of an Option to purchase
10,000 shares of Common Stock; PROVIDED, HOWEVER, that (i) directors Charles C.
Chen, Harry S. Gruner and William E. Odom shall each not be eligible to receive
an Option under this Section 8.01, and (ii) if a Non-Employee Director receives,
after the Effective Date of this Plan, an option ("1996 Plan Option") to
purchase shares of Common Stock under the Virtual Open Network Environment
Corporation 1996 Incentive Stock Plan ("1996 Plan"), the number of shares
subject to the Option granted under this Section 8.01 shall be reduced by the
number of shares covered by the 1996 Plan Option. The option price for such
Non-Employee Director Options shall be the Fair Market Value of a share of
Common Stock on the Date of Grant. All such Options shall be designated as
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Non-Qualified Stock Options and shall have a five year term. Each such Option
shall be exercisable in full on the Date of Grant of such Option.
If a Non-Employee Director's service with the Company terminates by reason
of death, any Option held by such Non-Employee Director may be exercised for a
period of one year from the date of death or until the expiration of the Option,
whichever is shorter. If a Non-Employee Director's service with the Company
terminates other than by reason of death, any Option held by such Non-Employee
Director may be exercised for a period of three months from the date of such
termination, or until the expiration of the stated term of the Option, whichever
is shorter. All applicable provisions of the Plan (other than Sections 6.03(g)
and (h)) not inconsistent with this Section 8.01 shall apply to Options granted
to Non-Employee Directors.
ARTICLE IX. TERMS APPLICABLE TO ALL AWARDS GRANTED UNDER THE PLAN
9.01 AWARD AGREEMENT. No person shall have any rights under any Award
granted under the Plan unless and until the Company and the Participant to whom
such Award shall have been granted shall have executed and delivered an Award
Agreement authorized by the Committee expressly granting the Award to such
person and containing provisions setting forth the terms of the Award.
9.02 PLAN PROVISIONS CONTROL AWARD TERMS. The terms of the Plan shall
govern all Awards granted under the Plan, and in no event shall the Committee
have the power to grant to a Participant any Award under the Plan that is
contrary to any provisions of the Plan. If any provision of any Award shall
conflict with any of the terms in the Plan as constituted on the Date of Grant
of such Award, the terms in the Plan as constituted on the Date of Grant of such
Award shall control.
9.03 MODIFICATION OF AWARD AFTER GRANT. Except as provided by the
Committee, in its sole and absolute discretion, in the Award Agreement or as
provided in Section 9.05, no Award granted under the Plan to a Participant may
be modified (unless such modification does not materially decrease the value of
the Award) after the Date of Grant except by express written agreement between
the Company and the Participant, provided that any such change (a) shall not be
inconsistent with the terms of the Plan, and (b) shall be approved by the
Committee.
9.04 TAXES. The Company shall be entitled, if the Committee deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any Award. The Company may
defer issuance of Common Stock under an Award unless indemnified to its
satisfaction against any liability for any such tax. The amount of such
withholding or tax payment shall be determined by the Committee or its delegate
and shall be payable by the Participant at such time as the Committee
determines. A Participant shall be permitted to satisfy his or her tax or
withholding obligation by (a) having cash withheld from the Participant's salary
or other compensation payable by the Company or a Subsidiary, (b) the payment of
cash by the Participant to the Company, (c) the payment in shares of Common
Stock already owned by the Participant valued at Fair Market Value, and/or (d)
the withholding from the Award, at the appropriate time, of a number of shares
of Common Stock sufficient, based upon the Fair Market Value of such Common
B-14
Stock, to satisfy such tax or withholding requirements. The Committee shall be
authorized, in its sole and absolute discretion, to establish rules and
procedures relating to any such withholding methods it deems necessary or
appropriate (including, without limitation, rules and procedures relating to
elections by Participants who are subject to the provisions of Section 16 of the
Exchange Act to have shares of Common Stock withheld from an Award to meet those
withholding obligations).
9.05 ADJUSTMENTS TO REFLECT CAPITAL CHANGES; CHANGE IN CONTROL.
(a) RECAPITALIZATION. The number and kind of shares subject to
outstanding Awards, the purchase price or exercise price of such Awards,
the amount of Non-Employee Director Options to be granted on any date under
Article VIII, the limit set forth in the last sentence of the first
paragraph of Section 5.01 of the Plan, and the number and kind of shares
available for Awards subsequently granted under the Plan shall be
appropriately adjusted to reflect any stock dividend, stock split,
combination or exchange of shares, merger, consolidation or other change in
capitalization with a similar substantive effect upon the Plan or the
Awards granted under the Plan. The Committee shall have the power and sole
and absolute discretion to determine the nature and amount of the
adjustment to be made in each case. In no event shall any adjustments be
made under the provisions of this Section 9.05(a) to any outstanding
Restricted Share Award if an adjustment has been or will be made to the
shares of Common Stock awarded to a Participant in such person's capacity
as a stockholder.
(b) SALE OR REORGANIZATION. After any reorganization, merger, or
consolidation in which the Company is or is not the surviving entity, each
Participant shall, at no additional cost, be entitled upon the exercise of
an Option outstanding prior to such event to receive (subject to any
required action by stockholders), in lieu of the number of shares of Common
Stock receivable on exercise pursuant to such Option, the number and class
of shares of stock or other securities to which such Participant would have
been entitled pursuant to the terms of the reorganization, merger, or
consolidation if, at the time of such reorganization, merger, or
consolidation, such Participant had been the holder of record of a number
of shares of Common Stock equal to the number of shares of Common Stock
receivable on exercise of such Option. Comparable rights shall accrue to
each Participant in the event of successive reorganizations, mergers, or
consolidations of the character described above.
(c) OPTIONS TO PURCHASE STOCK OF ACQUIRED COMPANIES. After any
reorganization, merger, or consolidation in which the Company shall be a
surviving entity, the Committee may grant substituted Options under the
provisions of the Plan, replacing old options granted under a plan of
another party to the reorganization, merger, or consolidation whose stock
subject to the old options may no longer be issued following such
reorganization, merger, or consolidation. The foregoing adjustments and
manner of application of the foregoing provisions shall be determined by
the Committee in its sole and absolute discretion. Any such adjustments may
provide for the elimination of any fractional shares of Common Stock that
might otherwise become subject to any Options.
B-15
(d) CHANGE IN CONTROL. Upon a Change in Control, unless
otherwise specifically prohibited by Rule 16b-3:
(1) Any and all Options shall become exercisable in full,
to the extent not previously exercised, as of the date of the
Change in Control; and
(2) The restrictions on vesting on all Restricted Share
Awards shall be deemed to have satisfied as of the date of the
Change in Control.
(e) EXISTENCE OF AWARDS. The existence of outstanding Awards
shall not affect the right of the Company or its stockholders to make or
authorize any and all adjustments, recapitalizations, reclassifications,
reorganizations and other changes in the Company's capital structure, the
Company's business, any merger or consolidation of the Company, any issue
of bonds, debentures or preferred stock of the Company, the Company's
liquidation or dissolution, any sale or transfer of all or any part of the
Company's assets or business, or any other corporate act or proceeding,
whether of a similar nature or otherwise.
9.06 SURRENDER OF AWARDS. Any Award granted to a Participant under the
Plan may be surrendered to the Company for cancellation on such terms as the
Committee and holder approve.
9.07 NO RIGHT TO AWARD; NO RIGHT TO EMPLOYMENT. Except as provided in
Article VIII, no director, employee, consultant or other person shall have any
claim or right to be granted an Award. Neither the Plan nor any action taken
hereunder shall be construed as giving any director, employee or consultant any
right to be retained by the Company or any of its Subsidiaries.
9.08 AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Income recognized by a
Participant pursuant to the provisions of the Plan shall not be included in the
determination of benefits under any employee pension benefit plan (as such term
is defined in Section 3(2) of ERISA) or group insurance or other benefit plans
applicable to the Participant that are maintained by the Company or any of its
Subsidiaries, except as may be provided under the terms of such plans or
determined by resolution of the Board.
9.09 GOVERNING LAW. The Plan and all determinations made and actions
taken pursuant to the Plan shall be governed by the laws of the State of
Delaware other than the conflict of laws provisions of such laws, and shall be
construed in accordance therewith.
9.10 NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Company, the Committee, or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the Plan
or any rule or procedure established by the Committee.
9.11 COMPLIANCE WITH RULE 16b-3 AND SECTION 162(m). It is intended that
the Plan be applied and administered in compliance with Rule 16b-3 and with
Section 162(m). If any provision of the Plan would be in violation of Section
B-16
162(m) if applied as written, such provision shall not have effect as written
and shall be given effect so as to comply with Section 162(m) as determined by
the Committee in its sole and absolute discretion. The Board is authorized to
amend the Plan and the Committee is authorized to make any such modifications to
Award Agreements to comply with Rule 16b-3 and Section 162(m), as they may be
amended from time to time, and to make any other such amendments or
modifications deemed necessary or appropriate to better accomplish the purposes
of the Plan in light of any amendments made to Rule 16b-3 or Section 162(m).
Notwithstanding the foregoing, the Board may amend the Plan so that it (or
certain of its provisions) no longer comply with either or both of Rule 16b-3 or
Section 162(m) if the Board specifically determines that such compliance is no
longer desired and the Committee may grant Awards that do not comply with Rule
16b-3 and/or Section 162(m) if the Committee determines, in its sole and
absolute discretion, that it is in the interest of the Company to do so.
9.12 CAPTIONS. The captions (i.e., all Article and Section headings)
used in the Plan are for convenience only, do not constitute a part of the Plan,
and shall not be deemed to limit, characterize, or affect in any way any
provisions of the Plan, and all provisions of the Plan shall be construed as if
no captions have been used in the Plan.
9.13 SEVERABILITY. Whenever possible, each provision in the Plan and
every Award at any time granted under the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Award at any time granted under the Plan shall be held to be
prohibited by or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law, and (b) all other provisions of
the Plan and every other Award at any time granted under the Plan shall remain
in full force and effect.
9.14 LEGENDS. All certificates for Common Stock delivered under the Plan
shall be subject to such transfer restrictions, if any, set forth in the Plan
and such other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the SEC, any stock exchange upon which
the Common Stock is then listed, and any applicable federal or state securities
law. The Committee may cause a legend or legends to be put on any such
certificates to make appropriate references to such restrictions.
9.15 INVESTMENT REPRESENTATION. The Committee may, in its sole and
absolute discretion, demand that any Participant awarded an Award deliver to the
Committee at the time of grant or exercise of such Award a written
representation that the shares of Common Stock subject to such Award are to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such written representation by the
Participant prior to the delivery of any shares of Common Stock pursuant to the
grant or exercise of his or her Award shall be a condition precedent to the
Participant's right to purchase or otherwise acquire such shares of Common Stock
by such grant or exercise. The Company is not legally obliged hereunder if
fulfillment of its obligations under the Plan would violate federal or state
securities laws.
B-17
9.16 AMENDMENT AND TERMINATION.
(a) AMENDMENT. The Board shall have complete power and authority
to amend the Plan at any time it is deemed necessary or appropriate;
PROVIDED, HOWEVER, that the Board shall not, without the affirmative
approval of a simple majority of the holders of Voting Stock, represented,
by person or by proxy, and entitled to vote at an annual or special meeting
of the holders of Voting Stock, make any amendment that requires
stockholder approval under any applicable law or rule, unless the Board
determines that compliance with such law or rule is no longer desired with
respect to the Plan as a whole or the provision to be amended. No
termination or amendment of the Plan may, without the consent of the
Participant to whom any Award shall theretofore have been granted under the
Plan, adversely affect the right of such individual under such Award;
PROVIDED, HOWEVER, that the Committee may, in its sole and absolute
discretion, make provision in an Award Agreement for such amendments that,
in its sole and absolute discretion, it deems appropriate.
(b) TERMINATION. The Board shall have the right and the power to
terminate the Plan at any time. No Award shall be granted under the Plan
after the termination of the Plan, but the termination of the Plan shall
not have any other effect and any Award outstanding at the time of the
termination of the Plan may be amended and exercised and may vest after
termination of the Plan at any time prior to the expiration date of such
Award to the same extent such Award could have been amended or would have
been exercisable or vest had the Plan not terminated.
9.17 COSTS AND EXPENSES. All costs and expenses incurred in
administering the Plan shall be borne by the Company.
9.18 UNFUNDED PLAN. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or make any other segregation
of assets to assure the payment of any Award under the Plan.
9.19 LOANS. The Committee shall be entitled to grant to Participants
granted Non-Qualified Stock Options (other than Non-Employee Director Options)
the right to pay the exercise price of such Options by delivery to the Company
of an amount of cash equal to the par value per share of Common Stock purchased
on exercise and a recourse promissory note. Each such recourse promissory note
shall have the following terms and conditions: (a) such promissory note shall
bear interest at 2% over the prime rate of Citibank on the date the promissory
note is issued, (b) interest shall be due and payable quarterly in arrears, (c)
the principal amount shall be due in full on the second anniversary date, (d)
principal and accrued interest may be prepaid at any time, in whole or in part,
without penalty, (e) in the event of a default in the payment of principal or
interest when due and the continuance of such default for ten (10) days, the
full principal amount of the promissory note plus accrued and unpaid interest
shall become immediately due and payable, and (vi) the promissory note shall be
secured by a pledge to the Corporation of shares of Common Stock having a Fair
Market Value at all times at least equal to 110% of the principal amount of the
promissory note.
B-18
Please date, sign and mail your APPENDIX C
proxy card as soon as possible!
V-ONE Corporation
Annual Meeting of Shareholders on May 13, 2004
[X] Please mark your votes Note to Preferred C Shareholders:
as in this example. You may not vote on Proposal 1.
1. Proposal 1: Election of one director: For Withhold Authority
Nominee: Molly G. Bayley [ ] [ ]
For Against Abstain
2. Proposal 2: To approve an amendment to the Company's Amended and [ ] [ ] [ ]
Restated Certificate of Incorporation to effect a reverse stock split
pursuant to which two shares of Company common stock will be combined
into one share of Company common stock.
For Against Abstain
3. Proposal 3: To approve an amendment to the Company's 1998 Amended [ ] [ ] [ ]
Incentive Stock Plan increasing shares of common stock authorized and
reserved for issuance under the plan from 5,000,000 shares to
6,000,000 shares.
For Against Abstain
4. Proposal 4: To ratify the appointment of Aronson & Company as the [ ] [ ] [ ]
Company's independent auditors for the fiscal year ending December 31,
2004.
5. In the discretion of such proxies on such other business as may
properly come before the meeting or any adjournment thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDER'S
SPECIFICATIONS HEREON. IN THE ABSENCE OF SUCH SPECIFICATIONS, THE PROXY WILL BE VOTED "FOR" THE PROPOSALS.
Change of Address or [ ]
Comments, mark here:
----------------------------- ----------------------------------------- -----------------, 2004
Signature of Shareholder Signature of Additional Shareholder Dated
Please sign your name exactly as it appears hereon. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name
by president or other authorized officer. If a partnership, please sign in partnership name by authorized
person.
V-ONE Corporation
Proxy for Annual Meeting of Shareholders on May 13, 2004
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Margaret E. Grayson and Merle B. Miller,
or either of them with full power of substitution, as the lawful proxies of the
undersigned and hereby authorizes them to represent and to vote as designated on
the reverse all shares of common stock and preferred stock of V-ONE Corporation
("Company") that the undersigned would be entitled to vote if personally present
at the Annual Meeting of Shareholders of the Company to be held on May 13, 2004
and at any adjournment thereof. This Proxy, when properly executed, will be
voted in the manner directed herein by the undersigned shareholder. If no
direction is given, this Proxy will be voted FOR the matters listed on the
reverse. Whether or not you plan to attend the meeting, you are urged to execute
and return this Proxy which may be revoked at any time prior to its use.
(Continued and to be signed on other side.)