UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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STRONGHOLD TECHNOLOGIES, INC.
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STRONGHOLD TECHNOLOGIES, INC.
106 ALLEN ROAD
BASKING RIDGE, NEW JERSEY 07920
To Our Stockholders:
You are most cordially invited to attend the 2003 Annual Meeting of
Stockholders of Stronghold Technologies, Inc. at 9:00 A.M., local time, on July
22, 2003, at the Company's principal executive offices at 106 Allen Road,
Basking Ridge, New Jersey 07920.
The Notice of Meeting and Proxy Statement on the following pages
describe the matters to be presented to the meeting.
It is important that your shares be represented at this meeting to
assure the presence of a quorum. Whether or not you plan to attend the meeting,
we hope that you will have your stock represented by signing, dating and
returning your proxy in the enclosed envelope, which requires no postage if
mailed in the United States, as soon as possible. Your stock will be voted in
accordance with the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
/s/ Christopher J. Carey
-------------------------------------
Christopher J. Carey
President and Chief Executive Officer
STRONGHOLD TECHNOLOGIES, INC.
106 ALLEN ROAD
BASKING RIDGE, NEW JERSEY 07920
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 22, 2003
The Annual Meeting of Stockholders (the "Meeting") of Stronghold
Technologies, Inc., a Nevada corporation (the "Company"), will be held at the
Company's principal executive offices at 106 Allen Road, Basking Ridge,, New
Jersey, on July 22, 2003, at 9:00 A.M., local time, for the following purposes:
(1) To elect five Directors to serve until the next Meeting of Stockholders
and until their respective successors shall have been duly elected and
qualified;
(2) To amend the Company's 2002 Stock Incentive Plan to increase the
maximum aggregate number of shares of common stock, $0.0001 par value
(the "Common Stock"), available for issuance thereunder from 300,000 to
1,600,000 shares and to reserve an additional 1,300,000 shares of
common stock for issuance in connection with such increase for
restricted stock awards to be granted under the 2002 Stock Incentive
Plan;
(3) To amend the Company's 2002 California Stock Incentive Plan to increase
the maximum aggregate number of shares of Common Stock available for
issuance thereunder from 100,000 to 200,000 shares and to reserve an
additional 100,000 shares of Common Stock for issuance in connection
with such increase for restricted stock awards to be granted under the
2002 California Stock Incentive Plan;
(4) To ratify the appointment of Rothstein, Kass & Company, P.C. as
independent auditors for the year ending December 31, 2003; and
(5) To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
Holders of the Company's Common Stock, Series A $1.50 Convertible
Preferred Stock and Series B $0.90 Convertible Preferred Stock of record at the
close of business on June 12, 2003, are entitled to notice of and to vote at the
Meeting, or any adjournment or adjournments thereof. A complete list of such
stockholders will be open to the examination of any stockholder at the Company's
principal executive offices at 106 Allen Road, Basking Ridge, New Jersey for a
period of 10 days prior to the Meeting and will be available for examination at
the Meeting. The Meeting may be adjourned from time to time without notice other
than by announcement at the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE
NUMBER OF SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL
ENSURE A QUORUM AND SAVE THE COMPANY THE EXPENSE OF FURTHER SOLICITATION. EACH
PROXY GRANTED MAY BE REVOKED BY THE STOCKHOLDER APPOINTING SUCH PROXY AT ANY
TIME BEFORE IT IS VOTED. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR
SHARES ARE REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD
SHOULD BE SIGNED AND RETURNED TO ENSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
/s/ Christopher J. Carey
-------------------------------------
Christopher J. Carey
Secretary
Basking Ridge, New Jersey
June 23, 2003
THE COMPANY'S 2002 ANNUAL REPORT ACCOMPANIES THIS PROXY STATEMENT.
STRONGHOLD TECHNOLOGIES, INC.
106 ALLEN ROAD
BASKING RIDGE, NEW JERSEY 07920
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PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Stronghold Technologies, Inc. (the "Company") of
proxies to be voted at the Meeting of Stockholders of the Company to be held on
July 22, 2003 (the "Meeting"), at the Company's executive offices at 106 Allen
Road, Basking Ridge, New Jersey, at 9:00 A.M., local time, and at any
adjournment or adjournments thereof. Holders of record of our common stock,
$0.0001 par value per share ("Common Stock"), Series A $1.50 Convertible
Preferred Stock, $0.0001 par value per share ("Series A Preferred") and Series B
$0.90 Convertible Preferred Stock, $0.0001 par value per share ("Series B
Preferred"), as of the close of business on June 12, 2003 ("Record Date"), will
be entitled to notice of and to vote at the Meeting and any adjournment or
adjournments thereof. As of that date, there were 10,460,333 shares of our
Common Stock issued and outstanding and entitled to vote, 2,002,750 shares of
our Series A Preferred issued and outstanding and entitled to vote and 2,444,444
shares of our Series B Preferred issued and outstanding and entitled to vote.
Such shares of Series A Preferred were, as of the Record Date, convertible into
2,002,750 shares of Common Stock and such shares of Series B Preferred were, as
of the Record Date, convertible into 2,444,444 shares of Common Stock. Each
share of Common Stock is entitled to one vote on any matter presented at the
Meeting. Each share of Series A Preferred and Series B Preferred is entitled to
one vote per share on any matter presented at the Meeting, on an as converted to
Common Stock basis. The aggregate number of Common Stock votes entitled to be
cast at the Meeting is 14,907,527, including the 4,447,194 shares underlying the
Series A Preferred and Series B Preferred to be voted on an as converted to
Common Stock basis. The holders of all classes of stock will vote as a single
class for all proposals generally.
If proxies in the accompanying form are properly executed and returned,
the shares of Common Stock, Series A Preferred and Series B Preferred
represented thereby will be voted in the manner specified therein. If not
otherwise specified, the shares of Common Stock, Series A Preferred and Series B
Preferred represented by the proxies will be voted: (i) FOR the election of the
five nominees named below as Directors; (ii) FOR the proposal to amend our 2002
Stock Incentive Plan to increase the maximum aggregate number of shares of
Common Stock available for issuance thereunder from 300,000 to 1,600,000 shares
and to reserve an additional 1,300,000 shares of our Common Stock for issuance
in connection with such increase for restricted stock awards to be granted under
the 2002 Stock Incentive Plan; (iii) FOR the proposal to amend our 2002
California Stock Incentive Plan to increase the maximum aggregate number of
shares of Common Stock available for issuance thereunder from 100,000 to 200,000
shares and to reserve an additional 100,000 shares of our Common Stock for
issuance in connection with such increase for restricted stock awards to be
granted under the 2002 California Stock Incentive Plan; (iv) FOR the
ratification of the appointment of Rothstein, Kass & Company, P.C., as
independent auditors for the year ending December 31, 2003; and (v) in the
discretion of the persons named in the enclosed form of proxy, on any other
proposals which may properly come before the Meeting or any adjournment or
adjournments thereof. Any stockholder who has submitted a proxy may revoke it at
any time before it is voted, by written notice addressed to and received by the
Secretary of the Company, by submitting a duly executed proxy bearing a later
date or by electing to vote in person at the Meeting. The mere presence at the
Meeting of the person appointing a proxy does not revoke the appointment.
The presence, in person or by proxy, of holders of shares of Common
Stock, including the shares of Common Stock underlying the Series A Preferred
and Series B Preferred, to be voted on an as converted to Common Stock basis, in
the aggregate, having a majority of the votes entitled to be cast by such
holders at the Meeting, shall constitute a quorum with respect to all matters
except for the election of Directors. The affirmative vote by the holders of a
plurality of the shares of Common Stock represented at the Meeting, including
the shares of Common Stock underlying the Series A Preferred and Series B
Preferred to be voted on an as converted to Common Stock basis, is required for
the election of Directors, provided a quorum of such stockholders is present in
person or by proxy. Provided a quorum is present in person or by proxy, all
other actions proposed herein, other than the election of Directors, may be
taken upon the affirmative vote of stockholders possessing a majority of the
requisite voting power represented at the Meeting, unless otherwise stated in
this Proxy Statement.
Abstentions are included in the shares present at the Meeting for
purposes of determining whether a quorum is present, and are counted as a vote
against for purposes of determining whether a proposal is approved. Broker
non-votes (when shares are represented at the Meeting by a proxy specifically
conferring only limited authority to vote on certain matters and no authority to
vote on other matters) are included in the determination of the number of shares
represented at the Meeting for purposes of determining whether a quorum is
present but are not counted for purposes of determining whether a proposal has
been approved and thus have no effect on the outcome.
The Company was incorporated on September 8, 2000 in the State of
Nevada, under the name TDT Development, Inc. On May 16, 2002, the Company
acquired Stronghold Technologies, Inc., a New Jersey corporation (the
"Predecessor Entity"), pursuant to a merger (the "Merger") of such entity into
the Company's wholly-owned subsidiary, TDT Stronghold Acquisition Corp.
("Stronghold"). After the closing of the Merger, Stronghold, the survivor of the
Merger, changed its name to Stronghold Technologies, Inc. and remains the
Company's wholly-owned subsidiary. On July 11, 2002, the Company changed its
name from TDT Development, Inc. to Stronghold Technologies, Inc. All references
to "the Company" refer to the Company and to Stronghold, its wholly-owned
subsidiary, since the consummation of the Merger in May 2002, unless otherwise
noted.
This Proxy Statement, together with the related proxy cards, is being
mailed to the stockholders of the Company on or about June 23, 2003. The Annual
Report to Stockholders of the Company for the fiscal year ended December 31,
2002 ("Fiscal 2002"), including financial statements (the "Annual Report"), is
being mailed together with this Proxy Statement to all stockholders of record as
of June 12, 2003 at the Company's expense. In addition, the Company has provided
brokers, dealers, banks, voting trustees and their nominees, at the Company's
expense, with additional copies of the Annual Report so that such record holders
can supply such materials to beneficial owners as of June 23, 2003.
2
ELECTION OF DIRECTORS
At the Meeting, five (5) Directors are to be elected (which number
shall constitute the entire Board of Directors of the Company) to hold office
until the next Meeting of Stockholders and until their successors shall have
been elected and qualified.
It is the intention of the persons named in the enclosed form of proxy
to vote the stock represented thereby, unless otherwise specified in the proxy,
for the election as Directors of the persons whose names and biographies appear
below. All of the persons whose names and biographies appear below are at
present Directors of the Company. In the event any of the nominees should become
unavailable or unable to serve as a Director, it is intended that votes will be
cast for a substitute nominee designated by the Board of Directors. The Board of
Directors has no reason to believe that the nominees named will be unable to
serve if elected. Each of the nominees has consented to being named in this
Proxy Statement and to serve if elected.
The following are the nominees for election to the Board of Directors
and all are current members of the Board of Directors:
SERVED AS A POSITION WITH THE
NAME AGE DIRECTOR SINCE COMPANY
---- --- -------------- -------
Christopher J. Carey................ 50 2002 President, Chief Executive Officer
and Director
Robert J. Corliss................... 49 2002 Director
Robert Cox.......................... 61 2002 Director
William Lenahan..................... 51 2002 Director
Luis Delahoz........................ 42 2002 Director
The principal occupations and business experience, for at least the
past five (5) years, of each Director and nominee is as follows:
CHRISTOPHER J. CAREY has served as the President and Chief Executive
Officer of the Company and a Director of the Company since May 2002. Mr. Carey
is also the founder, President and Chief Executive Officer of Stronghold, the
Company's wholly-owned subsidiary. Since founding Stronghold in 2000, Mr. Carey
has set the strategic direction and corporate vision for Stronghold, drawing on
over 25 years of experience building successful, technology-focused businesses.
From 1976 until 1996, Mr. Carey was the President and Chief Executive Officer of
Datatec Industries, Inc., which became North America's largest specialist in the
rapid deployment of network and computing systems. After negotiating a merger
with Glasgal Communications in 1996, Mr. Carey became the President of Datatec
Systems, Inc., the combined entity until May 2002. Mr. Carey is currently a
member of Board of Trustees of The Albert Dorman Honors College, New Jersey
Institute of Technology, and a past Chairman of the New Jersey Chapter of the
Young President's Organization.
ROBERT J. CORLISS has been a Director of the Company since May 2002.
Mr. Corliss has been, since 1998, the President and Chief Executive Officer of
the Athlete's Foot Group, Inc., a privately owned, 800-store retail chain with
operations in 50 countries. Since 1999, Mr. Corliss has been a member of the
board of Kahala Corporation, a publicly traded franchising corporation dedicated
to the design, development and marketing of quick service restaurants serving
nutritious products. From 1996 until 1998, Mr. Corliss was the President and
Chief Executive Officer of Infinity Sports, Inc., a manufacturer, distributor
and licensor of athletic products primarily under the brand Bike Athletic. Prior
to founding Infinity Sports, Inc., Mr. Corliss was the Chief Executive Officer
and President of Hermann's Sporting Goods retail chain. Mr. Corliss is very
active in the sporting goods industry and serves on the Board of Directors of
The Athlete's Foot Group, Inc. He is on the Advisory Council for the Sporting
Goods Manufacturers Association's recently announced Physical Education for
Progress (P.E.P.) initiative. Additionally, Mr. Corliss serves as a Director and
Executive Committee member of the National Retail Federation and the National
Retail Foundation and serves on the Board of Directors for The World Federation
of the Sporting Goods Industry. Mr. Corliss is also an Advisor for Emory
University's Goizueta Business School.
3
ROBERT COX has been a Director of the Company since May 2002. Mr. Cox
is a retired business executive. From 1996 until 2000, Mr. Cox served as the
President and a Director of Summit Bancorp, a $39 billion NJ bank holding
company. Mr. Cox was the Chief Executive Officer of The Summit Bancorporation
from 1994 until 1996, when Summit Bancorporation merged into UJB Financial. Mr.
Cox is currently a member the Board of Trustees of NJ SEEDS, a statewide
educational not-for-profit. Mr. Cox also sits on the Board of Directors of the
Bay View Bank and the Bay View Capital Corporation in San Mateo, CA. Active in
New Jersey's business and community service organizations, Mr. Cox is a former
Chairman of the New Jersey Bankers Association (NJBA) and is an honorary
Chairman of its Board of Directors.
WILLIAM LENAHAN has been a Director of the Company since May 2002. Mr.
Lenahan has been the Chief Executive Officer of KMC Telecom Holdings, Inc. since
2000. KMC is a $500 million nationwide provider of next generation
telecommunications, including outsourcing services, consulting and financing for
metro access and advanced voice, data and Internet services to business
customers. Mr. Lenahan was the President and CEO of BellSouth Wireless Data
(currently Cingular Wireless) from 1984 to 2000, responsible for financial
performance and nationwide wireless data strategy for this division of BellSouth
Corporation. Mr. Lenahan has served nearly 30 years in the information
technology, telecommunications and data industries. He also presently serves on
the Board of Directors of Broadbeam Corporation.
LUIS DELAHOZ has been a Director of the Company since May 2002. Mr.
Delahoz has been the President of Centra Industries, Inc., the principal
operating subsidiary of RAKO Capital Corporation, since May 2003. From September
2001 to April 2003, Mr. Delahoz was the President and Chief Executive Officer of
TWS International, Inc., a provider of consulting services to the
telecommunications industry. From 1998 until 2001, Mr. Delahoz was the Executive
Vice President of Client Soft, Inc., a provider of e-business solutions. In
1996, Mr. Delahoz co-founded TOC Global Communications, Inc., where he served as
Vice President until 1998. Mr. Delahoz is a former member of the Board of
Directors of TWS, Inc. and TWS International, Inc. Stanford Financial Group is
the majority stockholder of TWS International, Inc. and is affiliated with
Stanford Venture Capital Holdings, Inc. ("Stanford"), a major stockholder of the
Company. In accordance with the Stockholders' Agreement dated May 16, 2003, by
and among Stanford, Christopher J. Carey and Mary Carey, Stanford has the right
to appoint one (1) Director. Luis Delahoz, one of the Company's outside
Directors, is Stanford's representative on the Company's Board of Directors.
None of the Company's Directors are related to any other Director or to
any executive officer of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF
THE NOMINEES FOR THE BOARD OF DIRECTORS.
4
COMMITTEES AND MEETINGS OF THE BOARD
The Company's Board of Directors currently consists of Christopher J.
Carey, who serves as Chairman, Robert J. Corliss, Robert Cox, Luis Delahoz and
William Lenahan. The Company's By-Laws currently provide that the total number
of Directors comprising its Board of Directors shall be such number as is fixed
by its Board of Directors, but in no event less than one (1). The Company's
Board of Directors has provided that its full Board of Directors shall be
comprised of five (5) Directors.
There were two (2) regular meetings of the Board of Directors during
Fiscal 2002. During this period, each incumbent Director attended at least 75%
of the aggregate of: (i) the total number of meetings of the Board of Directors
(held during the period for which such person has been a Director during 2002);
and (ii) the total number of meetings held by all committees of the Board of
Directors on which each such Director served (held during the period for which
such person has been a Director and member of such committee during 2002).
The Board of Directors has three (3) standing committees: the
Compensation Committee, the Governance/Nominating Committee and the Audit
Committee.
COMPENSATION COMMITTEE. The Compensation Committee currently consists
of Messrs. Lenahan, who serves as Chairman, Corliss, Cox and Delahoz. The
Compensation Committee was created in July of 2002 and held two (2) meetings in
Fiscal 2002. The Compensation Committee establishes the compensation policies
applicable to our executive officers and administered the Company's 2000 Stock
Option Plan, and currently administers and grants stock options pursuant to the
Company's 2002 Stock Incentive Plan and the 2002 California Stock Incentive
Plan.
GOVERNANCE/NOMINATING COMMITTEE. The Governance/Nominating Committee
currently consists of Messrs. Lenahan, who serves as Chairman, Corliss, Cox and
Delahoz. The Governance/Nominating Committee was created in July of 2002 and
held two (2) meetings in Fiscal 2002. The Governance/Nominating committee
oversees Board of Directors procedures and nominates prospective members of the
Board of Directors should a vacancy arise. The Governance/Nominating Committee
will consider nominees for the Board of Directors suggested by stockholders
whose names are submitted in writing to the Governance/Nominating Committee in
care of the office of the Corporate Secretary of the Company.
AUDIT COMMITTEE. The Audit Committee currently consists of Messrs.
Lenahan, who serves as Chairman, Corliss, Cox and Delahoz. The Audit Committee
was created in July of 2002 and held two (2) meetings in Fiscal 2002. The
primary responsibilities of the Audit Committee include: (i) evaluating and
recommending to the Board of Directors the engagement of the Company's
independent auditors; (ii) reviewing the results of their audit findings; (iii)
reviewing the Company's periodic reports filed with the Securities and Exchange
Commission; and (iv) monitoring on a periodic basis the internal controls of the
Company. Such responsibilities are more fully set forth in the Audit Committee
Charter adopted by the Company on July 17, 2002, and is attached hereto as
APPENDIX A.
Each Audit Committee Member, with the exception of Mr. Delahoz, is an
independent member of the Board of Directors as defined in Rule 4200(a)(14) of
the National Association of Securities Dealers' listing standards. As an
independent Director of the Company's Board of Directors, each Audit Committee
Member, with the exception of Mr. Delahoz, is not an officer or employee of the
Company or its subsidiaries or does not have a relationship which, in the
opinion of the Board of Directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a Director. From
September 2001 to April 2003, Mr. Delahoz was the President and Chief Executive
Officer of TWS International, Inc. Stanford Financial Group is the majority
stockholder of TWS International, Inc; and Stanford is a major stockholder of
the Company. In accordance with the Stockholders' Agreement dated May 16, 2003,
by and among Stanford, Christopher J. Carey and Mary Carey, Stanford has the
right to appoint one (1) Director. Luis Delahoz, one of the Company's outside
Directors, is Stanford's representative on the Company's Board of Directors.
5
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Company's Board of Directors is composed of
four (4) members and acts under a written charter first adopted and approved in
July of 2002. A copy of this charter is attached to this Proxy Statement as
Appendix A. Each of the members of the Audit Committee, other than Mr. Delahoz,
are independent Directors, as defined by its charter and the rules of the Nasdaq
Stock Market. The Audit Committee held two (2) meetings during the fiscal year
ended 2002.
The Audit Committee reviewed the Company's audited financial statements
for the fiscal year ended 2002 and discussed these financial statements with the
Company's management. Management is responsible for the Company's internal
controls and the financial reporting process. The Company's independent
auditors, Rothstein, Kass & Company, P.C., are responsible for performing an
independent audit of the Company's financial statements in accordance with
generally accepted accounting principles and for issuing a report on those
financial statements. As appropriate, the Audit Committee reviews and evaluates,
and discusses with the Company's management, internal accounting, financial and
auditing personnel and the independent auditors, the following:
o the plan for, and the independent auditors' report on, each audit of
the Company's financial statements;
o the Company's financial disclosure documents, including all financial
statements and reports filed with the Securities and Exchange
Commission or sent to shareholders;
o management's selection, application and disclosure of critical
accounting policies; o changes in the Company's accounting practices,
principles, controls or methodologies;
o significant developments or changes in accounting rules applicable to
the Company; and
o the adequacy of the Company's internal controls and accounting,
financial and auditing personnel.
The Audit Committee also reviewed and discussed the audited financial
statements and the matters required by Statement on Auditing Standards 61
(Communication with Audit Committees) with Rothstein, Kass & Company, P.C., the
Company's independent auditors. SAS 61 requires the Company's independent
auditors to discuss with the Company's Audit Committee, among other things, the
following:
o methods to account for significant unusual transactions;
o the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
o the process used by management in formulating particularly sensitive
accounting estimates and the basis for the auditors' conclusions
regarding the reasonableness of those estimates; and disagreements with
management over the application of accounting principles, the basis for
management's accounting estimates and the disclosures in the financial
statements.
The Company's independent auditors also provided the Audit Committee
with the written disclosures and the letter required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees).
Independence Standards Board Standard No. 1 requires auditors annually to
disclose in writing all relationships that in the auditor's professional opinion
may reasonably be thought to bear on independence, confirm their perceived
independence and engage in a discussion of independence. The Audit Committee
discussed with the independent auditors the matters disclosed in this letter and
their independence from the Company. The Audit Committee also considered whether
the independent auditors' provision of the other, non-audit related services to
the Company which are referred to in the section entitled "Independent Auditors'
Fees and Other Matters", is compatible with maintaining such auditors'
independence.
6
Based on its discussions with management and the independent auditors,
and its review of the representations and information provided by management and
the independent auditors, the Audit Committee recommended to the Company's Board
of Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-KSB for the year ended 2002.
By the Audit Committee of the Board of Directors of
Stronghold Technologies, Inc.
(as currently constituted)
William Lenahan
Audit Committee Chairman
Robert J. Corliss
Audit Committee Member
Robert Cox
Audit Committee Member
Luis Delahoz
Audit Committee Member
COMPENSATION OF DIRECTORS
No member of the Board of Directors has received any compensation in
Fiscal 2002. Upon the initial election to the Board of Directors, each
non-employee Director will receive an option grant to purchase 40,000 shares of
Common Stock, which will vest 50% on each of the first and second anniversaries
of the date of grant. In addition, each non-employee Director is granted, on an
annual basis, an option to purchase 30,000 shares of Common Stock, which will
vest 50% on each of the first and second anniversaries of the date of grant. All
stock options granted to members of the Board of Directors will have an exercise
price equal to the fair market value of the Common Stock on the date of grant.
The Company also reimburses Directors for reasonable out-of-pocket expenses
incurred in attending meetings of the Board of Directors and any meetings of its
committees. The Company has not yet granted any of the foregoing options to the
Board of Directors, but intends to do so as soon as reasonably practicable,
provided the stockholders approve the proposal to amend the Company's 2002 Stock
Incentive Plan to increase the maximum aggregate number of shares of Common
Stock available for issuance thereunder.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company is not subject to Section 16(a) of the Exchange Act because
it is not subject to the reporting requirements of Section 12(g) of the Exchange
Act.
7
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the
Company:
CAPACITIES IN HELD POSITION
NAME AGE WHICH SERVED SINCE
---- --- ------------ -----
Christopher J. Carey(1)............... 50 President and Chief 2002
Executive Officer
Lenard Berger(2)...................... 33 Chief Technology Officer 2002
and Vice President
James Cummiskey(3).................... 38 Former Vice President of 2002
Sales and Marketing
Salvatore D'Ambra(4).................. 42 Chief Engineer and Vice 2002
President
We are currently in the process of recruiting a new Chief Financial
Officer. Christopher J. Carey, the Company's current President and Chief
Executive Officer, has agreed to serve in such capacity pending the appointment
of a successor and to assist in an orderly transition process.
-----------
(1) Christopher J. Carey has served as the President and Chief Executive
Officer of the Company and a Director of the Company since May 2002.
Mr. Carey is also the founder, President and Chief Executive Officer of
Stronghold, the Company's wholly-owned subsidiary.
(2) Lenard Berger has served as the Chief Technology Officer and Vice
President of the Company since May 2002. Mr. Berger is also the Chief
Technology Officer and Vice President of Stronghold. Prior to the
founding of Stronghold's Predecessor Entity in 2000, Mr. Berger was the
President of eBNetworks, a division of Computer Horizons, Inc. From
1990 until 1999, Mr. Berger was the Vice President of RPM Consulting,
Inc.
(3) James Cummiskey served as the Vice President of Sales and Marketing of
the Company from May 2002 until January 2003. James Cummiskey was
terminated by the Board of Directors as of January 27, 2003. Mr.
Cummiskey was also the Vice President of Sales and Marketing of
Stronghold during that period. Prior to the founding of Stronghold's
predecessor entity in 2000, Mr. Cummiskey was the Vice President of
Sales and Marketing for Payback Training Systems, Inc. From 1996 until
1998, Mr. Cummiskey was the Vice President of Sales and Marketing for
Datatec Industries, Inc.
(4) Salvatore D'Ambra has served as the Vice President and Chief Engineer
of the Company since May 2002. Mr. D'Ambra is also the Vice President
and Chief Engineer of Stronghold. Prior to the founding of Stronghold's
predecessor entity in 2000, Mr. D'Ambra was the President and Chief
Executive Officer of Pagecount, Inc. From 1985 until 1996, Mr. D'Ambra
was a Professor of Graduate Engineering at Loyola College of Maryland.
None of the Company's executive officers is related to any other
executive officer or to any Director of the Company. Executive officers of the
Company are elected annually by the Board of Directors and serve until their
successors are duly elected and qualified.
8
EXECUTIVE COMPENSATION
Summary of Compensation in Fiscal 2002, 2001 and 2000.
The following Summary Compensation Table sets forth information
concerning compensation during Fiscal 2002, including the interim period from
October 31, 2001 through December 31, 2001 (on March 1, 2002, the Board of
Directors changed the Company's fiscal year from October 31 to December 31), the
year ended October 31, 2001 ("Fiscal 2001"), and the year ended October 31, 2000
("Fiscal 2000") for services in all capacities awarded to, earned by or paid to:
(i) each person who served as the Company's Chief Executive Officer at any time
during Fiscal 2002; (ii) those executive officers of the Company other than the
Chief Executive Officer who were serving as executive officers at the end of
Fiscal 2002; and (iii) those individuals for whom disclosure would have been
provided but for the fact that the individual was not serving as an executive
officer of the Company at the end of Fiscal 2002 (collectively, the "Named
Executives"). The Company has not paid any salaries or bonuses to any of our
officers from our inception through the date hereof. All of the Company's
executive officers also serve as officers of and are paid by the Company's
operating subsidiary, Stronghold.
Greg Sargen notified the Company of his intention to resign as the
Company's Chief Financial Officer, effective December 2, 2002. Mr. Sargen served
as the Company's Chief Financial Officer from November 18, 2002, until December
2, 2002. The Company is currently in the process of recruiting a new Chief
Financial Officer. Christopher J. Carey, the Company's current President and
Chief Executive Officer, has agreed to serve in such capacity pending the
appointment of a successor and to assist in an orderly transition process.
SUMMARY COMPENSATION TABLE
--------------------------------------------- ---------- ------------------------------------------- ----------------
Annual Compensation
------------- ----------- -----------------
Other Annual All Other
Salary Bonus Compensation Compensation
Name and Principal Position Year ($) ($) ($) ($)
(a) (b) (c) (d) (e) (i)
--------------------------------------------- ---------- ------------- ----------- ----------------- ----------------
FORMER OFFICERS AND DIRECTORS(1)
Pietro Bortolatti...................... 2002 $ -- $ -- $ -- $ --
President, Chief Executive Officer 2001 -- -- 20,500(2) --
and Chairman of the Board 2000 -- -- 4,000(2) --
--------------------------------------------- ---------- ------------- ----------- ----------------- ----------------
Tiziana DiRocco........................ 2002 -- -- -- --
Vice President and Director of 2001 -- -- 15,370(2) --
European Operations 2000 -- -- 20,800(2) --
--------------------------------------------- ---------- ------------- ----------- ----------------- ----------------
David Rector........................... 2002 -- -- -- --
Director 2001 -- -- -- 16,224(3)
2000 -- -- -- 37,677(3)
--------------------------------------------- ---------- ------------- ----------- ----------------- ----------------
Gregory Sargen......................... 2002 13,985 -- -- --
Chief Financial Officer 2001 -- -- -- --
2000 -- -- -- --
--------------------------------------------- ---------- ------------- ----------- ----------------- ----------------
CURRENT OFFICERS
Christopher J. Carey(4)............... 2002 264,000 -- -- 9,600
President, Chief Executive Officer 2001 165,000 -- -- 6,600
and Chairman of the Board 2000 -- -- -- --
--------------------------------------------- ---------- ------------- ----------- ----------------- ----------------
Lenard Berger(5)...................... 2002 160,416 22,558 28,025 7,100
Vice President and Chief Technology 2001 150,000 -- 2,804 7,150
Officer 2000 52,500 -- -- 3,300
--------------------------------------------- ---------- ------------- ----------- ----------------- ----------------
Salvatore D'Ambra(6).................. 2002 121,397 -- 8,000 6,600
Vice President - Development 2001 106,782 -- 2,818 6,600
2000 48,875 -- -- 3,300
--------------------------------------------- ---------- ------------- ----------- ----------------- ----------------
James J. Cummiskey(7)................. 2002 195,763 -- 20,000 6,830
Vice President - Sales and Marketing 2001 184,500 -- 2,786 6,250
2000 72,436 -- -- 2,296
--------------------------------------------- ---------- ------------- ----------- ----------------- ----------------
9
---------
(1) On May 16, 2002, Stronghold, the wholly-owned subsidiary of the Company,
merged with the Predecessor Entity. Pursuant to the Merger, the stockholders of
the Predecessor Entity acquired a controlling interest in the Company. As a
condition to the Merger, the Company's existing executive officers were required
to resign and a new management team resumed operations.
(2) Commissions on sales from Terre di Toscana, Inc., and Terres Toscanas, Inc.
(3) Includes consulting service fees paid to the David Stephen Group, of which
David Rector, a former Director of the Company, is a principal.
(4) Christopher J. Carey became the President and Chief Executive Officer of the
Company since the Merger. Mr. Carey also remains the President, Chief Executive
Officer and the sole Director of Stronghold. Mr. Carey's base salary from May
15, 2002 until December 31, 2002 was $260,000, as set forth in his Employment
Agreement that was assumed by the Company. The terms of Mr. Carey's Employment
Agreement are more fully set forth below. "All Other Compensation" consists
solely of the reimbursement of automobile expenses. All of Mr. Carey's salary
for 2002 has been deferred and accrued.
(5) Lenard Berger has been the Vice President and Chief Technology Officer of
the Company since the Merger, and holds the same positions at Stronghold. Mr.
Berger's base salary for the period of July 2001 through July 2002 was $112,000,
as set forth in his Employment Agreement that was assumed by the Company. As of
July 2002, Mr. Berger's salary increased to $122,000. The terms of Mr. Berger's
Employment Agreement are more fully set forth below. "Other Annual Compensation"
consists solely of sales commissions. "All Other Compensation" consists solely
of the reimbursement of automobile expenses.
(6) Salvatore D'Ambra has been the Vice President - Development of the Company
since the Merger, and holds the same position at Stronghold. Mr. D'Ambra's base
salary for the period of August 2001 through August 2002 was $150,000, as set
forth in his Employment Agreement that was assumed by the Company. As of August
2002, Mr. D'Ambra's salary increased to $175,000. The terms of Mr. D'Ambra's
Employment Agreement are more fully set forth below. "Other Annual Compensation"
consists solely of sales commissions. "All Other Compensation" consists solely
of the reimbursement of automobile expenses. $4,667 of Mr. D'Ambra's salary for
2002, representing a retroactive pay increase for November and December of 2002,
has been deferred and is payable as funds allow.
(7) James J. Cummiskey was the Vice President - Sales and Marketing of the
Company since the Merger until January 2003, and held the same position at
Stronghold during this period. Mr. Cummiskey's base salary for the period of
August 2001 through August 2002 was $192,000, as set out in his Employment
Agreement that was assumed by the Company. As of August 2002, Mr. Cummiskey's
salary increased to $195,763. The terms of Mr. Cummiskey's Employment Agreement
are more fully set forth below. "Other Annual Compensation" consists solely of
sales commissions. "All Other Compensation" consists solely of the reimbursement
of automobile expenses. James Cummiskey was terminated by the Board of Directors
as of January 27, 2003.
10
OPTIONS GRANTS IN 2002
The Predecessor Entity granted options to its Named Executives during
Fiscal 2000. When the Company acquired the Predecessor Entity on May 16, 2002,
the Company assumed the 2000 Stock Option Plan of the Predecessor Entity, and
each outstanding option was automatically converted into an option to acquire,
on the same terms and conditions as were applicable under the original option,
such number of shares of the Company's Common Stock as was equal to the number
of existing options multiplied by 2.1875. The exercise price was also adjusted
to the exercise price that was equal to the existing exercise price divided by
2.1875. Such replacement shares were issued under the 2002 Stock Incentive Plan.
The following table sets forth information concerning individual grants
of stock options made pursuant to the exchange of options issued pursuant to the
2000 Stock Option Plan for options issued pursuant to the 2002 Stock Incentive
Plan during Fiscal 2002 to each of the named executive officers. The Company has
never granted any stock appreciation rights. Due to a lack of shares of Common
Stock available for issuance under the 2002 Stock Incentive Plan, the Company
has not yet granted any of the foregoing options to the Board of Directors. The
Company intends to do so as soon as reasonably practicable, provided the
stockholders approve the proposal to amend the Company's 2002 Stock Incentive
Plan to increase the maximum aggregate number of shares of Common Stock
available for issuance thereunder.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
NUMBER OF SECURITIES % OF TOTAL OPTIONS GRANTED EXERCISE OR BASE GRANT
NAME UNDERLYING OPTIONS TO EMPLOYEES IN 2002 PRICE ($/SH) DATE
---- ------------------- ------------------------- ------------- ----
Christopher J. Carey 437,500(1) 47% $1.50 5/5/02
Lenard Berger 100 * $1.50 8/20/02
Salvatore D'Ambra 100 * $1.50 8/20/02
James Cummiskey 100(2) * $1.50 8/20/02
* less than one percent
------------------
(1) On May 15, 2002, the Predecessor Entity granted options to purchase 200,000
shares of its common stock to Christopher J. Carey. These options were
assumed by the Company and converted into options to purchase 437,500
shares of Common Stock under the 2002 Stock Incentive Plan. While Mr. Carey
is employed by the Company, the options will vest on the earlier of: (i)
the seventh anniversary of May 15, 2002; or (ii) the achievement of the
performance goals based on the plan and budget approved by the Board of
Directors, as set forth below (amounts reflect the number of shares of
Predecessor Entity common stock, except for the column entitled "Cumulative
Options Vested As Converted"):
Total Options Vesting For Fiscal Year For Achieving the
Specified Percentage of the Planned EBITDA
TOTAL
CUMULATIVE OPTIONS
FISCAL YEAR ENDED 80-100% 100-120% OVER 120% VESTED AS CONVERTED
----------------- ------- -------- ---------- -------------------
(X 2.1875)
2002 27,300 52,500 87,500 87,500
2003 50,300 100,100 175,000 175,000
2004 50,300 100,100 175,000 175,000
(2) These options have since lapsed due to the termination of the employment of
Mr. Cummiskey.
11
Options granted to certain of the Predecessor Entity's named executive
officers in 2000 vest only if certain fiscal year net sales goals are/were
achieved for fiscal years 2002, 2003, and 2004. Certain options which were
subject to vesting based on net sales goals for fiscal years 2001 and 2002
failed to vest because the Predecessor Entity did not achieve the established
goals. Such unvested options, and any future unvested options, lapse and are not
subject to further vesting. The Company did not grant any options in Fiscal 2001
and Fiscal 2002 to its Named Executives, but it intends to grant options to the
Named Executives as soon as reasonably practicable in fiscal year 2003, subject
to stockholder approval of the proposal to amend the Company's 2002 Stock
Incentive Plan to increase the number of shares of Common Stock authorized for
issuance thereunder.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Christopher J. Carey
On May 15, 2002, the Company assumed the employment agreement that was
in place between Christopher J. Carey and the Predecessor Entity. Under the
terms of the agreement, Mr. Carey's employment as Chairman of the Board,
President and Chief Executive Officer of the Company will continue until
December 31, 2004, unless sooner terminated. Mr. Carey receives a base salary of
$260,000 per year. Such base salary was increased effective January 1, 2003, to
the annualized rate of $300,000 and will increase, effective January 1, 2004, to
the annualized rate of $350,000. Such salary will be reviewed annually and is
subject to increase as determined by the Board of Directors of the Company or
the Compensation Committee in its sole discretion.
Mr. Carey's employment agreement provides that for each fiscal year
after Fiscal 2002, Mr. Carey will be eligible to receive an annual bonus based
upon the Company meeting and exceeding its annual budget, as same has been
reviewed and approved by the Board of Directors for earnings before interest,
taxes, depreciation and amortization, referred to as EBITDA. This bonus will be
earned according to the following: (i) if the Company achieves 90-100% of
budgeted EBITDA, Mr. Carey will receive a bonus of 10% of his then current
annual base salary; (ii) if the Company achieves 101-110% of budgeted EBITDA,
Mr. Carey will receive a total bonus of 20% of his then current annual base; and
(iii) if the Company achieves 111-120% of budgeted EBITDA, Mr. Carey will
receive a total bonus of 30% of his then current annual base salary; (iv) if the
Company achieves 121-130% of budgeted EBITDA, Mr. Carey will receive a total
bonus of 40% of his then current annual base salary; (v) if the Company achieves
131-140% of budgeted EBITDA, Mr. Carey will receive a total bonus of 50% of his
then current annual base salary; (vi) if the Company achieves 141-150% of
budgeted EBITDA, Mr. Carey will receive a total bonus of 55% of his then current
annual base salary; and (vii) if the Company achieves 151% or more of budgeted
EBITDA, Mr. Carey will receive a total bonus of 60% of his then current annual
base salary. The bonus, if any, shall be paid in one lump sum within sixty (60)
days after the close of the fiscal year for which it was earned.
In accordance with his employment agreement, the Predecessor Entity
granted to Mr. Carey stock options under the 2000 Stock Option Plan for the
purchase of an aggregate of 200,000 shares of the Predecessor Entity's common
stock at an option exercise price equal to $1.50 per share, the fair market
value of the underlying common stock on the date of the grant. Such options
converted into an option to purchase 437,500 shares of the Company's Common
Stock when the Company merged with the Predecessor Entity and the Company's
wholly-owned subsidiary, Stronghold, assumed the 2000 Stock Option Plan. These
options were then assumed by the Company and converted into 437,500 shares
issued under the 2002 Stock Incentive Plan. While Mr. Carey is employed by the
Company, the option will become exercisable on the earlier of: (i) the seventh
anniversary of May 15, 2002; or (ii) the achievement of the performance goals
set forth above in the above Section entitled "Option Grants in 2002".
Upon a change in control of the Company, the unvested portion of the
options shall immediately vest and become exercisable by Mr. Carey.
If the Company terminates Mr. Carey's employment (i) after the
expiration of the term of employment; or (ii) with cause; or if Mr. Carey
resigns for no good reason, he will receive all accrued compensation and vested
benefits. If the Company terminates his employment without cause, Mr. Carey will
receive all unpaid accrued compensation, vested benefits and a severance benefit
equal to his base salary until the earlier of the balance of the term of his
agreement, the renewal term or twelve (12) months following the date of
termination.
12
Mr. Carey's agreement contains a confidentiality provision and further
provides that Mr. Carey may not work for, or hold 1% or more of the outstanding
capital stock of a publicly traded corporation, which is a competing business
anywhere in the world for one year after the conclusion of his employment.
Lenard Berger
On August 1, 2000, the Predecessor Entity entered into an employment
agreement with Lenard Berger, which the Company assumed. Under the terms of the
agreement, Mr. Berger's employment as Vice President, Chief Technology Officer
will continue until July 31, 2005 unless sooner terminated. Mr. Berger received
a base salary of $10,500 per month during the first six months of the term of
the agreement and $12,500 per month commencing February 1, 2001. During the
second year of the term of the agreement, Mr. Berger's base salary will be
$150,000, but may increase to $175,000 if the Company's Net Sales, as defined
below, achieved in the first year of the term of the agreement equal or exceed
$2,000,000. During the third year of the term of the agreement, Mr. Berger's
base salary will be $175,000, but may increase to $200,000 if the Company's Net
Sales, as defined below, achieved in the second year of the term of the
agreement equal or exceed $10,000,000. During the fourth and fifth years of the
term of his agreement, Mr. Berger's base salary will be increased annually by a
percentage determined by the Consumers Price Index. Beginning his second year of
employment, Mr. Berger is eligible for a commission not to exceed $50,000 for
any year during the balance of the term of the agreement. The commission is
equal to 1% of Net Sales, which is determined by subtracting certain costs from
the gross sales of products and services. Mr. Berger is also eligible to receive
extra compensation at the discretion of the Company's Board of Directors, a car
allowance and any insurance and 401(k) plans provided by the employer.
Pursuant to his employment agreement, Mr. Berger received options to
purchase 100,000 shares of the Predecessor Entity's common stock. Such options
converted into options to purchase 218,750 shares of the Company's Common Stock
when the Company merged with the Predecessor Entity. These options to purchase
218,750 shares of Common Stock were issued under the 2002 Stock Incentive Plan.
The vesting schedule for such grant is set forth above under the section
entitled "Option Grants in 2002". Upon a change of control of the Company, 50%
of any unvested options shall become vested and exercisable immediately. If the
Company registers shares of Common Stock in an initial public offering, Mr.
Berger has the right to include any shares of Common Stock that he owns in the
registration.
If the Company terminates Mr. Berger's employment without cause, he
will receive payment of his base salary in effect at the time of his termination
for a period of one month, if termination occurs during the first six months of
the initial term of the agreement and the lesser of (x) base salary payable for
the balance of the term of the agreement or (y) two months base salary, if
termination occurs during the second six months during the initial term of the
agreement. If Mr. Berger resigns for good reason after the first full year of
employment, Mr. Berger shall receive as his severance pay the lesser of (x) base
salary payable for the balance of the then existing term of the agreement or (y)
two months' base salary, plus one week's base salary for each full or part year
worked after the first year of employment. In addition, Mr. Berger's employment
agreement provided that he would be paid his allocable share of the "Accumulated
Adjustments Account" of the Predecessor Entity, which was his share of any
amounts taxable to S Corporation stockholders but not fully distributed to such
stockholders.
Mr. Berger's agreement provides that all rights to discoveries,
inventions, improvements, and innovations related to the Company's business that
originates during the term of Mr. Berger's employment will be the exclusive
property of the Company. Mr. Berger's agreement also contains a confidentiality
provision and further provides that Mr. Berger may not work for or hold 5% or
more of the outstanding capital stock of a publicly traded corporation, which is
a competing business anywhere in the world for one year after the conclusion of
his employment.
Salvatore D'Ambra
On July 10, 2000, the Predecessor Entity entered into an employment
agreement with Salvatore D'Ambra, which the Company assumed. Under the terms of
the agreement, Mr. D'Ambra's employment as Vice President, Development will
continue until July 9, 2005 unless sooner terminated. Mr. D'Ambra's base salary
is $102,000, $112,000 and $122,000 for his first, second and third years of
employment, respectively. Thereafter, Mr. D'Ambra's base salary will be
increased annually by a percentage determined by the Consumers Price Index.
Beginning his second year of employment, Mr. D'Ambra is also eligible for a
commission not to exceed $8,000 for the second year of the term of the agreement
and $28,000 for any year during the balance of the term of the agreement. The
commission is equal to 1% of net sales, as defined above. Mr. D'Ambra is also
eligible to receive extra compensation at the discretion of the Board of
Directors, a car allowance and any insurance and 401(k) plans provided by the
employer.
13
Mr. D'Ambra received options to purchase 45,000 shares of the
Predecessor Entity's common stock. Such option converted into options to
purchase 98,438 shares of the Company's Common Stock when Stronghold merged with
the Predecessor Entity. These options to purchase 98,438 shares of Common Stock
were issued under the 2002 Stock Incentive Plan. The vesting schedule for such
grant is set forth above under the section entitled "Option Grants in 2002".
Upon a change of control of the Company, 50% of any unvested options shall
become vested and exercisable immediately. If the Company registers shares of
Common Stock in an initial public offering, Mr. D'Ambra has the right to include
any shares of Common Stock that he owns in the registration.
If the Company terminates Mr. D'Ambra's employment without cause, he
will receive payment of his base salary in effect at the time of his termination
for a period of one month, if termination occurs during the first six months of
the initial term of the agreement and the lesser of (x) base salary payable for
the balance of the term of the agreement or (y) two months base salary, if
termination occurs during the second six months during the initial term of the
agreement. If Mr. D'Ambra resigns for good reason after the first full year, he
will receive as severance pay the lesser of (x) base salary payable for the
balance of the then existing term of the agreement or (y) two months' base
salary, plus one week's base salary for each full or part year worked after the
first year of employment. In addition, Mr. D'Ambra shall be paid his allocable
share of the Accumulated Adjustments Account, as described above.
Mr. D'Ambra's agreement provides that all rights to discoveries,
inventions, improvements, and innovations related to the Company's business that
originates during the term of Mr. D'Ambra's employment will be the exclusive
property of the Company. Mr. D'Ambra's agreement also contains a confidentiality
provision and further provides that Mr. D'Ambra may not work for or hold 5% or
more of the outstanding capital stock of a publicly traded corporation, which is
a competing business anywhere in the world for one year after the conclusion of
his employment.
James J. Cummiskey
On August 14, 2000, the Predecessor Entity entered into an employment
agreement with James J. Cummiskey, which the Company assumed. Mr. Cummiskey was
terminated by the Board of Directors as of January 27, 2003. Under the terms of
the agreement, Mr. Cummiskey's employment as Vice President of Sales and
Marketing would have continued until August 13, 2004 unless sooner terminated.
Mr. Cummiskey's base salary was $180,000 and $192,000 for his first and second
years of employment, respectively. Thereafter, Mr. Cummiskey's base salary would
have been increased annually by a percentage determined by the Consumers Price
Index. Mr. Cummiskey was also eligible for a commission not to exceed $20,000
for the first year of the term of the agreement and $50,000 for any year during
the balance of the term of the agreement. The commission was equal to 1% of Net
Sales, as defined above. Mr. Cummiskey was also eligible to receive extra
compensation at the discretion of the Board of Directors, a car allowance and
any insurance and 401(k) plans provided by the employer.
Mr. Cummiskey also received an option grant to purchase 45,000 shares
of the Predecessor Entity's common stock. Such option converted into an option
to purchase 98,438 shares of the Company's Common Stock when Stronghold merged
with the Predecessor Entity. The vesting schedule for such grant is set forth
above under the section entitled "Option Grants in 2002". Upon a change of
control of the Company, 50% of any unvested options shall become vested and
exercisable immediately. If the Company registered shares of Common Stock in an
initial public offering, Mr. Cummiskey had the right to include any shares of
Common Stock that he owned in the registration.
14
If the Company terminated Mr. Cummiskey's employment without cause, he
would have received payment of his base salary in effect at the time of his
termination for a period of one month, if termination occurred during the first
six months of the initial term of the agreement and the lesser of (x) base
salary payable for the balance of the term of the agreement or (y) two months
base salary, if termination occurred during the second six months during the
initial term of the agreement. If Mr. Cummiskey resigned for good reason after
the first full year, he would have received as severance pay the lesser of (x)
base salary payable for the balance of the then existing term of the agreement
or (y) two months' base salary, plus one week's base salary for each full or
part year worked after the first year of employment. In addition, Mr. Cummiskey
would have been paid his allocable share of the Accumulated Adjustments Account,
described above.
Mr. Cummiskey's agreement provides that all rights to discoveries,
inventions, improvements, and innovations related to the Company's business that
originated during the term of his employment would have been the exclusive
property of the Company. Mr. Cummiskey's agreement also contains a
confidentiality provision and further provides that Mr. Cummiskey may not work
for or hold 5% or more of the outstanding capital stock of a publicly traded
corporation, which is a competing business anywhere in the world for one year
after the conclusion of his employment.
15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are, as of June 12, 2003, approximately 55 holders of record and
78 beneficial holders of the Company's Common Stock and 1 holder of record and 1
beneficial holder of the Company's Series A Preferred and Series B Preferred.
The following table sets forth information regarding the beneficial ownership of
the Company's Common Stock, including the Series A Preferred and the Series B
Preferred as converted into Common Stock, as of June 12, 2003. Stanford is the
sole owner of the Company's Series A Preferred and Series B Preferred. The
information in this table provides the ownership information for:
o each person known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock;
o each of the Company's Directors;
o each of the Company's executive officers; and
o the Company's executive officers and Directors as a group.
Beneficial ownership has been determined in accordance with the rules
and regulations of the SEC and includes voting or investment power with respect
to the shares. Unless otherwise indicated, the persons named in the table below
have sole voting and investment power with respect to the number of shares
indicated as beneficially owned by them. Common Stock beneficially owned and
percentage ownership is based on 18,309,077 shares outstanding on June 12, 2003,
and assuming the exercise of any options or warrants or conversion of any
convertible securities held by such person, which are presently exercisable or
will become exercisable within 60 days after June 12, 2003.
SECURITY OWNERSHIP OF BENEFICIAL OWNERS
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE OUTSTANDING
5% STOCKHOLDERS
Christopher J. Carey 6,957,500(1) 38%
106 Allen Road
Basking Ridge, NJ 07920
Stanford Venture Capital Holdings, Inc. 6,449,944(2) 35.23%
6075 Poplar Avenue
Memphis, TN 38119
OTHER EXECUTIVE OFFICERS AND DIRECTORS
Lenard Berger 437,600 (3) 2.39%
Salvatore D'Ambra 437,600 (3) 2.39%
Robert J. Corliss 0 --
Robert Cox 60,000 *
William Lenahan 0 --
Luis Delahoz 0 --
------------------- -----------------------
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP
(8 PEOPLE) 8,330,200 80.4%
------------
(1) 3,937,500 of these shares are owned by Christopher J. Carey and his wife,
Mary Carey, as Joint Tenants with Right of Survivorship.
(2) The total beneficial ownership of Stanford is 6,449,944 shares which
consists of: (i) 2,002,750 shares of Common Stock issuable upon the
conversion of 2,002,750 shares of the Company's Series A Preferred; (ii)
2,002,750 shares of Common Stock issuable upon the exercise of warrants;
and (iii) 2,444,444 shares of Common Stock issuable upon the conversion of
2,444,444 shares of the Company's Series B Preferred.
(3) Includes an option grant to purchase 100 shares of Common Stock, which was
immediately exercisable on the date of grant.
* Indicates less than one percent of the total outstanding Common Stock.
16
EQUITY COMPENSATION IN FISCAL 2002
The following table provides information about the securities
authorized for issuance under the equity compensation plans of the Company as of
December 31, 2002.
EQUITY COMPENSATION PLAN INFORMATION
----------------------------------- ---------------------------- ---------------------- ---------------------------------
NUMBER OF SECURITIES NUMBER OF SECURITIES REMAINING
TO BE ISSUED UPON WEIGHTED-AVERAGE AVAILABLE FOR FUTURE ISSUANCE
EXERCISE OF OUTSTANDING EXERCISE PRICE OF UNDER EQUITY COMPENSATION
OPTIONS (1) OUTSTANDING OPTIONS PLANS(2)
----------------------------------- ---------------------------- ---------------------- ---------------------------------
Equity compensation plans approved by
security holders 1,364,847 $0.50 161,350
----------------------------------- ---------------------------- ---------------------- ---------------------------------
Equity compensation plans not
approved by security holders -- -- --
----------------------------------- ---------------------------- ---------------------- ---------------------------------
Total 1,364,847 $0.50 161,350
----------------------------------- ---------------------------- ---------------------- ---------------------------------
---------------------
(1) Issued pursuant to the 2002 Stock Incentive Plan, the 2002 California Stock
Incentive Plan, and the 2000 Stock Option Plan.
(2) 134,500 shares are available for future issuance pursuant to the 2002 Stock
Incentive Plan and 27,000 shares are available for future issuance pursuant
to the 2002 California Stock Incentive Plan. The Company does not intend to
issue any additional options under its 2000 Stock Option Plan.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stronghold became the Company's wholly-owned subsidiary on May 16, 2002
pursuant to a Merger of the Predecessor Entity with and into Stronghold.
Pursuant to the Merger, the Predecessor Entity's stockholders surrendered all of
the outstanding shares of the Predecessor Entity's common stock in exchange for
a total of 7,000,000 shares of the Company's Common Stock. Of these shares,
Christopher J. Carey and his wife received a total of 3,937,500 shares held
jointly, and Mr. Carey received an additional 1,093,750 shares individually.
Pursuant to a Securities Purchase Agreement which the Company entered
into on May 15, 2002, with Stanford, Stronghold, Pietro Bortolatti and Mr.
Carey, the Company agreed to issue to Stanford (i) such number of shares of its
Series A Preferred that would in the aggregate equal 20% of the total issued and
outstanding shares of its Common Stock, and (ii) such number of warrants for
shares of its Common Stock that would equal the number of shares of Series A
Preferred issued to Stanford. The total aggregate purchase price for the Series
A Preferred and warrants paid by Stanford was $3,000,000. The issuance of the
Series A Preferred and warrants took place on each of four separate closing
dates (May 16, 2002 and July 3, 11, and 19, 2002), in which the Company issued
an aggregate of 2,002,750 shares of its Series A Preferred to Stanford and
warrants for 2,002,750 shares of its Common Stock. So long as any shares of
Series A Preferred are outstanding and held by Stanford, Stanford has the right
to maintain its percentage ownership with respect to any additional securities
the Company may issue, with certain exceptions.
Pursuant to a Stockholders' Agreement which the Company entered into on
May 16, 2002 with Stanford, Mr. Carey and Mary Carey, if either Stanford or the
Careys should ever want to sell any shares of the Company's Series A Preferred
or Common Stock that they own, the other party has a (i) right of first refusal
regarding such sale and, if such non-selling party does not want to exercise its
right of first refusal, the Company has the residual right to purchase such
shares, and (ii) right of co-sale under the same terms and for the same type of
consideration. In the case of a material adverse event related to the Company,
the Careys agreed to vote their shares as directed by Stanford, including
removing and replacing the members of the board with designees nominated by
Stanford. Finally, Stanford has the right to nominate one member of the
Company's Board of Directors and the Carey's have agreed to vote for such
nominee.
On July 31, 2000, the Predecessor Entity entered into a line of credit
loan arrangement with the Company's President, Christopher Carey, who is also
president of Stronghold. According to such arrangement, Mr. Carey made available
$1,989,500, which the Predecessor Entity could borrow from time to time until
August 1, 2001. Any borrowing under the facility could be reborrowed during the
term of the agreement and the outstanding amounts accrued interest at the rate
of interest per annum equal to the floating Base Rate, computed daily, for the
actual number of days elapsed as if each full calendar year consisted of 360
days. Any overdue amounts accrued interest at an annual rate of 2% greater than
the base rate, which is 2% above the floating base rate announced from time to
time by Citibank, N.A. Under the agreement, the first interest payment was due
on August 1, 2001. On such date, the line of credit was extended for one more
year, until August 1, 2002. On April 22, 2002, the Predecessor Entity issued
500,000 shares of its common stock (which converted into 1,093,750 shares of the
Company's Common Stock when the Company acquired the Predecessor Entity on May
16, 2002) in exchange for cancellation of $1 million of outstanding debt under
such line of credit. On May 16, 2002, the total amount outstanding under the
line of credit was $2.2 million. On such date, the Company issued 666,667 shares
of its Common Stock to Mr. Carey in exchange for cancellation of $1 million of
the then outstanding amount. Stronghold will pay Mr. Carey the remaining $1.2
million according to the terms of a non-negotiable promissory note, which was
issued on May 16, 2002.
Under the May 2002 promissory note, the principal amount and accrued
interest is due and payable in six equal consecutive quarterly installments
commencing on the date which is two business days after the Company has filed
its Annual Report on Form 10-KSB for the year ended December 31, 2002. Each
subsequent quarterly installment will be paid two days after the Company files
each subsequent Form 10-QSB. Interest accrues under the promissory note at an
annual rate of 10%. If Stronghold's net income does not meet certain benchmarks,
then either the principal balance and accrued interest due for the quarter will
be deferred and the repayment will be amortized during the remaining quarters
or, depending upon the net income amount achieved, the principal balance and
accrued interest due will be automatically converted into shares of the
Company's Common Stock, at a conversion price equal to the average closing price
of the Company's Common Stock for the twenty (20) trading days immediately
preceding the date of conversion. The promissory note is expressly subordinated
in right of payment to the prior payment in full of all of Stronghold's senior
indebtedness. Subject to the payment in full of all senior indebtedness, Mr.
Carey is subrogated to the rights of the holders of such senior indebtedness to
receive payments or distribution of assets.
18
On September 14, 2002, the Company issued 5,000,000 shares of its
Common Stock to its former president, Pietro Bortolatti, in exchange for the
transfer from Mr. Bortolatti of all of the outstanding shares of Terre di
Toscana, Inc. to the Company. The assets of Terre di Toscana, Inc. included
rights in several customer agreements. The Company valued the 5,000,000 shares
issued to Mr. Bortolatti at par value, $0.0001 per share. As part of the
Company's Merger with the Predecessor Entity, Mr. Bortolatti has either
surrendered or exchanged all of such shares.
In August 2002, the Company's outside Director, Robert Cox, purchased
60,000 shares of the Company's Common Stock at a purchase price of $1.50 per
share for aggregate proceeds to the Company of $90,000. Such purchase was
pursuant to a Subscription Agreement between Mr. Cox and the Company in which
Mr. Cox made certain investment representations and warranties.
In accordance with the Stockholders' Agreement dated May 16, 2002, by
and among the Company, Stanford, Christopher J. Carey and Mary Carey, Stanford
has the right to appoint one (1) Director. Stanford is an affiliate of Stanford
Financial Group, which is the majority stockholder of TWS International, Inc.
Luis Delahoz, one of the Company's outside Directors, was the President and
Chief Executive Officer of TWS International, Inc. from September 2001 to April
2003, and is Stanford's representative on the Company's Board of Directors.
David Rector is a former Director of the Company and is also a
principal of The David Stephens Group. In the past, the Company has engaged The
David Stephens Group to perform certain management consulting services for which
we paid The David Stephens Group $26,243.70 through January 31, 2001.
Lenard Berger, the Company's Chief Technology Officer and Vice
President, James Cummiskey, the Company's former Vice President of Sales and
Marketing, and Salvatore D'Ambra, the Company's Vice President and Chief
Engineer, each received 200,000 shares of common stock from the Predecessor
Entity as founders of such entity, at a per share price of $0.005. Such shares
converted into 437,400 shares of the Company's Common Stock.
On September 30, 2002, the Company entered into a loan agreement with
CC Trust Fund to borrow an amount up to $355,128. This bridge loan is for a
period of twelve months, with all principle due and payable on September 30,
2003. The Company will pay 12.5% interest on the outstanding principle each
month. At the end of the loan period, the Fund will be entitled to exercise
warrants to purchase 25,000 shares of Common Stock at $1.50 per share. As of
December 31, 2002, $305,000 was outstanding under the CC Trust Fund loan
agreement. Christopher Carey Jr., Mr. Carey's son, is the beneficiary of the
trust, and Mary Carey, Mr. Carey's wife, is the trustee of the trust.
On September 30, 2002 the Company entered into a loan agreement with AC
Trust Fund to borrow an amount up to $375,404. This bridge loan is for a period
of twelve months, with all principle due and payable on September 30, 2003. The
Company will pay 12.5% interest on the outstanding principle each month. At the
end of the loan period, the Fund will be entitled to exercise warrants to
purchase 25,000 shares of Common Stock $1.50 per share. As of December 31, 2002,
$305,000 was outstanding under the AC Trust Fund loan agreement. Amie Carey, Mr.
Carey's daughter, is the beneficiary of the trust, and Mary Carey, Mr. Carey's
wife, is the trustee of the trust.
In October 2002, the Company issued a promissory note to Christopher J.
Carey for the amount of $165,000. Such promissory note is due on or before
December 31, 2003. Until such time as the principle is paid, interest on the
note will accrue at the rate of 12.5%.
On March 18, 2003, the Company entered into a bridge loan agreement
with its President, Christopher J. Carey, for a total of $400,000. The agreement
stipulates that the Company will pay an 8% interest rate on a quarterly basis
until the loan becomes due and payable on June 30, 2004. The Company also issued
to Mr. Carey warrants to purchase 391,754 shares of Common Stock, exercisable
for 10 years at a price of $0.97 per share.
19
Pursuant to a Securities Purchase Agreement dated as of April 30, 2003,
by and between the Company and Stanford, the Company agreed to issue to Stanford
and Stanford agreed to purchase 2,444,444 shares of the Company's Series B
Preferred. The aggregate purchase price for the Series B Preferred was
$2,200,000, payable in tranches as set forth below.
For so long as any shares of Series B Preferred are outstanding and
held by Stanford, if the Company issues additional shares of the Company's
Common Stock, or common stock equivalents, Stanford has the right to participate
in the issuance such that immediately after the subsequent issuance, Stanford's
ownership of the total number of outstanding shares of the Company's Common
Stock (assuming the conversion of all common stock equivalents into the
Company's Common Stock) equals the same percentage of the total shares of the
Company's Common Stock (assuming conversion of all common stock equivalents into
the Company's Common Stock) as Stanford held immediately prior to the subsequent
issuance.
In connection with the Securities Purchase Agreement, the Company and
Stanford also entered into a Amended and Restated Registration Rights Agreement,
dated April 30, 2003, that supercedes, restates and amends that certain
Registration Rights Agreement, dated May 16, 2002, in which, among other things,
the Company agreed to register the shares of the Company's Common Stock issuable
upon conversion of the Series B Preferred with the Securities and Exchange
Commission, not later than November 15, 2003.
The Company and Stanford also entered into a Consulting Agreement dated
April 30, 2003, pursuant to which Stanford has agreed to perform certain
financial consulting and advisory services, in exchange for which the Company
has agreed to pay Stanford a fee of $50,000 per year for two years.
In addition, the Company and Stanford have: (i) waived Section
2(e)(iii) of the Series A Certificate of Designation, which provides for
anti-dilution protection if the Company shall issue securities which are
convertible into shares of the Company's Common Stock for an exercise price of
less than $1.50; (ii) waived any rights of Stanford to Default Warrants (as
defined in the Series A Registration Rights Agreement) due to the Company's
failure to register its shares of Common Stock; and (iii) modified the warrants
previously issued to Stanford and its assigns to purchase 2,002,750 shares of
the Company's Common Stock to reduce the initial exercise price to $0.25 per
share and to extend the expiration date to August 1, 2008.
In connection with the Securities Purchase Agreement, Christopher J.
Carey, the Company's President and Chief Executive Officer, agreed to convert
$543,000 of the outstanding debt owed to Mr. Carey by the Company into 603,333
shares of Common Stock of the Company at a price of $0.90 per share.
In addition, the Company and Mr. Carey have agreed to extend the
maturity dates of the Promissory Notes, dated March 18, 2003, made by the
Company payable to Mr. Carey, for an aggregate amount of $400,000, to June 30,
2004. The Company, Mr. Carey and his wife, Mary Carey (as trustee), have also
agreed to extend the maturity dates of loans from the Carey family trusts to the
Company in the amount of $730,532, to December 31, 2003.
The Company believes that the terms of the above transactions are
commercially reasonable and no less favorable to the Company than could have
been obtained from an unaffiliated third party on an arm's length basis.
20
2002 STOCK INCENTIVE PLAN PROPOSAL
The 2002 Stock Incentive Plan was adopted by the Board of Directors and
approved by the Company's stockholders on July 17, 2002 and July 31, 2002,
respectively. The 2002 Stock Incentive Plan replaced the Company's 2000 Stock
Option Plan. All options granted pursuant to the Company's 2000 Stock Option
Plan continue to be governed by the 2000 Stock Option Plan, but the Company does
not intend to grant any additional options under the 2000 Stock Option Plan.
Those eligible to receive stock option grants or stock purchase rights under the
2002 Stock Incentive Plan include the Company's employees, Directors and
consultants. The 2002 Stock Incentive Plan was adopted to:
o attract and retain the best available personnel for positions of
substantial responsibility;
o provide additional incentives to employees, members of the Board of
Directors and consultants of the Company and its subsidiary; and
o promote the success of the Company's business.
Currently, there are 300,000 shares of Common Stock reserved for
issuance upon the exercise of options and/or stock purchase rights previously
granted or to be granted under the 2002 Stock Incentive Plan.
The 2002 Stock Incentive Plan is administered by the Board of
Directors, though this authority may be delegated to the Compensation Committee,
which is comprised solely of outside Directors. The Board of Directors
determines, among other things, the:
o nature of the options to be granted;
o persons, or grantees, who are to receive options;
o number of shares to be subject to each option;
o exercise price of the options; and
o vesting schedule of the options.
The 2002 Stock Incentive Plan provides for the granting of options
intended to qualify as incentive stock options, or ISOs, as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), to the
Company's employees. The 2002 Stock Incentive Plan also provides for the
granting of non statutory stock options, or NSOs to employees, non-employee
Directors, consultants and advisors who perform services for the Company or its
subsidiary. Pursuant to Section 422 of the Code, the exercise price of all ISOs
granted under the 2002 Stock Incentive Plan may not be less than the fair market
value of the shares at the time the option is granted. In addition, pursuant to
Section 422 of the Code, no ISO may be granted to an employee who owns more than
10% of the total combined voting power of all classes of the Company's stock
unless the exercise price as to that employee is at least 110% of the fair
market value of the stock at the time of the grant. To the extent that options
designated as ISOs become exercisable for the first time during any calendar
year (under all plans of the Company and its subsidiaries) for Common Stock
having a fair market value greater than $100,000 (determined for each share as
of the date of grant of the options covering such share), the portion of such
options which exceeds such amount shall be treated as NSOs. Options may be
exercisable for a period of not more than ten years from the date of grant;
provided, however, that pursuant to Section 422 of the Code, the term of an ISO
granted to an employee who owns more than 10% of the total combined voting power
of all classes of the Company's stock may not exceed five years. The exercise
price must be paid in full at the time an option is exercised, and at the Board
of Director's discretion, all or part of the exercise price may be paid with
previously owned shares or other approved methods of payment. An option is
exercisable as determined by the Board of Directors. The 2002 Stock Incentive
Plan will terminate on July 31, 2012.
The 2002 Stock Incentive Plan provides that, subject to adjustment as
set forth in the 2002 Stock Incentive Plan, the maximum number of shares of
Common Stock with respect to which restricted stock awards may be granted to
each participant shall be fifty thousand (50,000) per calendar year. This
per-participant limit is construed and applied consistently with Section 162(m)
of the Code.
21
The Board of Directors shall determine the effect on an option of the
disability, death, retirement, authorized leave of absence or other change in
the employment or other status of a participant and the extent to which, and the
period during which, the participant may exercise rights under the options.
Options are not assignable or otherwise transferable except by will or
the laws of descent and distribution and shall be exercisable during the
grantee's lifetime only by the grantee.
The 2002 Stock Incentive Plan requires the execution of a restricted
stock purchase agreement in a form determined by the Board of Directors. Once a
stock purchase right is exercised, the purchaser will have the rights of a
stockholder, subject to the right of the Company to repurchase all or part of
such stock at the issue price, or some formula price.
The 2002 Stock Incentive Plan provides that in the event of a:
o reorganization; o recapitalization;
o stock split; o stock dividend;
o combination of or reclassification of shares; o or any other change in the corporate structure
or our shares,
the Board of Directors shall make adjustments with respect to the
shares that may be issued under the 2002 Stock Incentive Plan or that are
covered by outstanding options, or in the option price per share.
The Board of Directors shall notify the grantee prior to a dissolution
or liquidation of the Company. The outstanding options, not previously
exercised, will terminate immediately prior to the consummation of such proposed
action. In the event of a merger or consolidation of the Company or the sale of
all or substantially all of its assets (hereinafter referred to as a "merger"),
the outstanding options will be assumed or an equivalent option will be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If such successor corporation does not agree to assume
the outstanding options or to substitute equivalent options, the Board of
Directors will, in lieu of such assumption or substitution, provide for the
grantee to have the right to exercise all of his or her outstanding options. If
the Board of Directors makes an option fully exercisable in lieu of assumption
or substitution, in the event of a merger, the Board of Directors shall notify
the grantee that the option will be fully exercisable for a period of ten days
prior to the date of such liquidation or dissolution, and the option will
terminate upon the expiration of such period. The option will be considered
assumed if, following the merger, the option confers the right to purchase, for
each share of Common Stock subject to the option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares). If such consideration received in the merger was not
solely common stock of the successor corporation or its parent, the Board of
Directors may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon the exercise of
an option for each share of stock subject to the option to be solely common
stock of the successor corporation or its parent equal in fair market value to
the per share consideration received by holders of Common Stock in the merger or
sale of assets.
The Board of Directors may at any time amend, alter, suspend or
discontinue the 2002 Stock Incentive Plan, but no such action will be made which
would impair the rights of any grantee under any grant previously made, without
such grantee's consent. In addition, to the extent necessary and desirable to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or
with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the National Association of Securities Dealers or
an established stock exchange), we shall obtain stockholder approval of any 2002
Stock Incentive Plan amendment in such a manner and to such a degree as
required. Any such amendment or termination of the 2002 Stock Incentive Plan is
not permitted to affect options already granted and such options will remain in
full force and effect as if the 2002 Stock Incentive Plan had not been amended
or terminated, unless mutually agreed otherwise between each grantee and the
Board of Directors, which agreement must be in writing and signed by the grantee
and the Company.
22
2002 CALIFORNIA STOCK INCENTIVE PLAN PROPOSAL
The 2002 California Stock Incentive Plan was adopted by the Board of
Directors and approved by the Company's stockholders on August 20, 2002. The
California plan is identical to the Company's 2002 Stock Incentive Plan
described above, except that options under the 2002 California Stock Incentive
Plan may only be granted to employees who are California residents. Up to
100,000 shares of the Company's Common Stock (subject to adjustment in the event
of stock splits and other similar events) may be issued pursuant to awards
granted under the 2002 California Stock Incentive Plan. As of June 12, 2003,
options to purchase an aggregate of 71,900 shares of Common Stock at a weighted
average exercise price per share of $1.00 were outstanding under the 2002
California Stock Incentive Plan. As of June 12, 2003, 8 persons were eligible to
receive awards under the 2002 California Stock Incentive Plan.
23
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to awards granted under the
2002 Stock Incentive Plan and the 2002 California Stock Incentive Plan and with
respect to the sale of Common Stock acquired under the 2002 Stock Incentive Plan
and the 2002 California Stock Incentive Plan. This summary is based on the
federal tax laws in effect as of the date of this Proxy Statement. Changes to
these laws could alter the tax consequences described below.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the
grant or exercise of an incentive stock option. Instead, a participant will
recognize taxable income with respect to an incentive stock option only upon the
sale of Common Stock acquired through the exercise of the option ("ISO Stock").
The exercise of an incentive stock option, however, may subject the participant
to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary
depending on the date on which it is sold. If the participant sells ISO Stock
more than two years from the date the option was granted (the "Grant Date") and
more than one year from the date the option was exercised (the "Exercise Date"),
then the participant will recognize long-term capital gain in an amount equal to
the excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock prior to satisfying the above
waiting periods (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then
the participant will recognize capital loss in an amount equal to the excess of
the exercise price over the sale price of the ISO Stock. This capital loss will
be a long-term capital loss if the participant has held the ISO Stock for more
than one year prior to the date of sale.
Non-statutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a non-statutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
non-statutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option ("NSO Stock") on the Exercise Date
over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis
equal to the exercise price plus any income recognized upon the exercise of the
option. Upon selling NSO Stock, a participant generally will recognize capital
gain or loss in an amount equal to the difference between the sale price of the
NSO Stock and the participant's tax basis in the NSO Stock. This capital gain or
loss will be a long-term gain or loss if the participant has held the NSO Stock
for more than one year prior to the date of the sale.
Restricted Stock Awards
A participant will not recognize taxable income upon the grant of a
restricted stock award unless the participant makes a Section 83(b) Election. If
the participant makes a valid Section 83(b) Election within 30 days of the date
of the grant, then the participant will recognize ordinary compensation income,
for the year in which the award is granted, in an amount equal to the difference
between the fair market value of the Common Stock at the time the award is
granted and the purchase price paid for the Common Stock. If a valid Section
83(b) Election is not made, then the participant will recognize ordinary
compensation income, at the time that the forfeiture provisions or restrictions
on transfer lapse, in an amount equal to the difference between the fair market
value of the Common Stock at the time of such lapse and the original purchase
price paid for the Common Stock. The participant will have a tax basis in the
Common Stock acquired equal to the sum of the price paid and the amount of
ordinary compensation income recognized.
24
Upon the disposition of the Common Stock acquired pursuant to a
restricted stock award, the participant will recognize a capital gain or loss
equal to the difference between the sale price of the Common Stock and the
participant's tax basis in the Common Stock. This capital gain or loss will be a
long-term capital gain or loss if the shares are held for more than one year.
Other Stock-Based Awards
The tax consequences associated with any other stock-based award
granted under the 2002 Stock Incentive Plan or the 2002 California Stock
Incentive Plan will vary depending on the specific terms of such award. Among
the relevant factors are whether or not the award has a readily ascertainable
fair market value, whether or not the award is subject to forfeiture provisions
or restrictions on transfer, the nature of the property to be received by the
participant under the award and the participant's holding period and tax basis
for the award or underlying Common Stock.
Tax Consequences to the Company
The grant of a restricted stock award under the 2002 Stock Incentive
Plan or the 2002 California Stock Incentive Plan generally will have no tax
consequences to the Company. Moreover, in general, neither the exercise of an
incentive stock option nor the sale of any Common Stock acquired under the 2002
Stock Incentive Plan or the 2002 California Stock Incentive Plan will have any
tax consequences to the Company. The Company or its parent or subsidiary, as the
case may be, generally will be entitled to a business-expense deduction,
however, with respect to any ordinary compensation income recognized by a
participant under the 2002 Stock Incentive Plan and the 2002 California Stock
Incentive Plan, including in connection with a restricted stock award or as a
result of the exercise of a non-statutory stock option or a Disqualifying
Disposition. Any such deduction will be subject to the limitations of Section
162(m) of the Code.
25
PREVIOUSLY GRANTED OPTIONS UNDER THE 2002 STOCK INCENTIVE PLAN
As of June 12, 2003, there were outstanding options to purchase 769,998
shares of Common Stock under the Company's 2000 Stock Option Plan. The Company
adopted the 2002 Stock Incentive Plan to replace the 2000 Stock Option Plan. All
options granted pursuant to the 2000 Stock Option Plan continue to be governed
by the 2000 Stock Option Plan, but the Company does not intend to grant any
additional options under the 2000 Stock Option Plan.
Through June 12, 2003, the Company granted options to purchase an
aggregate of 160,650(1) shares of Common Stock under the 2002 Stock Incentive
Plan at an average exercise price of $1.21 per share. As of June 12, 2003,
options to purchase 17,750 shares were vested and no options had been exercised
under the 2002 Stock Incentive Plan. The following table sets forth the options
granted under the 2002 Stock Incentive Plan to (i) the Named Executives; (ii)
all current executive officers as a group; (iii) all current Directors who are
not executive officers as a group; (iv) each nominee for election as a Director;
(v) each associate of any of such Directors, executive officers or nominees;
(vi) each person who has received or is to receive 5% of such options or rights;
and (vii) all employees, including all current officers who are not executive
officers, as a group:
OPTIONS GRANTED WEIGHTED
THROUGH JUNE 12, AVERAGE
NAME 2003(2) EXERCISE PRICE EXPIRATION DATE
---------------------------------------------- ----------------------- -------------------- -----------------------
Christopher J. Carey 0
Lenard Berger(4) 100 $1.50 10 years from
date of grant
Salvatore D'Ambra(4) 100 $1.50
Robert J. Corliss(4)
Robert Cox(4)
William Lenahan(4)
Luis Delahoz(4)
All current executive officers as a group 10 years from
(3 persons)(3)............................ 200 $1.50 date of grant
All current Directors who are not executive
officers as a group (4 persons)........... 0
All employees, including all current
officers who are not executive officers, 10 years from
as a group (31 persons)(3)................ 160,450 $1.21 date of grant
As of June 12, 2003, the market value of the Common Stock underlying
the 2002 Stock Incentive Plan was $0.88 per share.
-----------
(1) Of the 275,050 options granted as of June 12, 2003, 114,400 of such
options have been canceled and may be reissued by the Company.
(2) Options are granted under the 2002 Stock Incentive Plan pursuant to
various vesting schedules. In general, such options vest over two to five
year periods.
(3) All of our current fulltime employees and consultants are eligible to
participate in the 2002 Stock Incentive Plan.
(4) The Company has made a commitment to grant the following options, subject
to stockholder approval of the Company's proposal to amend the 2002 Stock
Incentive Plan to increase the maximum aggregate number of shares of
Common Stock available for issuance thereunder:
Lenard Berger - options to purchase 60,000 shares of Common
Stock;
Salvatore D'Ambra - options to purchase 152,100 shares of
Common Stock;
Robert J. Corliss - options to purchase 40,000 shares of
Common Stock;
Robert Cox - options to purchase 40,000 shares of Common Stock;
William Lenahan - options to purchase 40,000 shares of
Common Stock; and
Luis Delahoz - options to purchase 40,000 shares of Common
Stock.
26
PROPOSED AMENDMENT TO THE 2002 STOCK INCENTIVE PLAN
Stockholders are being asked to consider and vote upon a proposed
amendment to the 2002 Stock Incentive Plan to increase the maximum aggregate
number of shares of Common Stock available for issuance under the 2002 Stock
Incentive Plan from three hundred thousand (300,000) to one million six hundred
thousand (1,600,000) shares and to reserve an additional one million three
hundred thousand (1,300,000) shares of the Company's Common Stock for issuance
in connection with such increase for restricted stock awards to be granted under
the 2002 Stock Incentive Plan.
The Board of Directors believes that the Amendment provides an
important inducement to recruit and retain the best available personnel. The
Board of Directors believes that providing employees with an opportunity to
invest in the Company rewards them appropriately for their efforts on behalf of
the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
PROPOSED AMENDMENT TO THE 2002 STOCK INCENTIVE PLAN.
27
PREVIOUSLY GRANTED OPTIONS UNDER THE 2002 CALIFORNIA STOCK INCENTIVE PLAN
Through June 12, 2003, the Company granted options to purchase an
aggregate of 71,900 shares of Common Stock under the 2002 California Stock
Incentive Plan at an average exercise price of $1.31 per share. As of June 12,
2003, options to purchase 15,900 shares were vested and no options had been
exercised under the 2002 California Stock Incentive Plan. There were no options
granted under the 2002 California Stock Incentive Plan to (i) the Named
Executives; (ii) all current executive officers as a group; (iii) all current
Directors who are not executive officers as a group; (iv) each nominee for
election as a Director; (v) each associate of any of such Directors, executive
officers or nominees; and (vi) each person who has received or is to receive 5%
of such options or rights. The following table sets forth the options granted
under the 2002 California Stock Incentive Plan to all employees, including all
current officers who are not executive officers, as a group:
OPTIONS GRANTED
THROUGH WEIGHTED AVERAGE
NAME JUNE 12, 2003(2) EXERCISE PRICE EXPIRATION DATE
------------------------------------------------- --------------------- --------------------- ---------------------
All employees, including all current
officers who are not executive officers, 10 years from
as a group (8 persons)(1)................. 71,900 $1.13 date of grant
As of June 12, 2003, the market value of the Common Stock underlying
the 2002 California Stock Incentive Plan was $0.88 per share.
-----------
(1) All 8 of our current employees and consultants who reside in the state of
California are eligible to participate in the 2002 California Stock
Incentive Plan.
Each of the following individuals prior to the proposed increase in
shares of Common Stock available under the 2002 California Stock Incentive Plan,
holds more than five-percent (5%) of the total options issuable under the 2002
California Stock Incentive Plan: Russell Stryker; David Kidder; and John
Rodriguez.
PROPOSED AMENDMENT TO THE 2002 CALIFORNIA STOCK INCENTIVE PLAN
Stockholders are being asked to consider and vote upon a proposed
amendment to the 2002 California Stock Incentive Plan to increase the maximum
aggregate number of shares of Common Stock available for issuance under the 2002
California Stock Incentive Plan from one hundred thousand (100,000) to two
hundred thousand (200,000) shares and to reserve an additional one hundred
thousand (100,000) shares of the Company's Common Stock for issuance in
connection with such increase for restricted stock awards to be granted under
the 2002 California Stock Incentive Plan.
The Board of Directors believes that the Amendment provides an
important inducement to recruit and retain the best available personnel. The
Board of Directors believes that providing employees with an opportunity to
invest in the Company rewards them appropriately for their efforts on behalf of
the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
PROPOSED AMENDMENT TO THE 2002 CALIFORNIA STOCK INCENTIVE PLAN.
28
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company, subject to stockholder approval, has nominated Rothstein,
Kass & Company, P.C. as independent auditors of the Company for the fiscal year
ending December 31, 2003. Neither the firm nor any of its members has any direct
or indirect financial interest in or any connection with the Company in any
capacity other than as auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ROTHSTEIN, KASS & COMPANY, P.C. AS THE INDEPENDENT AUDITORS OF
THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2003.
One or more representatives of Rothstein, Kass & Company, P.C. is
expected to attend the Meeting and have an opportunity to make a statement
and/or respond to appropriate questions from stockholders.
On March 1, 2002, the Board of Directors changed the Company's fiscal
year end from October 31, to December 31.
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
On July 10, 2002, the Company determined to change its independent
public accountants from Rogoff & Company, P.C. ("Rogoff") to Rothstein, Kass &
Company, P.C. Rothstein, Kass & Company, P.C. has served as the independent
public accountants of the Company's wholly owned subsidiary, Stronghold, since
its inception. The Board of Directors determined that because the Company's
business focus was transitioning toward the business of Stronghold (the
development and sale of hand-held wireless technology to be used by automobile
dealerships), Rothstein, Kass & Company, P.C. would provide a better fit as the
Company's independent public accountants. The dismissal of Rogoff and the
engagement of Rothstein, Kass & Company, P.C. was approved by unanimous consent
of the Company's Board of Directors.
Rogoff acted as the Company's independent public accountants for the
period from the Company's inception (September 2000) through July 10, 2002.
During such period, there were no disagreements with Rogoff on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which, if not resolved to the satisfaction of Rogoff, would
have caused it to make reference to the subject matter of the disagreement in
connection with its reports on the financial statements for such years. Rogoff's
reports on the Company's financial statements since the Company's inception did
not contain an adverse opinion or a disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
Since the Company's inception, there were no reportable events as described in
Item 304(a)(1)(iv)(B) of Regulation S-B.
The Company requested Rogoff to furnish it with a letter addressed to
the Securities and Exchange Commission stating whether or not it agrees with the
above statements. A copy of that letter dated July 15, 2002 is filed as Exhibit
16 to the Company's Form 8-K, filed on July 17, 2002.
The Company engaged Rothstein, Kass & Company, P.C. as its independent
public accountants effective as of July 10, 2002 for the fiscal year ending
December 31, 2002. The Company's Board of Directors approved the engagement.
Since the Company's inception, neither the Company nor anyone on its behalf
consulted with Rothstein, Kass & Company, P.C. regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's financial statements, and neither a written report nor oral advice
was provided to the Company by Rothstein, Kass & Company, P.C. that was an
important factor considered by the Company in reaching a decision as to any
accounting, auditing or financial reporting issue; or (ii) any matter that was
either the subject of a disagreement, as that term is discussed in Item
304(a)(1)(iv)(A) of Regulation S-B and the related instructions to Item 304 of
Regulation S-B, or an event that is identified in response to paragraph
(a)(1)(iv)(B) of Regulation S-B.
29
INDEPENDENT AUDITORS' FEES AND OTHER MATTERS
The following table presents fees for professional services rendered by
Rothstein, Kass & Company, P.C. for the audit of the Company's annual
consolidated financial statements for the year ended December 31, 2002, and fees
for other services rendered by Rothstein, Kass & Company, P.C. for the year
ended December 31, 2002:
FEE AMOUNT
--- ------
Audit Fees
(excluding audit-related $ 9,200
services)(1) .....................
Financial Information Systems
Design and Implementation(2)...... --
All Other Fees:
Audit-Related Fees (3)............ $ 16,000
Other Non-Audit Services(4)....... $ 26,000
--------
Total $ 51,200
========
(1) Such amount includes professional services rendered in connection with the
audit of the Company's consolidated financial statements for the most
recent fiscal year and the reviews of the condensed consolidated financial
statements included in each of the Company's Quarterly Reports on Form
10-QSB during the fiscal year ended December 31, 2002.
(2) Rothstein, Kass & Company, P.C. did not provide any professional services
to the Company or its affiliates for the fiscal year ended December 31,
2002 in connection with financial information systems design or
implementation, the operation of the Company's information system or the
management of the Company's local area network.
(3) Such amount consists principally of professional services rendered for
issuing consents in connection with the Company's filing of registration
statements and certain accounting consultation for potential transactions.
(4) Other non-audit related fees consisted principally of tax compliance
services.
------------------
STOCKHOLDERS' PROPOSALS
Stockholders who wish to submit proposals for inclusion in the
Company's Proxy Statement and form of proxy relating to the 2004 Annual Meeting
of Stockholders must advise the Secretary of the Company of such proposals in
writing by February 24, 2004.
Stockholders who intend to present a proposal at such meeting without
inclusion of such proposal in the Company's proxy materials pursuant to Rule
14a-8 under the Exchange Act are required to provide advance notice of such
proposal to the Secretary of the Company at the aforementioned address not later
than May 8, 2004.
If the Company does not receive notice of a stockholder proposal within
this timeframe, the Company's management will use its discretionary authority to
vote the shares they represent, as the Company's Board of Directors may
recommend. The Company reserves the right to reject, rule out of order, or take
other appropriate action with respect to any proposal that does not comply with
these requirements.
30
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be
participating in the practice of "householding" proxy statements and annual
reports. This means that only one copy of the Company's Proxy Statement or
annual report may have been sent to multiple stockholders in your household. The
Company will promptly deliver a separate copy of either document to you if you
call or write the Company at the following address or phone number: 106 Allen
Road, Basking Ridge, NJ 07920, (908) 903-1195. If you want to receive separate
copies of the annual report and proxy statement in the future or if you are
receiving multiple copies and would like to receive only one copy for your
household, you should contact your bank, broker, or other nominee record
holders, or you may contact the Company at the above address and phone number.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Meeting other than the matters referred to above and does not
intend to bring any other matters before the Meeting. However, if other matters
should come before the Meeting, it is intended that holders of the proxies will
vote thereon in their discretion.
31
GENERAL
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by the
Company.
In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by Directors, officers and other
employees of the Company who will not be specially compensated for these
services. The Company will also request that brokers, nominees, custodians and
other fiduciaries forward soliciting materials to the beneficial owners of
shares held of record by such brokers, nominees, custodians and other
fiduciaries. The Company will reimburse such persons for their reasonable
expenses in connection therewith.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of Directors and officers of the Company is
based upon information received from the individual Directors and officers.
STRONGHOLD TECHNOLOGIES, INC. WILL FURNISH, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2002, INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH
OF ITS STOCKHOLDERS OF RECORD ON JUNE 12, 2003 AND TO EACH BENEFICIAL
STOCKHOLDER ON THAT DATE UPON WRITTEN REQUEST MADE TO THE SECRETARY OF THE
COMPANY. A REASONABLE FEE WILL BE CHARGED FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD
WILL BE APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
/s/ Christopher J. Carey
---------------------------------
Christopher J. Carey
Secretary
Basking Ridge, New Jersey
June 23, 2003
32
COMMON STOCK
STRONGHOLD TECHNOLOGIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints Christopher J. Carey
and Karen Jackson, and each of them, his or her true and lawful agent and proxy
with full power of substitution in each, to represent and to vote on behalf of
the undersigned all of the shares of Stronghold Technologies, Inc. (the
"Company") which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Company's principal executive
offices at 106 Allen Road, Basking Ridge, New Jersey, on July 22, 2003, at 9:00
A.M., local time, and at any adjournment or adjournments thereof, upon the
following proposals more fully described in the Notice of Annual Meeting of
Stockholders and Proxy Statement for the Meeting (receipt of which is hereby
acknowledged).
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
1. ELECTION OF DIRECTORS.
Nominees: Christopher J. Carey, William Lenahan,
Robert J. Corliss, Robert Cox,
and Luis Delahoz.
(Mark one only)
VOTE FOR all the nominees listed above; except vote withheld from the following
nominees (if any).
[ ]
------------------------------------------------------------------
VOTE WITHHELD from all nominees. [ ]
2. APPROVAL OF A PROPOSAL TO AMEND THE COMPANY'S 2002 STOCK INCENTIVE PLAN
TO INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF COMMON STOCK
AVAILABLE FOR ISSUANCE THEREUNDER FROM 300,000 TO 1,600,000 SHARES AND TO
RESERVE AN ADDITIONAL 1,300,000 SHARES OF COMMON STOCK FOR ISSUANCE IN
CONNECTION WITH SUCH INCREASE FOR AWARDS TO BE GRANTED UNDER THE 2002
STOCK INCENTIVE PLAN;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF A PROPOSAL TO AMEND THE COMPANY'S 2002 CALIFORNIA STOCK
INCENTIVE PLAN TO INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF
COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER FROM 300,000 TO 1,600,000
SHARES AND TO RESERVE AN ADDITIONAL 1,300,000 SHARES OF COMMON STOCK FOR
ISSUANCE IN CONNECTION WITH SUCH INCREASE FOR AWARDS TO BE GRANTED UNDER
THE 2002 CALIFORNIA STOCK INCENTIVE PLAN;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF ROTHSTEIN, KASS &
COMPANY, P.C. AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2003.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
5. In his discretion, the proxy is authorized to vote upon other matters as may
properly come before the Meeting.
Dated:__________________________
--------------------------------
Signature of common stockholder
--------------------------------
Signature of stockholder if held jointly
THIS PROXY MUST BE SIGNED EXACTLY AS THE
NAME APPEARS HEREON. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. IF THE
SIGNER IS A CORPORATION, PLEASE SIGN FULL
CORPORATE NAME BY DULY AUTHORIZED OFFICER,
GIVING FULL TITLE AS SUCH. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
I WILL [ ] WILL NOT [ ] attend the Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
SERIES A AND SERIES B PREFERRED STOCK
STRONGHOLD TECHNOLOGIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints Christopher J. Carey
and Karen Jackson, and each of them, his or her true and lawful agent and proxy
with full power of substitution in each, to represent and to vote on behalf of
the undersigned all of the shares of Stronghold Technologies, Inc. (the
"Company") which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Company's principal executive
offices at 106 Allen Road, Basking Ridge, New Jersey, on July 22, 2003, at 9:00
A.M., local time, and at any adjournment or adjournments thereof, upon the
following proposals more fully described in the Notice of Annual Meeting of
Stockholders and Proxy Statement for the Meeting (receipt of which is hereby
acknowledged).
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
1. ELECTION OF DIRECTORS.
Nominees: Christopher J. Carey, William Lenahan,
Robert J. Corliss, Robert Cox,
and Luis Delahoz.
(Mark one only)
VOTE FOR all the nominees listed above; except vote withheld from the following
nominees (if any). [ ]
------------------------------------------------------------------
VOTE WITHHELD from all nominees. [ ]
2. APPROVAL OF A PROPOSAL TO AMEND THE COMPANY'S 2002 STOCK INCENTIVE PLAN
TO INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF COMMON STOCK
AVAILABLE FOR ISSUANCE THEREUNDER FROM 300,000 TO 1,600,000 SHARES AND TO
RESERVE AN ADDITIONAL 1,300,000 SHARES OF COMMON STOCK FOR ISSUANCE IN
CONNECTION WITH SUCH INCREASE FOR AWARDS TO BE GRANTED UNDER THE 2002
STOCK INCENTIVE PLAN;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF A PROPOSAL TO AMEND THE COMPANY'S 2002 CALIFORNIA STOCK
INCENTIVE PLAN TO INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF
COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER FROM 300,000 TO 1,600,000
SHARES AND TO RESERVE AN ADDITIONAL 1,300,000 SHARES OF COMMON STOCK FOR
ISSUANCE IN CONNECTION WITH SUCH INCREASE FOR AWARDS TO BE GRANTED UNDER
THE 2002 CALIFORNIA STOCK INCENTIVE PLAN;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF ROTHSTEIN, KASS &
COMPANY, P.C. AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2003.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
5. In his discretion, the proxy is authorized to vote upon other matters as
may properly come before the Meeting.
Dated:__________________________
--------------------------------
Signature of preferred stockholder
--------------------------------
Signature of stockholder if held jointly
THIS PROXY MUST BE SIGNED EXACTLY AS THE
NAME APPEARS HEREON. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. IF THE
SIGNER IS A CORPORATION, PLEASE SIGN FULL
CORPORATE NAME BY DULY AUTHORIZED OFFICER,
GIVING FULL TITLE AS SUCH. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
I WILL [ ] WILL NOT [ ] attend the Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING
THE ENCLOSED ENVELOPE.
APPENDIX A
AUDIT COMMITTEE CHARTER
I. Membership
A. Number. The Audit Committee shall consist of at least three
independent, financially literate members of the board of
directors meeting the requirements set forth in Sections I.B
and I.C. below.
B. INDEPENDENCE. Each member of the Audit Committee shall be
"independent" as determined in accordance with the applicable
rules of The Nasdaq Stock Market. Notwithstanding the
foregoing, under exceptional and limited circumstances, one
director who has a relationship making him or her not
independent, and who is not a Company employee or an immediate
family member of a Company employee, may serve on the Audit
Committee if the board of directors determines that the
director's membership on the Audit Committee is required by
the best interests of the Company and its shareholders, and
discloses in the next annual proxy statement after such
determination the nature of the relationship and the reasons
for the determination.
C. FINANCIAL LITERACY. Each member of the Audit Committee shall
be able to read and understand fundamental financial
statements, including the Company's balance sheet, income
statement, and cash flow statement, or must become able to do
so within a reasonable time after his or her appointment to
the Audit Committee. At least one member of the Audit
Committee must have past employment experience in finance or
accounting, professional certification in accounting, or other
comparable experience or background which result in the member
having financial sophistication (such as being or having been
a chief executive officer, chief financial officer or other
senior officer with financial oversight responsibilities).
D. CHAIRMAN. Unless a Chairman is elected by the board of
directors, the Audit Committee shall elect a Chairman by
majority vote.
II. Responsibilities of the Audit Committee
The Audit Committee shall assist the board of directors in fulfilling
their responsibilities to shareholders concerning the Company's accounting and
reporting practices, and shall facilitate open communication between the Audit
Committee, board of directors, outside auditors, and management. The Audit
Committee shall discharge its responsibilities, and shall assess the information
provided by the Company's management and the outside auditor, in accordance with
its business judgment. The responsibilities set forth herein do not reflect or
create any duty or obligation of the Audit Committee to plan, conduct, oversee
or determine the appropriate scope of any audit, or to determine that the
Company's financial statements are complete, accurate, fairly presented, or in
accordance with Generally Accepted Accounting Principles or applicable law. In
1
exercising its business judgment, the Audit Committee shall rely on the
information and advice provided by the Company's management and/or its outside
auditor.
A. The Audit Committee shall review and reassess the adequacy of
this charter at least annually.
B. The outside auditor shall be accountable to the Audit
Committee and the board of directors, which together shall
have the ultimate authority and responsibility to nominate the
outside auditor to be proposed for shareholder approval in any
proxy statement, and to select, evaluate, and (where
appropriate) replace the outside auditor.
C. The Audit Committee shall ensure that they receive from the
outside auditor the written disclosures and letter from the
outside auditor required by Independence Standards Board
Standard No. 1.
D. The Audit Committee shall discuss with the outside auditor its
independence, and shall actively engage in a dialogue with the
outside auditor regarding any disclosed relationships or
non-audit services that might impact the objectivity and
independence of the auditor. The Audit Committee shall take,
or recommend that the full board of directors take,
appropriate action to oversee the independence of the outside
auditor.
E. The Audit Committee shall review and discuss with the
Company's management and outside auditors the Company's
audited financial statements.
F. The Audit Committee shall discuss with the outside auditor the
matters about which Statement on Auditing Standards No. 61
requires discussion.
G. Based upon its discharge of its responsibilities set forth in
Sections II.C through II.F and any other information,
discussion or communication that the Audit Committee in its
business judgment deems relevant, the Audit Committee shall
consider whether they will recommend to the board of directors
that the Company's audited financial statements be included in
the Company's annual reports on Forms 10-KSB.
H. The Audit Committee shall prepare for inclusion where
necessary in a proxy or information statement of the Company
relating to an annual meeting of security holders at which
directors are to be elected (or special meeting or written
consents in lieu of such meeting), the report described in
Item 306 of Regulation S-B.
I. The Audit Committee shall at least annually inform the outside
auditor, the Chief Financial Officer, the Controller, and the
most senior other person, if any, responsible for the internal
audit activities, that they should promptly contact the Audit
Committee or its Chairman about any significant issue or
disagreement concerning the Company's accounting practices or
financial statements that is not resolved to their
satisfaction. Where such communications are made to the
Chairman, he or she shall confer with the outside auditor
concerning any such communications, and shall notify the other
2
members of the Audit Committee of any communications which the
outside auditor or the Chairman in the exercise of his or her
business judgment believes should be considered by the Audit
Committee prior to its next scheduled meeting.
J. The Audit Committee shall review interim financial information
with the Company's management and the outside auditor. The
Audit Committee shall direct the outside auditor to use its
best efforts to perform all reviews of interim financial
information prior to disclosure by the Company of such
information, and to discuss promptly with the Chairman of the
Audit Committee and the Chief Financial Officer any matters
identified in connection with the auditor's review of interim
financial information which are required to be discussed by
Statement on Auditing Standards No. 61. The Chairman of the
Audit Committee shall discuss any such matters with the
outside auditor, and shall notify the other members of the
Audit Committee of any discussions which the outside auditor
or the Chairman in the exercise of his or her business
judgment believes should be considered by the Audit Committee
prior to disclosure or filing of the interim financial
information, or the Audit Committee's next scheduled meeting.
The Audit Committee shall direct management to advise the
Audit Committee in the event that the Company proposes to
disclose or file interim financial information prior to
completion of review by the outside auditor.
K. In connection with its review of the Company's audited
financial statements, the Audit Committee shall inquire of the
Company's management and the outside auditors as to whether
there were any significant financial reporting issues and
judgments made in connection with the preparation of such
financial statements, as well as the potential impact on the
Company's financial statements of any proposed changes in
accounting and financial reporting rules.
L. The Audit Committee shall meet privately at least quarterly
with: (i) the outside auditor; (ii) the Chief Financial
Officer; (iii) the Controller; and (iv) the most senior person
(if any) responsible for the internal audit activities of the
Company.
M. The Audit Committee shall have the authority to retain such
outside counsel, experts and other advisors as it determines
appropriate to assist in the full performance of its functions
and to conduct or authorize investigations into any matters
within the scope of its responsibilities.
3
APPENDIX B
STRONGHOLD TECHNOLOGIES, INC.
2002 STOCK INCENTIVE PLAN, AS AMENDED
1. PURPOSE
The purpose of this 2002 Stock Incentive Plan (the "Plan") of
Stronghold Technologies, Inc., a Nevada corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any of the Company's present or future parent or subsidiary
corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code
of 1986, as amended, and any regulations promulgated thereunder (the "Code") and
any other business venture (including, without limitation, joint venture or
limited liability company) in which the Company has a controlling interest, as
determined by the Board of Directors of the Company (the "Board").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options or restricted stock awards (each, an
"Award") under the Plan. Each person who has been granted an Award under the
Plan shall be deemed a "Participant".
3. ADMINISTRATION AND DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered
by the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
(b) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officers referred to in Section 3(c) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive offiers.
- 1 -
(c) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to grant Awards to employees or officers of the Company or any
of its present or future subsidiary corporations and to exercise such other
powers under the Plan as the Board may determine, provided that the Board shall
fix the terms of the Awards to be granted by such executive officers (including
the exercise price of such Awards, which may include a formula by which the
exercise price will be determined) and the maximum number of shares subject to
Awards that the executive officers may grant; provided further, however, that no
executive officer shall be authorized to grant Awards to any "executive officer"
of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) or to any "officer" of the Company (as
defined by Rule 16a-1 under the Exchange Act).
4. STOCK AVAILABLE FOR AWARDS
(a) NUMBER OF SHARES. Subject to adjustment under Section 7, Awards may
be made under the Plan for up to one million six hundred thousand (1,600,000)
shares of common stock, $0.0001 par value per share, of the Company (the "Common
Stock"). If any Award expires or is terminated, surrendered or canceled without
having been fully exercised or is forfeited in whole or in part (including as
the result of shares of Common Stock subject to such Award being repurchased by
the Company at the original issuance price pursuant to a contractual repurchase
right) or results in any Common Stock not being issued, the unused Common Stock
covered by such Award shall again be available for the grant of Awards under the
Plan, subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitations under the Code. Shares issued under the Plan may
consist in whole or in part of authorized but unissued shares or treasury
shares.
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 7, the
maximum number of shares of Common Stock with respect to which Awards may be
granted to any Participant under the Plan shall be two hundred sixty thousand
(260,000) per calendar year. The per-Participant limit described in this Section
4(b) shall be construed and applied consistently with Section 162(m) of the Code
("Section 162(m)").
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
- 2 -
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement, provided, however, that no option will be granted
for a term in excess of 10 years.
(e) EXERCISE OF OPTION. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price and any required tax
withholding or (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price and
any required tax withholding;
(3) when the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), by delivery of shares of Common Stock
owned by the Participant valued at their fair market value as determined by (or
in a manner approved by) the Board in good faith ("Fair Market Value"), provided
(i) such method of payment is then permitted under applicable law and (ii) such
Common Stock, if acquired directly from the Company was owned by the Participant
at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) payment of such other lawful consideration as
the Board may determine; or
(5) by any combination of the above permitted forms of payment.
- 3 -
(g) SUBSTITUTE OPTIONS. In connection with a merger or consolidation of
an entity with the Company or the acquisition by the Company of property or
stock of an entity, the Board may grant Options in substitution for any options
or other stock or stock-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5 or in Section 2.
6. RESTRICTED STOCK.
(a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any.
(c) STOCK CERTIFICATES. Any stock certificates issued in respect of a
Restricted Stock Award shall be registered in the name of the Participant and,
unless otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of the applicable restriction periods, the Company (or such designee)
shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
7. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
(a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, and (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award shall be appropriately adjusted by the Company (or
substituted Awards may be made, if applicable) to the extent the Board shall
determine, in good faith, that such an adjustment (or substitution) is necessary
and appropriate. If this Section 7(a) applies and Section 7(c) also applies to
any event, Section 7(c) shall be applicable to such event, and this Section 7(a)
shall not be applicable.
- 4 -
(b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation
or dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award granted under the Plan at the time of
the grant.
(c) REORGANIZATION EVENTS.
(1) DEFINITION. A "Reorganization Event" shall mean: (a) any merger
or consolidation of the Company with or into another entity as a result of which
all of the Common Stock of the Company is converted into or exchanged for the
right to receive cash, securities or other property or (b) any exchange of all
of the Common Stock of the Company for cash, securities or other property
pursuant to a share exchange transaction.
(2) CONSEQUENCES OF A REORGANIZATION EVENT ON OPTIONS. Upon the
occurrence of a Reorganization Event, or the execution by the Company of any
agreement with respect to a Reorganization Event, the Board shall provide that
all outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Reorganization Event, the Option confers the right
to purchase, for each share of Common Stock subject to the Option immediately
prior to the consummation of the Reorganization Event, the consideration
(whether cash, securities or other property) received as a result of the
Reorganization Event by holders of Common Stock for each share of Common Stock
held immediately prior to the consummation of the Reorganization Event (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if the consideration received as a result of the
Reorganization Event is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with the consent of the
acquiring or succeeding corporation, provide for the consideration to be
received upon the exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair
market value to the per share consideration received by holders of outstanding
shares of Common Stock as a result of the Reorganization Event.
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time prior to the Reorganization Event and will
terminate immediately prior to the consummation of such Reorganization Event,
except to the extent exercised by the Participants before the consummation of
such Reorganization Event; provided, however, that in the event of a
Reorganization Event under the terms of which holders of Common Stock will
receive upon consummation thereof a cash payment for each share of Common Stock
surrendered pursuant to such Reorganization Event (the "Acquisition Price"),
- 5 -
then the Board may instead provide that all outstanding Options shall terminate
upon consummation of such Reorganization Event and that each Participant shall
receive, in exchange therefor, a cash payment equal to the amount (if any) by
which (A) the Acquisition Price multiplied by the number of shares of Common
Stock subject to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options. To the extent all or
any portion of an Option becomes exercisable solely as a result of the first
sentence of this paragraph, upon exercise of such Option the Participant shall
receive shares subject to a right of repurchase by the Company or its successor
at the Option exercise price. Such repurchase right (1) shall lapse at the same
rate as the Option would have become exercisable under its terms and (2) shall
not apply to any shares subject to the Option that were exercisable under its
terms without regard to the first sentence of this paragraph.
(3) CONSEQUENCES OF A REORGANIZATION EVENT ON RESTRICTED STOCK AWARDS.
Upon the occurrence of a Reorganization Event, the repurchase and other rights
of the Company under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Reorganization Event in the same manner and to the same extent
as they applied to the Common Stock subject to such Restricted Stock Award.
8. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award shall be evidenced in such form (written,
electronic or otherwise) as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
- 6 -
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may satisfy such tax obligations in whole or in part by delivery of
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value; provided, however, that the
total tax withholding where stock is being used to satisfy such tax obligations
cannot exceed the Company's minimum statutory withholding obligations (based on
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to such supplemental taxable
income). The Company may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to a Participant.
(f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) ACCELERATION. The Board may at any time provide that any Award
shall become immediately exercisable in full or in part, free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
- 7 -
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant that is intended to comply with Section 162(m) shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders to the extent
stockholder approval is required by Section 162(m) in the manner required under
Section 162(m) (including the vote required under Section 162(m)). No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant that is intended to comply
with Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's stockholders if required by
Section 162(m) (including the vote required under Section 162(m)).
(e) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
- 8 -
APPENDIX C
STRONGHOLD TECHNOLOGIES, INC.
2002 CALIFORNIA STOCK INCENTIVE PLAN, AS AMENDED
1. PURPOSE
The purpose of this 2002 California Stock Incentive Plan (the "Plan")
of Stronghold Technologies, Inc., a Nevada corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who reside in California and who
make (or are expected to make) important contributions to the Company by
providing such persons with equity ownership opportunities and performance-based
incentives and thereby better aligning the interests of such persons with those
of the Company's stockholders. Except where the context otherwise requires, the
term "Company" shall include any of the Company's present or future parent or
subsidiary corporations as defined in Sections 424(e) or (f) of the Internal
Revenue Code of 1986, as amended, and any regulations promulgated thereunder
(the "Code") and any other business venture (including, without limitation,
joint venture or limited liability company) in which the Company has a
controlling interest, as determined by the Board of Directors of the Company
(the "Board").
2. ELIGIBILITY
(a) All of the Company's employees, officers, directors, consultants
and advisors who reside in California are eligible to be granted options or
restricted stock awards (each, an "Award") under the Plan. Each person who has
been granted an Award under the Plan shall be deemed a "Participant".
(b) Notwithstanding subsection (a) above, the number of Participants
under the Plan that are not "accredited investors" (as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended) shall in no event exceed 35.
3. ADMINISTRATION AND DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered
by the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
- 1 -
(b) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officers referred to in Section 3(c) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officers.
(c) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to grant Awards to employees or officers of the Company who
reside in California or any of its present or future subsidiary corporations and
to exercise such other powers under the Plan as the Board may determine,
provided that the Board shall fix the terms of the Awards to be granted by such
executive officers (including the exercise price of such Awards, which may
include a formula by which the exercise price will be determined) and the
maximum number of shares subject to Awards that the executive officers may
grant; provided further, however, that no executive officer shall be authorized
to grant Awards to any "executive officer" of the Company (as defined by Rule
3b-7 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
or to any "officer" of the Company (as defined by Rule 16a-1 under the Exchange
Act).
4. STOCK AVAILABLE FOR AWARDS
(a) NUMBER OF SHARES. Subject to adjustment under Section 7, Awards may
be made under the Plan for up to two hundred thousand (200,000) shares of common
stock, $0.0001 par value per share, of the Company (the "Common Stock"). If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part (including as the result of
shares of Common Stock subject to such Award being repurchased by the Company at
the original issuance price pursuant to a contractual repurchase right) or
results in any Common Stock not being issued, the unused Common Stock covered by
such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitations under the Code. Shares issued under the Plan may
consist in whole or in part of authorized but unissued shares or treasury
shares.
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 7, the
maximum number of shares of Common Stock with respect to which Awards may be
granted to any Participant under the Plan shall be one hundred thousand
(100,000) per calendar year. The per-Participant limit described in this Section
4(b) shall be construed and applied consistently with Section 162(m) of the Code
("Section 162(m)").
- 2 -
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company who reside in
California and shall be subject to and shall be construed consistently with the
requirements of Section 422 of the Code. The Company shall have no liability to
a Participant, or any other party, if an Option (or any part thereof) which is
intended to be an Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement, provided, however, that no option will be granted
for a term in excess of 10 years.
(e) EXERCISE OF OPTION. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price and any required tax
withholding or (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price and
any required tax withholding;
(3) when the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), by delivery of shares of Common Stock
owned by the Participant valued at their fair market value as determined by (or
in a manner approved by) the Board in good faith ("Fair Market Value"), provided
(i) such method of payment is then permitted under applicable law and (ii) such
- 3 -
Common Stock, if acquired directly from the Company was owned by the Participant
at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) payment of such other lawful consideration as
the Board may determine; or
(5) by any combination of the above permitted forms of payment.
(g) SUBSTITUTE OPTIONS. In connection with a merger or consolidation of
an entity with the Company or the acquisition by the Company of property or
stock of an entity, the Board may grant Options in substitution for any options
or other stock or stock-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5 or in Section 2.
6. RESTRICTED STOCK.
(a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any.
(c) STOCK CERTIFICATES. Any stock certificates issued in respect of a
Restricted Stock Award shall be registered in the name of the Participant and,
unless otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of the applicable restriction periods, the Company (or such designee)
shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
7. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
(a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
- 4 -
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, and (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award shall be appropriately adjusted by the Company (or
substituted Awards may be made, if applicable) to the extent the Board shall
determine, in good faith, that such an adjustment (or substitution) is necessary
and appropriate. If this Section 7(a) applies and Section 7(c) also applies to
any event, Section 7(c) shall be applicable to such event, and this Section 7(a)
shall not be applicable.
(b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation
or dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award granted under the Plan at the time of
the grant.
(c) REORGANIZATION EVENTS.
(1) DEFINITION. A "Reorganization Event" shall mean: (a) any merger
or consolidation of the Company with or into another entity as a result of which
all of the Common Stock of the Company is converted into or exchanged for the
right to receive cash, securities or other property or (b) any exchange of all
of the Common Stock of the Company for cash, securities or other property
pursuant to a share exchange transaction.
(2) CONSEQUENCES OF A REORGANIZATION EVENT ON OPTIONS. Upon the
occurrence of a Reorganization Event, or the execution by the Company of any
agreement with respect to a Reorganization Event, the Board shall provide that
all outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Reorganization Event, the Option confers the right
to purchase, for each share of Common Stock subject to the Option immediately
prior to the consummation of the Reorganization Event, the consideration
(whether cash, securities or other property) received as a result of the
Reorganization Event by holders of Common Stock for each share of Common Stock
held immediately prior to the consummation of the Reorganization Event (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if the consideration received as a result of the
Reorganization Event is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with the consent of the
acquiring or succeeding corporation, provide for the consideration to be
received upon the exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair
market value to the per share consideration received by holders of outstanding
shares of Common Stock as a result of the Reorganization Event.
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such Options, then the Board shall, upon written notice to the
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Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time prior to the Reorganization Event and will
terminate immediately prior to the consummation of such Reorganization Event,
except to the extent exercised by the Participants before the consummation of
such Reorganization Event; provided, however, that in the event of a
Reorganization Event under the terms of which holders of Common Stock will
receive upon consummation thereof a cash payment for each share of Common Stock
surrendered pursuant to such Reorganization Event (the "Acquisition Price"),
then the Board may instead provide that all outstanding Options shall terminate
upon consummation of such Reorganization Event and that each Participant shall
receive, in exchange therefor, a cash payment equal to the amount (if any) by
which (A) the Acquisition Price multiplied by the number of shares of Common
Stock subject to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options. To the extent all or
any portion of an Option becomes exercisable solely as a result of the first
sentence of this paragraph, upon exercise of such Option the Participant shall
receive shares subject to a right of repurchase by the Company or its successor
at the Option exercise price. Such repurchase right (1) shall lapse at the same
rate as the Option would have become exercisable under its terms and (2) shall
not apply to any shares subject to the Option that were exercisable under its
terms without regard to the first sentence of this paragraph.
(3) CONSEQUENCES OF A REORGANIZATION EVENT ON RESTRICTED STOCK
AWARDS. Upon the occurrence of a Reorganization Event, the repurchase and other
rights of the Company under each outstanding Restricted Stock Award shall inure
to the benefit of the Company's successor and shall apply to the cash,
securities or other property which the Common Stock was converted into or
exchanged for pursuant to such Reorganization Event in the same manner and to
the same extent as they applied to the Common Stock subject to such Restricted
Stock Award.
8. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award shall be evidenced in such form (written,
electronic or otherwise) as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
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which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may satisfy such tax obligations in whole or in part by delivery of
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value; provided, however, that the
total tax withholding where stock is being used to satisfy such tax obligations
cannot exceed the Company's minimum statutory withholding obligations (based on
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to such supplemental taxable
income). The Company may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to a Participant.
(f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) ACCELERATION. The Board may at any time provide that any Award
shall become immediately exercisable in full or in part, free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
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time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant that is intended to comply with Section 162(m) shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders to the extent
stockholder approval is required by Section 162(m) in the manner required under
Section 162(m) (including the vote required under Section 162(m)). No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant that is intended to comply
with Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's stockholders if required by
Section 162(m) (including the vote required under Section 162(m)).
(e) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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