sec document
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/ Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material under Rule 14a-12
SPORTING MAGIC, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Sporting Magic, Inc.
7625 Hamilton Park Drive, Suite 12
Chattanooga, TN 37421
--------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE ___, 2002
---------------------
Dear Stockholders:
You are cordially invited to attend a special meeting of
stockholders on _________, June __, 2002 at 10:00 a.m. local time at our
corporate headquarters, located at 7625 Hamilton Park Drive, Suite 12,
Chattanooga, Tennessee 37421.
The purpose of this special meeting is to consider and vote upon the
following matters:
1. a proposal to elect six directors;
2. a proposal to amend our Certificate of Incorporation in order to
(i) change our name from Sporting Magic, Inc. to Next, Inc.,
(ii) update its provisions so that they are consistent with
current Delaware law, (iii) increase our authorized common stock
to 50,000,000 shares and (iv) provide for "blank check"
preferred stock;
3. a proposal to approve the adoption of our 2002 Stock Option Plan;
4. a proposal to ratify the appointment of Marcum & Kliegman LLP as
our independent auditors for the year ending August 31, 2002;
and
5. such other business as may properly come before the special
meeting or any adjournment thereof.
The Board of Directors has fixed 5:00 p.m., local time, on May __,
2002 as the record date for determining which stockholders are entitled to
notice of, and to vote at, this special meeting, or any adjournment thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE FILL IN, DATE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT TO US IN THE SELF ADDRESSED
STAMPED ENVELOPE PROVIDED.
By Order of the Board of Directors.
Dan Cooke
President and Chairman of the Board
Chattanooga, Tennessee
May __, 2002
Table of Contents
Questions and Answers about the Special Meeting...............................2
Security Ownership............................................................5
Management....................................................................6
Proposal No. 1 - Election of Directors........................................7
Certain Relationships and Related Transactions................................9
Section 16(a) Beneficial Ownership Reporting Compliance.......................9
Special Note Regarding Forward Looking Statements.............................9
Proposal No. 2 - Amending our Certificate of Incorporation....................9
(a) Changing our Name from Sporting Magic, Inc. to Next, Inc............10
(b) Updating the Certificate of Incorporation in accordance with current
Delaware Law........................................................10
(c) Increasing our authorized common stock to 50,000,000 shares.........12
(d) providing for blank check preferred stock...........................13
Proposal No. 4 - Approval of Adoption of 2002 Stock Option Plan..............14
Proposal No. 5 - Ratification of Appointment of Independent Public
Accountants.................................................17
Other Matters................................................................17
Exhibit A - Form of Amended and Restated Certificate of Incorporation........19
Exhibit B - Form of Series A Preferred Stock Certificate of Designation......21
Exhibit C - 2002 Stock Option Plan...........................................24
1
SPORTING MAGIC, INC.
7625 Hamilton Park Drive, Suite 12
Chattanooga, Tennessee 37421
PROXY STATEMENT
This proxy statement is being furnished to you in connection with
the solicitation by the Board of Directors of proxies for use at our special
meeting of stockholders scheduled for _________________, June __, 2002 at our
corporate headquarters, located at 7625 Hamilton Park Drive, Suite 12,
Chattanooga, Tennessee 37421 at 10:00 a.m. local time, or any adjournment
thereof. This proxy statement, and the accompanying proxy card, are first being
mailed to stockholders on or about May __, 2002.
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
Q: WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
A: The purpose of the special meeting is to consider and vote upon the
following matters:
o a proposal to elect six directors;
o a proposal to amend our Certificate of Incorporation in order to (i)
change our name from Sporting Magic, Inc. to Next, Inc., (ii) update
its provisions so that they are consistent with current Delaware law,
(iii) increase our authorized common stock to 50,000,000 shares and
(iv) provide for "blank check" preferred stock;
o a proposal to approve the adoption of our 2002 Stock Option Plan; and
o a proposal to ratify the appointment of Marcum & Kliegman LLP as our
independent auditors for the year ending August 31, 2002.
At the special meeting, a representative will be available to report on our
current operations and to answer stockholder questions.
Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?
A: You are receiving this proxy statement and the enclosed proxy card because
the Board of Directors is soliciting your proxy to vote your shares of
common stock at the special meeting. To assist you in your decision making
process, this proxy statement contains pertinent information about us, the
special meeting and the proposals to be considered.
Q: WHEN AND WHERE WILL THE MEETING BE HELD?
A: The special meeting of stockholders will be held at our corporate
headquarters, located at 7625 Hamilton Park Drive, Suite 12, Chattanooga,
Tennessee 37421 on _________________, June __, 2002 at 10:00 a.m. local
time.
Q: WHO IS ENTITLED TO NOTICE OF AND TO VOTE AT THE SPECIAL MEETING?
A: All stockholders of record at 5:00 p.m., local time, on May __, 2002 are
entitled to notice of, and to vote at, the special meeting. Each share of
our common stock entitles its holder to one vote on each matter properly
submitted to stockholders. On the record date, there were
[________________] outstanding shares of our common stock, held by a total
of [___] stockholders.
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Q: HOW DO I VOTE?
A: By properly completing and signing the enclosed proxy card, your shares
will be voted as directed. If no directions are specified, your shares will
be voted in accordance with the Board of Directors' recommendations, and
with regard to matters that come before the special meeting, in the
discretion of the persons named as proxies. If you are a registered
stockholder; that is, if you hold your shares of stock in certificate form,
and you attend the special meeting, you may either mail in your completed
proxy card or deliver it to us in person. If you hold your shares of stock
in "street name;" that is, if you hold your shares of stock through a
broker or other nominee, and you wish to vote in person at the special
meeting, you will need to obtain a proxy card from the institution holding
your stock.
Q: CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?
A: No. At the present time we have not established procedures for telephonic
or electronic voting. We may establish such procedures in the future should
we determine that their added convenience justifies their additional cost.
At this time, you may only vote by returning a properly executed proxy card
or by voting in person at the special meeting.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means that you have multiple accounts at the transfer agent and/or with
stockbrokers. Please sign and return all proxy cards to ensure that all of
your shares are voted.
Q: CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
A: Yes. Even after submitting your proxy card, you can revoke it and/or change
your vote prior to the special meeting. To revoke or change your vote prior
to the special meeting, simply (i) file a written notice of revocation with
our secretary, (ii) send us a duly executed proxy card bearing a later date
than the prior one submitted or (iii) attend the special meeting and vote
in person. Please note, however, that while giving a proxy does not affect
your right to vote in person at the special meeting, attendance alone will
not revoke a previously granted proxy.
Q: WHAT IS A "QUORUM"?
A: A quorum is the number of people required to be present before a meeting
can conduct business. Pursuant to our bylaws, the presence at the special
meeting of at least one-third of the outstanding shares of our common stock
as of the record date, whether in person or by proxy, is necessary for
there to be a "quorum." If you submit a properly executed proxy card, even
if you abstain from voting, you will be considered part of the quorum.
Shares represented by "broker non-votes" will also be considered part of
the quorum.
Q: WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
A: The election of each nominee as a director requires a plurality of the
votes cast by holders of our common stock.
A: Approval of the proposal to amend our Certificate of Incorporation in order
to (i) change our name from Sporting Magic, Inc. to Next, Inc., (ii) update
its provisions so that they are consistent with current Delaware law, (iii)
increase our authorized common stock to 50,000,000 shares and (iv) provide
for "blank check" preferred stock requires the affirmative vote of a
majority of the issued and outstanding shares of our common stock.
A: Approval of the 2002 Stock Option Plan requires the affirmative vote of a
majority of the issued and outstanding shares of our common stock.
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A: Approval of the appointment of Marcum & Kliegman LLP as our independent
auditors for the fiscal year ending August 31, 2002 requires the
affirmative vote of a majority of the votes cast at the special meeting.
Properly executed proxy cards marked "ABSTAIN" and broker "non-votes" will
not be voted. Accordingly, abstentions and broker "non-votes" are
tantamount to negative votes.
Please note that Dan Cooke, William B. Hensley, the William B. III and
Cindy S. Hensley Living Trust, the Gematria Trust and Brian Casteel have
each informed us that they intend to vote in accordance with the board of
directors' recommendations. The aggregate number of votes held by these
stockholders is sufficient to satisfy the stockholder vote requirement for
each of the proposals.
Q: WHAT ARE THE BOARD OF DIRECTORS' RECOMMENDATIONS?
A: The Board of Directors recommends that you vote:
o for the election of all director nominees;
o for the amendment to our Certificate of Incorporation in order to (i)
change our name from Sporting Magic, Inc. to Next, Inc., (ii) update
its provisions so that they are consistent with current Delaware law,
(iii) increase our authorized common stock to 50,000,000 shares and
(iv) provide for "blank check" preferred stock;
o for the adoption of the 2002 Stock Option Plan; and
o for the approval of Marcum & Kliegman LLP to serve as our independent
auditors for the fiscal year ending August 31, 2002.
Q: WHO IS PAYING THE COST FOR THIS PROXY SOLICITATION AND HOW IS THE
SOLICITATION PROCESS BEING CONDUCTED?
A: We will pay the costs associated with this proxy solicitation. We do
not anticipate that such costs will exceed those normally associated
with similar proxy solicitations. We will also, upon request,
reimburse brokers, banks and similar organizations for reasonable
out-of-pocket expenses incurred in forwarding these proxy materials to
their clients.
In addition to soliciting proxies through the mail, our directors and
employees may solicit proxies in person, by telephone or other
electronic means. None of our directors or employees, however, will
receive any additional compensation for such efforts.
Q: DO I HAVE DISSENTER'S RIGHTS?
A: No. The actions proposed to be taken at the special meeting do not
entitle dissenting stockholders to any appraisal rights under the
Delaware General Corporation Law.
Q: WHEN ARE STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING OF
STOCKHOLDERS DUE?
A: For stockholder proposals to be considered for inclusion in the proxy
statement for our next annual meeting, they must be submitted to us in
writing, within a reasonable time before we begin printing and mailing
our annual meeting proxy materials. We have not yet set the date for
our next annual meeting. Please note, however, that all proposals
submitted must comply with applicable laws and regulations and follow
the procedures set forth in Rule 14a-8 of the Securities Exchange Act
of 1934, as amended.
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Q: HOW DO I OBTAIN MORE INFORMATION ABOUT US?
A: We file annual, quarterly and special reports and other information
with the Securities and Exchange Commission (the "SEC"). You may read
and copy any of these documents at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information. Copies of this material may
also be obtained from the SEC's web site at http://www.sec.gov, by
contacting our chief financial officer at (423) 296-8213 or writing to
us at 7625 Hamilton Park Drive, Suite 12, Chattanooga, Tennessee
37421.
SECURITY OWNERSHIP
The following table sets forth information concerning ownership of our
common and preferred stock (the "Shares"), as of the record date, by (i) each
person known to be the beneficial owner of more than five percent of our
outstanding common stock, (ii) each director, director nominee and executive
officer required to be named hereunder and (iii) all of our directors and
executive officers as a group. Unless otherwise indicated, we believe that each
stockholder has sole voting and dispositive power with respect to the Shares
beneficially owned by him.
Common Stock Beneficially Owned(1) Preferred Stock Beneficially Owned(1)(2)
-------------------------------------- -------------------------------------
Shares Percentage Shares Percentage
------ ---------- ------ ----------
Dan Cooke
6430 Cobble Lane
Harrison, TN 37341 3,000,000 31.6% 50 45.2%
William B. Hensley
c/o Blue Sky Graphics, Inc.
1295 Vernon St.
Wabash, IN 46992 3,000,000(3) 31.6% 50(4) 45.2%
William B. III and Cindy S. Hensley
Living Trust
c/o Blue Sky Graphics, Inc.
1295 Vernon St.
Wabash, IN 46992 1,500,000 15.8% 25 22.6%
Sean Garber
CMJ Ventures, Inc.
3600 Chamberlain Lane
Louisville, Kentucky 40241 -- -- -- --
Ronald Metz
c/o Bucheri, McCarty & Metz LLP
2366 West Blvd.
Kokomo, IN 46902 -- -- -- --
G. Michael Cross
205 Powell Place
Brentwood, TN 37027 -- -- -- --
Salvatore Geraci
c/o Evergreen Management
1400 Williams Street
Chattanooga, TN 37408 -- -- -- --
Charles Thompson
6419 Bay Shore Drive
Chattanooga, TN 37341 750,000(5) 7.9% -- --
RAE & Company
6419 Bay Shore Drive
Chattanooga, TN 37341 750,000 7.9% -- --
All Directors and Executive Officers
as a Group 6,750,000(3)(5) 71.1% 100(4) 90.4%
-----------------
* less than 1%
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(1) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the record
date upon the exercise of options and warrants and the conversion of
convertible securities. Each beneficial owner's percentage of
ownership is determined by assuming that all options, warrants or
convertible securities held by such person (but not those held by
any other person) that are currently exercisable or convertible
(i.e., that are exercisable or convertible within 60 days after the
record date) have been exercised or converted.
(2) We are contractually obligated to seek stockholder approval to
create "blank check" preferred stock and then promptly create a
series of voting preferred stock into which each 100 outstanding
shares of our wholly owned subsidiary's, Next, Inc., Series A
Preferred Stock, par value $.0001 per share, shall automatically
convert. These figures represent shares of Next Series A Preferred
Stock that have been issued on a post-conversion basis.
(3) Includes 1,500,000 shares beneficially owned by the William B. III
and Cindy S. Hensley Living Trust. William B. Hensley is a "control
person" of the William B. III and Cindy S. Hensley Living Trust and
therefore shares beneficially owned by the William B. III and Cindy
S. Hensley Living Trust are set forth in the table as beneficially
owned by Mr. Hensley. Mr. Hensley disclaims beneficial ownership of
the shares held by the William B. III and Cindy S. Hensley Living
Trust.
(4) Includes 25 shares beneficially owned by the William B. III and
Cindy S. Hensley Living Trust. William B. Hensley is a "control
person" of the William B. III and Cindy S. Hensley Living Trust and
therefore shares beneficially owned by the William B. III and Cindy
S. Hensley Living Trust are set forth in the table as beneficially
owned by Mr. Hensley. Mr. Hensley disclaims beneficial ownership of
the shares held by the William B. III and Cindy S. Hensley Living
Trust.
(5) Charles Thompson is a "control person" of RAE & Company and
therefore shares beneficially owned by RAE & Company are set forth
in the table as beneficially owned by Mr. Thompson. Mr. Thompson
disclaims beneficial ownership of the shares held by RAE & Company.
MANAGEMENT
Our directors and executive officers are as follows:
Name Age Position
---- --- --------
Dan Cooke 53 Chairman, President and Director
William B. Hensley 52 Chief Executive Officer and Director
Charles Thompson 52 Acting Chief Financial Officer
Ronald Metz 43 Director
G. Michael Cross 54 Director
Salvatore Geraci 55 Director
Sean Garber 35 Director Nominee
The principal occupation for the past five years and current public
directorships of each of our directors, director nominees and executive officers
are as follows:
Dan Cooke. Since February 2002, Mr. Cooke has been our president,
chairman and a director. Since 1989 and 1997, respectively, Mr. Cooke has also
been a principal of our wholly owned subsidiaries, Blue Sky Graphics, Inc.
("Blue Sky") and Next. Blue Sky and Next are principally engaged in the design,
development, marketing and distribution of branded promotional products and
imprinted sportswear.
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William B. Hensley, III. Since February 2002, Mr. Hensley has been a
director and our chief executive officer. Since 1989 and 1997, respectively, Mr.
Hensley has also been a principal of Blue Sky and Next.
Charles Thompson. Since February 2002, Mr. Thompson has been our
acting chief financial officer. From 2001-2002, Mr. Thompson served as Vice
President-Finance & Business Development of Ameris Health Systems, an operator
of six hospitals. From 1997-2000, Mr. Thompson was Vice President/Chief
Financial Officer of Great Smokies Diagnostics Laboratory, and from 1996-1997,
Mr. Thompson was the principal of RAE & Company, a financial consulting firm.
Ronald Metz. Mr. Metz has been a director of ours since February
2002. Since 1987, Mr. Metz has been a partner with the accounting firm of
Bucheri McCarty & Metz LLP.
G. Michael Cross. Mr. Cross has been a director of ours since
February 2002. Since 2000, Mr. Cross has been the director of business
development for WealthPort, Inc., a financial services company, and a contract
consultant for FundraisingInfo.com, an Internet-based fund-raising consulting
company. From 1997-1999, Mr. Cross was a business consultant for CAO, LLC, a
regional consulting firm, and from 1993-1997, Mr. Cross was a sales manager in
the public finance and municipal bond department of Equitable Securities
Corporation, a regional investment banking firm.
Salvatore Geraci. Mr. Geraci has been a director of ours since
February 2002. Since 1987, Mr. Geraci has been the principal of Evergreen
Management, Inc., a provider of tax, estate, retirement and investment planning.
Mr. Geraci also serves as an adjunct professor of accounting and finance at the
University of Tennessee at Chattanooga.
Sean Garber. Since 2000, Mr. Garber has been president and chief
executive officer of CMJ Ventures, Inc., a manufacturer of licensed promotional
products. From 1996-2000, Mr. Garber was president and chief operating officer
of Industrial Services of America.
Change in Control
On February 1, 2002, we, Next, Buddy Young, previously our largest
stockholder, Dan Cooke, William B. Hensley and the William B. III and Cindy S.
Hensley Living Trust, previously the sole common stockholders of Next (together,
the "Next Stockholders"), consummated a reverse acquisition pursuant to an
Exchange Agreement, whereby we issued 6,000,000 shares of our common stock to
the Next Stockholders in exchange for 6,000,000 shares of Next's common stock,
par value $.0001 per share, representing all of Next's issued and outstanding
common equity (the "Exchange"). We also agreed to seek stockholder approval to
create "blank check" preferred stock and then promptly create a series of voting
preferred stock into which each 100 outstanding shares of Next's Series A
Preferred Stock, par value $.0001 per share, shall automatically convert.
Upon the closing of the Exchange, our then existing Board of
Directors, consisting of Buddy Young, L. Stephen Albright and Dennis Spiegelman,
resigned and caused Dan Cooke, William B. Hensley, Ronald Metz, G. Michael Cross
and Salvatore Geraci to succeed them in such capacity. In addition, Mr. Young
and Mr. Albright resigned as executive officers.
PROPOSAL NO. 1 ELECTION OF DIRECTORS
Nominees
Six directors are to be elected at the special meeting. The nominees
for directors are Dan Cooke, William B. Hensley, III, Ronald Metz, G. Michael
Cross, Salvatore Geraci and Sean Garber. In the event that any nominee is unable
or declines to serve as a director at the time of the special meeting, all
proxies will be voted for any substitute nominee designated by the current Board
of Directors. We have no reason to expect that any nominee will refuse to or be
unable to serve as a director.
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Vote Required
A plurality of the votes cast by holders of our common stock is
required for the election of each nominee.
Recommendation of the Board of Directors
THE BORAD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES.
Directors Meetings and Compensation
In 2001, the Board of Directors did not meet, but acted five times
by unanimous written consent. We do not have a standing audit, compensation or
nominating committee, nor any other committees performing similar functions.
We did not compensate our directors during the fiscal year ended
August 31, 2001.
Executive Compensation
The following table provides certain information, for the years
ended August 31, 1999, 2000 and 2001 concerning compensation awarded to, earned
by or paid to our prior president. None of our executive officers received
compensation in excess of $100,000 during fiscal 2001.
Annual Compensation Long Term
------------------- Compensation
------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($)(1) Options (shares)
--------------------------- ---- ------ ----- ------------------- ----------------
Buddy Young
President and Chief 2001 $27,000(3) -- -- --
Financial Officer(2) 2000 -- -- -- --
1999 -- -- -- --
(1) Perquisites and other personal benefits, securities or property did
not exceed the lesser of $50,000 or 10% of such executive's salary and
bonus.
(2) On February 1, 2002, Mr. Young resigned as president, chief financial
officer and as a member of our Board of Directors.
(3) During the year ended August 31, 2001, as compensation for his
services as president and chief financial officer, we issued 75,000
shares of common stock to Mr. Young, which had a market value of $0.36
per share on the date of issuance.
Compensation Committee Interlocks and Insider Participation
As we have no compensation committee, all members of the Board of
Directors participate in setting our compensation policies.
Board Report on Executive Compensation
The Board of Directors executive compensation philosophy is to base
management's pay, in part, on the achievement of our annual and long-term
performance goals, to provide competitive levels of compensation, to recognize
individual initiative, achievement and length of service with us, and to assist
us in attracting and retaining qualified management. The Board of Directors
believes that the potential for equity ownership by management is
8
beneficial in aligning management's and stockholders' interests in the
enhancement of stockholder value. We have not established a policy with regard
to Section 162(m) of the Internal Revenue Code of 1986, as amended.
Base salaries for our executive officers are determined by evaluating
the responsibilities of the position held, the experience of the individual, and
by reference to the competitive marketplace for management talent. The base
salary of each executive is reviewed annually by the Board of Directors, and
adjusted accordingly. Annual salary adjustments are determined by evaluating the
competitive marketplace, our performance, the performance of the executive, the
length of the executive's tenure with us and any increased responsibilities
assumed by the executive. We place ourselves between the low and medium levels
in determining salaries compared to other comparable businesses.
Mr. Young was our president and chief financial officer for the year
ended August 31, 2000, and he received no compensation during that period. In
determining Mr. Young's salary for the year ended August 31, 2001, the Board of
Directors considered his responsibilities as president and chief financial
officer, his performance in managing and directing our operations, his efforts
in helping us improve our capital base and financial condition, our performance
versus other comparable companies, and such other factors described above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Buddy Young, our former president and chief financial officer, has
entered into a non-competition agreement with us, pursuant to which Mr. Young
has agreed to forgo certain opportunities to compete with us in exchange for
300,000 shares of Next's Series A Preferred Stock and the right to receive up to
$350,000 in cash.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our executive officers, directors, and persons who own more than 10% of
our outstanding common stock to file initial reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% stockholders
are required by the SEC's regulations to furnish us with copies of all Section
16(a) forms they file. We believe that our executive officers, directors, and
greater than 10% stockholders complied during the year ended August 31, 2001
with all reporting requirements of Section 16(a).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this proxy statement are
forward-looking and may involve a number of risks and uncertainties. Those
statements are subject to known and unknown risks, uncertainties and other
factors that could cause actual results to differ materially from those
contemplated by the statements. We caution you that these forward-looking
statements are only predictions. We cannot assure you that the future results
predicted, whether expressed or implied, will be achieved. The forward-looking
statements are based on current expectations, and we are not obligated to update
this information.
PROPOSAL NO. 2 -AMENDING OUR CERTIFICATE OF INCORPORATION
Introduction
On May 1, 2002, our Board of Directors approved for submission to a
vote of the stockholders a proposal to amend and restate of our Certificate of
Incorporation, a copy of which is attached hereto as Exhibit A, that would (i)
change our name from Sporting Magic, Inc. to Next, Inc., (ii) update its
provisions so that they are consistent with current Delaware law, (iii) increase
our authorized common stock to 50,000,000 shares and (iv) provide for "blank
check" preferred stock.
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(a) Changing our name from Sporting Magic, Inc. to Next, Inc.
----------------------------------------------------------
Purpose of the Name Change.
On February 1, 2002 we consummated a reverse acquisition (the "Reverse
Merger") with Next, Inc., a Delaware corporation ("Next"), whereby Next became a
wholly owned subsidiary of ours. Upon consummation of the Reverse Merger, all of
our directors and executive officers resigned and were replaced by the directors
and executive officers named by Next. In addition, the business of Next became
our business. As a result of the Reverse Merger, our present name provides us
with very little value in the marketplace. Next's name, on the other hand, is
widely known and respected amongst our customers and suppliers. Given the fact
that Next enjoys this widespread recognition, that Next now represents our
primary business, and that our name is not well known, the Board of Directors
believes that it would be in our best interest to change our name from Sporting
Magic, Inc. to Next, Inc.
Effects of the Name Change
Changing our name will not have any effect on our corporate status,
the rights of our stockholders or the transferability of outstanding stock
certificates. Outstanding stock certificates bearing the name "Sporting Magic,
Inc." will continue to be valid and represent shares of Next, Inc. following the
name change. In the future, new stock certificates will be issued bearing our
new name, but this will in no way affect the validity of your current stock
certificates.
In connection with our name change, we intend to change our trading
symbol from "SPMA" to "NXX".
(b) Updating the Certificate of Incorporation in accordance with current Delaware law.
---------------------------------------------------------------------------------
Our Certificate of Incorporation has not been amended and restated in
full since its adoption in 1987. Since that time, however, the Delaware General
Corporation Law ("DGCL"), which governs us, has undergone numerous changes and
caused much our Certificate of Incorporation to be unnecessary, ineffective or
otherwise inappropriate. The proposed amended and restated Certificate of
Incorporation would rectify this problem by deleting extraneous provisions and
inserting new stipulations consistent with Delaware law. These changes consist
of the following:
(1) Article Third presently reads as follows:
"The nature of the business and, the objects and purposes
proposed to be transacted, promoted and carried on, are to do
any or all the things herein mentioned, as fully and to the
same extent as natural persons might or could do, and in any
part of the world, viz: `The purpose of the corporation is to
engage in any lawful act for which corporations may be
organized under the General Corporation Law of Delaware.'"
In order to clarify the meaning of this provision and to make it
consistent with Section 102(3) of the DGCL, the amended and restated Certificate
of Incorporation eliminates the introductory language of Article Third, so that
it would read as follows:
"The purpose of the Corporation is to engage in any lawful act for
which corporations may be organized under the General Corporation Law
of Delaware."
(2) Article Seventh presently reads as follows:
"The Directors shall have the power to make and to alter
or amend the By-Laws; to fix the amount to be reserved as
working capital, and to authorize and cause to be executed,
mortgages and liens without limit as to the amount, upon the
property and franchise of this corporation.
10
With the consent in writing, and pursuant to a vote of
the holders of a majority of the capital stock issued and
outstanding, the Directors shall have the authority to dispose
of, in any manner, of the whole property of the corporation.
The By-Laws shall determine whether and to what extent
the accounts and books of this corporation, or any of them
shall be open to the inspections of the stockholders; and no
stockholder shall have any right of inspecting any account, or
book or document of this Corporation, except as conferred by
the law or the By-Laws, or by resolution of the stockholders.
The stockholders and the directors shall have power to
hold their meetings and keep the books, documents and papers of
the Corporation outside of the State of Delaware, at such
places as may be from time to time designated by the By-Laws or
by resolution of the stockholders or directors, except as
otherwise required by the laws of Delaware."
In order to clarify the fact that in addition to the Board of
Directors, our stockholders shall have the power to make, alter or repeal our
Bylaws, as is provided in Section 109 of the DGCL, the amended and restated
Certificate of Incorporated replaces the first phrase of Article Seventh with
the following:
"The Corporation hereby confers the power to adopt, amend or
repeal its By-Laws upon the Board of Directors. Notwithstanding
the foregoing, such power shall not divest or limit the power
of the stockholders of the Corporation to adopt, amend or
repeal the By-Laws of the Corporation."
As Section 141(a) of the DGCL provides that the business affairs of
every corporation organized under the laws of the State of Delaware shall be
managed by or under the direction of its board of directors, it is no longer
necessary for our Certificate of Incorporation to specifically provide the Board
of Directors with the right to fix our working capital and enter into agreements
placing liens on our property. All of these specific rights are now subsumed by
the DGCL's broad grant of power to the Board of Directors to manage our business
affairs. As a result, the amended and restated Certificate of Incorporation
deletes the second clause of the first sentence in Article Seventh.
The second sentence of Article Seventh will be also deleted as we are
now a publicly traded company with over 800 stockholders, making such written
consent impracticable, and Section 271 of the DGCL now provides that the Board
of Directors can sell, lease or exchange all or substantially all of a
corporation's property, provided the board of directors has the consent of the
holders of a majority of the outstanding stock entitled to vote.
The third sentence of Article Seventh is unnecessary and will be
deleted by the amended and restated Certificate of Incorporation, as Section 220
of the DGCL definitively sets forth stockholders' rights to inspect the books
and records of a Delaware corporation. The section provides that "any
stockholder, in person or by attorney or other agent, shall, upon written demand
under oath stating the purpose thereof, have the right during the usual hours
for business to inspect for any proper purpose the corporation's stock ledger, a
list of its stockholders, and its other books and records, and to make copies or
extracts therefrom."
The fourth sentence of Article Seventh is also unnecessary and will be
deleted by the amended and restated Certificate of Incorporation, as Section
141(g) of the DGCL provides that "unless otherwise restricted by the certificate
of incorporation or bylaws, the board of directors of any corporation organized
under this chapter may hold its meetings, and have an office or offices outside
this State."
(3) Article Eight presently reads as follows:
"The Corporation shall, to the full extent permitted by Section
145 of the Delaware Corporation Law, as the same may be amended
and supplemented from time to time, indemnify, all persons whom
it may indemnify pursuant thereto. The personal liability of
directors of the Corporation is hereby eliminated to the fullest
extent permitted by
11
Section 102(b)(7) of the Delaware General Law, as the same may be
amended and supplemented from time to time."
The amended and restated Certificate of Incorporation contains a more
detailed indemnification provision in order to better clarify the breadth of the
indemnification being provided thereunder. The Board of Directors believes that
such an expanded indemnification provision is in our best interest, as it will
better enable us to attract the best qualified directors and executive officers
who might otherwise be reticent to serve due to fears of potential liability. If
the amended and restated Certificate of Incorporation is approved, Article
Eighth will be deleted in its entirety and replaced with the following:
"EIGHTH: The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by
paragraph (7) of subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware, as same may be amended and
supplemented. Any repeal or modification of this Article SIXTH by the
stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation with respect to events
occurring prior to the time of such repeal or modification.
NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under any By-Law,
agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding such offices, and shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person."
(c) Increasing our authorized common stock to 50,000,000 shares.
-----------------------------------------------------------
Our certificate of incorporation currently authorizes us to issue up
to 25,000,000 shares of common stock. If no action is taken to increase our
authorized common stock, we would be able to issue 14,100,775 additional shares
of common stock after excluding shares reserved for the issuance of stock
options. The Board of Directors believes that it would be in our best interest
to have additional shares of common stock available for issuance to give us more
flexibility to, amongst other things, pursue acquisitions of property or
securities of other corporations, declare stock splits or dividends, and partake
in convertible debt and equity financings. If the proposed increase in
authorized capital is approved, the Board of Directors would be able to
authorize the issuance of shares for these purposes without the necessity, and
related costs and delays, of either calling a special stockholders' meeting or
waiting for the next regularly scheduled annual meeting of stockholders to
increase our authorized capital. If the proposal to increase our authorized
capital is approved by stockholders, we will have 39,100,775 unissued and
unreserved shares of common stock available for issuance in the future.
The proposed change in capital is not intended to have any
anti-takeover effect and is not part of any series of anti-takeover measures
contained in any debt instruments, our certificate of incorporation or bylaws in
effect on the date of this proxy statement. However, stockholders should note
that the availability of additional authorized but unissued shares of common
stock could make an attempt to gain control of either us or the Board of
Directors more difficult or time consuming, and that the availability of
additional authorized but unissued shares might make it more difficult to remove
current management. Although the Board of Directors currently has no intention
of doing so, shares of common stock could be issued by the Board of Directors to
dilute the percentage of common stock owned by a significant stockholder and
increase the cost of, or the number of, voting shares necessary to acquire
control of the Board of Directors or to meet the voting requirements imposed by
Delaware law with respect to a merger or other business combination involving
us. We are not aware of any proposed attempt to take us over or of any attempt
to acquire a large block of our common stock. We have no present intention to
use the increased authorized common stock for anti-takeover purposes.
12
(d) Providing for Blank Check Preferred Stock.
-----------------------------------------
Description of the Preferred Stock
Our present Certificate of Incorporations only authorizes us to issue
common stock. The proposed amended and restated Certificate of Incorporation, in
contrast, authorizes the issuance of up to 10,000,000 shares of "blank check"
preferred stock, $.0001 par value per share, in one or more series. The term
"blank check" preferred stock refers to stock for which the designations,
preferences, conversion rights, cumulative, relative, participating, optional or
other rights, including voting rights, qualifications, limitations or
restrictions thereof are determined by the board of directors.
Therefore, under the proposed amendment, the Board of Directors could
authorize the issuance of, at any time or from time to time, one or more series
of preferred stock (subject to stockholder approval if required by law or stock
exchange rules). In addition, the Board of Directors would determine all
designations, relative rights, preferences, and limitations of such preferred
stock, including, without limitation, the designation of series and numbers of
shares; dividend or distribution rights; rights upon liquidation or distribution
of our assets; conversion or exchange rights; redemption provisions; sinking
fund provisions; and voting rights, provided that the holders of shares of
preferred stock will not be entitled to vote separately as a class except where
such class or series of preferred stock is adversely affected.
Principal Reasons for Authorization
As stated above, pursuant to the terms of that certain exchange
agreement, dated as of December 21, 2001 and as amended on January 18, 2002 and
February 1, 2002, by and among us, Buddy Young, Next, Dan Cooke, William B.
Hensley and the William B. III and Cindy S. Hensley Living Trust (the "Exchange
Agreement"), we are contractually obligated to seek stockholder approval to
create "blank check" preferred stock, and then if approved, promptly create a
series of voting preferred stock into which each 100 outstanding shares of
Next's Series A Preferred Stock shall automatically convert. As set forth in the
form of certificate of designation for this proposed voting preferred stock, a
copy of which is attached hereto as Exhibit B, this preferred stock will have a
liquidation preference of $100 per share and will accrue dividends at the rate
of $10 per share per annum. This preferred stock will also carry voting rights
such that its holders vote as one class with the holders of our common stock.
Effects of the Preferred Stock
The primary effect of the preferred stock to be issued under the
Exchange Agreement would be that if we are sold, merge or liquidate, we would
have to receive net proceeds of more than $12,000 in order for our common
stockholders to receive any consideration. Moreover, should we issue additional
shares of this preferred stock, this minimum amount of net proceeds required for
common stockholders to receive anything in a liquidation event would increase
accordingly.
It is not possible to determine the actual effect of any additional
series of preferred stock until the Board of Directors determines the rights
associated with such series of preferred stock. However, while the Board of
Directors is required to make such determinations based on its judgment as to
the best interests of the stockholders and us, effects of the issuance of
preferred stock might include (i) restrictions on the payment of dividends to
holders of our common stock; (ii) dilution of voting power to the extent that
the holders of preferred stock are given voting rights; (iii) dilution of the
equity interests and voting power of common stockholders if the preferred stock
is convertible into common stock; and (iv) restrictions upon any distribution of
assets to the holders of our common stock upon a liquidation or dissolution and
until the satisfaction of any liquidation preference granted to the preferred
stockholders. An issuance of preferred stock could also dilute the earnings per
share and book value per share of our common stock. Finally, the issuance of
preferred stock could, depending on the terms of such series, make it more
difficult for a third party to attempt to obtain control of us by merger, tender
offer, proxy contest or other means, thus discouraging unsolicited takeover
attempts.
13
If the proposed amendment is approved by stockholders, it will become
effective upon its filing with the Secretary of State of the State of Delaware.
Vote Required
The affirmative vote of the holders of a majority of our outstanding
common stock is required to approve the amendment to our Certificate of
Incorporation in order to (i) change our name from Sporting Magic, Inc. to Next,
Inc., (ii) update its provisions so that they are consistent with current
Delaware law, (iii) increase our authorized common stock to 50,000,000 shares
and (iv) provide for "blank check" preferred stock.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT.
PROPOSAL NO. 4 - APPROVAL OF ADOPTION OF 2002 STOCK OPTION PLAN
Equity Compensation Plan Information
Number of securities to be issued Weighted average exercise Number of securities
upon exercise of outstanding price of outstanding remaining available for
Plan category options, warrants and rights options, warrants and future issuance
------------- --------------------------------- ------------------------- -----------------------
Equity compensation plans
approved by security holders -- -- --
Equity compensation plans not
approved by security holders 410,000(1) $0.025 590,000
Total 410,000 $0.025 590,000
(1) Represents options previously issued by Next under its 2001 Stock
Option Plan (the "Next Plan"). Upon consummation of the Exchange, we
assumed the Next Plan and all preexisting options granted
thereunder. Pursuant to the terms of the Next Plan and our
assumption agreement, any options to acquire shares of Next's common
stock previously granted under the Next Plan shall be replaced with
options to acquire shares of our common stock.
2002 Stock Option Plan
The Board of Directors has unanimously approved for submission to a
vote of the stockholders a proposal to adopt our 2002 Stock Option Plan (the
"Plan"). The purpose of the Plan is to retain current, and attract new,
employees, directors, consultants and advisors that have experience and ability,
along with encouraging a sense of proprietorship and interest in our development
and financial success. The Board of Directors believes that option grants and
other forms of equity participation are an increasingly important means to
retain and compensate employees, directors, advisors and consultants.
A summary of the Plan is set forth below, and its full text is
attached hereto as Exhibit C. The following discussion is qualified in its
entirety by reference to Exhibit C.
Administration of the Plan
The Plan will be administered by a committee consisting of two or
more "Non-Employee Directors" (as such term is defined in Rule 16b-3 of the
Securities Exchange Act of 1934, as amended) and "Outside Directors" (as such
term is defined in Section 162(m) of the Internal Revenue Code of 1986, as
amended) (the "Committee"). This
14
Committee will have the power to determine eligible participants, when options
may be granted, the number of shares subject to options, their duration, any
conditions to their exercise, and the manner and price at which they may be
exercised. In making such determinations, the Committee shall take into account
the nature and period of service of eligible persons, their compensation level,
their past, present and potential contributions to us and such other factors as
the Committee deems relevant.
The Board of Directors is authorized to amend, suspend or terminate
the Plan, except that it is not authorized, without stockholder approval (except
with regard to adjustments resulting from changes in capitalization), to (i)
increase the number of shares issuable under the Plan; (ii) materially increase
the benefits accruing to the option holders under the Plan; (iii) materially
modify Plan eligibility requirements; (iv) decrease the exercise price of
options below the underlying stock's fair market value on the grant date or (v)
extend the term of any option beyond that provided for in Section 5 of the Plan.
Unless terminated earlier by the Committee, the Plan will expire on
May 1, 2012.
Common Stock Subject to the Plan
The Plan provides that options may be granted with respect to a
total of 1,000,000 shares of our common stock. The maximum number of shares of
common stock that can be subject to options granted under the Plan to any
individual shall not exceed 100,000 in any calendar year. In the event of a
merger, reorganization, consolidation, recapitalization, stock dividend, or
other change in our corporate structure that affects our common stock, the
Committee shall make an appropriate and equitable adjustment to the terms of any
outstanding options such that each option holder's proportionate interest in us
remains the same. If any options expire or terminate prior to being fully
exercised, the unpurchased underlying stock shall remain available for future
option grants.
Participation
Any employee, officer or director of, and any consultant or advisor
to, us or any of our subsidiaries shall be eligible to receive stock options
under the Plan. However, only employees of our subsidiaries and us can receive
incentive stock options.
Option Price
The exercise price of each option shall be determined by the
Committee, but may not be less than 100% of the Fair Market Value (as defined in
the Plan) of the underlying common stock on the option grant date. If an
incentive stock option is granted to an employee who owns more than 10% of the
total combined voting power of all our capital stock, then its exercise price
may not be less than 110% of the Fair Market Value of the underlying common
stock on the option grant date.
Term of Options
The Committee shall, in its discretion, fix the term of each option;
provided, however, that the maximum term of any option shall not exceed 10
years. Moreover, incentive stock options granted to employees who own more than
10% of the total combined voting power of our capital stock shall not exceed
five years. The Plan provides for the earlier expiration of options of a
participant in the event of certain terminations of employment or engagement or,
if the Committee so determines, in the event of a change in control.
Restrictions on Transfer and Exercise
Generally, an option may not be transferred or assigned other than
by will or the laws of descent and distribution and, during the lifetime of the
option holder, may be exercised solely by him. The aggregate Fair Market Value
(determined at the time the incentive stock option is granted) of the shares as
to which an employee may first exercise incentive stock options in any one
calendar year under all of our incentive stock option plans and our
15
subsidiaries may not exceed $100,000. The Committee may impose any other
conditions to exercise as it deems appropriate.
Registration of Shares
We may file a registration statement under the Securities Act of 1933,
as amended, with respect to the common stock issuable pursuant to the Plan
following stockholder approval.
Rule 16b-3 Compliance
In all cases, the terms, provisions, conditions and limitations of the
Plan shall be construed and interpreted so as to be consistent with the
provisions of Rule 16b-3 of the Securities Exchange Act of 1934, as amended.
Tax Treatment of Incentive Stock Options
In general, no taxable income for federal income tax purposes will be
recognized by an option holder upon receipt or exercise of an incentive stock
option, and we will not then be entitled to any tax deduction. Assuming that the
option holder does not dispose of the option shares before the later of (i) two
years after the date of grant or (ii) one year after the exercise of the option,
upon any such disposition, the option holder will recognize capital gain equal
to the difference between the sale price on disposition and the exercise price.
If, however, the option holder disposes of his option shares prior to
the expiration of the required holding period, he will recognize ordinary income
for federal income tax purposes in the year of disposition equal to the lesser
of (i) the difference between the fair market value of the shares at the date of
exercise and the exercise price, or (ii) the difference between the sale price
upon disposition and the exercise price. Any additional gain on such
disqualifying disposition will be treated as capital gain. In addition, if such
a disqualifying disposition is made by the option holder, we will be entitled to
a deduction equal to the amount of ordinary income recognized by the option
holder provided that such amount constitutes an ordinary and reasonable expense
of ours.
Tax Treatment of Nonqualified Stock Options
No taxable income will be recognized by an option holder upon receipt
of a nonqualified stock option, and we will not be entitled to a tax deduction
for such grant.
Upon the exercise of a nonqualified stock option, the option holder
will include in taxable income, for federal income tax purposes, the excess in
value on the date of exercise of the shares acquired pursuant to the
nonqualified stock option over the exercise price. Upon a subsequent sale of the
shares, the option holder will derive short-term or long-term gain or loss,
depending upon the option holder's holding period for the shares, commencing
upon the exercise of the option, and upon the subsequent appreciation or
depreciation in the value of the shares.
We generally will be entitled to a corresponding deduction at the time
that the participant is required to include the value of the shares in his
income.
Withholding of Tax
We are permitted to deduct and withhold amounts required to satisfy
our withholding tax liabilities with respect to our employees.
Option Grants
Options to purchase shares of our common stock have not yet been
granted pursuant to the Plan, although it is anticipated that options will be
granted in the near future.
16
Vote Required
The affirmative vote of the holders of a majority of our outstanding
common stock is required for approval of the adoption of the Plan.
Recommendation of the Board of Directors
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE ADOPTION OF THE PLAN.
PROPOSAL NO. 5 RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
On February 13, 2002, the Board of Directors dismissed Farber & Hass
LLP ("FH") as our independent public accountants and engaged Marcum & Kliegman
LLP ("MK") to serve as our independent public accountants for the fiscal year
ending August 31, 2002. The reports of FH on our financial statements for the
years ended August 31, 2000 and 2001 each contain a going concern opinion. A
going concern opinion indicates that our independent accounts believe that
substantial doubt exists regarding our ability to continue to remain in
business. During the fiscal years ended August 31, 2000 and 2001 and during the
subsequent interim period through February 13, 2002, there were no disagreements
with FH on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures which disagreements if not resolved
to the satisfaction of FH would have caused them to make reference thereto in
their report on the financial statements for such years. During the fiscal years
ended August 31, 2000 and 2001 and during the subsequent interim period through
February 13, 2002, there were no reportable events (as defined in Item
304(a)(1)(v) of Regulation S-K). FH has provided us with a letter expressing
their agreement with the disclosure set forth in this paragraph.
During the two most recent fiscal years and subsequent interim
periods, we have not consulted with MK regarding (i) either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on its financial statements,
or (ii) any matter that was either the subject of disagreement on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures or a reportable event (as defined in Item 304(a)(1)(v) of
Regulation S-K).
Although the appointment of auditors does not require ratification,
the Board of Directors has directed that such appointment be submitted to
stockholders for ratification due to its significance. A representative of MK is
expected to be present at the special meeting, at which time he or she will have
the opportunity to make a desired statement and respond to stockholder
questions.
Audit Fees: The aggregate fees billed for professional services for
the audit of our annual financial statements for the year ended August 31, 2001
was $10,000, as we had no operations during that period.
Financial Information Systems Design and Implementation Fees: None
All Other Fees: FH did not perform any additional services for us
during the year ended August 31, 2001.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF MARCUM & KLIEGMAN LLP AS OUR INDEPENDENT PUBLIC ACCOUNTANTS FOR
THE FISCAL YEAR ENDING AUGUST 31, 2002.
OTHER MATTERS
The Board of Directors does not know of any matter, other than those
described above that may be presented for action at the special meeting. If any
other matter or proposal should be presented and should properly
17
come before the meeting for action, the persons named in the accompanying proxy
will vote upon such matter or proposal in accordance with their best judgment.
18
Exhibit A
---------
NEXT, INC.
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
NEXT, INC., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: The name of the Corporation is NEXT, INC.
SECOND: The name under which the Corporation was originally
incorporated was EKS RN CON INC., and the date of the filing of its original
Certificate of Incorporation with the Secretary of State was January 2, 1987.
THIRD: This Amended and Restated Certificate of Incorporation has been
duly adopted by the Board of Directors with approval by the Corporation's
stockholders in accordance with Sections 228, 242 and 245 of the Delaware
General Corporation Law ("DGCL") and the Board of Directors, with the
stockholder's approval, has resolved that the Certificate of Incorporation of
the Corporation be deleted in its entirety and replaced in its entirety with
this Amended and Restated Certificate of Incorporation of Next, Inc.
FOURTH: The text of the Corporation's Certificate of Incorporation is
hereby restated to read as herein set forth in full:
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEXT, INC.
FIRST: The name of the Corporation is NEXT, INC.
SECOND: The address, including street, number, city and county of the
registered office of the Corporation in the State of Delaware is 615 South
DuPont Highway, Dover, Delaware 19901, County of Kent; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
National Corporate Research, Ltd.
THIRD: The nature of the business, and the objects and purposes
proposed to be transacted, promoted and carried on, are to do any lawful act or
thing for which a corporation may be organized under the General Corporation Law
of the State of Delaware.
FOURTH: (a) The total number of shares of all classes of stock which
the Company shall have authority to issue is sixty million (60,000,000) of which
ten million (10,000,000) shall be designated Preferred Stock, par value $.001
per share (hereinafter the "Preferred Stock"), and fifty million (50,000,000)
shall be designated Common Stock, no par value per share (hereinafter the
"Common Stock").
(b) The Board of Directors is expressly authorized to provide
for the issuance of all or any shares of the Preferred Stock, in one or more
series, and to fix for each such series such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series and as may be permitted by the Delaware General Corporation
Law. The number of authorized shares of Preferred Stock may be increased (but
not
19
above the number of authorized shares of the class) or decreased (but not
below the number of shares thereof then outstanding)."
FIFTH: The name and the mailing address of the incorporator
is as follows:
Frances Madeson
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue
New York, New York 10022
SIXTH: The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by paragraph
(7) of subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as same may be amended and supplemented. Any repeal or modification
of this Article SIXTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation with respect to
events occurring prior to the time of such repeal or modification.
SEVENTH: The Corporation shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in their official capacities and as to
action in another capacity while holding such offices, and shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
EIGHTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
and any other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted, subject to the limitations set forth in
this Certificate of Incorporation and in the manner now or hereafter provided
herein by statue, and all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons whomsoever by
and pursuant to this Certificate of Incorporation in its present form or as
amended are granted subject to the rights reserved in this Article EIGHTH.
NINTH: The Corporation hereby confers the power to adopt,
amend or repeal its By-Laws upon the Board of Directors. Notwithstanding the
forgoing, such power shall not divest or limit the power of the stockholders of
the Corporation to adopt, amend or repeal the By-Laws of the Corporation.
IN WITNESS WHEREOF, we have executed this Amended and Restated
Certificate as of May __, 2002.
NEXT, INC.
By:_______________________________
Dan Cooke, President
By:_______________________________
Charles Thompson, Secretary
20
Exhibit B
---------
CERTIFICATE OF DESIGNATION
OF
SERIES A PREFERRED STOCK
OF
SPORTING MAGIC, INC.
--------------------------------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
--------------------------------------
I, the undersigned, being the President of Sporting Magic, Inc.
("Corporation"), hereby certify in accordance with the provisions of Section 151
of the General Corporation Law of the State of Delaware that the Board of
Directors of the Corporation duly adopted the following resolution on June ___,
2002:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of the
Corporation's Certificate of Incorporation, this Board of Directors hereby
creates, from the 10,000,000 shares of preferred stock, $0.0001 par value per
share (the "Preferred Stock"), of the Corporation authorized to be issued
pursuant to the Certificate of Incorporation, a series of the Preferred Stock
having the following terms and designations:
Section 1. Designation and Amount. The shares of such series having a
par value of $0.0001 per share shall be designated as "Series A Preferred Stock"
(the "Series A Preferred Stock") and the number of shares constituting such
series shall be 100,000. The relative rights, preferences and limitations of the
Series A Preferred Stock shall be in all respects identical, share for share, to
the Common Stock of the Corporation, except as otherwise provided herein.
Section 2. Dividends. Except in the case of distributions in a
liquidation, dissolution or winding up of the affairs of the Corporation as
provided for in Section 5 below, the holders of each share of Series A Preferred
Stock shall be entitled to receive dividends, out of assets legally available,
at the rate of $10.00 per share per annum payable solely in shares of Common
Stock (in an amount equal to $10.00 divided by the Fair Market Value (defined
below) of the Common Stock). Dividends of the Series A Preferred Stock shall be
fully cumulative and shall accrue, without interest, from the date of the
original issuance of the Series A Preferred Stock, and shall be payable
quarterly, when and as declared by the Board of Directors on March 31, June 30,
September 30 and December 31 of each year, commencing June 30, 2002, except if
such date is not a business day then such dividend shall be payable on the first
immediately succeeding business day (as used herein, the term "business day"
shall mean any day except a Saturday, Sunday or day on which banking
institutions are legally authorized to close in the City of New York). Each such
dividend shall be paid to the holders of record of shares of Series A Preferred
Stock as they appear on the stock register of the Corporation on such record
date, not exceeding 30 days preceding the payment thereof, as shall be fixed by
the Board of Directors of the Corporation. Dividends on account of arrears for
any past dividend periods may be declared and paid at any time, without
reference to any regular dividend payment date, to holders of record on such
date, not exceeding 45 days preceding the payment date thereof, as may be fixed
by the Board of Directors of the Corporation. For purposes of this Section 2,
"Fair Market Value" on any day shall mean (a) if the Common Stock is listed or
admitted for trading on a national securities exchange, the reported last sales
price or, if no such reported sale occurs on such day, the average of the
closing bid and asked prices on such day, in each case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
(b) if the Common Stock is not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices in the
over-the-counter market on such day as reported by NASDAQ or any comparable
21
system or, if not so reported, as reported by any New York Stock Exchange member
firm selected by the Corporation for such purpose or (c) if no such quotations
are available on such day, the fair market value of a share of Common Stock on
such day as determined in good faith by the Board of Directors of the
Corporation.
Section 3. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware, the Series A Preferred Stock and the
Common Stock of the Corporation shall vote as one class, with the holder of each
share of Series A Preferred Stock entitled to one vote per share of Series A
Preferred Stock.
Section 4. Reacquired Shares. Any shares of the Series A Preferred
Stock redeemed or purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, unless otherwise provided for in the
Corporation's Certificate of Incorporation, and may be reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions or restrictions on issuance set
forth herein.
Section 5. Liquidation, Dissolution or Winding Up.
(a) Upon the liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock unless, prior thereto, the holders of Series A
Preferred Stock shall have received a liquidation preference of $100 per share
(the "Liquidation Amount"), plus an amount equal to unpaid dividends thereon, if
any, to the date of such payment or (ii) to the holders of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled to upon such
liquidation, dissolution or winding up. For purposes of this Certificate, each
of (1) the sale, conveyance, exchange or transfer of all or substantially all of
the property and assets of the Corporation, or (2) the consolidation or merger
of the Corporation with or into any other corporation, in which the stockholders
of the Corporation immediately prior to such event do not own a majority of the
outstanding shares of the surviving corporation or (3) the sale of securities
pursuant to a registration statement filed by the Corporation under the
Securities Act of 1933, as amended, in connection with the initial firm
commitment underwritten offering of its securities to the general public, shall
be deemed to be a liquidation, dissolution or winding up of the Corporation.
(b) In the event of a liquidation, dissolution or winding up of the
Corporation within the meaning of subsection (a) above, then in connection with
each such event the Corporation shall send to the holders of the Series A
Preferred Stock at least twenty days' prior written notice of the date when such
event shall take place.
(c) For purposes of this Certificate the term "junior stock" shall
mean the Common Stock and any other class or series of shares of the Corporation
hereafter authorized over which Series A Preferred Stock has preference or
priority in the payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation.
(d) Upon any liquidation, dissolution or winding up of the
Corporation, and after full payment as provided for in Section 5(a) above, the
holders of Series A Preferred Stock shall not be entitled to any further
participation in any distribution of assets by the Corporation.
Section 6. Reservation of Cash. Prior to the consummation of any
liquidation, dissolution or winding up as described in Section 5(a) hereof, each
corporation, including this Corporation, which may be required to deliver any
cash to the holders of shares of the Series A Preferred Stock shall assume, by
written instrument delivered to each transfer agent of the Series A Preferred
Stock, the obligation to deliver to such holder such cash which, in accordance
with the provisions of Section 5, such holder may be entitled and each such
corporation shall have furnished to each such transfer agent or person acting in
a similar capacity, including the Corporation, an opinion of counsel for such
corporation, stating that such assumption agreement is legal, valid and binding
upon such corporation.
22
Section 7. Waiver. Any right or privilege of the Series A Preferred
Stock may be waived (either generally or in a particular instance and either
retroactively or prospectively) by and only by the written consent of the
holders of a majority of the Series A Preferred Stock then outstanding and any
such waiver shall be binding upon each holder of Series A Preferred Stock.
Section 8. Notices of Corporate Action. In the event of:
(a) any taking by the Corporation of a record of the holders of its
Common Stock for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right or warrant to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right;
(b) any capital reorganization, reclassification or recapitalization
of the Corporation, any consolidation or merger involving the Corporation and
any other person (other than a consolidation or merger with a wholly-owned
subsidiary of the Corporation, provided that the Corporation is the surviving or
the continuing corporation and no change occurs in the Common Stock), or any
transfer of all or substantially all of the assets of the Corporation to any
other person; or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation;
then, and in each such case, the Corporation shall cause to be mailed to each
transfer agent for the shares of the Series A Preferred Stock and to the holders
of record of the outstanding shares of the Series A Preferred Stock, at least 20
days (or 10 days in case of any event specified in clause (a) above) prior to
the applicable record or effective date hereinafter specified, a notice stating
(i) the date or expected date on which any such record is to be taken for the
purpose of such dividend, distribution or right or, (ii) the date or expected
date to which any such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding up is to
take place and the time, if any such time is to be fixed, as of which the
holders of record of Series A Preferred Stock shall be entitled to exchange
their shares of Series A Preferred Stock for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding up, if any.
The failure to give any notice required by this Section 8, or any defect
therein, shall not affect the legality or validity of any such action requiring
such notice.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed on its behalf, as of this ___ day of June, 2002.
SPORTING MAGIC, INC.
By:_________________________
Name:
Title:
23
Exhibit C
---------
NEXT, INC.
2002 STOCK OPTION PLAN
1. Purpose of the Plan.
-------------------
This 2002 Stock Option Plan (the "Plan") is intended as an incentive,
to retain in the employ of and as directors, consultants and advisors to Next,
Inc., a Delaware corporation (the "Company") and any Subsidiary of the Company,
within the meaning of Section 424(f) of the United States Internal Revenue Code
of 1986, as amended (the "Code"), persons of training, experience and ability,
to attract new employees, directors, consultants and advisors whose services are
considered valuable, to encourage the sense of proprietorship and to stimulate
the active interest of such persons in the development and financial success of
the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to the
Plan shall constitute incentive stock options within the meaning of Section 422
of the Code (the "Incentive Options") while certain other options granted
pursuant to the Plan shall be nonqualified stock options (the "Nonqualified
Options"). Incentive Options and Nonqualified Options are hereinafter referred
to collectively as "Options."
The Company intends that the Plan meet the requirements of Rule 16b-3
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and that transactions of the type specified in
subparagraphs (c) to (f) inclusive of Rule 16b-3 by officers and directors of
the Company pursuant to the Plan will be exempt from the operation of Section
16(b) of the Exchange Act. Further, the Plan is intended to satisfy the
performance-based compensation exception to the limitation on the Company's tax
deductions imposed by Section 162(m) of the Code with respect to those Options
for which qualification for such exception is intended. In all cases, the terms,
provisions, conditions and limitations of the Plan shall be construed and
interpreted consistent with the Company's intent as stated in this Section 1.
2. Administration of the Plan.
--------------------------
The Board of Directors of the Company (the "Board") shall appoint and
maintain as administrator of the Plan a Committee (the "Committee") consisting
of two or more directors who are "Non-Employee Directors" (as such term is
defined in Rule 16b-3) and "Outside Directors" (as such term is defined in
Section 162(m) of the Code), which shall serve at the pleasure of the Board. The
Committee, subject to Sections 3 and 5 hereof, shall have full power and
authority to designate recipients of Options, to determine the terms and
conditions of respective Option agreements (which need not be identical) and to
interpret the provisions and supervise the administration of the Plan. The
Committee shall have the authority, without limitation, to designate which
Options granted under the Plan shall be Incentive Options and which shall be
Nonqualified Options. To the extent any Option does not qualify as an Incentive
Option, it shall constitute a separate Nonqualified Option.
Subject to the provisions of the Plan, the Committee shall interpret
the Plan and all Options granted under the Plan, shall make such rules as it
deems necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defects or supply any omission or reconcile any inconsistency
in the Plan or in any Options granted under the Plan in the manner and to the
extent that the Committee deems desirable to carry into effect the Plan or any
Options. The act or determination of a majority of the Committee shall be the
act or determination of the Committee and any decision reduced to writing and
signed by all of the members of the Committee shall be fully effective as if it
had been made by a majority at a meeting duly held. Subject to the provisions of
the Plan, any action taken or determination made by the Committee pursuant to
this and the other Sections of the Plan shall be conclusive on all parties.
In the event that for any reason the Committee is unable to act or if
the Committee at the time of any grant, award or other acquisition under the
Plan of Options or Stock (as hereinafter defined) does not consist of two or
more Non-Employee Directors, or if there shall be no such Committee, then the
Plan shall be administered by
24
the Board, and references herein to the Committee (except in the proviso to this
sentence) shall be deemed to be references to the Board, and any such grant,
award or other acquisition may be approved or ratified in any other manner
contemplated by subparagraph (d) of Rule 16b-3; provided, however, that options
granted to the Company's Chief Executive Officer or to any of the Company's
other four most highly compensated officers that are intended to qualify as
performance-based compensation under Section 162(m) of the Code may only be
granted by the Committee.
3. Designation of Optionees.
------------------------
The persons eligible for participation in the Plan as recipients of
Options (the "Optionees") shall include employees, officers and directors of,
and consultants and advisors to, the Company or any Subsidiary; provided that
Incentive Options may only be granted to employees of the Company and the
Subsidiaries. In selecting Optionees, and in determining the number of shares to
be covered by each Option granted to Optionees, the Committee may consider any
factors it deems relevant, including without limitation, the office or position
held by the Optionee or the Optionee's relationship to the Company, the
Optionee's degree of responsibility for and contribution to the growth and
success of the Company or any Subsidiary, the Optionee's length of service, age,
promotions and potential. An Optionee who has been granted an Option hereunder
may be granted an additional Option or Options, if the Committee shall so
determine.
4. Stock Reserved for the Plan.
---------------------------
Subject to adjustment as provided in Section 7 hereof, a total of
1,000,000 shares of the Company's Common Stock, $0.001 par value per share (the
"Stock"), shall be subject to the Plan. The maximum number of shares of Stock
that may be subject to options granted under the Plan to any individual in any
calendar year shall not exceed 100,000, and the method of counting such shares
shall conform to any requirements applicable to performance-based compensation
under Section 162(m) of the Code. The shares of Stock subject to the Plan shall
consist of unissued shares, treasury shares or previously issued shares held by
any Subsidiary of the Company, and such amount of shares of Stock shall be and
is hereby reserved for such purpose. Any of such shares of Stock that may remain
unsold and that are not subject to outstanding Options at the termination of the
Plan shall cease to be reserved for the purposes of the Plan, but until
termination of the Plan the Company shall at all times reserve a sufficient
number of shares of Stock to meet the requirements of the Plan. Should any
Option expire or be canceled prior to its exercise in full or should the number
of shares of Stock to be delivered upon the exercise in full of an Option be
reduced for any reason, the shares of Stock theretofore subject to such Option
may be subject to future Options under the Plan, except where such reissuance is
inconsistent with the provisions of Section 162(m) of the Code.
5. Terms and Conditions of Options.
-------------------------------
Options granted under the Plan shall be subject to the following
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The purchase price of each share of Stock
purchasable under an Incentive Option shall be determined by the Committee at
the time of grant, but shall not be less than 100% of the Fair Market Value (as
defined below) of such share of Stock on the date the Option is granted;
provided, however, that with respect to an Optionee who, at the time such
Incentive Option is granted, owns (within the meaning of Section 424(d) of the
Code) more than 10% of the total combined voting power of all classes of stock
of the Company or of any Subsidiary, the purchase price per share of Stock shall
be at least 110% of the Fair Market Value per share of Stock on the date of
grant. The purchase price of each share of Stock purchasable under a
Nonqualified Option shall not be less than 80% of the Fair Market Value of such
share of Stock on the date the Option is granted; provided, however, that if an
option granted to the Company's Chief Executive Officer or to any of the
Company's other four most highly compensated officers is intended to qualify as
performance-based compensation under Section 162(m) of the Code, the exercise
price of such Option shall not be less than 100% of the Fair Market Value (as
such term is defined below) of such share of Stock on the date the Option is
granted. The exercise price for each Option shall be subject to adjustment as
provided in Section 7 below. "Fair Market Value" means the closing price of
publicly
25
traded shares of Stock on the principal securities exchange on which shares of
Stock are listed (if the shares of Stock are so listed), or on the NASDAQ Stock
Market (if the shares of Stock are regularly quoted on the NASDAQ Stock Market),
or, if not so listed or regularly quoted, the mean between the closing bid and
asked prices of publicly traded shares of Stock in the over-the-counter market,
or, if such bid and asked prices shall not be available, as reported by any
nationally recognized quotation service selected by the Company, or as
determined by the Committee in a manner consistent with the provisions of the
Code. Anything in this Section 5(a) to the contrary notwithstanding, in no event
shall the purchase price of a share of Stock be less than the minimum price
permitted under the rules and policies of any national securities exchange on
which the shares of Stock are listed.
(b) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than ten years after the date
such Option is granted and in the case of an Incentive Option granted to an
Optionee who, at the time such Incentive Option is granted, owns (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or of any Subsidiary, no
such Incentive Option shall be exercisable more than five years after the date
such Incentive Option is granted.
(c) Exercisability. Subject to Section 5(j) hereof, Options shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee at the time of grant.
Upon the occurrence of a Change in Control (as hereinafter defined),
the Committee may accelerate the vesting and exercisability of outstanding
Options, in whole or in part, as determined by the Committee in its sole
discretion. In its sole discretion, the Committee may also determine that, upon
the occurrence of a Change in Control, each outstanding Option shall terminate
within a specified number of days after notice to the Optionee thereunder, and
each such Optionee shall receive, with respect to each share of Company Stock
subject to such Option, an amount equal to the excess of the Fair Market Value
of such shares immediately prior to such Change in Control over the exercise
price per share of such Option; such amount shall be payable in cash, in one or
more kinds of property (including the property, if any, payable in the
transaction) or a combination thereof, as the Committee shall determine in its
sole discretion.
For purposes of the Plan, a Change in Control shall be deemed to have
occurred if:
(i) a tender offer (or series of related offers) shall be made
and consummated for the ownership of 50% or more of the outstanding voting
securities of the Company, unless as a result of such tender offer more than 50%
of the outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the shareholders of the Company (as of the
time immediately prior to the commencement of such offer), any employee benefit
plan of the Company or its Subsidiaries, and their affiliates;
(ii) the Company shall be merged or consolidated with another
corporation, unless as a result of such merger or consolidation more than 50% of
the outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the shareholders of the Company (as of the
time immediately prior to such transaction), any employee benefit plan of the
Company or its Subsidiaries, and their affiliates;
(iii) the Company shall sell substantially all of its assets to
another corporation that is not wholly owned by the Company, unless as a result
of such sale more than 50% of such assets shall be owned in the aggregate by the
shareholders of the Company (as of the time immediately prior to such
transaction), any employee benefit plan of the Company or its Subsidiaries and
their affiliates; or
(iv) a Person (as defined below) shall acquire 50% or more of the
outstanding voting securities of the Company (whether directly, indirectly,
beneficially or of record), unless as a result of such acquisition more than 50%
of the outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the shareholders of the Company (as of the
time immediately prior to the first acquisition of such securities by such
Person), any employee benefit plan of the Company or its Subsidiaries, and their
affiliates.
26
For purposes of this Section 5(c), ownership of voting securities
shall take into account and shall include ownership as determined by applying
the provisions of Rule 13d-3(d)(I)(i) (as in effect on the date hereof) under
the Exchange Act. In addition, for such purposes, "Person" shall have the
meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in
Sections 13(d) and 14(d) thereof; however, a Person shall not include (A) the
Company or any of its Subsidiaries; (B) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its
Subsidiaries; (C) an underwriter temporarily holding securities pursuant to an
offering of such securities; or (D) a corporation owned, directly or indirectly,
by the shareholders of the Company in substantially the same proportion as their
ownership of stock of the Company.
(d) Method of Exercise. Options to the extent then exercisable may be
exercised in whole or in part at any time during the option period, by giving
written notice to the Company specifying the number of shares of Stock to be
purchased, accompanied by payment in full of the purchase price, in cash, or by
check or such other instrument as may be acceptable to the Committee. As
determined by the Committee, in its sole discretion, at or after grant, payment
in full or in part may be made at the election of the Optionee (i) in the form
of Stock owned by the Optionee (based on the Fair Market Value of the Stock on
the trading day before the Option is exercised) which is not the subject of any
pledge or security interest, (ii) in the form of shares of Stock withheld by the
Company from the shares of Stock otherwise to be received with such withheld
shares of Stock having a Fair Market Value on the date of exercise equal to the
exercise price of the Option, or (iii) by a combination of the foregoing,
provided that the combined value of all cash and cash equivalents and the Fair
Market Value of any shares surrendered to the Company is at least equal to such
exercise price and except with respect to (ii) above, such method of payment
will not cause a disqualifying disposition of all or a portion of the Stock
received upon exercise of an Incentive Option. An Optionee shall have the right
to dividends and other rights of a stockholder with respect to shares of Stock
purchased upon exercise of an Option at such time as the Optionee has given
written notice of exercise, paid in full for such shares and has satisfied such
conditions that may be imposed by the Company with respect to the withholding of
taxes.
(e) Non-transferability of Options. Options are not transferable and
may be exercised solely by the Optionee during his lifetime or after his death
by the person or persons entitled thereto under his will or the laws of descent
and distribution. The Committee, in its sole discretion, may permit a transfer
of a Nonqualified Option to (i) a trust for the benefit of the Optionee or (ii)
a member of the Optionee's immediate family (or a trust for his or her benefit).
Any attempt to transfer, assign, pledge or otherwise dispose of, or to subject
to execution, attachment or similar process, any Option contrary to the
provisions hereof shall be void and ineffective and shall give no right to the
purported transferee.
(f) Termination by Death. Unless otherwise determined by the Committee
at grant, if any Optionee's employment with or service to the Company or any
Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal representative of the
estate or by the legatee of the Optionee under the will of the Optionee, for a
period of one year after the date of such death or until the expiration of the
stated term of such Option as provided under the Plan, whichever period is
shorter.
(g) Termination by Reason of Disability. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to the
Company or any Subsidiary terminates by reason of total and permanent
disability, any Option held by such Optionee may thereafter be exercised, to the
extent it was exercisable at the time of termination due to disability (or on
such accelerated basis as the Committee shall determine at or after grant), but
may not be exercised after 30 days after the date of such termination of
employment or service or the expiration of the stated term of such Option,
whichever period is shorter; provided, however, that, if the Optionee dies
within such 30-day period, any unexercised Option held by such Optionee shall
thereafter be exercisable to the extent to which it was exercisable at the time
of death for a period of one year after the date of such death or for the stated
term of such Option, whichever period is shorter.
27
(h) Termination by Reason of Retirement. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to the
Company or any Subsidiary terminates by reason of Normal or Early Retirement (as
such terms are defined below), any Option held by such Optionee may thereafter
be exercised to the extent it was exercisable at the time of such Retirement (or
on such accelerated basis as the Committee shall determine at or after grant),
but may not be exercised after 30 days after the date of such termination of
employment or service or the expiration of the stated term of such Option,
whichever period is shorter; provided, however, that, if the Optionee dies
within such 30-day period, any unexercised Option held by such Optionee shall
thereafter be exercisable, to the extent to which it was exercisable at the time
of death, for a period of one year after the date of such death or for the
stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h) "Normal Retirement" shall mean
retirement from active employment with the Company or any Subsidiary on or after
the normal retirement date specified in the applicable Company or Subsidiary
pension plan or if no such pension plan, age 65, and "Early Retirement" shall
mean retirement from active employment with the Company or any Subsidiary
pursuant to the early retirement provisions of the applicable Company or
Subsidiary pension plan or if no such pension plan, age 55.
(i) Other Termination. Unless otherwise determined by the Committee at
grant, if any Optionee's employment with or service to the Company or any
Subsidiary terminates for any reason other than death, disability or Normal or
Early Retirement, the Option shall thereupon terminate, except that the portion
of any Option that was exercisable on the date of such termination of employment
or service may be exercised for the lesser of 30 days after the date of
termination or the balance of such Option's term if the Optionee's employment or
service with the Company or any Subsidiary is terminated by the Company or such
Subsidiary without cause (the determination as to whether termination was for
cause to be made by the Committee). The transfer of an Optionee from the employ
of or service to the Company to the employ of or service to a Subsidiary, or
vice versa, or from one Subsidiary to another, shall not be deemed to constitute
a termination of employment or service for purposes of the Plan.
(j) Limit on Value of Incentive Option. The aggregate Fair Market
Value, determined as of the date the Incentive Option is granted, of Stock for
which Incentive Options are exercisable for the first time by any Optionee
during any calendar year under the Plan (and/or any other stock option plans of
the Company or any Subsidiary) shall not exceed $100,000.
(k) Incentive Option Shares. A grant of an Incentive Option under this
Plan shall provide that (a) the Optionee shall be required as a condition of the
exercise to furnish to the Company any payroll (employment) tax required to be
withheld, and (b) if the Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any share
or shares of Stock issued to him upon exercise of an Incentive Option granted
under the Plan within the two-year period commencing on the day after the date
of the grant of such Incentive Option or within a one-year period commencing on
the day after the date of transfer of the share or shares to him pursuant to the
exercise of such Incentive Option, he shall, within 10 days after such
disposition, notify the Company thereof and immediately deliver to the Company
any amount of United States federal, state and local income tax withholding
required by law.
6. Term of Plan.
------------
No Option shall be granted pursuant to the Plan on or after May 1,
2012, but Options theretofore granted may extend beyond that date.
7. Capital Change of the Company.
-----------------------------
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event. The Committee shall, to the extent
28
feasible, make such other adjustments as may be required under the tax laws so
that any Incentive Options previously granted shall not be deemed modified
within the meaning of Section 424(h) of the Code.
8. Purchase for Investment.
-----------------------
Unless the Options and shares covered by the Plan have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Company has determined that such registration is unnecessary, each person
exercising an Option under the Plan may be required by the Company to give a
representation in writing that he is acquiring the shares for his own account
for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
9. Taxes.
-----
The Company may make such provisions as it may deem appropriate,
consistent with applicable law, in connection with any Options granted under the
Plan with respect to the withholding of any taxes (including income or
employment taxes) or any other tax matters.
10. Effective Date of Plan.
----------------------
The Plan shall be effective on May 1, 2002, provided however that the
Plan shall subsequently be approved by majority vote of the Company's
stockholders not later than May 1, 2002.
11. Amendment and Termination.
-------------------------
The Board may amend, suspend, or terminate the Plan, except that no
amendment shall be made that would impair the rights of any Optionee under any
Option theretofore granted without the Optionee's consent, and except that no
amendment shall be made which, without the approval of the stockholders of the
Company would:
(a) materially increase the number of shares that may be issued under
the Plan, except as is provided in Section 7;
(b) materially increase the benefits accruing to the Optionees under
the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to less than
100% of the Fair Market Value per share of Stock on the date of grant thereof or
the exercise price of a Nonqualified Option to less than 80% of the Fair Market
Value per share of Stock on the date of grant thereof; or
(e) extend the term of any Option beyond that provided for in Section
5(b).
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without the Optionee's consent. The Committee may also substitute
new Options for previously granted Options, including options granted under
other plans applicable to the participant and previously granted Options having
higher option prices, upon such terms as the Committee may deem appropriate.
12. Government Regulations.
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The Plan, and the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies, national securities exchanges and interdealer
quotation systems as may be required.
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13. General Provisions.
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(a) Certificates. All certificates for shares of Stock delivered under
the Plan shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, or other securities
commission having jurisdiction, any applicable Federal or state securities law,
any stock exchange or interdealer quotation system upon which the Stock is then
listed or traded and the Committee may cause a legend or legends to be placed on
any such certificates to make appropriate reference to such restrictions.
(b) Employment Matters. The adoption of the Plan shall not confer upon
any Optionee of the Company or any Subsidiary any right to continued employment
or, in the case of an Optionee who is a director, continued service as a
director, with the Company or a Subsidiary, as the case may be, nor shall it
interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of any of its employees, the service of any of its
directors or the retention of any of its consultants or advisors at any time.
(c) Limitation of Liability. No member of the Board or the Committee,
or any officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Committee and each and any officer or employee of
the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(d) Registration of Stock. Notwithstanding any other provision in the
Plan, no Option may be exercised unless and until the Stock to be issued upon
the exercise thereof has been registered under the Securities Act and applicable
state securities laws, or are, in the opinion of counsel to the Company, exempt
from such registration in the United States. The Company shall not be under any
obligation to register under applicable federal or state securities laws any
Stock to be issued upon the exercise of an Option granted hereunder in order to
permit the exercise of an Option and the issuance and sale of the Stock subject
to such Option, although the Company may in its sole discretion register such
Stock at such time as the Company shall determine. If the Company chooses to
comply with such an exemption from registration, the Stock issued under the Plan
may, at the direction of the Committee, bear an appropriate restrictive legend
restricting the transfer or pledge of the Stock represented thereby, and the
Committee may also give appropriate stop transfer instructions with respect to
such Stock to the Company's transfer agent.
NEXT, INC.
May 1, 2002
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