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:
/ / Preliminary proxy statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material 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 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 15, 2002
----------------------
Dear Stockholders:
You are cordially invited to attend the annual meeting of
stockholders to be held on Thursday, August 15, 2002 at 10:00 a.m. local time at
the Courtyard Chattanooga, located at 2210 Bams Drive, Chattanooga, TN 37421.
At the annual meeting, you will be asked to consider and vote upon
the following matters:
1. a proposal to elect seven 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 fiscal year ending
November 30, 2002; and
5. such other business as may properly come before the annual
meeting or any adjournment thereof.
The Board of Directors has fixed 5:00 p.m., local time on July 15,
2002 as the record date for determining which stockholders are entitled to
notice of, and to vote at, the annual meeting, or any adjournment thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL 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
/s/ Dan Cooke
Dan Cooke
Chairman of the Board
Chattanooga, Tennessee
July 19, 2002
Table of Contents
Questions and Answers about the Annual Meeting.................................1
Security Ownership.............................................................4
Management.....................................................................6
Proposal No. 1 - Election of Directors.........................................7
Certain Relationships and Related Transactions.................................8
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.............9
(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...........................12
Proposal No. 4 - Approval of Adoption of 2002 Stock Option Plan...............13
Proposal No. 5 - Ratification of Appointment of Independent
Public Accountants...........................................16
Other Matters.................................................................17
Exhibit A - Form of Amended and Restated Certificate of Incorporation.........18
Exhibit B - 2002 Stock Option Plan............................................20
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 annual
meeting of stockholders scheduled for Thursday, August 15, 2002 at the Courtyard
Chattanooga, located at 2210 Bams Drive, Chattanooga, TN 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 July
19, 2002.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Q: WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
A: The purpose of the annual meeting is to consider and vote upon the
following matters:
o a proposal to elect seven 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 fiscal year ending
November 30, 2002.
At the annual 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 annual meeting. To assist you in your
decision making process, this proxy statement contains pertinent
information about us, the annual meeting and the proposals to be
considered.
Q: WHEN AND WHERE WILL THE MEETING BE HELD?
A: The annual meeting of stockholders will be held at the Courtyard
Chattanooga, located at 2210 Bams Drive, Chattanooga, TN 37421 on
Thursday, August 15, 2002 at 10:00 a.m. local time.
Q: WHO IS ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING?
A: All stockholders of record at 5:00 p.m. local time on July 15, 2002
are entitled to notice of, and to vote at, the annual 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 10,999,225 outstanding shares of our common stock, held by a
total of 953 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
annual 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 annual
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 annual 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 added cost. At this time, you may only vote by
returning a properly executed proxy card or by voting in person at
the annual 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 you
receive 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 annual meeting. To revoke or change
your vote prior to the annual 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 annual meeting and vote in person.
Please note, however, that while giving a proxy does not affect your
right to vote in person at the annual 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 annual meeting of at least a majority 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 NOVEMBER 30, 2002
REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST AT THE
ANNUAL 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, III, THE WILLIAM B.
III AND CINDY S. HENSLEY LIVING TRUST, BRIAN CASTEEL, SEAN AND LISA
GARBER AND RAE & COMPANY 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 November 30,
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: WHERE CAN I OBTAIN A COPY OF LAST YEAR'S ANNUAL REPORT?
A: Our Annual Report on Form 10-KSB for the fiscal year ended August
31, 2001, and our Current Report on Form 8-K filed with the
Securities and Exchange Commission (the "SEC") on February 19, 2002,
and as amended by the Current Reports on Form 8-K/A filed on April
8, 2002 and July 17, 2002, were mailed to you with this proxy
statement, but are not incorporated into this proxy statement and
should not to be considered part of these proxy materials.
UPON WRITTEN REQUEST WE WILL SEND EACH STOCKHOLDER OF RECORD AS OF
JULY 15, 2002, WITHOUT CHARGE, ADDITIONAL COPIES OF OUR ANNUAL
REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED AUGUST 31, 2001,
INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES,
BUT EXCLUDING EXHIBITS, AS FILED WITH THE SEC. PLEASE ADDRESS YOUR
REQUEST TO NEXT, INC., 7625 HAMILTON PARK DRIVE, SUITE 12,
-3-
CHATTANOOGA, TENNESSEE 37421, ATTENTION MR. CHARLES L. THOMPSON.
EXHIBITS WILL BE PROVIDED UPON WRITTEN REQUEST AND PAYMENT OF AN
APPROPRIATE PROCESSING FEE.
Q: DO I HAVE DISSENTER'S RIGHTS?
A: No. The actions proposed to be taken at the annual 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, no later than March 24, 2003. 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.
Q: HOW DO I OBTAIN MORE INFORMATION ABOUT US?
A: We file annual, quarterly and current reports and other information
with 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 stock (the "Shares"), as of July 15, 2002, 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)
--------------------------------------------------
Shares Percentage
------ ----------
Dan Cooke
6430 Cobble Lane
Harrison, TN 37341 3,000,000 27.27%
William B. Hensley, III
c/o Blue Sky Graphics, Inc.
1295 Vernon St
Wabash, IN 46992 3,000,000(2) 27.27%
William B. III and Cindy S. Hensley Living Trust
c/o Blue Sky Graphics, Inc.
1295 Vernon St
Wabash, IN 46992 1,500,000 13.64%
Sean & Lisa Garber
CMJ Ventures, Inc.
3600 Chamberlain Lane
Louisville, Kentucky 40241 1,260,000(3) 11.46%
Charles L. Thompson
6419 Bay Shore Drive
Chattanooga, TN 37341 750,000(4) 6.82%
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Common Stock Beneficially Owned(1)
--------------------------------------------------
Shares Percentage
------ ----------
RAE & Company
6419 Bay Shore Drive
Chattanooga, TN 37341 750,000 6.82%
Brian Casteel
5212 Country Club Drive
Brentwood, TN 37027 379,705 3.45%
Ronald J. 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 -- --
All Directors and Executive Officers as a Group 7,129,705(3)(4)(5) 64.82%
----
* less than 1%
(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) Includes 1,500,000 shares beneficially owned by the William B. III
and Cindy S. Hensley Living Trust. William B. Hensley, III 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.
(3) All Shares are held by Sean Garber and Lisa Garber as joint tenants
with the right of survivorship.
(4) Charles L. 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.
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MANAGEMENT
Our directors and executive officers are as follows:
Name Age Position
---- --- --------
Dan Cooke 53 Chairman of the Board
William B. Hensley, III 52 Chief Executive Officer and Director
Brian Casteel 45 President and Director Nominee
Sean M. Garber 35 Executive Vice President and Director Nominee
Charles L. Thompson 51 Chief Financial Officer
Ronald J. Metz 43 Director
G. Michael Cross 54 Director
Salvatore Geraci 55 Director
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 served as our chairman
of the board and from February 2002-May 2002, Mr. Cooke also served as our
president. 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.
William B. Hensley, III. Since February 2002, Mr. Hensley has served
as a director of ours and as our chief executive officer. Since 1989 and 1997,
respectively, Mr. Hensley has also been a principal of Blue Sky and Next.
Brian Casteel. Since June 2002, Mr. Casteel has served as our
president. From 2001-May 2002, Mr. Casteel was a partner and principal at Triad
Capital, LLC, a boutique investment banking firm specializing in capital markets
and mergers and acquisitions. From 2000-2001, Mr. Casteel was the managing
director of the March Group, LLC, a regional investment bank and from 1996-2000,
Mr. Casteel served as Vice President and General Manager of Fisher Scientific
International Inc., the largest laboratory supplies and equipment manufacturer
and distributor in the United States.
Sean M. Garber. Since June 2002, Mr. Garber has served as our
executive vice president in charge of sales and marketing. From 2000-May 2002,
Mr. Garber was the president and chief executive officer of our wholly owned
subsidiary, 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 Inc., a management services company specializing
in solid waste management, as well as ferrous, non-ferrous and fiber recycling.
Charles L. Thompson. Since February 2002, Mr. Thompson has served as
our 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, Inc., a financial
consulting firm.
Ronald J. Metz. Since February 2002, Mr. Metz has served as a
director of ours. Mr. Metz has been a partner with the accounting firm of
Bucheri McCarty & Metz LLP since 1987.
G. Michael Cross. Since February 2002, Mr. Cross served as a
director of ours. 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, each
since 2000. From 1997-1999, Mr. Cross was a business consultant for CAO, LLC, a
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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. Since February 2002, Mr. Geraci has been a
director of ours. Mr. Geraci has been the principal of Evergreen Management,
Inc. since 1987, 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.
Change in Control
On February 1, 2002, we, Next, Buddy Young, previously our largest
stockholder, Dan Cooke, William B. Hensley, III 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").
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, III, Ronald J. Metz, G.
Michael Cross and Salvatore Geraci to succeed them in such capacity. In
addition, Mr. Young and Mr. Albright resigned as executive officers.
As part of the Exchange, we also changed our fiscal year-end from
August 31 to that of Next's, which is November 30.
PROPOSAL NO. 1 ELECTION OF DIRECTORS
Nominees
Seven directors are to be elected at the annual meeting. The
nominees for directors are Dan Cooke, William B. Hensley, III, Brian Casteel,
Sean M. Garber, Ronald J. Metz, G. Michael Cross and Salvatore Geraci. In the
event that any nominee is unable or declines to serve as a director at the time
of the annual 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.
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 BOARD 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.
-7-
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 base salary of each
executive officer is reviewed annually by the Board of Directors, and adjusted
accordingly. We place ourselves between the low and medium levels in determining
salaries compared to other comparable businesses. At this point, we have not
established a policy with regard to Section 162(m) of the Internal Revenue Code
of 1986, as amended.
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 as 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
90,000 shares of our common stock and $125,000 in cash.
-8-
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.
(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
"Merger") with Next, Inc., a Delaware corporation ("Next"), whereby Next became
a wholly owned subsidiary of ours. Upon consummation of the 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. Given these facts, 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 current 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 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".
-9-
(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 ones that are consistent with Delaware law. These
changes consist of the following:
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."
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.
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 also 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 the first sentence of
Article Seventh with the following:
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"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 by the
amended and restated Certificate of Incorporation, as we are now a publicly
traded company with over 900 stockholders, making such written consent
impracticable. Moreover, Section 271 of the DGCL already provides that the Board
of Directors can sell, lease or exchange all or substantially all of our
property, provided that the holders of a majority of our outstanding stock
consent.
The third sentence of Article Seventh is also unnecessary and will
be deleted by the amended and restated Certificate of Incorporation, as Section
220 of the DGCL definitively sets forth a stockholder's right to inspect the
books and records of a Delaware corporation. Section 220 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."
Article Eighth 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 ss.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 in such
capacities due to the fear 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.
-11-
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 therefore only be able to issue an additional
11,497,775 such shares (after excluding shares reserved for stock options). The
Board of Directors believes, however, that having additional shares of
authorized common stock would give us more flexibility to pursue acquisitions,
declare stock splits or dividends or partake in convertible debt and equity
financings without the necessity, related costs and delays of seeking
stockholder approval. If the proposal to increase our authorized capital is
approved, we will have 36,497,775 unissued and unreserved shares of common stock
available for future issuance.
While this proposed change in our authorized capital is not intended
to have any anti-takeover effect, 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
and time consuming. For instance, although the Board of Directors currently has
no intention of doing so, shares of common stock could be issued to dilute the
percentage of common stock owned by a significant stockholder and/or 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.
(d) Providing for Blank Check Preferred Stock.
-----------------------------------------
Description of the Preferred Stock
Our present Certificate of Incorporation 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) and determine the 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 preferred stock will not be
entitled to vote separately as a class except where such class or series of
preferred stock is adversely affected.
-12-
Principal Reasons for Authorization
As with having additional shares of common stock available for
issuance, the Board of Directors believes that the authorization of "blank
check" preferred stock is in our best interests, as it would give us greater
flexibility to pursue certain transactions, such as financings, strategic
alliances and acquisitions, without the delays and expenses associated with
further stockholder action. Such delays and expenses could make such a
transaction impracticable, cause us to miss an opportunity or require us to
structure a transaction in a less advantageous manner.
Effects of the Preferred Stock
It is not possible to determine the actual effect of any 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 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.
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 Weighted average Number of
be issued upon exercise exercise price of securities
of outstanding options, outstanding options, remaining available
Plan category warrants and rights warrants and rights for future issuance
------------- ------------------- ------------------- --------------------
Equity compensation plans
approved by security holders: -- -- --
Equity compensation plans not
approved by security holders: 503,000(1) $0.025 497,000
------------------- ---------------- ----------
Total: 503,000 $0.025 497,000
=================== ================ ==========
-13-
(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 were 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 B. The following discussion is qualified in its
entirety by reference to Exhibit B.
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) or "Outside Directors" (as such
term is defined in Section 162(m) of the Internal Revenue Code of 1986, as
amended) (the "Committee"). This 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 2,000,000 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 200,000 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.
-14-
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 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.
-15-
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.
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 November 30, 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 accountants 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
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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 annual 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 fiscal 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 NOVEMBER 30, 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 annual meeting. If any
other matter or proposal should be presented and should properly 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.
-17-
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 above the number of authorized shares of the class) or decreased (but not
-18-
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 August __, 2002.
NEXT, INC.
By:_______________________________
Dan Cooke, President
By:_______________________________
Charles Thompson, Secretary
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Exhibit B
---------
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) or "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 the Board, and references herein to the Committee
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(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
2,000,000 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 200,000, 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
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publicly 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.
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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.
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(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 feasible, make such other
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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.
----------------------
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.
------------------
(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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