UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (As Permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-12
DIGICORP
(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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DIGICORP
4143 Glencoe Avenue
Marina Del Rey, CA 90292
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON *, 2006
To our Shareholders:
You are cordially invited to attend a Special Meeting (the "Special
Meeting") of Shareholders of Digicorp, which will be held at 1800 Century Park
East, Suite 200, Los Angeles, CA 90067, on *, 2006, at 10 a.m. (local time), to
consider and act upon the following matters, each of which is described more
fully in the accompanying Proxy Statement:
1. Proposal No. 1: To authorize and approve a change of the Company's
domicile from Utah to Delaware effected by the merger of the
Company, a Utah corporation, with and into, Digicorp, Inc., a newly
formed wholly owned subsidiary of the Company that was incorporated
under the Delaware General Corporation Law (the "DGCL") for the
purpose of effecting the change of domicile.
2. Proposal No. 2: To authorize and approve the Company's Stock Option
and Restricted Stock Plan.
The foregoing matters are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed *, 2006 (the "Record Date") as the record
date for the Special Meeting. Only shareholders of record at the close of
business on the Record Date will be entitled to notice of and to vote at the
Special Meeting and at any adjournments thereof. Each shareholder of record as
of the Record Date will be entitled to one vote for each share of Common Stock
held on the Record Date.
You may vote your shares by marking, signing and dating the enclosed proxy
card as promptly as possible and returning it in the enclosed postage-paid
envelope.
You may also vote in person at the Special Meeting, even if you use the
option set forth above.
By order of the Board of Directors:
/s/ Jay Rifkin
-------------------------------------
Jay Rifkin
Chairman and Chief Executive Officer
DIGICORP
4143 Glencoe Avenue
Marina Del Rey, CA 90292
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON *, 2006
Digicorp (referred to herein as the "Company," "we," "us," and "our") is a
Utah corporation with its principal executive offices located at 4143 Glencoe
Avenue, Marina Del Rey, California 90292. The Company's telephone number is
(310) 728-1450. This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of the Company for use at a
Special Meeting of Shareholders (the "Special Meeting") to be held at 1800
Century Park East, Suite 200, Los Angeles, CA 90067, on *, 2006, at 10 a.m.
(local time), and at any and all adjournments thereof, for the purposes set
forth in the accompanying Notice of Special Meeting of Shareholders.
Accompanying this Proxy Statement is a proxy card, which you may use to indicate
your vote as to the proposals described in this Proxy Statement. This Proxy
Statement and the accompanying proxy card will be mailed on or about *, 2006 to
all shareholders entitled to vote at the Special Meeting.
QUESTIONS AND ANSWERS ABOUT THIS PROXY STATEMENT AND VOTING
Why am I receiving these materials?
You have been sent this Proxy Statement and the enclosed proxy card
because the Company is soliciting your proxy to vote at the Special Meeting on
the proposals described herein (the "Proposals"). You are invited to attend the
Special Meeting to vote in person on the Proposals. However, you do not need to
attend the Special Meeting to vote your shares. Instead, you may vote your
shares on the enclosed proxy card, as further described herein. The Notice of
Special Meeting of Shareholders, this proxy statement and the accompanying proxy
cards are first being mailed to shareholders on or about *, 2006.
Who can vote at the Special Meeting?
Only shareholders of record at the close of business on *, 2006 (the
"Record Date") will be entitled to vote at the Special Meeting. As of the Record
Date, there were * shares of Common Stock outstanding and entitled to vote.
What am I voting on?
There are two matters scheduled for a vote at the Special Meeting:
o Proposal No. 1: The authorization and approval of a change of the
Company's domicile from Utah to Delaware effected by the merger of
the Company, a Utah corporation, with and into, Digicorp, Inc., a
newly formed wholly owned subsidiary of the Company that was
incorporated under the DGCL for the purpose of effecting the change
of domicile; and
o Proposal No. 2: The authorization and approval of the Company's
Stock Option and Restricted Stock Plan.
Each of these Proposals, as well as the recommendation of the Board with
respect to each of these Proposals, are described in greater detail elsewhere in
this Proxy Statement.
How do I vote?
Your vote is important. Please mark, sign and date the enclosed proxy card
as promptly as possible and return it in the enclosed postage-paid envelope to
ensure that your shares are represented at the Special Meeting. A pre-addressed,
postage-paid envelope is provided for this purpose.
For each of the matters to be voted on, you may vote "FOR" or "AGAINST" or
"ABSTAIN" from voting.
1
How many votes do I have?
On each matter to be voted upon at the Special Meeting, you have one vote
for each share of Common Stock you own as of the Record Date. No preemptive,
subscription, or conversion rights pertain to the Common Stock and no redemption
or sinking fund provisions exist for the benefit thereof.
What if I return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any voting
selections, all of your shares will be voted "FOR" each of the Proposals
described in this Proxy Statement.
Who is paying for this proxy solicitation?
The Company will pay for the entire cost of soliciting proxies for the
Special Meeting. The original solicitation of proxies by mail may be
supplemented by solicitation in person, by mail, by telephone, by facsimile, or
by telegram, by the Company's regularly employed officers and employees. The
Company's officers and employees will not receive any additional compensation
for soliciting proxies.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card it means that your shares are
registered in more than one name or are registered in different accounts. Please
complete, sign, date and return each proxy card to ensure that all of your
shares are voted at the Special Meeting.
Can I change my vote after submitting my proxy card?
You can change your vote by revoking your proxy at any time before the
final vote at the Special Meeting. You may revoke your proxy in any one of three
ways:
o You may submit another properly completed proxy card at a later
date;
o You may send a written notice that you are revoking your proxy to
the Company's Corporate Secretary at 4143 Glencoe Avenue, Marina Del
Rey, California 90292; or
o You may attend the Special Meeting and vote in person in accordance
with the procedures specified above. However, simply attending the
Special Meeting will not, by itself, revoke your proxy.
Following the final vote at the Special Meeting, you may not revoke your
proxy or otherwise change your vote.
How are votes counted?
Votes will be counted by the inspector of election appointed for the
Special Meeting.
How many votes are needed to approve each proposal?
o Proposal No. 1: Proposal No. 1 (The authorization and approval of a
change of the Company's domicile from Utah to Delaware effected by
the merger of the Company, a Utah corporation, with and into,
Digicorp, Inc., a newly formed wholly owned subsidiary of the
Company that was incorporated under the DGCL for the purpose of
effecting the change of domicile) will be approved if a majority of
the outstanding shares of Common Stock of the Company are voted
"FOR" the proposal. Abstentions will have the same effect as votes
"AGAINST" Proposal No. 1.
o Proposal No. 2: Proposal No. 2 (the authorization and approval of
the Company's Stock Option and Restricted Stock Plan) will be
approved if a majority of the total votes properly cast in person or
by proxy at the Special Meeting by the holders of Common Stock are
voted "FOR" the proposal. Abstentions will have no effect on the
result of the vote.
2
The approval of each Proposal described in this proxy statement is
independent from the approval of each of the other Proposals described in this
Proxy Statement.
What is the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. For
purposes of Proposal Nos. 1 and 2 a quorum will be present if at least a
majority of the outstanding shares of Common Stock are represented by
shareholders present at the Special Meeting or by proxy. As of the Record Date,
there were * shares of Common Stock outstanding and entitled to vote.
Your shares will be counted towards the quorum only if you submit a valid
proxy card or if you vote at the Special Meeting. Abstentions will be counted
towards the quorum requirement. If there is no quorum, a majority of the votes
present at the Special Meeting may adjourn or postpone the Special Meeting to
another date upon which a quorum may be obtained.
Any adjournment may be made with respect to one or more proposals for the
Company, but not necessarily for all proposals of the Company. In the event that
a quorum is present at the Special Meeting but sufficient votes to approve any
proposal are not received, the person named as proxy may propose one or more
adjournments of the Special Meeting to permit further solicitation of proxies or
to obtain the vote required for approval of one or more proposals.
How can I find out the results of the voting at the Special Meeting?
Preliminary voting results will be announced at the Special Meeting. Final
voting results will be reported in the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ending *, 2006.
REASONS FOR THE SPECIAL MEETING
The Special Meeting is being held in order to vote on two important
proposals. Each proposal that will be presented at the Special Meeting is
described in greater detail below.
PROPOSAL NO. 1
CHANGE IN THE COMPANY'S STATE OF INCORPORATION
FROM UTAH TO DELAWARE
("CHANGE OF DOMICILE")
Principal Reasons for the Change of Domicile
The Company's Board of Directors believes that the change of domicile will
give the Company a greater measure of flexibility and simplicity in corporate
governance than is available under Utah law and will increase the marketability
of the Company's securities.
The State of Delaware is recognized for adopting comprehensive modern and
flexible corporate laws which are periodically revised to respond to the
changing legal and business needs of corporations. For this reason, many major
corporations have initially incorporated in Delaware or have changed their
corporate domiciles to Delaware in a manner similar to that proposed by the
Company. Consequently, the Delaware judiciary has become particularly familiar
with corporate law matters and a substantial body of court decisions has
developed construing the DGCL. The DGCL, accordingly, has been, and is likely to
continue to be, interpreted in many significant judicial decisions, a fact which
may provide greater clarity and predictability with respect to the Company's
corporate legal affairs. For these reasons, the Company's Board of Directors
believes that the Company's business and affairs can be conducted to better
advantage if the Company is able to operate under Delaware law. See "Certain
Significant Differences between the Corporation Laws of Delaware and Utah,"
below.
3
Principal Features of the Change of Domicile
The change of domicile will be effected by the merger of the Company, a
Utah corporation, with and into, Digicorp, Inc., a newly formed wholly owned
subsidiary of the Company that was incorporated on *, 2006 under the DGCL for
the purpose of effecting the change of domicile. The change of domicile will
become effective upon the filing of the requisite merger documents in Delaware
and Utah, which filings will occur promptly after the Special Meeting. Following
the merger, Digicorp, Inc. will be the surviving corporation.
On the effective date of the change of domicile, (i) each issued and
outstanding share of Common Stock of the Company will be converted into one
share of common stock of Digicorp, Inc., $.001 par value ("New Common Stock"),
and (ii) each outstanding share of common stock of Digicorp, Inc. held by the
Company will be retired and canceled and will resume the status of authorized
and unissued Common Stock.
On the effective date of the change of domicile, the Company will be
governed by the Delaware Certificate of Incorporation of Digicorp, Inc. (the
"Delaware Certificate"), the Delaware Bylaws of Digicorp, Inc. (the "Delaware
Bylaws") and the DGCL, which include a number of provisions that are not part of
the Company's present Articles of Incorporation, the Company's present Bylaws or
the Utah Revised Business Corporation Act. Accordingly, as described below, a
number of significant changes in shareholders' rights will be effected in
connection with the change of domicile, some of which may be viewed as limiting
the rights of shareholders. In particular, the Delaware Certificate includes a
provision authorized by the DGCL that would limit the liability of directors to
the Company and its shareholders for breach of fiduciary duties. The Delaware
Certificate will provide directors and officers with modern limited liability
and indemnification rights authorized by the DGCL. The Board of Directors of the
Company believes that these provisions will enhance its ability to attract and
retain qualified directors and encourage them to continue to make
entrepreneurial decisions on behalf of the Company. Accordingly, implementation
of these provisions has been included as part of the change of domicile. The
Company believes that the change of domicile will contribute to the long-term
quality and stability of the Company's governance. The Company's Board of
Directors has concluded that the benefit to shareholders of improved corporate
governance from the change of domicile outweighs any possible adverse effects on
shareholders of reducing the exposure of directors to liability and broadening
director indemnification rights.
Upon consummation of the change of domicile, the daily business operations
of the Company will continue as they are presently conducted at the Company's
principal executive office located at 4143 Glencoe Avenue, Marina Del Rey,
California 90292. After the change of domicile, the authorized capital stock of
the Company will consist of 60,000,000 shares of common stock, $.001 par value
per share and 1,000,000 shares of preferred stock, $.001 par value per share
(the "Preferred Stock"). The Preferred Stock will be issuable in series by
action of the Company's Board of Directors. The Board of Directors will be
authorized, without further action by the shareholders, to fix the designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of the unissued Preferred Stock
including shares of Preferred Stock having preferences and other terms that
might discourage takeover attempts by third parties.
After the change of domicile, the Board of Directors will continue to
consist of those persons presently serving on the Board of Directors of the
Company. The individuals who will serve as executive officers of the Company
after the change of domicile are those who currently serve as executive officers
of the Company.
Exchange of Share Certificates
As soon as practicable upon or after the change of domicile, the Company's
shareholders of record immediately prior to the change of domicile will be sent
detailed instructions concerning the procedures to be followed for submission of
certificates representing Common Stock to the Company's transfer agent, together
with a form of transmittal letter to be sent to the transfer agent at the time
such certificates are submitted.
After the change of domicile, the transfer agent will deliver to any
holder who has previously submitted a duly completed and executed transmittal
letter and a certificate representing the Common Stock, a new certificate issued
by the Company representing an equal number of shares of Common Stock into which
such shares of the Common Stock were converted.
4
After the change of domicile but before a certificate representing Common
Stock is surrendered, certificates representing New Common Stock will represent
the number of shares of Common Stock as a Delaware corporation into which such
Common Stock was converted pursuant to the terms of the change of domicile.
Failure by a shareholder to return appropriate transmittal letters or to
surrender certificates representing Common Stock will not affect such person's
rights as a shareholder, as such shareholder's certificates representing Common
Stock following the change of domicile will represent the number of shares of
New Common Stock as a Delaware corporation into which such Common Stock was
converted pursuant to the terms of the change of domicile, and will present no
material consequences to the Company.
Capitalization
The authorized capital of the Company on the Record Date, consisted of
50,000,000 shares of Common Stock, $.001 par value per share, of which
37,100,820 shares of Common Stock were outstanding. The authorized capital of
Digicorp, Inc., which will be the authorized capital of the Company after the
change of domicile, consists of 60,000,000 shares of New Common Stock and
1,000,000 shares of Preferred Stock. As part of the change of domicile, the
authorized Common Stock of the Company will be increased from 50,000,000 shares
to 60,000,000 shares. The Company does not have any plans to issue additional
authorized New Common Stock or Preferred Stock. After the change of domicile the
Company will have outstanding approximately 37,100,820 shares of New Common
Stock and no shares of Preferred Stock. The change of domicile will not affect
total shareholder equity or the total outstanding capitalization of the Company.
The Preferred Stock that will be authorized upon effectiveness of the
change of domicile is commonly referred to as "blank check" preferred stock
("Blank Check Preferred") because the Blank Check Preferred would have such
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof as shall be
expressed in the resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors from time to time. As such, the Blank Check
Preferred would be available for issuance without further action by the
Company's shareholders, except as may be required by applicable law or pursuant
to the requirements of the exchange or quotation system upon which the Company's
securities are then trading or quoted.
The Board of Directors believes that the creation of Blank Check Preferred
is advisable and in the best interests of the Company and its shareholders for
several reasons. The authorization of the Blank Check Preferred would permit the
Board of Directors to issue such stock without shareholder approval and,
thereby, provide the Company with maximum flexibility in structuring
acquisitions, joint ventures, strategic alliances, capital-raising transactions
and for other corporate purposes. The Blank Check Preferred would enable the
Company to respond promptly to and take advantage of market conditions and other
favorable opportunities without incurring the delay and expense associated with
calling a special shareholders' meeting to approve a contemplated stock
issuance.
The authorization of the Blank Check Preferred would also afford the
Company greater flexibility in responding to unsolicited acquisition proposals
and hostile takeover bids. The issuance of Blank Check Preferred could have the
effect of making it more difficult or time consuming for a third party to
acquire a majority of the Company's outstanding voting stock or otherwise effect
a change of control. Shares of Blank Check Preferred may also be sold to third
parties that indicate that they would support the Board in opposing a hostile
takeover bid. The availability of Blank Check Preferred could have the effect of
delaying a change of control and of increasing the consideration ultimately paid
to the Company and its shareholders. Authorization of the Blank Check Preferred
is not intended to be an anti-takeover measure, and the Board of Directors is
not aware of any present third party plans to gain control of the Company.
The actual effect of the issuance of any shares of Blank Check Preferred
upon the rights of holders of New Common Stock cannot be stated until the Board
determines the specific rights of the holders of such Blank Check Preferred.
However, the effects might include, among other things, restricting dividends on
the New Common Stock, diluting the voting power of the New Common Stock,
reducing the market price of the New Common Stock, or impairing the liquidation
rights of the New Common Stock, without further action by the shareholders.
Holders of the Company's New Common Stock will not have preemptive rights with
respect to the Blank Check Preferred.
5
Although the Company may consider issuing Blank Check Preferred in the
future for purposes of raising additional capital or in connection with
acquisition transactions, the Company currently has no agreements or commitments
with respect to the issuance of the Blank Check Preferred.
Significant Differences Between the Corporation Laws of Utah and Delaware
The Company is incorporated under the laws of the State of Utah and
Digicorp, Inc. is incorporated under the laws of the State of Delaware. Upon the
change of domicile, the shareholders of the Company, whose rights currently are
governed by Utah law and the Company's Articles of Incorporation and Bylaws,
which were created pursuant to Utah law, will become shareholders of a Delaware
company, Digicorp, Inc., and their rights as shareholders will then be governed
by Delaware law and the Delaware Certificate and the Delaware Bylaws which were
created under Delaware law.
Although the corporate statutes of Utah and Delaware are similar, certain
differences exist. The most significant differences, in the judgment of the
Company's management, are summarized below. This summary is not intended to be
complete, and shareholders should refer to the DGCL and the Utah Revised
Business Corporation Act ("Utah law") to understand how these laws apply to the
Company and Digicorp, Inc.
Quorum. Section 725(1) of the Utah law states that, unless the
corporation's articles of incorporation provide otherwise, a majority of the
votes entitled to be cast on a matter constitutes a quorum for action on that
matter. Section 216 of the DGCL contains a similar provision, but goes on to
state that "in no event shall a quorum consist of less than one-third of the
shares entitled to vote at the meeting." Neither the Delaware Certificate nor
the Delaware Bylaws will contain any contrary provision. Therefore, management
does not believe that the change of domicile will create any material change in
the shareholders' meeting quorum requirements of the Company.
Action of Shareholders Without a Meeting. Both Section 704 of the Utah law
and Section 228 of the DGCL permit any action that may be taken at an annual or
special meeting of the shareholders to be taken without a meeting and without
notice if one or more written consents, setting forth the action so taken, are
signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shareholders attend and vote. However, Section 1704(4) of
the Utah law prohibits a Utah corporation in existence before July 1, 1992 from
taking any action by the written consent of fewer than all of the shareholders
entitled to vote with respect to the subject matter of the action unless a
resolution providing otherwise is approved either by a written consent signed by
all of the shareholders entitled to vote with respect to such matter or at a
duly convened meeting of shareholders by a majority of the outstanding shares of
common stock of the corporation entitled to vote. Because the Company was
incorporated under the Utah law on July 19, 1983, and because the Company's
shareholders have not approved a resolution providing otherwise, the Company, as
a Utah corporation, presently may not take any action by the written consent of
fewer than all of its shareholders entitled to vote. Both statutes further
require that the corporation give notice of shareholder approval of any matter
without a meeting, unless the written consents of all shareholders have been
obtained. The Utah law requires that such notice be given to non-consenting
shareholders at least ten days before the consummation of the matter authorized
by consent, while the DGCL requires "prompt" notice of any such action. In any
event, applicable federal securities laws in the United States require reporting
companies with a class of securities registered pursuant to Section 12 Exchange
Act to provide notice to shareholders of actions taken by written consent at
least 20 days prior to the effective date of the corporate action. Accordingly,
so long as the Company's common stock remains registered under Section 12 of the
Exchange Act, this difference between the Utah law and the DGCL will not affect
the rights of shareholders. However, Section 704(5) of the Utah law provides
that directors may never be elected by written consent of shareholders unless
the written consents of all shares entitled to vote on the election are
obtained. The DGCL contains no comparable provision. Once the change of domicile
has been completed, this difference may make it easier for the Company to take
action by unanimous written consent of its shareholders and will make it easier
for Company's shareholders to remove and elect directors by written consent.
Authorized Number of Directors. Section 803(1) of the Utah Law provides
that, once shares in a Utah corporation have been issued, the corporation must
have at least three directors. Section 141(b) of the DGCL requires a Delaware
corporation to have a minimum of one director. Therefore, following the change
of domicile, it would be possible for the powers of the Board of Directors to be
concentrated in the hands of fewer directors than is permitted by Utah law.
6
Removal of Directors. Under Section 808 of the Utah law, the shareholders
of a Utah corporation may remove one or more directors with or without cause,
unless the articles of incorporation provide that directors may be removed only
for cause. If cumulative voting (the right of a shareholder to multiply the
number of voting shares he, she or it owns times the number of directors to be
elected, with the ability to vote the product thereof for one or more
candidates) is in effect, a director may not be removed if the number of shares
sufficient to elect him or her is voted against removal. Under the Utah law, a
director may be removed by the shareholders only at a meeting called for that
purpose, and the notice of the meeting must state that the purpose, or one of
the purposes of the meeting, is the removal of the director. Section 141(k) of
the DGCL provides similar removal provisions, but does not limit removal by
shareholders to meetings called for that purpose. The effect of this difference
in law would be to grant the Company's shareholders greater flexibility in
removing directors.
Special Meetings of Shareholders. Section 702(1) of the Utah law and
Section 211(d) of the DGCL permit a corporation's Board of Directors and such
person or persons as are authorized by the bylaws to call a special meeting of
the shareholders. In addition, the DGCL permits a Delaware corporation to
authorize such persons to call a special meeting in its certificate of
incorporation. Unlike the DGCL, the Utah law also permits the holders of 10% or
more of the shares entitled to vote on a matter to submit a written demand for a
special meeting to the corporate secretary. Following the change of domicile,
10% or greater shareholders of the Company will not have the legal right to
demand a special meeting.
Indemnification of Directors. The Utah law and the DGCL contain similar
provisions for the indemnification of directors in certain circumstances. Both
statutes require a corporation to indemnify a director who was successful, on
the merits or otherwise, in the defense of any proceeding or any claim, issue or
matter, to which he or she was a party because of his or her status as a
director of the corporation, against reasonable expenses incurred in connection
with the proceeding or claim with respect to which he or she was successful.
However, the Utah law authorizes the limitation of such mandatory
indemnification in a corporation's articles of incorporation; the DGCL contains
no such limitation. The effect of this difference following the change of
domicile would be to prevent the Company from limiting mandatory indemnification
of its directors in such circumstances.
Inspection of Shareholder List for Meeting. After fixing a record date for
a shareholders' meeting, Section 720 of the Utah Law requires a Utah corporation
to prepare a list of the names of all its shareholders entitled to be given
notice of the meeting and to make the shareholder list available for inspection
by any shareholder for a period beginning on the earlier of ten days before the
meeting for which the list was prepared or two business days after notice of the
meeting is given, and continuing through the meeting and any adjournments
thereof. Under Section 720(4) of the Utah law, if the corporation refuses to
allow a shareholder to inspect the shareholder list before or at the meeting,
the shareholder may apply to the district court of the county where the
corporation's principal office or, if none, its registered office, is located,
and the district court may summarily order inspection or copying of the list at
the corporation's expense and may postpone the meeting until the inspection or
copying is complete. Section 219(a) of the DGCL likewise requires a Delaware
corporation to make its shareholder list available for inspection by
shareholders prior to any meeting of shareholders, but this is required only for
ten days prior to the meeting and at the meeting. Under Section 219(b) of the
DGCL, the willful neglect or refusal of the directors to produce such list at a
meeting for the election of directors will result in their ineligibility for
election to any office at such meeting. This is the only remedy provided by the
DGCL for failure to provide the shareholder list as required. Because management
fully intends to comply with right of shareholders to inspect lists of
shareholders entitled to be given notice of meetings, the Company's management
does not believe that the foregoing statutory differences will have any
significant effect on the rights of the Company's shareholders.
Appraisal Rights. Section 262 of the DGCL provides appraisal rights to
shareholders that are substantially similar to the Utah law in connection with
mergers or consolidations. However, the statutes differ in that the DGCL permits
a shareholder who has received notice of appraisal rights from the corporation,
and who has submitted a written demand for appraisal, to file a petition with
the Court of Chancery of the State of Delaware to demand a determination of the
fair value of such shareholder's shares. Such petition must be filed within 120
days after the effective date of a merger or consolidation. Section 262(b) of
the DGCL provides that shareholders do not have appraisal rights for certain
mergers with or into single direct or indirect wholly owned subsidiaries, which
includes the proposed change of domicile of the Company. The Utah law also sets
forth procedures for a Utah corporation to give shareholders notice of their
appraisal rights, and for such shareholders to exercise such rights. However,
the Utah law authorizes only the corporation to commence judicial appraisal
proceedings with all shareholders who have properly dissented and whose demand
remain unresolved to be named as parties to such proceedings.
7
Dividends. Section 640 of the Utah law authorizes the Board of Directors
of a Utah corporation to make distributions to its shareholders subject to the
articles of incorporation. However, no such distribution may be made if, after
giving it effect, the corporation would not be able to pay its debts as they
become due in the usual course of business, or the corporation's total assets
would be less than the sum of its total liabilities plus (unless the articles of
incorporation permit otherwise) the amount that would be needed, if the
corporation were dissolved at the time of the distribution, to satisfy the
preferential rights of preferred shareholders. Section 170 of the DGCL similarly
permits a Delaware corporation to pay dividends upon its capital stock subject
to the certificate of incorporation, but only (a) out of its surplus, or, (b) if
no surplus exists, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year, and then only if the
corporation has capital equal to or in excess of the aggregate amount of capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of the corporation's assets. The DGCL also
protects a corporation's Board of Directors from personal liability for good
faith reliance on the records of the corporation and the representations and
opinions of its officers and employees and others with respect to the
determination of the amount of surplus or other funds from which dividends may
be paid. The Utah law does not contain similar protection for the Board of
Directors.
Anti-Takeover Provisions. Section 61-6-1 et seq. of the Utah Code
Annotated (the "Utah Control Shares Acquisitions Act" or "UCSAA") provides that
"control shares" of an "issuing public corporation" acquired in a "control share
acquisition" shall have the same rights as they had before such acquisition only
to the extent granted by resolution of the shareholders of the corporation. The
UCSAA defines "control shares" as shares that, when combined with all other
voting shares held by the shareholder, would entitle the holder to vote in the
election of directors within any of the following ranges of voting power: (a)
1/5 or more but less than 1/3 of all voting power; (b) 1/3 or more but less than
a majority of all voting power; or (c) a majority or more of all voting power.
An "issuing public corporation" is defined as a Utah corporation with (a) 100 or
more shareholders; (b) its principal place of business, its principal office, or
substantial assets within the state; and (c) (i) more than 10% of its
shareholders resident in Utah; (ii) more than 10% of its shares owned by Utah
residents; or (iii) 10,000 shareholders resident in the state. A Utah
corporation's articles of incorporation or bylaws may provide that the UCSAA
does not apply to control share acquisitions of the corporation, as long as any
such provision is adopted before the control share acquisition in question.
Section 203 of the DGCL prohibits a Delaware corporation that is (a)
listed on a national securities exchange; (b) authorized for quotation on the
NASDAQ Stock Market; or (c) held of record by more than 2,000 shareholders from
engaging in any "business combination" with any "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder. A Delaware corporation subject to Section 203 may engage in a
"business combination" with an "interested stockholder" under certain
circumstances including circumstances in which, prior to the person becoming an
interested stockholder, the corporation's Board of Directors approves the
"business combination" with the interested stockholder or the transaction in
which the person becomes an interested shareholder. A "business combination" is
defined as, among other things, a merger or consolidation of the corporation or
any subsidiary with the interested stockholder or with any other corporation if
such transaction is caused by the interested stockholder and as a result of such
merger or consolidation Section 203 is not applicable to the surviving
corporation. An "interested stockholder" is defined as any person that (a) owns
15% or more of the corporation's voting stock; or (b) is an affiliate or
associate of the corporation and was the owner of 15% or more of the
corporation's voting stock at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder. As under the UCSAA, a corporation may opt out of
Section 203. However, under Section 203(b)(3) of the DGCL, if the corporation's
certificate of incorporation or bylaws are amended to opt out by shareholder
vote, such amendment will not be effective until 12 months after its adoption
and will not apply to any business corporation between the corporation and any
person who became an interested shareholder on or prior to such adoption.
These foregoing differences are not the only differences between the Utah
law and the DGCL. However, management believes that they are the most likely to
have a material effect on the relative rights of the Company's shareholders as a
result of the change of domicile.
8
Officers And Directors
Upon the effective date of change of domicile, the present officers and
directors will continue to be the officers and directors of the Company.
Federal Tax Consequences
The following is a discussion of certain federal income tax considerations
that may be relevant to holders of Common Stock who receive New Common Stock as
a result of the proposed change of domicile. No state, local, or foreign tax
consequences are addressed herein.
This discussion does not address the state, local, federal or foreign
income tax consequences of the change of domicile that may be relevant to
particular shareholders, such as dealers in securities, or Company shareholders
who exercise dissenters' rights. In view of the varying nature of such tax
considerations, each shareholder is urged to consult his or her own tax adviser
as to the specific tax consequences of the proposed change of domicile,
including the applicability of federal, state, local, or foreign tax laws.
Subject to the limitations, qualifications and exceptions described herein, and
assuming the change of domicile qualifies as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
the following federal income tax consequences generally should result:
o No gain or loss should be recognized by the shareholders of the
Company upon conversion of their Common Stock into New Common Stock
pursuant to the change of domicile;
o The aggregate tax basis of the New Common Stock received by each
shareholder of the Company in the change of domicile should be equal
to the aggregate tax basis of Common Stock converted in exchange
therefor;
o The holding period of New Common Stock received by each shareholder
of the Company in the change of domicile should include the period
during which the shareholder held his or her Common Stock converted
therefor, provided such Common Stock is held by the shareholder as a
capital asset on the effective date of the change of domicile; and
o The Company should not recognize gain or loss for federal income tax
purposes as a result of the change of domicile.
The Company has not requested a ruling from the Internal Revenue Service
or an opinion of counsel with respect to the federal income tax consequences of
the change of domicile under the Code. The Company believes the change of
domicile will constitute a tax-free reorganization under Section 368(a) of the
Code, inasmuch as Section 368(a)(1)(F) of the Code defines a reorganization as a
mere change in identity, form, or place of organization of one corporation
however effected.
Vote Required; Board Recommendation
Proposal No. 1 (The authorization and approval of a change of the
Company's domicile from Utah to Delaware effected by the merger of the Company,
a Utah corporation, with and into, Digicorp, Inc., a newly formed wholly owned
subsidiary of the Company that was incorporated under the DGCL for the purpose
of effecting the change of domicile) will be approved if a majority of the
outstanding shares of Common Stock of the Company are voted "FOR" the proposal.
Abstentions will have the same effect as votes "AGAINST" Proposal No. 1. The
Board unanimously recommends that you vote all of your shares "FOR" the approval
of the Plan as described in this Proposal No. 1.
9
PROPOSAL NO. 2
AUTHORIZATION AND APPROVAL OF
THE COMPANY'S STOCK OPTION AND RESTRICTED STOCK PLAN
Background
Effective July 20, 2005, the Board of Directors approved the Company's
Stock Option and Restricted Stock Plan (the "Plan"), which provides for the
issuance of a maximum of up to 15,000,000 restricted shares of common stock,
options to purchase shares of Common Stock (including non-qualified stock
options and also incentive stock options ("ISOs")) upon shareholder approval of
this Proposal No. 2) and warrants to purchase shares of Common Stock to
employees, directors and consultants. As of May 23, 2006 the Company has issued
16,071 restricted shares of Common Stock, options to purchase 8,662,500 shares
of Common Stock and warrants to purchase 50,000 shares of Common Stock pursuant
to the Plan.
The Company is requesting stockholder approval of the Plan, which is
included as Appendix A to this proxy statement. The purpose of the Plan is to
advance the interests of the Company by providing to key employees of the
Company and its subsidiaries who have substantial responsibility for the
direction and management of the Company, as well as certain directors and
consultants of the Company, additional incentives, to the extent permitted by
law, to exert their best efforts on behalf of the Company, to increase their
proprietary interest in the success of the Company, to reward outstanding
performance and to provide a means to attract and retain persons of outstanding
ability to the service of the Company. It is recognized that the Company cannot
attract or retain these individuals without this compensation. Upon approval of
Proposal No. 2 at the Special Meeting, options granted under the Plan may
qualify as ISOs, as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
Except for restricted stock and options which have already been granted
under the Plan as described above, and except for the equity compensation of
Board members described below, the Company has not yet determined the amount of
any options grants, warrant grants or restricted stock awards to be offered to
any officers, employees, directors or consultants under the Plan. The Company
has adopted the following policy for equity compensation paid to directors. Each
director receives $1,000 for each meeting of the Board of Directors that each
such director attends (either in person or by teleconference). Such $1,000 may
be paid at the Company's option either in cash or in shares of restricted Common
Stock of the Company valued at the closing price of the Common Stock on the date
of the meeting or, if such meeting date is a day that the principal trading
market of the Common Stock is not open for business, then valued at the closing
price of the Common Stock on the most recent date after the meeting date on
which the principal trading market is open for business.
A committee of the Board of Directors (the "Committee") comprised of at
least two non-employee directors determines the amount and features of the stock
options, warrants or restricted stock to be awarded to participants in the Plan.
The Committee evaluates a number of criteria, including the service of each such
participant to the Company, the present and potential contributions of such
participant to the success of the Company, and such other factors as the
Committee deems relevant in connection with accomplishing the purposes of the
Plan, including the recipient's current stock holdings, position with the
Company, and other factors. The Committee does not apply a formula assigning
specific weights to any of these factors when making its determination. The
Committee awards stock options, warrants and restricted stock on a subjective
basis and such awards depend in each case on the performance of the officer,
employee or consultant under consideration, and in the case of new hires, their
potential performance.
Description of the Plan
The following is a brief description of the material features of the Plan.
Such description is qualified in its entirety by reference to the full text of
the Plan, which is attached to this proxy statement as Appendix A.
Purpose. The purpose of the Plan is to advance the interests of the
Company by providing key employees of the Company who have substantial
responsibility for the direction and management of the Company, as well as
certain directors, employees and consultants with additional incentives to exert
their best efforts to increase their proprietary interest in the success of the
Company, to reward outstanding performance, and to attract and retain persons of
outstanding ability.
10
Authorization. The Plan provides for the issuance of a maximum of
15,000,000 shares of Common Stock, which may be issued as restricted shares of
Common Stock, options to purchase shares of Common Stock (including
non-qualified stock options and also ISOs upon shareholder approval of this
Proposal No. 2) and warrants to purchase shares of Common Stock.
Administration. The Plan is administered by a Committee of the Board of
Directors comprised of at least two members of the Board, each of whom must (a)
be a non-employee director, as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (b) be an
"outside director" as the term is defined under Section 162(m) of the Code.
The Committee interprets the Plan and, to the extent and in the manner
contemplated in the Plan, exercises the discretion reserved to it in the Plan.
The decision of the Committee on any interpretation of the Plan or
administration thereof is final and binding with respect to the Company, any
participant or any person claiming to have rights as, or on behalf of, any
participant.
Participants. The Committee determines and designates those officers,
employees, directors and consultants of the Company who are eligible to
participate in the Plan. The Committee also determines the number of options,
warrants and shares of restricted stock to be awarded to each participant. In
making these determinations, the Committee takes into account the potential
contributions of the participant to the success of the Company, and such other
factors as the Committee deems relevant to accomplish the purposes of the Plan.
Award Agreements. All options, warrants and restricted stock granted under
the Plan are evidenced by an agreement. Agreements evidencing awards made to
different participants or at different times need not contain similar
provisions. Options that are intended to be ISOs will be designated as such; any
option not so designated will be treated as a non-qualified stock option.
Terms of options and warrants. Stock options and warrants are granted
under the Plan at a price not less than the prevailing market value at the time
of grant and will have realizable value only if the Company's stock price
increases. The Committee determines the amount and features of the stock options
and warrants, if any, to be awarded to participants. The Committee evaluates a
number of criteria, including the present and potential contributions of such
participant to the success of the Company, and such other factors as the
Committee deems relevant in connection with accomplishing the purposes of the
Plan, including the participant's current stock holdings, position with the
Company and other factors. The Committee does not apply a formula assigning
specific weights to any of these factors when making its determination. The
Committee awards stock options and warrants on a subjective basis and such
awards depend in each case on the performance of the participant under
consideration. Options granted under the Plan may be ISOs or non-qualified stock
options.
Exercise of options and warrants. Options and warrants are exercisable at
a price equal to the fair market value of the shares at the time the option or
warrant is granted, provided, however, that the exercise price of any option
that is intended to be treated as an ISO and that is granted to a holder of 10%
or more of the Company's shares may not be less than 110% of such current fair
market value. The day on which the Company approves the grant of an option or
warrant or the date specified in the Plan will be considered the date on which
the option or warrant is granted. For purposes of the Plan, the fair market
value of the shares as of any date is the average of the high and low trading
prices of the shares on that date. Options may contain such other terms and
conditions as the Committee deems advisable, including, but not limited to,
being exercisable only in installments. Options and warrants granted to
different participants or at different times need not contain similar
provisions. Each option and warrant states the period or periods of time within
which the option or warrant may be exercised by the participant, which may not
exceed ten years from the date the option or warrant is granted and, in the case
of an option that is intended to be an ISO and that is granted to a holder of
10% or more of the Company's shares, not more than five years. Unless
specifically provided otherwise in an agreement evidencing the award of options,
any option awarded to a participant becomes exercisable over four years, with
25% of the option becoming exercisable on each of the first four anniversaries
of the date of the award.
11
Awards of Restricted Stock. Each award of restricted stock contains a
vesting schedule, which sets forth the times at which the participant will
acquire a nonforfeitable right to the shares awarded to him or her. In general,
it is intended that awards of restricted stock will vest ratably over the four
years following the date of the award, but an individual award agreement may
provide otherwise. Shares that are not vested upon a participant's termination
of employment with, or cessation of providing services to, the Company will be
forfeited.
Effect of change in shares subject to the Plan. If there is a change in
the outstanding shares through the declaration of stock dividends, stock splits,
or combinations or exchanges of shares, or otherwise, the number of shares
available for options, warrants and awards of restricted stock and the shares
subject to an option or warrant and the option and warrant prices will be
appropriately adjusted by the Committee.
Amendment and termination. The Board of Directors may amend or alter,
suspend or discontinue the Plan at any time. While the Board may seek
shareholder approval of an action modifying a provision of the Plan when deemed
advisable, the Board may make certain modifications without shareholder approval
(except with respect to the number of shares authorized for issuance under the
Plan). The Plan will terminate ten years from the date of its adoption by the
Board.
Resale of shares acquired pursuant to awards. Participants purchasing
shares pursuant to options, warrants and/or vesting in awards of restricted
stock may resell the shares through brokers or dealers at prevailing market
prices, to the extent a market exists for the Company's Common Stock. Any sales
by participants who may be deemed affiliates of the Company must be made
pursuant to registration under the Securities Act or pursuant to an exemption
therefrom.
Any resale of shares acquired pursuant to awards under the Plan that are
made pursuant to registration under the Securities Act or an exemption therefrom
may be made at the Company's expense.
Federal tax consequences of the Plan. The following is a summary of
certain federal income tax consequences of transactions under the Plan based on
current federal income tax laws. This summary is not intended to be exhaustive
and does not describe state, local, or other tax consequences.
Non-qualified stock options and warrants. The grant of a non-qualified
stock option or a warrant under the Plan will not result in the recognition of
taxable income to the participant or in a deduction to the Company. In general,
upon exercise, a participant will recognize ordinary income in an amount equal
to the excess of the fair market value of the shares of common stock purchased
over the exercise price. The Company is required to withhold tax on the amount
of income so recognized, and is entitled to a tax deduction equal to the amount
of such income. Gain or loss upon a subsequent sale of any shares of common
stock received upon the exercise of a non-qualified stock option or a warrant is
taxed as capital gain or loss (long-term or short-term, depending upon the
holding period of the stock sold) to the participant.
Incentive stock options. Generally, neither the grant nor the exercise of
an incentive stock option will result in the recognition of taxable income by
the participant. Rather, when the participant disposes of stock acquired upon
exercise of an ISO, the participant will recognize income in the amount of the
excess of the amount realized upon disposition (if any) over the exercise price.
This special tax treatment is available only if the participant does not dispose
of the stock acquired upon the exercise of the ISO before the later of the first
anniversary of the date of exercise or the second anniversary of the date of the
grant of the option. A disposition before that time is referred to as a
"disqualifying disposition." If a participant effects a disqualifying
disposition, he or she will generally have income taxable at ordinary rates
equal to the excess of the fair market value of the stock on the date of
exercise over the exercise price and income taxable at capital gains rates on
any amount realized on disposition in excess of the fair market value of the
stock on the date of exercise. The Company is generally not entitled to any
deduction in connection with the issuance or exercise of an ISO. If, however, a
participant effects a disqualifying disposition, the Company will be entitled to
a deduction in an amount equal to the amount of income recognized by the
participant that is taxable at ordinary income rates.
Restricted Stock. The grant of an award of restricted stock will not
result in the recognition of taxable income or in a deduction for the Company.
Instead, when a participant becomes vested in shares of restricted stock, the
participant generally will recognize income taxable at ordinary income rates in
an amount equal to the fair market value of the stock on the date of vesting,
and the Company will be entitled to a corresponding deduction. A participant
may, however, make an election to include in income at the time of grant the
fair market value of the restricted stock by making an election under section
83(b) of the Code within 30 days of the award of restricted stock. The Company
will be entitled to a corresponding deduction. If the participant subsequently
forfeits shares of restricted stock, he or she may not be entitled to claim a
deduction or a loss.
12
Transferability of Options, Warrants and Restricted Stock. Options,
warrants and restricted stock is not transferable other than to the spouse or
lineal descendants (including adopted children) of the participant, any trust
for the benefit of the participant or the benefit of the spouse or lineal
descendants (including adopted children) of the participant, or the guardian or
conservator of the participant.
Termination of Options, Warrants and Restricted Stock Awards. All rights
to exercise options and warrants terminate 60 days after any optionee or warrant
holder ceases to be a director of the Company or a key employee or consultant of
the Company and/or any of its subsidiaries, and no options or warrants will vest
after an optionee's or warrant holder's termination date. Notwithstanding the
foregoing, however, if an optionee's or warrant holder's service as a director
of the Company or key employee or consultant terminates as a result of the
optionee's or warrant holder's death or his total and permanent disability, the
optionee, warrant holder or the executors or administrators or legatees or
distributees of the estate, as the case may be and to the extent they are
permitted transferees, shall have the right, from time to time within one year
after the optionee's or warrant holder's total and permanent disability or death
and prior to the expiration of the term of the option or warrant, to exercise
any portion of the option or warrant not previously exercised, in whole or in
part, as provided in the respective agreement evidencing the award of the
options or warrants. A participant's rights to shares awarded as restricted
stock shall, under all circumstances, be set forth in the agreement evidencing
the award of restricted stock.
Vote Required; Board Recommendation
Proposal No. 2 (the authorization and approval of the Company's Stock
Option and Restricted Stock Plan) will be approved if a majority of the total
votes properly cast in person or by proxy at the Special Meeting by the holders
of Common Stock are voted "FOR" the proposal. Abstentions will have no effect on
the result of the vote. The Board unanimously recommends that you vote all of
your shares "FOR" the approval of the Plan as described in this Proposal No. 2.
ADDITIONAL INFORMATION
Executive Compensation
The following table sets forth information concerning the total
compensation that we have paid or that has accrued on behalf of our chief
executive officer and other executive officers with annual compensation
exceeding $100,000 during the years ended December 31, 2005, 2004 and 2003 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------------------------------------
Annual Compensation Awards Payouts
------------------------------------- ------------------------------ -----------
Other Securities All
Annual Restricted Under-lying LTIP Other
Name and Compen- Stock Award(s) Options/ Payouts Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) ($) SARs (#) ($) sation ($)
--------------------------- --------- ------------- ---------- ------------ ----------------- ------------ ----------- ------------
Milton "Todd" Ault III (1) 2005 0 0 0 0 2,000,000 0 0
Former CEO and 2004 0 0 0 0 0 0 0
Former Chairman 2003 0 0 0 0 0 0 0
William B. Horne (2) 2005 0 0 0 0 500,000 0 0
CFO, Former CEO and 2004 0 0 0 0 0 0 0
Former Chairman 2003 0 0 0 0 0 0 0
Philip Gatch (3) 2005 $23,866 0 0 $11,250 250,000 0 0
CTO 2004 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0
Jay Rifkin (4) 2005 0 0 0 0 4,400,000 0 0
CEO and President and 2004 0 0 0 0 0 0 0
Principal Executive 2003 0 0 0 0 0 0 0
Officer of Rebel Crew
Films
(1) Mr. Ault was appointed Chief Executive Officer on April 26, 2005,
and director and Chairman of the Board of Directors on July 16,
2005. Mr. Ault resigned from the positions of Chief Executive
Officer and director and Chairman of the Board of Directors on
September 30, 2005.
(2) Mr. Horne was appointed Chief Financial Officer and director on July
20, 2005, and Chief Executive Officer and Chairman of the Board of
Directors on September 30, 2005. Mr. Horne resigned from the
position of Chief Executive Officer on December 29, 2005.
(3) Mr. Gatch was hired as Chief Technology Officer of the Company on
September 20, 2005. As part of his employment agreement Mr. Gatch is
entitled to receive restricted stock awards of $45,000 per year.
During the year ended December 31, 2005 Mr. Gatch was received
16,071 shares of restricted stock valued at $11,250.
(4) Mr. Rifkin was appointed President on September 30, 2005, and Chief
Executive Officer and director nominee on December 29, 2005.
OPTIONS GRANT TABLE
The following table sets forth information with respect to the named
executive officers concerning the grant of stock options during the fiscal year
ended December 31, 2005. We did not have during such fiscal year any plans
providing for the grant of stock appreciation rights ("SARs").
Option/SAR Grants in Last Fiscal Year
-----------------------------------------------------------------------------------------------------------------------
Potential
Realizable Value at
Assumed Annual
Rates of Stock Alternative to
Price Appreciation (f) and (g):
Individual Grants for Option Term Grant Date Value
------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base Grant Date
SARs in Fiscal Price Expiration Present
Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($) Value ($) (1)
--------------------------- ------------ ------------- ---------- ----------- ---------- ---------- -------------------
Milton "Todd" Ault III (2) 2,000,000 2,000,000 $ 0.25 7/20/2015 --- --- $ 494,200
William B. Horne (3) 500,000 500,000 $ 0.25 7/20/2015 --- --- $ 123,550
Philip Gatch (4) 250,000 250,000 $ 0.25 7/20/2015 --- --- $ 61,775
Jay Rifkin (5) 4,400,000 4,400,000 $ 0.85 9/30/2015 --- --- $ 3,696,620
-----------------------------------------------------------------------------------------------------------------------
(1) The value shown was calculated utilizing the Black-Scholes option
pricing model and are presented solely for the purpose of
comparative disclosure in accordance with certain regulations of the
Securities and Exchange Commission. This model is a mathematical
formula used to value traded stock price volatility. The actual
value that an executive officer may realize, if any, is dependent on
the amount by which the stock price at the time of exercise exceeds
the exercise price. There is no assurance that the value realized by
an executive officer will be at or near the value estimated by the
Black-Scholes model. In calculating the grant date present values,
we used the following assumptions: (a) expected volatility of
approximately 155%; (b) risk-free rate of return of approximately
3.75%; (c) no dividends payable during the relevant period; and (d)
exercise at the end of a 10 year period from the date of grant.
(2) On July 20, 2005, as consideration for service as Chief Executive
Officer, we granted Milton "Todd" Ault, III options to purchase
2,000,000 shares of common stock with an exercise price of $0.25 per
share. These stock options would have vested quarterly over two
years, however, on September 30, 2005, the Board of Directors
accelerated the vesting of such options such that options to
purchase 475,000 shares of common stock immediately vested and are
exercisable for a period of 18 months from December 29, 2005. The
remaining options to purchase 1,525,000 shares of common stock were
cancelled.
(3) On July 20, 2005, as consideration for service as Chief Financial
Officer and Director, we granted William B. Horne options to
purchase 500,000 shares of common stock with an exercise price of
$0.25 per share. These stock options would have vested quarterly
over two years, however, on December 29, 2005, the Board of
Directors accelerated the vesting of such options such that options
to purchase 400,000 shares of common stock immediately vested and
are exercisable for a period of 18 months from the date the
individual no longer performs services to us. The remaining options
to purchase 100,000 shares of common stock were cancelled.
(4) On July 20, 2005, as consideration for service as Chief Technology
Officer, we granted Philip Gatch options to purchase 250,000 shares
of our common stock with an exercise price of $0.25 per share. These
stock options would have vested quarterly over two years, however,
on December 29, 2005, the Board of Directors accelerated the vesting
of such options such that options to purchase 250,000 shares of
common stock immediately vested and are exercisable for a period of
18 months from the date the individual no longer performs services
to us.
(5) On September 30, 2005, as consideration for service as Interim
President, we granted Jay Rifkin options to purchase 4,400,000
shares of common stock with an exercise price of $0.85 per share.
These stock options vest annually over three years from December 29,
2005.
Aggregate Option Exercises and Fiscal Year-End Option Values
The following table sets forth information with respect to the named
executive officers concerning the year-end value of in-the-money options and the
value of unexercised options as of December 31, 2005. No options were exercised
by the named executive officers during the fiscal year ended December 31, 2005.
13
---------------------------------- -------------------- -------------- ----------------- ------------------
Number of
securities Value of
underlying unexercised
unexercised in-the-money
options/SARs at options/SARs at
FY-end (#) FY-end ($)
Shares acquired on Value Exercisable/ Exercisable/
Name exercise (#) realized ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
---------------------------------- -------------------- -------------- ----------------- ------------------
Milton "Todd" Ault, III --- --- 475,000 / --- $783,750/ ---
---------------------------------- -------------------- -------------- ----------------- ------------------
William B. Horne --- --- 400,000 / --- $660,000/ ---
---------------------------------- -------------------- -------------- ----------------- ------------------
Philip Gatch --- --- 250,000 / --- $412,500/ ---
---------------------------------- -------------------- -------------- ----------------- ------------------
Jay Rifkin --- --- --- / 4,400,000 --- / $4,620,000
---------------------------------- -------------------- -------------- ----------------- ------------------
Benefit Plans
Effective July 20, 2005, the Board of Directors approved our Stock Option
and Restricted Stock Plan. Under the Stock Option and Restricted Stock Plan, we
can issue restricted shares of common stock, options to purchase shares of
common stock (both incentive stock options and non-incentive stock options) and
warrants to purchase shares of common stock to employees, directors and
consultants. The number of shares subject to the Stock Option and Restricted
Stock Plan may not exceed 15,000,000 shares. The Stock Option and Restricted
Stock Plan is administered by our Compensation Committee.
Compensation of Directors
The Company has adopted the following policy for Board compensation. Each
director will receive $1,000 for each meeting of the Board of Directors that
each such director attends (either in person or by teleconference). Such $1,000
may be paid at the Company's option either in cash or in shares of restricted
common stock of the Company valued at the closing price of the common stock on
the date of the meeting or, if such meeting date is a day that the principal
trading market of the common stock is not open for business, then valued at the
closing price of the common stock on the most recent date after the meeting date
on which the principal trading market is open for business. In addition, the
Chairman of the Audit Committee receives $6,000 annually paid in cash. During
2005, the Company did not compensate any of its directors pursuant to the above
policy; however, $6,000 has accrued and is payable to the Company's Audit
Committee Chairman for the 2005 fiscal year. All directors are also reimbursed
for their reasonable out-of-pocket expenses incurred in connection with their
duties to the Company. In addition, directors are eligible to receive restricted
shares of common stock and stock options pursuant to our Stock Option Restricted
Stock Plan described above. Directors were issued stock options for their
service during 2005.
14
Employment Agreements with Executive Officers
On September 20, 2005, we entered into an employment agreement with Philip
Gatch documenting the terms of his employment as our Chief Technology Officer.
The term of the employment continues for 36 months from September 20, 2005 and
automatically renews for successive one-year terms unless either party delivers
to the other party written notice of termination at least 30 days before the end
of the then current term. Mr. Gatch's base compensation under the agreement is
$95,000 in cash per year and $45,000 in a restricted stock grants each year.
Prior to signing the employment agreement, we granted Mr. Gatch options
entitling him to purchase 250,000 shares of common stock vesting annually over
three years with a strike price of $0.25 per share, which stock options are
reflected in the employment agreement. Mr. Gatch is also eligible to receive an
annual performance bonus determined by our chief executive officer. In addition,
Mr. Gatch was granted rights for three years to (a) veto a chief executive
officer candidate as a replacement to Milton "Todd" Ault, III, which right has
expired since William B. Horne was appointed to replace Mr. Ault and
subsequently Mr. Rifkin was appointed to replace Mr. Horne as chief executive
officer, and (b) veto a decision to sell our company or any of our core assets
or technologies related to the iCodemedia domain names and intellectual property
in the event we are sold for less than $50,000,000. If Mr. Gatch's employment is
terminated for any reason, the veto rights will be forfeited. The agreement also
contains customary provisions for disability, death, confidentiality,
indemnification and non-competition. If Mr. Gatch voluntarily terminates the
agreement or if we terminate the agreement for cause, Mr. Gatch will not be
entitled to any compensation for the period between the effective termination
date and the end of the employment term and all unvested restricted stock and
stock options will be forfeited. If we voluntarily terminates the agreement
without cause, we must pay Mr. Gatch a cash sum equal to (a) all accrued base
salary through the date of termination plus all accrued vacation pay and cash
bonuses, if any, plus (b) as severance compensation, 500,000 unrestricted shares
of common stock and $250,000 cash. In the event of a merger, consolidation,
sale, or change of control, the surviving or resulting company is required to
honor the terms of the agreement with Mr. Gatch.
In connection with the acquisition of Rebel Crew Films, on December 29,
2005, we entered into an employment agreement with Jay Rifkin to employ Mr.
Rifkin as our Chief Executive Officer effective as of September 30, 2005. The
term of the employment continues for three years from September 30, 2005 and
automatically renews for successive one-year terms unless either party delivers
to the other party written notice of termination at least 30 days before the end
of the then current term. Mr. Rifkin's base compensation in the first year of
the term is $150,000, will increase at least 10% in the second year of the term
and at least 10% more in the third year of the employment term. Mr. Rifkin was
granted options to purchase 4,400,000 shares of common stock with an exercise
price equal to the FMV of the common stock on September 30, 2005 and vesting
annually over a period of three years from December 29, 2005. Mr. Rifkin is also
eligible to receive shares of common stock and stock options from time to time
and an annual bonus as determined by the Board of Directors. The agreement also
contains customary provisions for disability, death, confidentiality,
indemnification and non-competition. If Mr. Rifkin voluntarily terminates the
agreement without good reason or if we terminate the agreement for cause, we
must pay Mr. Rifkin all accrued compensation through the date of termination and
provide life, accident and disability insurance, and health, dental and vision
benefits to Mr. Rifkin and his dependents for a period of three months after
termination. If we terminate the agreement without cause, if Mr. Rifkin
terminates the agreement for good reason or if the agreement is terminated upon
the death or disability of Mr. Rifkin, then we must pay Mr. Rifkin or his estate
all unpaid compensation through the duration of the three-year employment term
and must provide insurance and health benefits through the duration of such
term. "Good Reason" is defined in the agreement as: (i) material breach of the
agreement by us including, without limitation, any diminution in title, office,
rights and privileges of Mr. Rifkin or failure to receive base salary payments
on a timely basis; (ii) relocation of the principal place for Mr. Rifkin to
provide his services to any location more than 20 miles away from 100 Wilshire
Boulevard, Santa Monica, California 90401; (iii) failure to maintain in effect
directors' and officers' liability insurance covering Mr. Rifkin; (iv) any
assignment or transfer of any of our rights or obligations under the agreement;
or (v) any change in control of our company including, without limitation, if
Mr. Rifkin shall cease to own a majority of our outstanding voting securities.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table shows information with respect to each equity
compensation plan under which the Company's common stock is authorized for
issuance as of the fiscal year ended December 31, 2005.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------ ------------------------ ----------------------- ---------------------------
Plan category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding options, future issuance under
outstanding options, warrants and rights equity compensation plans
warrants and rights (excluding securities
reflected in column (a)
------------------------------------ ------------------------ ----------------------- ---------------------------
(a) (b) (c)
------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans approved
by security holders -0- -0- -0-
------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans not
approved by security holders 8,312,500 $0.75 6,687,500
------------------------------------ ------------------------ ----------------------- ---------------------------
------------------------------------ ------------------------ ----------------------- ---------------------------
Total 8,312,500 $0.75 6,687,500
------------------------------------ ------------------------ ----------------------- ---------------------------
15
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of May 23, 2006
with respect to the beneficial ownership of the Company's outstanding common
stock by (i) any holder of more than five (5%) percent; (ii) each of the named
executive officers and directors; and (iii) the directors and named executive
officers as a group. Except as otherwise indicated, each of the stockholders
listed below has sole voting and investment power over the shares beneficially
owned.
Common Stock Percentage of
Name of Beneficial Owner (1) Beneficially Owned (2) Common Stock (2)
-------------------------------------------------- ------------------------- ---------------------
Patient Safety Technologies, Inc. 2,738,561 (3) 7.4%
Bodnar Capital Management, LLC 2,941,176 7.9%
William B. Horne 450,000 (4) 1.2%
Alice M. Campbell 350,000 (5) *
Philip Gatch 1,266,071 (6) 3.4%
Cesar Chatel 2,120,708 (7) 5.7%
Jay Rifkin 19,586,372 (8) 52.1%
Alan Morelli 600,000 (9) *
David M. Kaye 350,000 (10) *
-------------------------------------------------- ------------------------- ---------------------
All named executive officers and directors as a 24,723,151 61.8%
group (7 persons)
* Less than 1%
(1) Except as otherwise indicated, the address of each beneficial
owner is c/o Digicorp, 4143 Glencoe Avenue, Marina Del Rey, CA
90292.
(2) Applicable percentage ownership is based on 37,100,820 shares of
common stock outstanding as of May 23, 2006, together with
securities exercisable or convertible into shares of common stock
within 60 days of May 23, 2006 for each stockholder. Beneficial
ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of common
stock that a person has the right to acquire beneficial ownership
of upon the exercise or conversion of options, convertible stock,
warrants or other securities that are currently exercisable or
convertible or that will become exercisable or convertible within
60 days of May 23, 2006 are deemed to be beneficially owned by the
person holding such securities for the purpose of computing the
percentage of ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership
of any other person.
(3) Patient Safety Technologies, Inc. has granted Mr. Rifkin an
irrevocable proxy to vote the shares of common stock owned by them
for certain directors.
(4) Includes 400,000 shares issuable upon exercise of stock options
with an exercise price of $0.25 per share and an expiration date
18 months from the date Mr. Horne's services terminate. Mr. Horne
has granted Mr. Rifkin an irrevocable proxy to vote the shares of
common stock issuable upon exercise of such stock options for
certain directors.
(5) Represents shares issuable upon exercise of stock options with an
exercise price of $0.25 per share and an expiration date 18 months
from the date Ms. Campbell's services terminate. Ms. Campbell has
granted Mr. Rifkin an irrevocable proxy to vote the shares of
common stock issuable upon exercise of such stock options for
certain directors.
(6) Includes 250,000 shares issuable upon exercise of stock options
with an exercise price of $0.25 per share and an expiration date
18 months from the date Mr. Gatch's services terminate. Mr. Gatch
has granted Mr. Rifkin an irrevocable proxy to vote the shares of
common stock owned by him for certain directors.
(7) Includes 400,000 shares which are held in escrow pending
satisfaction of certain performance milestones through March 31,
2007. Mr. Chatel has granted Mr. Rifkin an irrevocable proxy to
vote the shares of common stock owned by Mr. Chatel for certain
directors.
(8) Includes: (a) 3,600,000 shares which are held in escrow pending
satisfaction of certain performance milestones through March 31,
2007; and (b) 500,000 shares issuable upon conversion of a
$556,306.53 principal amount secured convertible note with a
conversion price of $1.112614 per share. All of these securities
are held by Rebel Crew Holdings, LLC of which Mr. Rifkin is the
sole managing member. Mr. Rifkin's reported beneficial ownership
does not include approximately 8,762,736 shares of common stock
issued and issuable for which certain shareholders have granted
Mr. Rifkin an irrevocable proxy to vote for certain directors.
16
(9) Includes: (a) options to purchase 350,000 shares of common stock
with an exercise price of $1.50 per share, which stock options
vest annually over a period of three years from March 26, 2006;
and (b) shares issuable upon exercise of warrants with an exercise
price of $0.145 per share and an expiration date of September 15,
2010.
(10) Represents options to purchase 350,000 shares of common stock with
an exercise price of $1.50 per share, which stock options vest
annually over a period of three years from March 26, 2006.
Interest of Certain Persons in Matters to Be Acted Upon
To the extent the Company's incumbent directors and executive officers are
eligible to participate in the Company's Stock Option and Restricted Stock Plan,
each director and executive officer has a direct interest in the result of a
vote on Proposal No. 2 (the authorization and approval of the Company's Stock
Option and Restricted Stock Plan).
Dissenter's Right of Appraisal
No action will be taken in connection with the proposals described in this
Proxy Statement for which Delaware General Corporation Law or the Utah Revised
Business Corporation Act provide a right of a shareholder to dissent and obtain
appraisal of or payment for such shareholder's shares of common stock.
Other Matters
The Board of Directors does not know of any other matters that may
properly be brought, and which are likely to be brought, before the Special
Meeting. However, should other matters be properly brought before the Special
Meeting, the persons named on the enclosed proxy or their substitutes will vote
in accordance with their best judgment on such matters.
Shareholder Proposals and Discretionary Proxy Voting Authority
The Board of Directors has not yet determined the date on which the next
annual meeting of shareholders will be held. Any proposal by a shareholder
intended to be presented at the Company's next annual meeting of shareholders
must be received at our offices a reasonable amount of time prior to the date on
which the information or proxy statement for that meeting is mailed to
shareholders in order to be included in the information or proxy statement
relating to that meeting.
Rule 14a-4(c) promulgated under the Exchange Act, as amended, governs the
Company's use of its discretionary proxy voting authority with respect to a
shareholder proposal that the shareholder has not sought to include in the
Company's proxy statement. The rule provides that if a proponent of a proposal
fails to notify the Company of the proposal at least 45 days before the date of
mailing of the prior year's proxy statement, then the management proxies will be
allowed to use their discretionary voting authority when the proposal is raised
at the meeting, without any discussion of the matter required in the proxy
statement. If during the prior year the Company did not hold an annual meeting,
or if the date of the meeting has changed more than 30 days from the prior year,
then notice by a proponent of a proposal must not have been received a
reasonable time before the Company mails its proxy materials for the current
year.
Forward-Looking Statements and Information
This Proxy Statement includes forward-looking statements. You can identify
our forward-looking statements by the words "expects," "projects," "believes,"
"anticipates," "intends," "plans," "predicts," "estimates" and similar
expressions.
The forward-looking statements are based on management's current
expectations, estimates and projections about us. The Company cautions you that
these statements are not guarantees of future performance and involve risks,
uncertainties and assumptions that the Company cannot predict. In addition, the
Company has based many of these forward-looking statements on assumptions about
future events that may prove to be inaccurate. Accordingly, the Company's actual
outcomes and results may differ materially from what is expressed or forecast in
the forward-looking statements.
17
You should rely only on the information provided in this Proxy Statement.
The Company has not authorized any person to provide information other than that
provided herein. You should not assume that the information in this Proxy
Statement is accurate as of any date other than the date on the front of the
document.
Where You Can Find More Information About the Company
The Company files annual, quarterly and current reports, proxy statements
and other information with the SEC. You can read and copy any materials the
Company files with the SEC at the SEC's Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. You can obtain information about the operation of
the SEC's Public Reference Room by calling the SEC at (202) 551-8090. The SEC
also maintains an Internet website that contains information the Company files
electronically with the SEC, which you can access over the Internet at
http://www.sec.gov. Copies of these materials may also be obtained by mail from
the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C.
20549 at prescribed rates.
18
Appendix A
DIGICORP
STOCK OPTION AND RESTRICTED STOCK PLAN
1. PURPOSE OF THE PLAN
The purpose of this Stock Option and Restricted Stock Plan (this "Plan")
is to advance the interests of Digicorp (the "Company") and its subsidiaries by
providing to key employees of the Company and its subsidiaries who have
substantial responsibility for the direction and management of the Company, as
well as certain directors and consultants of the Company, additional incentives,
to the extent permitted by law, to exert their best efforts on behalf of the
Company, to increase their proprietary interest in the success of the Company,
to reward outstanding performance and to provide a means to attract and retain
persons of outstanding ability to the service of the Company. It is recognized
that the Company cannot attract or retain these individuals without this
compensation. Options granted under this Plan may qualify as incentive stock
options ("ISOs"), as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
2. ADMINISTRATION
This Plan shall be administered by a committee (the "Committee") comprised
of at least two (2) members of the Company's Board of Directors ("Board") who
each shall (a) be a "non-employee director," as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended, unless
administration of the Plan by "non-employee directors" is not then required for
transactions under the Plan to be exempt from the requirements of Rule 16b, and
(b) be an "outside director" as defined under Section 162(m) of the Code, unless
the action taken pursuant to the Plan is not required to be taken by "outside
directors" to qualify for tax deductibility under Section 162(m) of the Code.
The Committee shall interpret this Plan and, to the extent and in the manner
contemplated herein, shall exercise the discretion reserved to it hereunder. The
Committee may prescribe, amend and rescind rules and regulations relating to
this Plan and to make all other determinations necessary for its administration.
The decision of the Committee on any interpretation of this Plan or
administration hereof, if in compliance with the provisions of the Act and
regulations promulgated thereunder, shall be final and binding with respect to
the Company, any optionee, warrant holder or any person claiming to have rights
as, or on behalf of, any optionee or warrant holder.
3. SHARES SUBJECT TO THE PLAN
The shares subject to option, warrant grant and the other provisions of
this Plan shall be shares of the Company's common stock, par value $0.001 per
share ("shares"). Subject to the provisions hereof concerning adjustment, the
total number of shares that may be purchased upon the exercise or surrender of
stock options granted under this Plan shall not exceed the greater of thirty
percent (30%) of the total number of shares authorized and outstanding as of the
most recent quarterly period ended or 15,000,000 REDUCED BY the number of shares
with respect to which restricted stock is awarded. The total number of shares
that may be awarded as restricted shares under this Plan shall not exceed twenty
percent (20%) of the total number of shares subject to the Plan. Any shares that
are authorized for issuance pursuant to the exercise of options may be issued
upon the exercise of ISOs. In the event any option or warrant shall cease to be
exercisable in whole or in part for any reason, the shares which were covered by
such option or warrant, but as to which the option or warrant had not been
exercised, shall again be available under this Plan. Similarly, any shares that
were granted pursuant to an award of restricted stock under this Plan but that
are forfeited pursuant to the terms of the Plan or an award agreement shall
again be available under this Plan. In addition, shares not delivered to
participants in connection with the stock-for-stock exercise of an option or
warrant shall again be available under this Plan. Shares may be made available
from authorized, un-issued or reacquired stock or partly from each.
19
4. PARTICIPANTS
(A) Key Employees, Directors and Consultants. The Committee shall
determine and designate from time to time those key employees, directors and
consultants of the Company and its subsidiaries who shall be eligible to
participate in this Plan. The Committee shall also determine the number of
shares to be offered from time to time to each participant, either pursuant to
an option, pursuant to a warrant or pursuant to an award of restricted stock, or
either. In making these determinations, the Committee shall take into account
the past service of each such key employee, director or consultant to the
Company and its subsidiaries, the present and potential contributions of such
key employee, director or consultant to the success of the Company and its
subsidiaries and such other factors as the Committee shall deem relevant in
connection with accomplishing the purposes of this Plan. The agreement
documenting the award of any option, warrant or restricted stock granted
pursuant to this Plan shall contain such terms and conditions as the Committee
shall deem advisable, including but not limited to being vested or exercisable,
as the case may be, only in such installments as the Committee may determine.
(B) Award Agreements. All options, warrants and restricted stock granted
under the Plan will be evidenced by an agreement. Agreements evidencing awards
made to different participants or at different times need not contain similar
provisions. Options that are intended to be ISOs will be designated as such; any
option not so designated will be treated as a nonqualified stock option.
5. OPTION/WARRANT PRICE
Each agreement representing an award of options or warrants shall state
the price at which the subject option or warrant may be exercised, which shall
not be less than the current fair market value of the shares at the date of
issuance of an option or warrant; provided, however, that the exercise price of
any option that is intended to be an ISO and that is granted to a holder of 10%
or more of the Company's shares shall not be less than 110% of such current fair
market value. For purposes of this Plan, the fair market value of any Share as
of any date shall be the average of the high and low trading prices of the
shares on that date.
6. OPTION/WARRANT PERIOD
Each agreement representing an award of options or warrants shall state
the period or periods of time at and within which the subject option or warrant
may be exercised, in whole or in part, by the optionee or warrant holder, which
shall be such period or periods as may be determined by the Committee; provided,
however, that the option or warrant period shall not exceed ten years from the
date of issuance of the option or warrant and, in the case of an option that is
intended to be an ISO and that is granted to a holder of 10% or more of the
Company's shares, shall not exceed five years. Unless specifically provided
otherwise in an agreement evidencing the award of options, any option awarded to
a participant shall become exercisable over four years, with 25% of the option
becoming exercisable on each of the first four anniversaries of the date of the
award.
7. PAYMENT FOR SHARES
Full payment for shares purchased pursuant to an option or warrant shall
be made at the time of exercising the option or warrant in whole or in part.
Payment of the purchase price shall be made in cash (including check, bank draft
or money order), unless the Company provides to any or all participants the
ability to effect a stock-for-stock exercise of his or her options or warrants.
8. RESTRICTED STOCK
Each agreement representing an award of restricted stock shall state the
number of shares subject to the award and the terms and conditions pursuant to
which the recipient of the award shall acquire a nonforfeitable right to the
shares awarded as restricted stock. Unless specifically provided otherwise in an
agreement evidencing the award of restricted stock, a participant shall acquire
a nonforfeitable right to the shares subject to the award over four years, with
25% of the restricted stock becoming vested on each of the first four
anniversaries of the date of the award, and shares that are not vested upon a
participant's termination of employment with, or cessation of providing services
to, the Company shall be forfeited.
20
9. TRANSFERABILITY OF OPTIONS, WARRANTS AND RESTRICTED STOCK
Options, warrants and restricted stock shall not be transferable other
than to the spouse or lineal descendants (including adopted children) of the
participant, any trust for the benefit of the participant or the benefit of the
spouse or lineal descendants (including adopted children) of the participant, or
the guardian or conservator of the participant ("Permitted Transferees").
10. TERMINATION OF OPTIONS, WARRANTS AND RESTRICTED STOCK AWARDS
All rights to exercise options and warrants shall terminate sixty days
after any optionee or warrant holder ceases to be a director of the Company or a
key employee or consultant of the Company and any of its subsidiaries, and no
options or warrants will vest after an optionee's or warrant holder's
termination date. Notwithstanding the foregoing, however, if an optionee's or
warrant holder's service as a director of the Company or key employee or
consultant terminates as a result of the optionee's or warrant holder's death or
his total and permanent disability, the optionee or warrant holder or the
executors or administrators or legatees or distributees of the estate, as the
case may be and to the extent they are Permitted Transferees, shall have the
right, from time to time within one year after the optionee's or warrant
holder's total and permanent disability or death and prior to the expiration of
the term of the option or warrant, to exercise any portion of the option or
warrant not previously exercised, in whole or in part, as provided in the
respective agreement evidencing the award of the options or warrants. A
participant's rights to shares awarded as restricted stock shall, under all
circumstances, be set forth in the agreement evidencing the award of restricted
stock.
11. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
Subject to any required action by the shareholders of the Company and the
provisions of applicable corporate law, the number of shares represented by the
unexercised portion of an option or warrant, the number of shares that has been
authorized or reserved for issuance hereunder, and the number of Shares covered
by any applicable vesting schedule hereunder, as well as the exercise price for
a share represented by the unexercised portion of an option or warrant, shall be
proportionately adjusted for (a) a division, combination or reclassification of
any of the shares of common stock of the Company or (b) a dividend payable in
shares of common stock of the Company.
12. GENERAL RESTRICTION
Each award shall be subject to the requirement that, if at any time the
Board shall determine, at its discretion, that the listing, registration or
qualification of the shares subject to such option or warrant upon any
securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such award or the issue or
purchase of the shares thereunder, such option or warrant may not be exercised
in whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company. Subject to the limitations of paragraph 6, no option
or warrant shall expire during any period when exercise of such option or
warrant has been prohibited by the Board, but shall be extended for such further
period so as to afford the optionee or warrant holder a reasonable opportunity
to exercise his option or warrant.
13. MISCELLANEOUS PROVISIONS
(A) No optionee or warrant holder shall have rights as a shareholder with
respect to shares covered by his option or warrant until the date of exercise of
his option or warrant.
(B) The granting of any award under the Plan shall not impose upon the
Company any obligation to appoint or to continue to appoint as a director, key
employee or consultant any participant, and the right of the Company and its
subsidiaries to terminate the employment of any key employee or other employee
or consultant, or service of any director, shall not be diminished or affected
by reason of the fact that an award has been made under the Plan to such
participant.
21
(C) Awards under the Plan shall be evidenced by award agreements in such
form and subject to the terms and conditions of this Plan as the Committee shall
approve from time to time, consistent with the provisions of this Plan. Such
award agreements may contain such other provisions, as the Committee in its
discretion may deem advisable. In the case of any discrepancy between the terms
of the Plan and the terms of any award agreement, the Plan provisions shall
control.
(D) The aggregate fair market value (determined as of the date of issuance
of an option) of the Shares with respect to which an option, or portion thereof,
intended to be an ISO is exercisable for the first time by any optionee during
any calendar year (under all incentive stock option plans of the Company and
subsidiary corporations) shall not exceed $100,000.
(E) All awards under this Plan shall be made within ten years from the
earlier of the date of adoption of this Plan (or any amendment thereto requiring
shareholder approval pursuant to the Code) or the date this Plan (or any
amendment thereto requiring shareholder approval pursuant to the Code) is
approved by the shareholders of the Company.
(F) A leave of absence granted to an employee does not constitute an
interruption in continuous employment for purposes of this Plan as long as the
leave of absence does not extend beyond one year.
(G) Any notices given in writing shall be deemed given if delivered in
person or by certified mail; if given to the Company addressed to Corporate
Secretary, Digicorp, 100 Wilshire Boulevard, Suite 1750, Santa Monica,
California 90401; and, if to an optionee or warrant holder, in care of the
optionee or warrant holder at his or her last known address.
(H) This Plan and all actions taken by those acting under this Plan shall
be governed by the substantive laws of Delaware without regard to any rules
regarding conflict-of-law or choice-of-law.
(I) All costs and expenses incurred in the operation and administration of
this Plan shall be borne by the Company.
14. AMENDMENT AND TERMINATION
The Board may modify, revise or terminate this Plan at any time and from
time to time, subject to such supermajority voting requirements as may be
contained in the Company's certificate of incorporation or by-laws. While the
Board may seek shareholder approval of an action modifying a provision of the
Plan where it is determined that such shareholder approval is advisable under
the provisions of applicable law, the Board of Directors shall be permitted to
make any modification or revision to any provision of this Plan without
shareholder approval. This Plan shall terminate when all Shares reserved for
issuance hereunder have been issued upon the exercise of options or warrants and
all restricted stock awards have fully vested, or by action of the Board of
Directors pursuant to this paragraph, whichever shall first occur.
15. EFFECTIVE DATE OF THE PLAN
The Plan shall become effective upon the adoption by the Board.
22
DIGICORP
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
*, 2006
The undersigned hereby appoints Jay Rifkin and William B. Horne, or either
of them, as attorneys and proxies to vote all the shares of common stock, par
value $.001 per share, of Digicorp, a Utah corporation (the "Company"), which
are outstanding in the name of the undersigned and which the undersigned would
be entitled to vote as of *, 2006, at the Company's Special Meeting of
Shareholders, to be held at 1800 Century Park East, Suite 200, Los Angeles, CA
90067, on *, 2006, at 10 a.m. (local time), and at any or all adjournments or
postponements thereof; and the undersigned hereby instructs and authorizes said
attorneys to vote as indicated below.
The shares represented hereby will be voted in accordance with the
instructions contained below. If no instructions are given the shares will be
voted "FOR" Proposal Nos. 1 and 2 below, each of said items being more fully
described in the notice of meeting and accompanying Proxy Statement, receipt of
which is hereby acknowledged. In the event of any proposed adjournment of the
Special Meeting to permit further solicitation of proxies with respect to any
proposal listed below, shares will be voted "FOR" adjournment.
PLEASE INDICATE YOUR VOTE BY FILLING IN THE APPROPRIATE BOX BELOW, AS SHOWN,
USING BLUE OR BLACK INK OR DARK PENCIL. DO NOT USE RED INK.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS DESCRIBED
HEREIN.
Proposal The authorization and approval of a change of the Company's domicile from Utah to Delaware
No. 1: effected by the merger of the Company, a Utah corporation, with and into,Digicorp, Inc., a
newly formed wholly owned subsidiary of the Company that was
incorporated under the DGCL for the purpose of effecting the
change of domicile.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal The authorization and approval of the Company's Stock Option and Restricted Stock Plan.
No. 2:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The shares represented by this proxy will be voted as directed by the
shareholder, but if no instructions are specified, this proxy will be voted
"FOR" each of the proposals set forth above. No matter other than those set
forth above may be properly brought before the Special Meeting.
The undersigned acknowledges receipt from the Company, prior to the execution of
this proxy, of the Notice of Special Meeting and accompanying Proxy Statement
relating to the Special Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS YOU HAVE INDICATED ABOVE.
IF NO INDICATION HAS BEEN MADE, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED IN FAVOR OF SUCH PROPOSALS.
Signature of Common Shareholder(s): Dated: , 2006
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Signature of Common Shareholder(s): Dated: , 2006
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Please sign as name appears hereon. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
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