UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
[ ] 14a-6(e)(2))
[X] DEFINITIVE PROXY STATEMENT
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec.240.14a-11(c) or Sec.240.14a-12
SPACEDEV, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
1
PAGE
SpaceDev, Inc.
13855 Stowe Drive
Poway, California 92064
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 12, 2005
TO THE STOCKHOLDERS OF SPACEDEV, INC.:
The annual meeting of the stockholders of SpaceDev, Inc. (the "Company")
will be held at 13855 Stowe Drive, Poway, California 92064, on August 12, 2005,
at approximately 9:00 A.M. for the following purpose:
1. To elect a Board of Directors for the Company.
2. To ratify the appointment of PKF, Certified Public Accountants, A
Professional Corporation, as the Company's independent registered public
accountants for the fiscal year ending December 31, 2005.
3. To approve an amendment to the Company's 2004 Equity Incentive Plan.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR EACH OF
THE NOMINEES TO THE BOARD OF DIRECTORS AND RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF EACH OTHER ITEM LISTED ON THIS NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS.
Stockholders of record at the close of business on June 23, 2005, are the only
persons entitled to notice of and to vote at the meeting.
Your attention is directed to the attached Proxy Statement. WHETHER OR NOT YOU
EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE FILL IN THE INFORMATION
COMPLETLY. PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE
(AND ENCLOSE YOUR E-MAIL ADDRESS) IN ORDER TO SAVE THE COMPANY FURTHER
SOLICITATION EXPENSE. If you are present at the meeting, you may then revoke
your proxy and vote in person, as explained in the Proxy Statement in the
section entitled "ANNUAL MEETING OF STOCKHOLDERS - AUGUST 12, 2005." A return
envelope is enclosed for your convenience.
/s/ Richard B. Slansky
--------------------------
Richard B. Slansky
Corporate Secretary
Dated: July 18, 2005
2
PAGE
----------------------------------------
PROXY STATEMENT
----------------------------------------
SPACEDEV, INC.
13855 Stowe Drive
Poway, California 92064
ANNUAL MEETING OF STOCKHOLDERS - AUGUST 12, 2005
The enclosed Proxy is solicited by the Board of Directors of SpaceDev, Inc.
(the "Board") in connection with the annual meeting of stockholders of SpaceDev,
Inc. (the "Company") to be held on August 12, 2005 at 9:00 A.M. at 13855 Stowe
Drive, Poway, California 92064, and at any adjournments thereof. The Company
will pay the cost of solicitation, including the cost of preparing and mailing
the Notice of Stockholders' Meeting and this Proxy Statement. Such mailing took
place on approximately July 18, 2005. Representatives of the Company may,
without cost to the Company, solicit Proxies for the management of the Company
by means of mail, telephone or personal calls.
A Proxy may be revoked before the meeting by giving written notice of
revocation to the Secretary of the Company, or may be revoked at the meeting
prior to voting. Unless revoked, properly executed Proxies with respect to the
Company will be voted as indicated on the Proxy. Should any other matters come
before the meeting, it is the intention of the persons named as Proxies in the
enclosed Proxy to act upon them according to their best judgment. In instances
where choices are specified by the stockholders in the Proxy, those Proxies will
be voted or the vote will be withheld in accordance with each stockholder's
choice. An "abstention" on any proposal will be counted as present for purposes
of determining whether a quorum of shares is present at the meeting with respect
to the proposal on which the abstention is noted, but will be counted as a vote
"against" such proposal.
Only stockholders of record at the close of business on June 23, 2005 may
vote at the meeting or any adjournments thereof. As of that date there were
issued and outstanding approximately 22,176,446 common shares of all classes,
$0.0001 par value, of the Company. Each stockholder is entitled to one vote for
each common share held. Voting for the election of directors is not cumulative,
which means that the holders of a majority of the Company's outstanding shares
have the power to elect the entire Board of Directors. None of the matters to be
presented at the meeting will entitle any stockholder to appraisal rights. In
the event that Proxies, which are sufficient in number to constitute a quorum,
are not received by August 12, 2005, we may propose one or more adjournments of
the meeting to permit further solicitation of Proxies. Such adjournments will
require the affirmative vote of the holders of a majority of the shares present
in person or by Proxy at the meeting. The persons named as Proxies will vote in
favor of such adjournment. At the annual meeting, the stockholders will be asked
to re-elect the current members of our Board of Directors, to ratify the
selection of the independent public accountant for the Company and to approve
the amendment to the Company's 2004 Equity Incentive Plan.
3
PAGE
ANNUAL REPORT OF THE COMPANY
The annual report of the Company containing audited financial statements
for the twelve-months ending December 31, 2004 and 2003 was mailed to the
stockholders on or about July 18, 2005.
PROPOSAL 1
ELECTION OF DIRECTORS
It is intended that the enclosed Proxy will be voted for the election of
the nine (9) persons named below as directors for the Company unless such
authority has been withheld in the respective Proxy. The term of office of each
person elected to our Board of Directors will be until the next regular or
annual meeting of the stockholders at which election of directors is an agenda
item and until his or her successor is duly elected and shall qualify. Each of
our current directors is a nominee for director. Pertinent information regarding
each nominee for the past five years is set forth following his or her name
below.
NAME AND AGE POSITION WITH THE COMPANY AND PRINCIPAL OCCUPATIONS ADDRESS
---------------------- ------------------------------------------------------- -------------------
James W. Benson (60) Mr. Benson is the founder and has served as our 13855 Stowe Drive
Chief Executive Officer and Chairman of the Board Poway, CA 92064
since inception, and started the trend of
successful computer entrepreneurs moving into the
entrepreneurial space arena. In 1984, Mr. Benson
founded Compusearch Corporation (later renamed
Compusearch Software Systems) in McLean, Virginia.
The company was based on the first development of
software algorithms and applications for personal
computers and networked servers to create full
text indexes of massive government procurement
regulations and to provide instant full text
searches for any word or phrase; the first
instance of large scale, commercial implementation
of PC-based full text searching, which later grew
to encompass such systems as worldwide web search
engines. Seeing related opportunities in document
and image management, Mr. Benson started the
award-winning ImageFast Software Systems in 1989,
which later merged with Compusearch. In 1995, Mr.
Benson sold Compusearch and ImageFast, and retired
at age fifty. After months of research, Mr. Benson
started SpaceDev, Inc., a Nevada corporation,
which was acquired by us in October 1997. Mr.
Benson holds a Bachelor of Science degree in
Geology from the University of Missouri. He
founded the non-profit Space Development
Institute, and introduced the $5,000 Benson Prize
for Amateur Discovery of Near Earth Objects. He is
also Vice-Chairman and private sector
representative on NASA's national Space Grant
Review Panel, and is a member of the American
Society of Civil Engineers subcommittee on Near
Earth Object Impact Prevention and Mitigation. Mr.
Benson currently sits on the Board of Directors of
Space Development Institute, a non-profit
organization founded by Susan C. Benson and Mr.
Benson.
---------------------- ------------------------------------------------------- -------------------
Richard B. Slansky (48) Richard B. Slansky is currently our President, 13855 Stowe Drive
Chief Financial Officer, Director and Corporate Poway, CA 92064
Secretary. He joined us on February 10, 2003 as
Chief Financial Officer and Corporate Secretary.
In November 2004, he was appointed as President
and Director. Mr. Slansky served as interim Chief
Executive Officer, interim Chief Financial
Officer, and Director for Quick Strike Resources,
Inc., an IT training, services and consulting
firm, from July 2002 to February 2003. Previously,
Mr. Slansky served as Chief Financial Officer,
Vice President of Finance, Administration and
4
PAGE
Operations and Corporate Secretary for Path 1
Network Technologies, Inc., a public company
focused on merging broadcast and cable quality
video transport with IP networks from May 2000 to
July 2002. Before his tenure at Path 1, Mr.
Slansky served as President, Chief Financial
Officer and member of the Board of Directors of
Nautronix, Inc., a marine electronics/engineering
services company, from January 1999 to May 2000.
Prior to Nautronix, Mr. Slansky served as Chief
Financial Officer of Alexis Corporation, an
international pharmaceutical research products
technology company, from August 1995 to January
1999. He also served as President and Chief
Financial Officer of C-N Biosciences, formerly
Calbiochem, from July 1989 to July 1995. Mr.
Slansky is currently serving on the Board of
Directors of two privately held high technology
companies, including Sicomment, Inc., one closely
held, private real estate company and the Girl
Scouts of San Diego and Imperial Counties. Mr.
Slansky earned a bachelor's degree in economics
and science from the University of Pennsylvania's
Wharton School of Business and a master's degree
in business administration in finance and
accounting from the University of Arizona.
---------------------- ------------------------------------------------------- -------------------
Scott McClendon (66) Mr. McClendon was appointed to our Board of 13855 Stowe Drive
Directors as an independent director on July 19, Poway, CA 92064
2002. He currently sits on our Audit Committee and
Chairs our Compensation Committee. McClendon
currently sits on the Board of Directors for
Overland Storage, Inc., a public company, where he
acts as chairman of the Board. He became the
chairman after serving as president and chief
executive officer from October 1991 to March 2001.
Prior to joining Overland Storage, Inc., Mr.
McClendon was employed by Hewlett-Packard Company
for over 32 years in various positions of
engineering, manufacturing, sales and marketing.
In addition to SpaceDev and Overland Storage, Mr.
McClendon is currently serving on the Board of
Directors of Procera Networks, Inc., a public
company, and Sicommnet, Inc., privately held high
technology company. Mr. McClendon received a
Bachelor of Science degree in electrical
engineering in June 1960, and a Master of Science
degree in electrical engineering in June 1962 from
Stanford University School of Engineering.
---------------------- ------------------------------------------------------- -------------------
Curt Dean Blake (47) Mr. Blake was appointed to our Board of Directors 13855 Stowe Drive
as an independent director on September 5, 2000. Poway, CA 92064
He serves as our Audit Committee Chair and is a
member of our Compensation Committee. Mr. Blake is
CEO of GotVoice, Inc., a startup company in the
voicemail consolidation and messaging business.
From 1999 to 2002, Mr. Blake provided consulting
services to various technology companies,
including Apex Digital, Inc. and SceneIt.com. Mr.
Blake acted as the Chief Operating Officer of the
Starwave Corporation from 1993 until 1999, where
he managed business development, finance, legal
and business affairs, and operations for the
world's most successful collection of content
sites on the Internet. During that time, he
developed business strategies, financial models,
and structured and negotiated venture agreements
for Starwave's flagship site, ESPN Sportszone, at
that time the highest traffic destination site on
the Internet. He also developed and negotiated
venture agreements with the NBA, NFL, Outside
Magazine and NASCAR to create sites around these
brands. Mr. Blake negotiated the sale of a
controlling interest in Starwave Corporation to
Disney/ABC. Prior to Starwave, Mr. Blake worked at
Corbis from 1992 to 1993, where he led the
5
PAGE
acquisitions and licensing effort to fulfill Bill
Gates' vision of creating the largest taxonomic
database of digital images in the world. Mr. Blake
acted as General Counsel to Aldus Corporation from
1989 to 1992, where he was responsible for all
legal matters of the $125 million public
corporation and its subsidiaries. Prior to that,
Mr. Blake was an attorney at Shidler, McBroom,
Gates and Lucas, during which time he was assigned
as onsite counsel to the Microsoft Corporation,
where he was primarily responsible for the
domestic OEM/Product Support and Systems Software
divisions. Mr. Blake has an MBA and JD from the
University of Washington.
---------------------- ------------------------------------------------------- -------------------
Howell M. Estes, III (63) General Estes (USAF Retired) was appointed to our 13855 Stowe Drive
Board of Directors as an independent director on Poway, CA 92064
April 2, 2001, is Chair of our
Nominating/Corporate Governance Committee and is a
member of our Compensation Committee. General
Estes retired from the United States Air Force in
1998 after serving for 33 years. At that time he
was the Commander-in-Chief of the North American
Aerospace Defense Command ("CINCNORAD") and the
United States Space Command ("CINCSPACE"), and the
Commander of the Air Force Space Command
("COMAFSPC") headquartered at Peterson AFB,
Colorado. In addition to a Bachelor of Science
Degree from the Air Force Academy, he holds a
Master of Arts Degree in Public Administration
from Auburn University and is a graduate of the
Program for Senior Managers in Government at
Harvard's JFK School of Government. Gen. Howell
Estes is the President of Howell Estes &
Associates, Inc., a wholly owned consulting firm
to CEOs, Presidents and General Managers of
aerospace and telecommunications companies
worldwide. He serves as Vice Chairman of the Board
of Trustees at The Aerospace Corporation. He
served as a consultant to the Defense Science
Board Task Force on SPACE SUPERIORITY and more
recently as a commissioner on the U.S.
Congressional Commission to Assess United States
National Security Space Management and
Organization (the "Rumsfeld Commission").
---------------------- ------------------------------------------------------- -------------------
Robert S. Walker (62) Mr. Walker was appointed to our Board of Directors 13855 Stowe Drive
as an independent director on April 2, 2001. He Poway, CA 92064
currently sits on our Nominating/ Corporate
Governance Committee. Mr. Walker has acted as
Chairman of Wexler & Walker Public Policy
Associates in Washington, D.C. since January 1997.
As a former Congressman (1977-1997), Chairman of
the House Science Committee, Vice Chairman of the
Budget Committee, and a long-time member of the
House Republican leadership, Walker became a
leader in advancing the nation's space program,
especially the arena of commercial space, for
which he was the first sitting House Member to be
awarded NASA's highest honor, the Distinguished
Service Medal. Bob Walker is a frequent speaker at
conferences and forums. His main issues include
the breadth and scope of space regulation today,
and how deregulation could unleash the
telecommunications, space tourism, broadcast and
Internet industries. Mr. Walker currently sits on
the board of directors of Aerospace Corporation, a
position he has held since March 1997. Wexler &
Walker is a Washington-based, full-service
government relations firm founded in 1981. Wexler
& Walker principals have served in Congress, in
the White House and federal agencies, as
congressional staff, in state and local
governments and in political campaigns. Wexler &
Walker is a leader on the technology issues of the
twenty-first century. During 2002, we incurred
consulting fees with Hill and Knowlton, Inc., an
affiliate of Wexler & Walker, in an aggregate
amount of approximately $56,000. No fees have been
paid to Hill and Knowlton since 2002.
6
PAGE
---------------------- ------------------------------------------------------- -------------------
Wesley T. Huntress (63) Dr. Huntress was elected to our Board of Directors 13855 Stowe Drive
as an independent director at our annual Poway, CA 92064
stockholder meeting held June 30, 1999, and is a
member of our Audit Committee and
Nominating/Corporate Governance Committee. Dr.
Huntress is currently Director of the Geophysical
Laboratory at the Carnegie Institution of
Washington in Washington, DC, where he leads an
interdisciplinary group of scientists in the
fields of high-pressure science, astrobiology,
petrology and biogeochemistry. Prior to his
appointment at Carnegie, Dr. Huntress served the
Nation's space program as the Associate
Administrator for Space Science at NASA from
October 1993 through September 1998 where he was
responsible for NASA's programs in astrophysics,
planetary exploration, and space physics. During
his tenure, NASA space science produced numerous
major discoveries, and greatly increased the
launch rate of missions. These discoveries include
the discovery of possible ancient microbial life
in a Mars meteorite; a possible subsurface ocean
on Jupiter's moon Europa; the finding that gamma
ray bursts originate at vast distances from the
Milky Way and are extraordinarily powerful;
discovery of massive rivers of plasma inside the
Sun; and a wealth of announcements and images from
the Hubble Space Telescope, which have
revolutionized astronomy as well as increased
public interest in the cosmos. Dr. Huntress also
served as a Director of NASA's Solar System
Exploration Division from 1990 to 1993, and as
special assistant to NASA's Director of the Earth
Science and Applications from 1988 to 1990. Dr.
Huntress came to NASA Headquarters from Caltech's
Jet Propulsion Laboratory ("JPL"). Dr. Huntress
joined JPL as a National Research Council resident
associate after receiving is B.S. in Chemistry
from Brown University in 1964 and his Ph.D. in
Chemical Physics from Stanford in 1968. He became
a permanent research scientist at JPL in 1969. He
and his JPL team gained an international
reputation for their pioneering studies of
chemical evolution in interstellar clouds, comets
and planetary atmospheres. At JPL Dr. Huntress
served as co-investigator for the ion mass
spectrometer experiment in the Giotto Halley's
Comet mission, and as an interdisciplinary
scientist for the Upper Atmosphere Research
Satellite and Cassini missions. He also assumed a
number of line and research program management
assignments while at JPL, and spent a year as a
visiting professor in the Department of Planetary
Science and Geophysics at Caltech.
---------------------- ------------------------------------------------------- -------------------
Susan C. Benson (60) Ms. Benson was appointed to our Board of Directors 13855 Stowe Drive
on April 12, 2005. Ms. Benson joined SpaceDev in Poway, CA 92064
1997, serving as corporate secretary until 2003.
From approximately 1998 to 2004, Ms. Benson was,
in part, responsible for our investor relations
and public relations activities, managing our
strategic messaging to build industry and media
awareness as well as strengthening shareholder
relations. Prior to joining SpaceDev, Ms. Benson
was the customer support manager for Compusearch
Software Systems in McLean, Virginia from 1986
through 1995. Ms. Benson also served as
secretary/treasurer of the Compusearch Software
Systems Board of Directors. Ms. Benson currently
sits on the Board of Directors of Space
Development Institute, a non-profit organization
founded by James W. Benson and Ms. Benson.
7
PAGE
---------------------- ------------------------------------------------------- -------------------
Stuart E. Schaffer (45) Mr. Schaffer was appointed to our Board of 13855 Stowe Drive
Directors on May 17, 2002. Mr. Schaffer is Poway, CA 92064
currently the president of vendor affairs for
Sicomment, Inc., an internet marketplace company,
where both Messrs. McClendon and Slansky are
members of the Sicommnet Board of Directors. From
August 2003 to January 2005, Mr. Schaffer was the
vice president of marketing for Overture
Performance Marketing -- a business unit of
Overture Services, which is a subsidiary of Yahoo!
Mr. Schaffer was our vice president of product
development/marketing from May 2002 to August
2003. From 1998 to 2001, Mr. Schaffer acted as
vice president of marketing for Infocus
Corporation, a fully reporting company, where he
managed all aspects of the marketing mix for
market-share leading digital projection business
throughout the Americas region. In that position,
Mr. Schaffer revitalized the Proxima brand,
managed a multi-million dollar annual advertising,
communications and program budget, directed
multiple outside and in-house agencies, led
product marketing teams in defining and delivering
both mobile and conference room digital projector
product lines, developed channel strategies and
programs for both value-added and volume channels,
served as primary press spokesperson for the
company, established a market intelligence
structure focused on developing customer and
industry knowledge and spearheaded merger teams to
ensure the smooth transition of the merger between
the Infocus and Proxima marketing organizations.
Prior to Infocus, Mr. Schaffer worked for the
Hewlett-Packard Company from 1985 to 1998, where
he held various positions in Business Development,
Marketing and Business Planning. Mr. Schaffer has
worked with the Leukemia & Lymphoma Society, on a
volunteer basis, as an Assistant Coach and Mentor.
Mr. Schaffer has an MBA from Harvard and a BS in
physics from Harvey Mudd College.
---------------------- ------------------------------------------------------- -------------------
One of our independent directors currently sits on the board of directors of two
other Reporting Companies. "Reporting Companies" include companies with a class
of securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "1934 Act") or subject to the requirements of Section
15(d) of the 1934 Act, or any company registered as an investment company under
the Investment Company Act of 1940, as amended (the "1940 Act").
STOCK OWNERSHIP
The following table provides information as of June 23, 2005 concerning the
beneficial ownership of our common stock by (i) each director, (ii) each named
executive officer, (iii) each shareholder known by us to be the beneficial owner
of more than 5% of our outstanding Common Stock, and (iv) the directors and
officers as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investing power with respect to all shares of Common
Stock owned by them.
8
PAGE
Title of Name and Address of Amount and Percent of
Class Beneficial Owner Nature of Class(1)
Beneficial
Ownership(1)
---------- ---------------------- ---------------- -----------
.0001 par James W. Benson, CEO 6,699,707(2) 29.53%
value and Chairman
common 13855 Stowe Drive
stock Poway, California 92064
.0001 par Susan C. Benson 6,699,707(3) 29.53%
value 13855 Stowe Drive
common Poway, California 92064
stock
.0001 par Richard B. Slansky 415,544(4) 1.85%
value President and CFO
common 13855 Stowe Drive
stock Poway, California 92064
.0001 par Frank Macklin 243,073(5) 1.10%
value 13855 Stowe Drive
common Poway, California 92064
stock
.0001 par Randall K. Simpson 135,866(6) 0.61%
value 13855 Stowe Drive
common Poway, California 92064
stock
.0001 par J. Mark Grosvenor 1,330,376(7) 6.00%
value 13855 Stowe Drive
common Poway, California 92064
stock
.0001 par Wesley T. Huntress Jr. 140,515(8) 0.63%
value Director
common 13855 Stowe Drive
stock Poway, California 92064
.0001 par Curt Dean Blake 180,430(9) 0.81%
value Director
common 13855 Stowe Drive
stock Poway, California 92064
.0001 par General Howell M. 99,167(10) 0.45%
value Estes III, Director
common 13855 Stowe Drive
stock Poway, California 92064
.0001 par Robert S. Walker 85,667(11) 0.38%
value Director
common 13855 Stowe Drive
stock Poway, California 92064
.0001 par Stuart Schaffer, Director 218,206(12) 0.98%
value 13855 Stowe Drive
common Poway, California 92064
stock
.0001 par Scott McClendon 72,960(13) 0.33%
value Director
common 13855 Stowe Drive
stock Poway, California 92064
---------- ---------------------- ---------------- -----------
.0001 par Officers and Directors as 11,291,135(14) 34.85%
value a group (11 Persons)
common
stock
---------- ---------------------- ---------------- -----------
---------- ---------------------- ---------------- -----------
9
PAGE
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from
June 23, 2005, these additional shares are deemed to be outstanding for the
purpose of computing the percentage of Common Stock owned by such persons,
but are not deemed outstanding for the purpose of computing the percentage
owned by any other person. Percentages are based on total outstanding
shares of 22,176,446 on June 23, 2005.
(2) Represents 3,000,000 shares held directly by Mr. James W. Benson as a
result of a stipulated order entered May 24, 2005 identifying the shares as
a separate property asset of Mr. Benson, plus beneficial ownership in
2,692,294 shares held jointly with Susan C. Benson, indirect beneficial
ownership interest in 497,413 shares held in Space Development Institute
(where Mr. Benson is a member of the Board of Directors along with Susan C.
Benson) and beneficial ownership in vested options on 510,000 shares (which
may constitute community property with Susan C. Benson). In addition, Mr.
Benson has an undivided beneficial ownership interest in unvested options
on 2,000,000 shares which may constitute community property with Susan C.
Benson. The unvested options are not expected to vest within the next 60
days and will expire on July 16, 2005 if not vested prior to that date. Mr.
Benson disclaims ownership of shares held by children.
(3) Represents 3,000,000 shares held directly by Ms. Susan Benson as a result
of a stipulated order entered May 24, 2005 identifying the shares as a
separate property asset of Mrs. Benson, plus beneficial ownership in
2,692,294 shares held jointly with James W. Benson, indirect beneficial
ownership interest in 497,413 shares held in Space Development Institute
(where Ms. Benson is a member of the Board of Directors along with James W.
Benson) and beneficial ownership in vested options issued in the name of
James W. Benson on 510,000 shares (which may constitute community property
with James W. Benson). In addition, Ms. Benson has an undivided beneficial
ownership interest in unvested options issued in the name of James W.
Benson on 2,000,000 shares which may constitute community property with
James W. Benson. The unvested options are not expected to vest within the
next 60 days and will expire on July 16, 2005 if not vested prior to that
date. Ms. Benson disclaim ownership of shares held by their children.
(4) Mr. Slansky owns 83,544 shares of which 38,462 shares he purchased for cash
in a private transaction with Mr. Skarupa, the Company's former Vice
President of Operations and an additional 38,462 shares Mr. Slansky bought
by exercising his warrant rights which were also purchased from Mr.
Skarupa. In addition, Mr. Slansky holds vested options on 332,000 shares.
Mr. Slansky also holds unvested options on 418,000 common shares which are
not expected to vest within the next 60 days.
(5) Mr. Macklin owns 230,073 shares and vested options on 13,000 shares. Mr.
Macklin also holds unvested options on 40,000 common shares which will not
vest within the next 60 days.
(6) Mr. Simpson owns 3,366 shares of our common stock, and holds vested options
on 132,500 shares of our common stock and unvested options on 117,500
common shares which will not vest within the next 60 days.
(7) Mr. Grosvenor owns 1,330,376 shares of our common stock of which 665,188
were bought by exercising warrants that he purchased in our private
placement. On May 6, 2003, Mr. Grosvenor was granted options on 19,615
shares, which he forfeited upon his resignation from the Board on September
15, 2003.
(8) Mr. Huntress owns 8,868 shares of our common stock. Mr. Huntress also holds
vested options on 131,647 common shares, which he received as compensation
for his participation on our Board of Directors. In addition, Mr. Huntress
holds unvested options on 94,500 shares which will not vest within the next
60 days.
(9) Mr. Blake owns 30,612 shares of our common stock and holds vested warrants
for 30,612 common shares that he purchased in our private placement. Mr.
Blake also holds vested options on 119,206 common shares, which he received
as compensation for his participation on our Board of Directors. In
addition, Mr. Blake has unvested options on 93,000 shares which will not
vest within the next 60 days.
10
PAGE
(10) General Estes III holds vested options on 99,167 common shares, which he
received as compensation for his participation on our Board of Directors.
In addition, General Estes III holds unvested options on 64,500 shares
which will not vest within the next 60 days.
(11) Mr. Walker holds vested options on 85,667 common shares, which he received
as compensation for his participation on our Board of Directors. In
addition, Mr. Walker holds unvested options on 52,500 common shares which
will not vest within the next 60 days.
(12) Mr. Schaffer owns 128,206 shares of which 64,103 were converted from
warrants. In 2003, as part of the Company's convertible debt repayment, Mr.
Schaffer forgave warrants for 64,103 common shares and converted $25,000 of
his debt to the Company into 64,103 shares. Mr. Schaffer also holds vested
options on 90,000 common shares, which he received as part of his
compensation package as Vice President of Product Development and
Marketing. In addition, Mr. Schaffer holds unvested options on 36,000
common shares, which he received as compensation for his participation on
our Board of Directors, which will not vest within the next 60 days.
(13) Mr. McClendon holds vested options on 72,960 common shares, which he
received as compensation for his participation on our Board of Directors.
In addition, Mr. McClendon holds unvested options on 90,000 common shares
which will not vest within the next 60 days.
(14) Officers and directors as a group include our nine Board members, two of
whom are also officers of the Company, and Messrs. Simpson, and Macklin,
who are officers of the Company. For purposes of calculating total shares
and percentage held by all officers and directors as a group, shares held
by James W. Benson and Susan C. Benson were calculated as follows:
3,000,000 shares held as separate property of Mr. Benson, 3,000,000 shares
held as separate property by Ms. Benson, 2,692,294 shares held jointly by
Mr. and Ms. Benson, 497,413 shares held by Space Development Institute and
fully vested options on 510,000 shares currently held in the name of Mr.
Benson but which may constitute a community property asset of Mr. Benson
and Ms. Benson.
BOARD OF DIRECTORS AND ITS COMMITTEES
Meetings of the Board and its Committees. Our Board of Directors took
action five (5) times during the last fiscal year: all five (5) times at regular
or special meetings attended by a majority of the members of the Board either
personally or telephonically. Our Audit Committee took separate action four (4)
times during the last fiscal year, each time at a regular or special meeting
attended by a majority of the members of the committee either personally or
telephonically. Neither our Nominating and Corporate Governance Committee nor
our Compensation Committee met during the fiscal year ended December 31, 2004.
Audit Committee. We have a standing audit committee comprised of Messrs.
Blake (Chairman) and McClendon and Dr. Huntress, all of whom are independent
within the meaning of Exchange Act Rule 10A-3. On April 19, 2002, the Board of
Directors adopted and approved a charter for the Audit Committee, which is
attached as Appendix B to the Company's Definitive Proxy Statement filed July 7,
2004. The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing the
financial information that will be provided to the stockholders and others, the
preparation of the Company's internal financial statements, and the Company's
audit and financial reporting process. In addition, our Audit Committee is
responsible for maintaining free and open lines of communication among the
committee, the independent auditors and management. Our Audit Committee consults
11
PAGE
with the Company's management and independent auditors prior to the presentation
of financial statements to stockholders and, as appropriate, initiates inquiries
into various aspects of the Company's financial affairs. The committee is also
responsible for considering and recommending the appointment of and reviewing
fee arrangements with our independent auditors. It is not responsible for
preparing the Company's financial statements or for planning or conducting the
audits. Our Audit Committee took separate action four (4) times during the last
fiscal year, each time at a regular or special meeting attended by a majority of
the members of the committee either personally or telephonically.
Compensation Committee. Our Compensation Committee, established on March
25, 2004, is comprised of Messrs. McClendon (Chair) and Blake and General Estes.
Each member of the Compensation Committee is independent within the meaning of
the listing standards for The Nasdaq Stock Market and SEC rules. The Committee
is required to maintain a minimum of three (3) members. The Compensation
Committee is responsible for: (a) determining or recommending to our Board of
Directors for determination the compensation and benefits of all of our
executive officers; (b) reviewing our compensation and benefit plans to ensure
that they meet corporate objectives; (c) administering our equity compensation
plans; and (d) such other matters as are specifically delegated to the
Compensation Committee by our Board of Directors from time to time or which are
otherwise included in the Committee's charter, which is available via our
website at www.spacedev.com. The Comepnsation Committee did not meet during the
fiscal year ended December 31, 2004. It has met one time during fiscal 2005.
Nominating and Corporate Governance Committee. Our Nominating and Corporate
Governance Committee, established March 25, 2004, is comprised of General Estes
(Chair), Dr. Huntress and Mr. Walker. Each member of the Nominating and
Corporate Governance Committee is independent within the meaning of the listing
standards for The Nasdaq Stock Market and SEC rules. The Committee is required
to maintain a minimum of three (3) members.
The Nominating and Corporate Governance Committee has the responsibility to
identify, evaluate, recruit and recommend qualified candidates to the Board of
Directors for nomination or election. Each of the director nominees included in
this Proxy Statement were recommended by the Nominating and Corporate Governance
Committee. In addition, it is the responsibility of the Committee to make
recommendations to the Board of Directors regarding the size and composition of
the Board of Directors, committee structures and makeup, monitor our performance
in meeting our obligations of fairness in internal and external matters and our
principles of corporate governance, and such other matters that are specifically
delegated to the Committee by our Board of Directors from time to time or which
are otherwise included in the Committee's charter, which is available via our
website at www.spacedev.com. The Nominating and Corporate Governance Committee
did not meet during the fiscal year ended December 31, 2004. It has met one time
during fiscal 2005.
The Board of Directors has as an objective that its membership be composed
of experienced and dedicated individuals with diversity of backgrounds,
perspectives and skills. The Nominating and Corporate Governance Committee will
select candidates for director based on their character, judgment, diversity of
experience, business acumen, and ability to act on behalf of all stockholders
based on standards outlined in its written charter. Each of the director
nominees set forth on the Proxy were selected by the Nominating and Corporate
Governance Committee based on his or her experience in management or accounting
and finance, or industry and technology knowledge, personal and professional
ethics, and the willingness and ability to devote sufficient time to effectively
carry out his duties as a director.
12
PAGE
Any shareholder who desires to recommend a nominee for director must submit
a letter, addressed to the Secretary, SpaceDev, Inc., 13855 Stowe Drive, Poway,
California 92064, which is clearly identified as a "Director Nominee
Recommendation." All recommendation letters must identify the author as a
shareholder and provide a brief summary of the candidate's qualifications, as
well as contact information for both the candidate and the shareholder, to
enable the Committee to contact the nominee for additional information to
evaluate the person's qualifications against established criteria. Any
shareholder nominee will be required to meet the criteria established by the
Committee and will be interviewed by at least one member fo the Committee. If
the nominee is found to be eligible during the initial interview, the nominee
will then be invited to meet with the full Committee or the Board fo Directors
for further evaluation. The Committee will consider all proposed nominees whose
names are submitted in accordance with the above-stated requirements.
Shareholder Communication With The Board of Directors. Shareholders may
communicate with the Board of Directors, including the non-management directors,
by sending a letter to our Board of Directors, c/o Secretary, SpaceDev, Inc.,
13855 Stowe Drive, Poway, California 92064 for submission to the Board or
Committee or to any specific director to whom the correspondence is directed.
Stockholders communicating through this means should include with the
correspondence evidence, such as documentation from a brokerage firm, that the
sender is a current stockholder of the Company. Our Secretary will direct the
correspondence to the Chair of the Board, the appropriate committee or the
specific director, as applicable.
Company Code of Conduct And Ethics. The Board has adopted a Code of Conduct
and Ethics that applies to the Company's directors, officers and employees, A
copy of this policy is available via our website at www.spacedev.com. We have
also filed a copy of the Code of Conduct and Ethics with the SEC as an exhibit
to our Annual Report on Form 10-KSB for fiscal year ended 2002, filed on March
28, 2003.
DIRECTOR COMPENSATION
At our annual meeting on July 16, 2000, our Board of Directors adopted a
compensation plan for independent directors whereby they received options for
attending meetings of the Board as follows: each such director received an
option to purchase 5,000 shares for each of two telephonic meetings attended per
year, and an option to purchase 10,000 shares for each of two meetings attended
in person per year. These directors did not receive additional compensation for
attending meetings in excess of those described above. In addition to the
above, independent directors received $5,000 in options on the date of election
or appointment. All such options were issued pursuant to our 1999 Incentive
Stock Option Plan at fair market value as of the date of the meeting attended,
were set up to vest 50% on the first anniversary date of the date of grant and
50% on the second anniversary date of the date of grant and expire on the
five-year anniversary of the grant date.
On March 25, 2004, our Board of Directors modified our compensation plan for
independent directors. Under the modified plan, independent directors receive
options for attending meetings of the Board as follows: each director shall
receive an option to purchase 6,000 shares for each telephonic meeting attended
and an option to purchase 12,000 shares for each meeting attended in person,
with a cap of options on 36,000 shares per year. Our directors will also
receive compensation for attending committee meetings as follows: each director
shall receive an option to purchase 5,000 shares for each Audit Committee
meeting attended, each director shall receive an option to purchase 2,500 shares
for each Compensation Committee meeting attended and each director shall receive
an option to purchase 2,500 shares for each Nominating/Governance Committee
meeting attended, which options shall not be subject to a cap. In addition to
the above, independent directors will receive 5,000 options on the date of
13
PAGE
election or appointment. All such options will be issued pursuant to the Plan at
fair market value as of the date of the meeting attended, will vest 50% on the
first anniversary date of the date of grant and 50% on the second anniversary
date of the date of grant and will expire on the three-year anniversary of the
grant date. The following table sets forth the remuneration paid to our
directors during the fiscal year ended December 31, 2004 under this compensation
plan. We do not pay directors, who are also our officers, additional
compensation for their service as directors.
Cash Compensation Security Grants
--------------------------------- ---------------
Annual Meeting Consulting Number of Number of
Retainer Fees Fees/Other Shares Securities
Fees Fees Underlying
Options/SARs
----------------------------- -------- ------- ---------- --------- ------------
Name
----------------------------- -------- ------- ---------- --------- ------------
James W. Benson . . . . . . . - - - - -
----------------------------- -------- ------- ---------- --------- ------------
Richard B. Slansky. . . . . . - - - - -
----------------------------- -------- ------- ---------- --------- ------------
Stuart Schaffer . . . . . . . - - - - -
----------------------------- -------- ------- ---------- --------- ------------
Wesley T. Huntress. . . . . . - - - - 75,000
----------------------------- -------- ------- ---------- --------- ------------
Curt Dean Blake . . . . . . . - - - - 74,000
----------------------------- -------- ------- ---------- --------- ------------
General Howell M. Estes, III. - - - - 30,000
----------------------------- -------- ------- ---------- --------- ------------
Robert S. Walker. . . . . . . - - - - 18,000
----------------------------- -------- ------- ---------- --------- ------------
Scott McClendon . . . . . . . - - - - 75,000
----------------------------- -------- ------- ---------- --------- ------------
The Company does not maintain any pension, retirement or other arrangements
other than as disclosed in the following table for compensating its Directors.
EXECUTIVE OFFICERS
Certain information about the current executive officers of the Company is
set forth below. Each executive officer of the Company may be removed from
office at any time by a majority of the Company's Board of Directors with or
without cause.
James W. Benson, age 60, is our founder and has served as our Chief
Executive Officer and Chairman of the Board since inception. Mr. Benson started
the trend of successful computer entrepreneurs moving into the entrepreneurial
space arena. In 1984, Mr. Benson founded Compusearch Corporation (later renamed
Compusearch Software Systems) in McLean, Virginia. The company was based on the
first development of software algorithms and applications for personal computers
and networked servers to create full text indexes of massive government
procurement regulations and to provide instant full text searches for any word
or phrase; the first instance of large scale, commercial implementation of
PC-based full text searching, which later grew to encompass such systems as
worldwide web search engines. Seeing related opportunities in document and
image management, Mr. Benson started the award-winning ImageFast Software
Systems in 1989, which later merged with Compusearch. In 1995, Mr. Benson sold
Compusearch and ImageFast, and retired at age fifty. After months of research,
Mr. Benson started SpaceDev, Inc., a Nevada corporation, which was acquired by
us in October 1997. Mr. Benson holds a Bachelor of Science degree in Geology
from the University of Missouri. He founded the non-profit Space Development
Institute, and introduced the $5,000 Benson Prize for Amateur Discovery of Near
Earth Objects. He is also Vice-Chairman and private sector representative on
NASA's national Space Grant Review Panel, and is a member of the American
Society of Civil Engineers subcommittee on Near Earth Object Impact Prevention
and Mitigation. Mr. Bensoon currently sits on the Board of Directors of Space
Development Institute, a non-profit organization founded by Susan C. Benson and
himself.
14
PAGE
Richard B. Slansky, age 48, is currently our President, Chief Financial
Officer, Director and Corporate Secretary. He joined us on February 10, 2003 as
Chief Financial Officer and Corporate Secretary. In November 2004, he was
appointed as President and Director. Mr. Slansky served as interim Chief
Executive Officer, interim Chief Financial Officer, and Director for Quick
Strike Resources, Inc., an IT training, services and consulting firm, from July
2002 to February 2003. Previously, Mr. Slansky served as Chief Financial
Officer, Vice President of Finance, Administration and Operations and Corporate
Secretary for Path 1 Network Technologies, Inc., a public company focused on
merging broadcast and cable quality video transport with IP networks from May
2000 to July 2002. Before his tenure at Path 1, Mr. Slansky served as
President, Chief Financial Officer and member of the Board of Directors of
Nautronix, Inc., a marine electronics/engineering services company, from January
1999 to May 2000. Prior to Nautronix, Mr. Slansky served as Chief Financial
Officer of Alexis Corporation, an international pharmaceutical research products
technology company, from August 1995 to January 1999. He also served as
President and Chief Financial Officer of C-N Biosciences, formerly Calbiochem,
from July 1989 to July 1995. Mr. Slansky is currently serving on the Board of
Directors of two privately held high technology companies, including Sicomment,
Inc., one closely held, private real estate company and the Girl Scouts of San
Diego and Imperial Counties. Mr. Slansky earned a bachelor's degree in
economics and science from the University of Pennsylvania's Wharton School of
Business and a master's degree in business administration in finance and
accounting from the University of Arizona.
Frank Macklin, age 48, was appointed as our Vice President of Engineering
in 2004. Mr. Macklin has been our chief engineer of hybrid propulsion systems
and the technical leader for our National Reconnaissance Office funded SPOTV
Hybrid System Definition study, and is acting chief engineer for our Maneuvering
and orbital Transfer Vehicle Hybrid Technology Development and X-Motor
Development. Mr. Macklin was a founder of Integrated Space Systems, Inc., which
was acquired by SpaceDev in 1998. Prior to his work at Integrated Space
Systems, Mr. Macklin worked at the General Dynamics Space Systems Division in
San Diego from January 1987 to December 1994. During his tenure at General
Dynamics, Mr. Macklin integrated a new guidance system onto the new generation
of Atlas launch vehicles and became intimately familiar with all aspects of
vehicle flight software and hardware. He also designed and implemented diverse
ground guidance performance and analysis software systems, became a complete
end-to-end systems expert, and served as the guidance system expert on the elite
"tiger team" sent to support all launches. Prior to General Dynamics, Mr.
Macklin served as a member of the Peacekeeper developmental launch team at
Vandenberg Air Force Base from March 1984 to December 1986, where he was
responsible for the $30M guidance and control system, led a group of 30 industry
engineers and gave the final guidance system go/no-go for launch. Mr. Macklin
is a California State registered professional electrical engineer with more than
20 years of experience with launch vehicles, ground launch control systems,
launch sites and launch teams. Mr. Macklin received his BSEE from San Diego
State University and is a California Board Certified Professional Engineer.
Randall K. Simpson, age 58, is our Vice President of New Business
Development and Project Management and joined us in January 2004. Mr. Simpson
has over 30 years of diversified experience in business development, product
definition, engineering development and support for aerospace, commercial and
international customers. From October 2000 to January 2004, Mr. Simpson served
as Assistant Vice President of Program Management for Alvarion, Inc., a high
technology commercial communications firm. From March 1997 to September 2000,
Mr. Simpson was Vice President of Engineering for Cubic Defense Systems, an
engineering and production company providing military training ranges, laser
instrumentation products, space avionics and battlefield communications
equipment. From November 1992 to February 1997, Mr. Simpson was Program
Director for Advanced Test Systems and Engineering Director for GDE Systems,
which develops, integrates and produces test equipment for advanced electronic
aircraft, munitions, space launch, satellite and telecommunications systems.
Mr. Simpson began his career at General Dynamics/Convair where he held various
positions. Mr. Simpson received both his BSEE and MSEE from San Diego State
University.
15
PAGE
Biographical information for each of the Company's non-executive officer
directors is set forth across from such person's name on the table of "nominees"
listed above. Each nominee is a current member of the Company's Board of
Directors.
EXECUTIVE OFFICER COMPENSATION
During the fiscal years ended December 31, 2002, 2003 and 2004, the Company
granted options to certain of its officers as compensation for their services
pursuant to the Company's stock option plan. Total compensation paid to
officers of the Company for its past three fiscal years is set forth below:
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
---------------------- ---------- --------
Name and Principal Position(1) Year Salary Bonus Other Annual Restricted Securities LTIP Payouts All Other
($) ($) Compensation Stock Award(s) Underlying ($) Compensation
($) ($) Options/ SARs # ($)
------------------------------ ---- ------- ------ ------------- -------------- ------------ ------------ -----------
James W. Benson, CEO (2) . . . 2002 141,325 - - - 10,000(2) - -
. . . . . . . . . . . . . . . 2003 150,000 - - - - - -
. . . . . . . . . . . . . . . 2004 177,923 40,000 3,894 - - - -
Richard B. Slansky, President, 2002 - - - - - - -
. . . . . . . . . CFO. . . . .2003 94,625 - - - 355,000(3) - 1,183
. . . . . . . . . . . . . . . 2004 150,000 - - - 395,000(3) - 27,672
Randall K. Simpson, V.P. . . . 2002 - - - - - - -
..New Business Development. . ..2003 - - - - - - -
. . . . . . . . . . . . . . . 2004 114,231 - - - 250,000(4) - -
Frank Macklin, V.P. . .. . . . 2002 - - - - - - -
.. Engineering. . ..2003 - - - - - - -
. . . . . . . . . . . . . . . 2004 109,110 - - - 50,000(5) - 4,067
------------------------------ ---- ------- ------ ------------- -------------- ------------ ------------ -----------
------------------------------ ---- ------- ------ ------------- -------------- ------------ ------------ -----------
(1) The table includes information as to the Chief Executive Officer and
highest paid officers of the Company for the last fiscal year, including
persons whose information would have been required but for the fact that
they were not serving as officers of the Company at its fiscal year end.
For purposes of the table, only persons whose total annual salary and bonus
exceeded $100,000 have been included.
(2) Mr. Benson was awarded options on 10,000 shares in 2001 as a part of an
annual award of options to our employees. The options are incentive stock
options and were granted with an exercise price equal to 110% of the fair
market value of our common stock on the date of grant. The options are
fully vested.
(3) Mr. Slansky was awarded options on up to 385,000 shares in 2003 as part of
his employment agreement, with 25,000 vested immediately, 180,000 vesting
in six-month increments over five years and the remaining based on
performance criteria established by the CEO. The timeframe for certain
performance criteria lapsed in 2003 and options on 30,000 shares not earned
were forfeited; thereby, reducing Mr. Slansky's potential securities
underlying options to a maximum of 355,000, as illustrated above. Mr.
Slansky was awarded options on up to 395,000 shares in 2004 as part of an
overall option normalization and based on positions held; and these options
vest based on the following: options on 197,500 shares vesting in six-month
16
PAGE
increments over five years and the remaining vest based on performance
criteria established by the CEO, as approved by the Board. Mr. Slansky
received additional compensation of $27,672 in 2004 and $1,183 in 2003 for
raising additional capital for the Company. As part of Mr. Slansky's
employment agreement, Mr. Slansky receives a one percent (1%) fee on funds
raised below $1.00 per share and a four percent (4%) fee on funds raised
above $1.00 per share.
(4) Mr. Simpson was awarded options on up to 250,000 shares in 2004 as part of
his employment agreement, with 125,000 vesting in six-month increments over
five years and the remaining vest based on performance criteria established
by the CEO or President, as approved by the Board.
(5) Mr. Macklin was awarded options on up to 50,000 shares in 2004 as part of
an overall option normalization and based on positions held; and these
options vest based on six-month increments over five years. Mr. Macklin
received additional compensation of $4,067 in 2004 for additional work done
on various programs.
During the last fiscal year and as of December 31, 2004, the Company
granted stock options to executive officers as set forth in the following table:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------
Name . . . . . . . Number of Securities % of Total Options/SARs Exercise of Base Expiration
Underlying Granted to Employees in Price ($/Sh) Date
Options/SARs Fiscal Year
Granted (#)
------------------ -------------------- ----------------------- ---------------- ------------
James W. Benson 0 0 0 0
Richard B. Slansky 395,000 18% 0.92 3/25/2010
Randall K. Simpson 250,000 11% 1.19 1/26/2010
Frank Macklin 50,000 2% 0.92 3/25/2010
------------------ -------------------- ----------------------- ---------------- ------------
As of December 31, 2004, the Company had vested and unvested securities
underlying stock options to executive officers as set forth in the following
table:
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options/SARs at FY-End (#) Options/SARs at FY- End ($)
-------------------------------------- ---------------------------------
Exercisable/ Exercisable/
Name . . . . . . . Shares Acquired on Value Realized Unexercisable Unexercisable(1)
Exercise (#) ($)
------------------ ------------------ -------------- -------------------------------------- ---------------------------------
James W. Benson. . 0 0 255,000/ 254,734/
------------------ ------------------ -------------- -------------------------------------- ---------------------------------
1,000,000 375,000
------------------ ------------------ -------------- -------------------------------------- ---------------------------------
Richard B. Slansky 0 0 276,250/ 184,860/
------------------ ------------------ -------------- -------------------------------------- ---------------------------------
473,750 359,590
------------------ ------------------ -------------- -------------------------------------- ---------------------------------
Randall Simpson 0 0 12,500/ 14,875/
------------------ ------------------ -------------- -------------------------------------- ---------------------------------
237,500 282,625
------------------ ------------------ -------------- -------------------------------------- ---------------------------------
Frank Macklin 0 0 8,000/ 48,583/
------------------ ------------------ -------------- -------------------------------------- ---------------------------------
45,000 41,400
------------------ ------------------ -------------- -------------------------------------- ---------------------------------
(1) For purposes of determining whether options are "in-the-money," we defined
fair market value as the five-day weighted average of the closing price of
our common stock on the Over-The-Counter Bulletin Board as of June 23,
2005, or $1.56 per share. All the options listed on the table are
"in-the-money," except unvested options on 750,000 of Mr. Benson's shares.
17
PAGE
PERQUISITES
We provide our Chief Executive Officer, Mr. Benson, with a few perquisites,
including a cell phone with basic coverage and charges, an annual membership to
alpha trader.com, annual air travel club memberships and a monthly hosting on
web site works. Although the value of these perks is not substantial, we
believe these perks are an important component of chief executive officer
compensation.
EMPLOYMENT AGREEMENTS
On November 21, 1997, we entered into a five-year employment agreement with
our CEO, Mr. Benson. This agreement provides for compensation of salary and
stock as well as stock options. This agreement also prohibits Mr. Benson from
competing with us, disclosing any confidential information, or soliciting any of
our employees or customers for one year after termination of employment. Our
Board of Directors revised Mr. Benson's employment agreement at its meeting on
July 16, 2000. This employment contract supersedes the previous agreement. The
term of this revised employment contract is for a period of five (5) years from
July 16, 2000. The revised agreement provides for the grant of options to
purchase up to 4,000,000 shares of our common stock upon the occurrence of
certain events, of which options for 2,500,000 have been granted, 500,000 of
which are currently vested. All granted but unvested options will expire on
July 16, 2005.
On May 17, 2002, we entered into an "at-will" employment agreement with Mr.
Schaffer. The agreement provided for Mr. Schaffer's compensation of salary,
benefits and options to purchase up to 450,000 shares of our common stock. On
July 2, 2003, we entered into a Confidential Separation Agreement and General
Release with Mr. Schaffer. The agreement provided for Mr. Schaffer to receive
salary and benefits until August 8, 2003 and for the resignation of Mr. Schaffer
as an officer, but not as a director. In exchange for a release of claims and
other promises set forth in the agreement, Mr. Schaffer retained certain
exercise rights on his vested options of 90,000 shares until the earlier of (i)
eighteen (18) months from his resignation as a member of our Board of Directors
or other subsequent consulting relationship with us, or (ii) July 19, 2008.
After August 8, 2004, Mr. Schaffer was eligible for stock options related to
attending Board Meetings pursuant to a separation agreement that Mr. Schaffer
signed with us, even though he is not considered an independent director due to
his recent employment with us. No options have been issued to Mr. Schaffer for
attendance at Board meetings as of the date of this Proxy Statement.
On February 14, 2003, we entered into an "at-will" employment agreement
with Mr. Slansky. The agreement provided for Mr. Slansky's compensation of
salary, benefits, performance bonuses and options to purchase up to 385,000
shares of our common stock, (which was subsequently reduced to 355,000 due to a
missed vesting incentive for options on 30,000 shares). The agreement also
provided for severance under certain termination provisions and prohibits Mr.
Slansky from soliciting our employees or competing with us if he were to leave
the Company. Mr. Slansky received additional compensation of $27,672 in 2004
and $1,183 in 2003 for raising additional capital for the Company. As part of
Mr. Slansky's employment agreement, Mr. Slansky receives a one percent (1%) fee
on funds raised below $1.00 per share and a four percent (4%) fee on funds
raised above $1.00 per share.
On November 17, 2003, we entered into an "at-will" employment relationship
with Mr. Dario ("Dan") DaPra to become our Vice President of Engineering. Our
offer letter provided for Mr. DaPra's compensation of salary, benefits and
options to purchase up to 250,000 shares of our common stock. The offer letter
also provided for severance under certain termination provisions and prohibits
Mr. DaPra from soliciting our employees or competing with us. Mr. DaPra
resigned on March 5, 2004 and subsequently entered into a Confidential
18
PAGE
Separation Agreement and General Release with us. The Agreement provided for
Mr. DaPra to receive one-half pay through April 30, 2004 in lieu of severance,
and to retain options on 40,000 shares of our stock with the ability to exercise
those options until October 31, 2004.
EMPLOYEE BENEFITS
At our 1999 Annual Stockholder Meeting, the shareholders adopted an
Incentive Employee Stock Option Plan under which the Board of Directors had the
ability to grant our employees, directors and affiliates Incentive Stock
Options, non-statutory stock options and other forms of stock-based
compensation, including bonuses or stock purchase rights. Incentive Stock
Options, which provide for preferential tax treatment, are only available to
employees, including officers and affiliates, and may not be issued to
non-employee directors. The exercise price of the Incentive Stock Options must
be 100% of the fair market value of the stock (110% for stockholders holding 10%
or more of our outstanding voting stock) on the date the option is granted.
Pursuant to our plan, the exercise price for the non-statutory stock options may
not be less than 85% of the fair market value of the stock on the date the
option is granted. We are required to reserve an amount of common shares equal
to the number of shares which may be purchased as a result of awards made under
the Plan at any time.
At the 2000 Annual Stockholder Meeting, the shareholders approved an
amendment to the Stock Option Plan of 1999, increasing the number of shares
eligible for issuance under the Plan to 30% of the then outstanding common stock
and allowing the Board of Directors to make annual adjustments to the Plan to
maintain a 30% ratio to outstanding common stock at each annual meeting of the
Board of Directors. The Board, at its annual meetings in 2001 and 2002, made no
adjustment, as a determination was made that the number of shares then available
under the Plan was sufficient to meet the Company's then current needs. All
shares issuable under the 1999 Incentive Stock Option Plan have been issued or
are in reserve subject to outstanding awards under the plan. The plan is,
therefore, no longer in use except as necessary for the exercise of those
outstanding options.
At our 2004 Annual Stockholder Meeting, held on August 5, 2004, the
stockholders adopted a 2004 Equity Incentive Plan. The 2004 Equity Incentive
Plan authorized and reserved for issuance under the Plan 2,000,000 shares of our
common stock. The 2004 Equity Incentive Plan is an important part of our total
compensation program because competitive benefit programs are a critical
component of our efforts to attract and retain qualified employees, directors
and consultants. Options granted under the plan may be Incentive Stock
Options or non-statutory stock options, as determined by the Board of Directors
or a committee appointed by the Board of Directors at the time of grant. Limited
rights and stock awards may also be granted under the Plan. As of December 31,
2004, 6,184,698 shares were authorized for issuance under the 1999 Stock Option
Plan and the 2004 Equity Incentive Plan, 3,878,766 of which are currently
subject to outstanding options and awards and options on 1,005,035 shares were
exercised in 2004. Of the outstanding and vested options, 12,500 will expire if
not exercised within 60 days of June 23, 2005. During 2004, we issued
non-statutory options to purchase 272,000 shares to our independent directors
for attendance at our 2004 Board of Directors meetings.
The 1999 Stock Option Plan was registered with the U.S. Securities &
Exchange Commission on Form S-8 on October 5, 2000. Shares issuable under the
2004 Equity Incentive Plan were registered on Form S-8 on March 28, 2005.
In addition to the 1999 Stock Option Plan and the 2004 Equity Incentive
Plan, our shareholders adopted the 1999 Employee Stock Purchase Plan, which
19
PAGE
authorized our Board of Directors to make twelve consecutive offerings of our
common stock to our employees. The 1999 Employee Stock Purchase Plan has been
instituted and the first employees enrolled in the plan in August 2003. The
first shares of common stock were issued under the Plan in February 2004 and
every six-month anniversary thereafter. The 1999 Employee Stock Purchase Plan
expired in June 2005; however, the Board authorized a one-year extension of the
plan at their meeting in November 2004, while the Compensation Committee reviews
the value of the plan to employees and the desire for its continuance.
We also offer a variety of health, dental, vision, 401(k) and life
insurance benefits to our employees in conjunction with our co-employment
partner, Administaff.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
------------------ --------------------------- ------------------- --------------------------
Plan category. . . Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding outstanding future issuance under
issuance options, warrants options, warrants equity compensation plans
and rights and rights (excluding securities
reflected in column (a))
------------------ --------------------------- ------------------- --------------------------
Equity
compensation plans 3,878,766 $ 1.05 1,263,897
approved by
security holders
------------------ --------------------------- ------------------- --------------------------
Equity . . . . . . 2,500,000 $ 2.00 0
compensation plans
not approved by
security holders
------------------ --------------------------- ------------------- --------------------------
Total. . . . . . . 6,378,766 $ 1.50 1,263,897
------------------ --------------------------- ------------------- --------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James W. Benson, our Chief Executive Officer and Chairman of the Board of
Directors, and Susan Benson, our former Corporate Secretary, are married but
separated. Mr. Benson has personally guaranteed the building lease on our
facility and has placed his home in Poway as collateral.
One of our independent directors, Robert S. Walker, is a principal of
Wexler & Walker Public Policy Associates, a Washington-based, full-service
government relations firm founded in 1981. Wexler & Walker principals have
served in Congress, in the White House and federal agencies, as congressional
staff, in state and local governments and in political campaigns. Wexler &
Walker is a leader on the technology issues of the twenty-first century. During
2002, the Company paid consulting fees to Hill and Knowlton, Inc., an affiliate
of Wexler & Walker, in an approximate amount of $56,000. We did not incur
consulting fees with Hill and Knowlton, Inc. in 2003 or 2004, nor do we expect
to in the future.
In December 2001, we entered into a consulting agreement with one of our
independent directors, Curt D. Blake, pursuant to which Mr. Blake agreed to
perform certain services for us and identify and qualify significant investors
and potential acquisition targets for us. Under the agreement, Mr. Blake was to
receive compensation, in cash and non-statutory stock options, for his services.
In addition, Mr. Blake was to receive a cash finder's fee plus a common stock
grant for all monies raised as a result of introductions made by him. However,
as a result of the independence rules imposed by the Sarbanes-Oxley Act of 2002,
20
PAGE
Mr. Blake voluntarily terminated his agreement with us on November 25, 2002. We
made no payments to Mr. Blake in 2004 and 2003, other than reimbursement of
Board-related travel expenses.
From October 14, 2002 through November 14, 2002, we sold an aggregate of
$475,000 of 2.03% convertible debentures to three of our then directors and
officers. The total funding was completed on November 14, 2002. The
convertible debentures entitled the holder to convert the principal and unpaid
accrued interest into our common stock when the note matured. The notes
originally were set to mature six (6) months from issue date and were
subsequently extended to twelve (12) months from issue date on March 19, 2003.
The convertible debentures were exercisable into a number of our common shares
at a conversion price that equaled the 20-day average asking price less 10%,
which was established when the note was issued. Concurrent with the issuance of
the convertible debentures, we issued to the subscribers, warrants to purchase
up to 1,229,705 shares of our common stock. These warrants were exercisable for
three (3) years from the date of issuance at the initial exercise price. The
warrants were valued using the Black-Scholes pricing model based on the expected
fair value at issuance and the estimated fair value was recorded as debt
discount. See Note 8(c) to our Consolidated Financial Statements for discussion
of the terms of the warrants. The debt discount was amortized as additional
interest expense over the term of the convertible debentures. On September 5,
2003, we repaid one-half of the convertible notes, with the condition that the
note holders would convert the other half. Also, as a condition of the partial
repayment, the note holders were required to relinquish one-half of the
previously issued warrants. Finally, as additional consideration for the
transaction, the note holders were offered 5% interest on their notes, rather
than the stated 2.03% for a total of $18,161 of interest expense. All the note
holders accepted the offer and the convertible notes were retired. As of
December 31, 2003, we recorded a credit of $88,408, as debt discount recovery;
therefore, for the year ending December 31, 2003, the debt discount expense was
$112,500. The Company also expensed $131,411 for non-cash loan fee expense
related to the convertible note. Fair market value of the stock was determined
by discounting the closing market price on the date of the transaction by 20%,
based on the nature of the restricted securities. Of the 614,852 remaining
warrants, all were exercised in 2004 and none remained outstanding at December
31, 2004.
In April 2005, Mr. Schaffer accepted a position as president of vendor
affairs for a small private company, Sicommnet, Inc. Messrs. McClendon and
Slansky currently sit on the board of directors for Sicomment, Inc. Although no
conflict of interest is apparent, Messrs. Schaffer, McClendon and Slansky have
disclosed the relationship to us.
On February 14, 2003, we entered into an "at-will" employment agreement
with Mr. Slansky. The agreement provided for Mr. Slansky's compensation of
salary, benefits, performance bonuses and options to purchase up to 385,000
shares of our common stock, (which was subsequently reduced to 355,000 due to a
missed vesting incentive for options on 30,000 shares). The agreement also
provided for severance under certain termination provisions and prohibits Mr.
Slansky from soliciting our employees or competing with us if he were to leave
the Company. Mr. Slansky received additional compensation of $27,672 in 2004
and $1,183 in 2003 for raising additional capital for the Company and is
expected to receive in excess of $100,000 in such fees in 2005. As part of Mr.
Slansky's employment agreement, Mr. Slansky receives a one percent (1%) fee on
funds raised below $1.00 per share and a four percent (4%) fee on funds raised
above $1.00 per share.
21
PAGE
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review on the Forms 3 and 4 furnished to us with respect to
our most recent fiscal year, each of the Directors and/or Executive Officers
timely filed his initial Form 3 and Form 4 under Section 16(a) of the Securities
and Exchange Act of 1934 during 2003 with the following exceptions: Mr. Benson
filed a Form 4 a few days late after transferring his indirect ownership of 1.2
million shares to his children in February 2004. The shares were held by SD
Holdings LLC which was dissolved on November 6, 2003. Mr. Schaffer filed a Form
4 a few days late after exercising a warrant in September 2004, which he
received as part of a convertible debt offering. Mr. Slansky filed a Form 4 a
few months late after receiving a small amount of stock from under our 1999
Employee Stock Purchase Plan.
REQUIRED VOTE
In voting for directors, you must vote all of your shares noncumulatively.
This means that the owners of a majority of the Company's outstanding common
shares have the power to elect the entire Board of Directors. The vote of a
majority of shares of the Company represented at the meeting, provided at least
a quorum (a majority of the outstanding shares) is represented in person or by
proxy, is sufficient for the election of the above nominees. By completing the
Proxy, you give the named Proxies the right to vote for the persons named in the
table above. If you elect to withhold authority for any individual nominee or
nominees, you may do so by making an "X" in the box marked "VOTE FOR NOMINEE(S)
NOT LINED OUT," and by striking a line through the nominees' name or names on
the Proxy that you do not vote for. Any vacancy left on the Board of Directors
due to an insufficient number of votes being cast for any one or more nominees
may be filled by the affirmative vote of the remaining directors.
Each of the nominees for director has agreed to serve as a director of the
Company until his or her replacement is elected and qualified. If any
unforeseen event prevents one or more of the nominees from serving as a
director, your votes will be cast for the election of a substitute or
substitutes selected by the Board. In no event, however, can the Proxies be
voted for a greater number of persons than the number of nominees named. Unless
otherwise instructed, the Proxies will vote for the election of each nominee to
serve as a director of the Company.
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES TO THE BOARD OF DIRECTORS OF THE COMPANY.
PROPOSAL 2
RATIFICATION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Sarbanes-Oxley Act of 2002 ("Act") established the Public Company
Accounting Oversight Board ("PCAOB") and charged it with the responsibility of
overseeing the audits of public companies that are subject to the federal
securities laws. Under the Act, the PCAOB's duties include the establishment of
a registration system for public accounting firms. The PCAOB proposed rules for
the registration process, which required approval of the U.S. Securities
Commission ("SEC") prior to enforcement. All public accounting firms were
required to register with the PCAOB in order to prepare or issue audit reports
on U.S. public companies, or to play a substantial role in the preparation or
issuance of such reports. Public accounting firms are required to file periodic
reports with the PCAOB. In 2003, the cost of compliance with these rules had
not been determined, and, as a result of the legislation, it appeared that the
cost of professional liability insurance for public accounting firms would be
dramatically increased. We were informed by our prior independent auditor,
Nation Smith Hermes Diamond, Accountants and Consultants, P.C. ("Nation Smith"),
that they did not intend to register with the PCAOB at that time and, as a
result, would not be able to continue to act as our independent auditors.
22
PAGE
Our Board of Directors selected PKF, Certified Public Accountants A Professional
Corporation, ("PKF") as the Company's independent accountants for the fiscal
years ended December 31, 2003 and 2004, and has directed us to submit PKF again,
as our selection of independent accountants to the stockholders for ratification
at the Annual Meeting for the fiscal year ending December 31, 2005. A
representative of PKF is expected to be present at the Annual Meeting.
Stockholders are not required to ratify the selection of PKF, as the Company's
independent accountants. However, our Board of Directors is submitting the
selection of PKF to the stockholders for ratification as a matter of good
corporate governance. If the stockholders fail to ratify the selection, our
Board of Directors will reconsider whether or not to retain that firm. Even if
the selection is ratified, the Board, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if it determines that such a change would be in the best interests of the
Company and its stockholders.
AUDIT FEES
The following are the fees billed us by our auditors, PKF and Nation Smith
Hermes Diamond, for services rendered thereby during 2004 and 2003:
2004 2003
------- -------
Audit Fees . . . . $44,000 $55,025
------------------ ------- -------
Audit Related Fees $ - $ -
------------------ ------- -------
Tax Fees . . . . . $ 7,800 $ 7,850
------------------ ------- -------
All Other Fees . . $28,522 $ 5,093
------------------ ------- -------
Total. . . . . . . $80,322 $67,968
------------------ ------- -------
------------------ ------- -------
In the above table for 2003 the total fees were $67,968, of which $12,275 was
for services rendered by PKF, and the remaining $55,693 was for services
rendered by Nation Smith Hermes Diamond.
Audit Fees consist of the aggregate fees billed for professional services
rendered for the audit of our annual financial statements and the reviews of the
financial statements included in our Forms 10-QSB and for any other services
that are normally provided by PKF and Nation Smith Hermes Diamond in connection
with our statutory and regulatory filings or engagements.
Audit Related Fees consist of the aggregate fees billed for professional
services rendered for assurance and related services that were reasonably
related to the performance of the audit or review of our financial statements
and were not otherwise included in Audit Fees.
Tax Fees consist of the aggregate fees billed for professional services
rendered for tax compliance, tax advice and tax planning. Included in such Tax
Fees were fees for preparation of our tax returns and consultancy and advice on
other tax planning matters.
All Other Fees consist of the aggregate fees billed for products and
services provided by PKF and Nation Smith Hermes Diamond and not otherwise
included in Audit Fees, Audit Related Fees or Tax Fees. Included in such Other
Fees were fees for services rendered by PKF and Nation Smith Hermes Diamond in
connection with our private and public offerings conducted during such periods.
Our Audit Committee has considered whether the provision of the non-audit
services described above is compatible with maintaining PKF's independence and
determined that such services are appropriate.
23
PAGE
Before the auditors are engaged to provide us audit or non-audit services,
such engagement is approved by the Audit Committee of our Board of Directors.
The affirmative vote of the holders of a majority of the common shares
represented and voting at the meeting will be required to ratify the selection
of PKF.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
RATIFY SELECTION OF THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 2005.
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE COMPANY'S
2004 EQUITY INCENTIVE PLAN
On August 5, 2004, the Board of Directors asked stockholders to approve the
proposed 2004 Equity Incentive Plan and reserve for issuance under the Plan
2,000,000 shares of the Company's common stock. We have used our 2004 Equity
Incentive Plan to provide employees, directors and consultants an incentive for
continued and future services. The 2004 Equity Incentive Plan is an important
part of the Company's total compensation program because competitive benefit
programs are a critical component of our efforts to attract and retain qualified
employees, directors and consultants. We are asking for the approval of an
additional 2,000,000 shares of the Company's common stock under this plan to
continue providing this benefit to new and current employees, directors and
consultants.
The 2004 Equity Incentive Plan is described below.
DESCRIPTION OF THE PLAN
The purpose of the Company's 2004 Equity Incentive Plan (the "Plan") is to
provide selected eligible employees, directors and certain types of consultants
of and to the Company, its subsidiaries, and affiliates an opportunity to
participate in the Company's future by offering them an opportunity to acquire
stock in the Company so as to retain, attract and motivate them. Options
granted under the Plan may be Incentive Stock Options or Non-statutory Stock
Options, as determined by the Board of Directors or a committee appointed by the
Board of Directors at the time of grant. Limited rights and stock awards may
also be granted under the Plan. The options, limited rights and awards are
collectively referred to in this discussion as "Awards."
A stock option is the right to purchase a certain number of shares of
stock, at a certain exercise price, in the future. The exercise price of
Incentive Stock Options may not be less than 100% of the fair market value of
the common stock as of the date of grant (110% of the fair market value if the
grant is to an employee who owns more than 10% of the total combined voting
power of all classes of our capital stock). U.S. Internal Revenue Code of 1986,
as amended (the "Code") currently limits to $100,000 the aggregate value of
common stock for which incentive stock options may first become exercisable in
any calendar year under the Plan or any other option plan adopted by the
Company. Non-statutory Stock Options may be granted under the Plan at an
exercise price of not less than 85% of the fair market value of the common stock
on the date of grant. Non-Statutory Stock Options also may be granted without
regard to any restriction on the amount of common stock to which the option may
first become exercisable in any calendar year. We currently issue options at
100% of the fair market value, as determined by the Board of Directors. [Note:
We are currently investigating the impact FAS 123R may have on our financial
statements and may revise this practice going forward.] Regardless of which
type of option is granted to an employee of the Company, the option will expire
ninety (90) days after termination of employment for any reason other than
24
PAGE
death, disability or retirement; provided, however, that all rights under any
options expire immediately upon termination of an employee for cause.
A limited right is the right to receive the net of the market price of
a share of stock and the exercise price of the right, either in cash or in
stock, in the future. In no event may a limited right issued under the Plan be
exercisable in whole or in part before the expiration of six (6) months from the
date of grant, and the right may only be exercise in the event of a change in
control of the Company. In addition, limited rights issued under our plan may be
exercised only when the underlying option is exercisable and the fair market
value of the shares on the date of exercise is greater than the exercise price
of the underlying option. The limited right and the option terminate
simultaneously upon exercise of one or the other. Limited rights issued under
the plan may be for no more than 100% of the difference between the purchase
price and the fair market value of the stock subject to the underlying option.
The Compensation Committee may issue restricted stock awards under the Plan
to employees and independent directors. The Committee has discretion to
determine the dates on which stock awards will vest and any specific conditions
or performance goals which must be satisfied prior to vesting of any portion of
the Award. Stock awards which are not fully vested at the time of termination of
the employee for any reason other than death, disability or retirement or as a
result of termination for cause, the unvested portion of the award will be
forfeit as of the date of termination.
The Committee has discretion to accelerate the vesting of any award issued
under the Plan.
The Committee may award Incentive Stock Options only to full-time employees
(including officers) of the Company and its affiliates under the Plan. A
non-employee director, as well as part-time employees and certain consultants,
of the Company are not eligible to receive Incentive Stock Options, but may
receive Non-Statutory Stock Options under the Plan.
ADMINISTRATION
The Plan is administered by the Compensation Committee. Subject to the
provisions of the Plan and the Compensation Committee Charter, and subject to
the approval of any relevant authorities, the Compensation Committee shall have
the authority in its discretion:
(i) to determine the fair market value;
(ii) to select the employees, directors and consultants to whom Awards
may from time to time be granted;
(iii) to approve forms of agreement for use under the Plan;
(iv) to determine the terms and conditions of any Award granted under
the Plan, including, but not limited to, the exercise price, the time
or times when Awards may be exercised (which may be based on
performance criteria), any vesting and any restriction or limitation
regarding any Award or the common stock relating thereto;
(v) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the common stock covered
by the Option has declined since the grant date;
25
PAGE
(vi) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(vii) to allow participants in the Plan to satisfy withholding tax
obligations on options by electing to have the Company withhold from
the common stock to be issued upon exercise of an option that number
of shares having a fair market value equal to the amount required to
be withheld. The fair market value to be withheld will be determined
on the date that the amount of tax to be withheld is to be determined;
and
(viii) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan.
Because option grants and other Awards under the Plan are subject to the
discretion of the Committee, awards under the Plan for the current year are
indeterminable. Future option exercise prices under the Plan are also
indeterminable because they will be based upon the fair market value of the
common stock on the date of grant.
SHARES SUBJECT TO THE PLAN
Subject to adjustment, the maximum number of shares of common stock
reserved for Awards under the Plan is 2,000,000 shares, currently, and would be
4,000,000 shares if this proposal is approved by stockholders. There are
currently options outstanding on 919,500 of the shares eligible for issuance
under the Plan. These shares of common stock may be either authorized but
unissued shares or authorized shares previously issued and reacquired by the
Company. To the extent that options and stock awards are granted under the Plan,
the shares underlying such Awards will be unavailable for any other use
including future grants under the Plan except that, to the extent that stock
awards or options terminate, expire, or are forfeited without having been
exercised (or in cases where a limited right has been granted in connection with
an option, the amount of such limited right received in lieu of the exercise of
such option), new Awards may be made with respect to those shares underlying
such terminated, expired or forfeited options or stock awards.
The following table outlines the current options that are issued under the plan:
New Plan Benefits
Name and Position. . . . . . . . . . . Dollar Value ($) Number of Units
------------------------------ ----------------- ---------------
All non-executive officers
and directors as a group . . . . . . $ 569,500 342,000
------------------------------ ----------------- ---------------
All employees, including all
current officers who are not
executive officers, as a group $ 1,063,754 577,500
------------------------------ ----------------- ---------------
Future awards under the Plan are subject to approval of the Committee and
we are unable to state at this time what Awards, if any, will be made to our
executive officers and other employees. Awards will continue to be made to our
non-executive officer directors as provided in our independent director
compensation plan depending on each director's attendance at board and
applicable committee meetings.
26
PAGE
ADJUSTMENTS
The Committee will make adjustments to the number of shares subject to
any award based on any change in the outstanding shares of common stock of the
Company resulting from any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
any similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Company.
AMENDMENT OR TERMINATION
The Board of Directors may amend or modify the Plan in any or all respects
whatsoever. However, certain amendments may require shareholder approval
pursuant to applicable laws and regulations. In order for the Plan to become
effective for the purpose of obtaining preferential tax treatment for Incentive
Stock Options, we require approval of the stockholders of the Company. The Plan
will terminate on August 5, 2014.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax consequences
generally arising with respect to the grant of Awards pursuant to the 2004
Equity Incentive Plan. This summary is based on the Internal Revenue Code,
regulatiosn, rulings and decisions now in effect, all of which are subject to
change by legislation, administrative action or judicial decision. This
discussion is intended for the information of stockholders considering how to
vote at the Annual Stockholders' Meeting and not as tax guidance to individuals
participating in the 2004 Equity Incentive Plan.
Incentive stock options granted under the Plan will be afforded favorable
federal income tax treatment under Code. If an option is treated as an Incentive
Stock Option, the recipient will recognize no income upon grant or exercise of
the option unless the alternative minimum tax rules apply. Upon an recipient's
sale of the shares (assuming that the sale occurs more than two years after
grant of the option and more than one year after exercise of the option), any
gain will be taxed to the recipient as long-term capital gain. If the recipient
disposes of the shares prior to the expiration of either of the above holding
periods, then the recipient will recognize ordinary income in an amount
generally measured as the difference between the exercise price and the lower of
the fair market value of the shares at the exercise date or the sale price of
the shares. Any gain recognized on such a premature sale of the shares in excess
of the amount treated as ordinary income will be characterized as capital gain.
All other options granted under the Plan will be Non-Statutory Stock
Options and will not qualify for any special tax benefits to the recipient. A
recipient will not recognize any taxable income at the time he or she is granted
a Non-Statutory Stock Option. However, upon exercise of the Non-Statutory Stock
Option, the recipient will recognize ordinary income for federal income tax
purposes in an amount generally measured as the excess of the then fair market
value of each share over its exercise price. Upon a recipient's resale of such
shares, any difference between the sale price and the fair market value of such
shares on the date of exercise will be treated as capital gain or loss and will
generally qualify for long term capital gain or loss treatment if the shares
have been held for more than one year. The Code provides for reduced tax rates
for long-term capital gains based on the taxpayer's income and the length of the
taxpayer's holding period.
The recipient of a restricted stock award will generally recognize
ordinary compensation income when such shares are no longer subject to a
substantial risk of forfeiture, based on the excess of the value of the shares
at that time over the price, if any, paid for such shares. However, if the
recipient makes a timely election under the Code to be subject to tax upon the
27
PAGE
receipt of the shares, the recipient will recognize ordinary compensation income
at that time equal to the fair market value of the shares over the price paid,
if any, and no further ordinary compensation income will be recognized when the
shares vest.
No taxable income is recognized upon the receipt of a limited right. The
recipient will recognize ordinary income, in the year in which the right is
exercised, equal to the excess of the fair market value of the underlying shares
of common stock on the exercise date over the base price in effect for the
exercised right, and the recipient will be required to satisfy the tax
withholding requirements applicable to such income. The Company will be entitled
to an income tax deduction equal to the amount of ordinary income recognized by
the recipient in connection with the exercise of the limited right. The
deduction will be allowed for the taxable year of the Company in which such
ordinary income is recognized.
We are generally entitled to a deduction for federal income tax purposes
equal to the amount of ordinary compensation income recognized by the recipient
of an award at the time such income is recognized. However, Section 162(m) of
the Internal Revenue Code generally disallows a public company's tax deduction
for compensation paid to the Chief Executive Officer, or to the other four most
highly compensated officers, in excess of $1,000,000 in any tax year.
Compensation that qualifies as performance-based compensation" is excluded from
the $1,000,000 deductibility cap, if various requirements are satisfied.
Awards granted under the 2004 Equity Incentive Plan that are considered to
be deferred compensation must satisfy the requirements of Section 409A of the
Internal Revenue Code to avoid adverse tax consequences to participating
employees. These requirements include limitations on election timing,
acceleration of payments and distributions. The Company intends to structure
any Awards under the 2004 Equity Incentive Plan to meet the applicable tax law
requirements.
The Company has the right to deduct from all Awards paid in cash or from
other wages paid to an employee of the Company, any federal, state or local
taxes required by law to be withheld with respect to Awards, and the employee or
other person receiving shares under the 2004 Equity Incentive Plan will be
required to pay to the Company the amount of any such taxes which the Company is
required to withhold with respect to such shares.
The foregoing does not purport to be a complete summary of the federal
income tax considerations that may be relevant to holders of options or
restricted shares, or to us. It also does not reflect provisions of the income
tax laws of any municipality, state or foreign country in which a recipient may
reside, nor does it reflect the tax consequences of a recipient's death.
REQUIRED VOTE
Approval of the Plan requires the affirmative vote of a majority of the
shares present and entitled to vote on this Proposal 3, and such affirmative
vote must also constitute at least a majority of the required quorum for the
meeting. In determining whether this Proposal 3 has been approved, abstentions
and broker non-votes are not counted as votes for or against this proposal.
RECOMMENDATION
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE AMENDMENT TO THE COMPANY'S 2004 EQUITY INCENTIVE PLAN.
OTHER MATTERS
We do not intend to present any business at the meeting not mentioned in
this Proxy Statement, and currently know of no other business to be presented.
If any other matters are brought before the meeting, the appointed Proxies will
28
PAGE
vote on all such matters in accordance with their judgment of the best interests
of the Company.
AUDIT COMMITTEE REPORT
Following is the report of the Audit Committee with respect to the
Company's audited consolidated financial statements for the fiscal year ended
December 31, 2004, which include the consolidated balance sheets of the Company
as of December 31, 2004 and 2003 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the fiscal years
ended December 31, 2004 and 2003, and the notes thereto.
The Audit Committee of the Company's Board of Directors currently consists
of three directors, none of which are employees of the Company or any of its
subsidiaries. Pursuant to an Audit Committee Charter adopted on April 19, 2002,
the Audit Committee is required to be comprised of at least three directors.
The Board believes that the current members of the committee, Mr. Blake, Mr.
McClendon and Dr. Huntress, are "independent" directors within the meaning of
Exchange Act Rule 10A-3.
The primary responsibility of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities related to corporate
accounting, financial reporting practices, and the quality and integrity of the
Company's financial reports. In that respect, the Audit Committee has reviewed
and discussed the audited financial statements and the footnotes thereto with
management and the independent auditors. The Audit Committee has not been
apprised of any misstatements or omissions in the financial statements. In
addition, the Audit Committee discussed with the independent auditors the
matters required to be discussed by Statement of Auditing Standard No. 61,
Communication with Audit Committees, including, among other items, matters
related to the conduct of the audit of the Company's financial statements.
Management has the primary responsibility for the Company's financial statements
and internal control over financial reporting, as well as disclosure controls
and procedures.
The Audit Committee has received from the independent accountants, as
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committee, (i) a written disclosure, indicating all
relationships, if any, between the independent auditor and its related entities
and the Company and its related entities which, in the auditor's professional
judgment, reasonably may be thought to bear on the auditor's independence, and
(ii) a letter from the independent auditor confirming that, in its professional
judgment, it is independent of the Company; and the Audit Committee has
discussed with the auditor the auditor's independence from the Company.
Based on the reviews and discussions referred to above, we recommended to
the Board of Directors that the audited consolidated financial statements be
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2004.
Submitted by the Audit Committee of the Company's Board of Directors:
Curt Dean Blake
Scott McClendon
Wesley T. Huntress
COMPENSATION COMMITTEE REPORT
The Compensation Committee administers SpaceDev's executive compensation
program. In this regard, the role of the Compensation Committee is to oversee
our compensation plans and policies, annually review and approve all executive
officers' compensation decisions, and administer our stock option plans
29
PAGE
(including reviewing and approving stock option grants to executive officers).
The Compensation Committee's charter, adopted on August 5, 2004, reflects these
various responsibilities, and the Compensation Committee and the Board
periodically review and revise the charter. The Compensation Committee's
membership is determined by the Board and is composed entirely of independent
directors based on the applicable listing standards of The Nasdaq Stock Market
and SEC rules. The Compensation Committee meets at scheduled times during the
year, and it also may consider and take action by written consent. The
Compensation Committee Chairman reports on Compensation Committee actions and
recommendations at Board meetings. SpaceDev's Human Resources Department
supports the Compensation Committee in its work and in some cases acts pursuant
to delegated authority to fulfill various functions in administering SpaceDev's
compensation programs. In addition, the Compensation Committee has the authority
to engage the services of outside advisers, experts and others to assist the
committee. To date, the Compensation Committee has not directly engaged an
outside compensation consulting firm to assist the committee.
GENERAL COMPENSATION PHILOSOPHY
Our general compensation philosophy is that total cash compensation should
vary with SpaceDev's performance in achieving financial and non-financial
objectives, and that any long-term incentive compensation should be closely
aligned with the stockholders' interests. This philosophy applies to all
SpaceDev employees, with a more significant level of variability and
compensation at risk as an employee's level of responsibility increases. In
2004, the Compensation Committee began a review of the executive compensation
philosophy, with the goal of ensuring the appropriate mix of fixed and variable
compensation linked to individual and corporate performance. Although this
review is ongoing, the Compensation Committee is seeking the advice and input of
SpaceDev management. The Compensation Committee is also identifying the key
strategic compensation design priorities for SpaceDev: employee retention, cost
management, fair treatment of employees, alignment with stockholder interests
and continued focus on corporate governance. The Compensation Committee also
considers whether any changes should be made to SpaceDev's cash compensation and
stock option programs in support of these strategic priorities.
The Compensation Committee intends to migrate SpaceDev's executive
compensation practices toward a higher proportion of total compensation
delivered through pay-for-performance incentive and long-term equity
compensation, equating to more compensation risk for SpaceDev's executives than
for the executives of competitor companies. This higher risk would be due to the
combination of lower-than-market base salaries and higher-than-market annual
pay-for-performance incentive targets and the infrequent, long-vesting stock
option grants. The higher-than-market compensation variability employed by
SpaceDev will be closely linked to the Company's annual financial results
through lower-than-market total cash compensation in times of poor financial
performance. Conversely, in times of excellent performance, the compensation
variability yields higher total cash compensation, rewarding employees for
excellent performance. Our philosophy is to pay higher-than-market average
compensation over periods of sustained excellent performance. We have a cash and
performance-based compensation program in which the majority of our employees
are eligible to participate.
Total annual cash compensation for the majority of SpaceDev's employees,
including its executive officers, consist of the following components:
- Base salary; and,
- An annual pay-for-performance cash incentive dependent on
SpaceDev's operating earnings and performance against business
objectives for the performance period, and an individual
incentive target, with quarterly partial distributions.
30
PAGE
Long-term incentive compensation is realized through the grant of stock
options. All general full-time and part-time employees are eligible to receive
stock options, including executive officers. Stock options require SpaceDev
stock price appreciation in order for the employees to realize any benefit, thus
directly aligning employee and stockholder interests.
Our employees can also acquire SpaceDev stock through a tax-qualified
employee stock purchase plan, which is generally available to all employees.
This plan allows participants to buy SpaceDev stock at a discount to the market
price with up to 10% of their salary and incentives (subject to certain limits),
with the objective of allowing employees to profit when the value of SpaceDev
stock increases over time.
SETTING EXECUTIVE COMPENSATION
In setting the annual base salary and individual pay-for-performance
incentive target amount for each executive officer, the Compensation Committee
reviews executive compensation information derived from nationally recognized
compensation surveys. The Compensation Committee utilizes a cross-industry
subset of companies as well as a technology industry subset of companies
generally considered to be comparable to SpaceDev. Although the Compensation
Committee does not use a specific formula to set pay in relation to market data,
it generally sets executive officer compensation below the average salaries for
comparable jobs in the marketplace. However, when SpaceDev's business meets or
exceeds certain predetermined financial and non-financial goals, amounts paid
under the performance-based compensation programs may lead to total compensation
levels that are higher than the average cash compensation for comparable jobs.
Conversely, total cash compensation levels may be reduced and become further
behind competitive cash compensation averages in times of poor performance.
PERSONAL BENEFITS
SpaceDev seeks to maintain an entrepreneurial culture in its facilities and
operations. Officers are not entitled to operate under different standards than
other SpaceDev employees. We do not provide officers with reserved parking
spaces or separate dining or other facilities, nor do we have programs for
providing any substantial personal-benefit perquisites to officers, such as
permanent lodging or defraying the cost of personal entertainment or family
travel. Our health care and other insurance programs are the same for all
eligible employees, including officers. There are no outstanding loans of any
kind to any executive officer, and since 2002, federal law has prohibited any
new company loans to executive officers. We expect our officers to be role
models.
The Committee is pleased to submit this report to SpaceDev's stockholders
and believes that SpaceDev's pay-per-performance executive compensation is in
the best interest of all SpaceDev stockholder.
Scott McClendon
Curt Dean Blake
Gen. Howell Estes
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE REPORT
The Nominating and Corporate Governance Committee of the Board of
Directors, currently consisting of General Estes, Dr. Huntress and Mr. Walker,
held its first meeting in 2005. The Corporate Governance and Nominating
Committee serves in an advisory capacity to the Board on the governance
structure and conduct of the Board and has the responsibility for developing and
recommending to the Board appropriate Corporate Governance Guidelines. In
addition, the Committee identifies qualified individuals for nomination to the
Board, recommends Directors for appointment to Board committees and evaluates
current Directors for re-nomination to the Board or re-appointment to Board
committees.
31
PAGE
The Corporate Governance and Nominating Committee will consider candidates
submitted by stockholders as nominees for election as Directors of the Company.
Stockholders wishing to have the Committee consider a candidate should submit
the candidate's name and pertinent background information to Richard B. Slansky,
Corporate Secretary, SpaceDev, Inc., 13855 Stowe Drive, Poway, CA 92064.
The Corporate Governance and Nominating Committee believes that Directors
should possess exemplary personal and professional reputations, reflecting high
ethical standards and values. The expertise and experience of Directors should
provide a source of advice and guidance to the Company's management. A
Director's judgment should demonstrate an inquisitive and independent
perspective with acute intelligence and practical wisdom. Directors should be
free of any significant business relationships which would result in a potential
conflict in judgment between the interests of the Company and the interests of
those with whom the Company does business. Each Director should be committed to
serving on the Board for an extended period of time and to devote sufficient
time to carrying out the Director's duties and responsibilities in an effective
manner for the benefit of the Company's stockholders.
The Committee is pleased to submit this report to SpaceDev's stockholders.
Gen. Howell Estes
Dr. Wesley Huntress
Robert Walker
STOCKHOLDER PROPOSALS AND NOMINATIONS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's next Annual Meeting of Stockholders must
be received by the Company no later than March 1, 2006 in order to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting. Stockholders who wish to make a recommendation for a nominee to
be elected at the Company's 2006 Annual Meeting of Stockholders must submit
their recommendation by March 1, 2006 to allow for meaningful consideration and
evaluation of the nominees by the Nominating and Corporate Governance Committee.
/s/ Richard B. Slansky
--------------------------
Richard B. Slansky,
Corporate Secretary
Dated: July 18, 2005
32
PAGE
PROXY PROXY
SPACEDEV, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 12, 2005
The undersigned hereby appoints James W. Benson and Richard B. Slansky,
Chief Executive Officer and Corporate Secretary, respectively, or either of
them, as attorneys and Proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of SpaceDev, Inc. (the
"Company") which the undersigned may be entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at 13855 Stowe Drive, Poway,
California 92064 on August 12, 2005 at 9:00 A.M. local time and at any and all
continuations and adjournments or postponements thereof, with all powers that
the undersigned would possess if personally present, on the following matters,
in accordance with the following instructions, and on all matters that may
properly come before the meeting. With respect to any matter not known to the
Company as of August 12, 2005, such proxies are authorized to vote in their
discretion.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1, FOR PROPOSAL 2 AND FOR PROPOSAL 3 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
YOUR VOTE IS IMPORTANT. THEREFORE, YOU ARE URGED TO COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY
IN THE ENCLOSED ENVELOPE.
SPACEDEV, INC.
PLEASE MARK VOTE IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES
FOR DIRECTOR AND FOR PROPOSALS 2 AND 3.
1. To elect nine directors to hold office until the 2006 Annual Meeting
of Stockholders.
FOR WITHHELD
--- --------
[ ] [ ]
--- --------
Strike a line through the nominee(s) name or names below that you do not
vote for
NOMINEES: James W. Benson, Susan C. Benson, Curt Dean Blake, Gen.
Howell M. Estes, III, Wesley T. Huntress, Scott McClendon, Stuart E.
Schaffer, Robert S. Walker and Richard B. Slansky.
2. To ratify the appointment of PKF, Certified Public Accountants A
Professional Corporation, as the Company's independent registered
public accountants for the fiscal year ending December 31, 2005.
FOR AGAINST ABSTAIN
--- ------- -------
[ ] [ ] [ ]
---- ---- ----
3. To approve an amendment to the Company's 2004 Equity Incentive Plan.
FOR AGAINST ABSTAIN
--- ------- -------
[ ] [ ] [ ]
---- ---- ----
-------------------- ----------------------- ---------------------------
Date Shares Held Signature
----------------------------
Print Name
-------------------- ----------------------- ---------------------------
Date E-Mail Address (Optional Signature
But Highly Recommended)
----------------------------
Print Name
Please sign exactly as your name appears on your stock certificate. If the
stock is registered in the names of two or more persons, each should sign.
Executors, administrators, trustees, guardians and attorneys-in-fact should add
their titles. If signer is a corporation, please give full corporate name and
have a duly authorized officer sign, stating title. If signer is a partnership
or limited liability company, please sign the company name by authorized person.