-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G/2fmRRjMs68BZGqSVO+6Z1vGbs/lAdNDOvOQnzv6t43J7OPUdk0eBmSO/msUcbb GOogbz7oSZwBvFqI5S1l5Q== 0001021890-97-000201.txt : 19970626 0001021890-97-000201.hdr.sgml : 19970626 ACCESSION NUMBER: 0001021890-97-000201 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970815 FILED AS OF DATE: 19970625 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LASER STORM INC CENTRAL INDEX KEY: 0001001879 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 841139159 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28254 FILM NUMBER: 97629666 BUSINESS ADDRESS: STREET 1: 7700 CHERRY CREEK SO DR STREET 2: UNIT 301 CITY: DENVER STATE: CO ZIP: 80231 BUSINESS PHONE: 3037518545 MAIL ADDRESS: STREET 1: 7700 CHERRY CREEK S DR STREET 2: UNIT 301 CITY: DENVER STATE: CO ZIP: 80231 PRE 14A 1 PRELIMINARY PROXY STATEMENT LASER STORM, INC. SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [x] Filed by a Party other than the Registrant [ ] Check the appropriate box: [x] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 LASER STORM, INC. (Name of Registrant as Specified In Its Charter) Payment of Filing Fee (Check the appropriate box): [x] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)() 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: - -------------------------------------------------------------------------------- LASER STORM, INC. 7808 Cherry Creek South Drive, Unit 301 Denver, Colorado 80231 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To be held on August 15, 1997 NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Meeting") of Laser Storm, Inc., a Colorado corporation (the "Company"), will be held at Laser Storm of Arapahoe Village, 5150 East Arapahoe Road, Littleton, Colorado 80122, on August 15, 1997, at 9:00 a.m. Mountain Time, for the purpose of considering and voting upon proposals to: (1) Elect three directors to serve until the next Annual Meeting of Stockholders; (2) Approve the 1996 Incentive and Nonstatutory Stock Option Plan; (3) Adopt an amendment to Article II of the Company's Restated Articles of Incorporation With Amendments to add paragraph 7 which specifically provides that the Company's shareholders do not have preemptive rights to acquire unissued shares of the Company; and (4) Transact such other business as may lawfully come before the Meeting. Only stockholders of record at the close of business on June 13, 1997, are entitled to notice of and to vote at the Meeting, and at any adjournment thereof. The enclosed Proxy is solicited by and on behalf of the Board of Directors of the Company. All stockholders are cordially invited to attend the Meeting in person. Whether you plan to attend or not, please date, sign and return the accompanying proxy in the enclosed return envelope, to which no postage need be affixed if mailed in the United States. The giving of a proxy will not affect your right to vote in person if you attend the Meeting. BY ORDER OF THE BOARD OF DIRECTORS WILLIAM R. BAUERLE, SECRETARY Denver, Colorado July 15, 1997 LASER STORM, INC. 7808 Cherry Creek South Drive, Unit 301 Denver, Colorado 80231 PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 15, 1997 This proxy statement ("Proxy Statement") is being furnished in connection with the solicitation of proxies by the Board of Directors of Laser Storm, Inc. (the "Company") to be used at the Annual Meeting of Stockholders (the "Meeting") to be held at Laser Storm of Arapahoe Village, 5150 East Arapahoe Road, Littleton, Colorado 80122, on August 15, 1997, at 9:00 a.m. Mountain Time, and at any adjournment thereof. It is planned that this Proxy Statement and the accompanying Proxy will be mailed to the Company's stockholders on or about July 15, 1997. Any person signing and mailing the enclosed Proxy may revoke it at any time before it is voted by (i) giving written notice of the revocation to the Company's corporate secretary; (ii) voting in person at the Meeting; or (iii) voting again by submitting a new proxy card. Only the latest dated proxy card, including one which a person may vote in person at the Meeting, will count. ACTIONS TO BE TAKEN AT MEETING The Meeting is called by the Board of Directors of the Company (the "Directors") to consider and act upon the following matters: (1) The election of three directors of the Company; (2) The adoption of the 1996 Incentive and Nonstatutory Stock Option Plan; (3) The adoption of an amendment to Article II of the Company's Restated Articles of Incorporation With Amendments to add paragraph 7 which specifically provides that the Company's shareholders do not have preemptive rights to acquire unissued shares of the Company; and (4) Such other business as may properly come before the Meeting or any adjournment thereof. The holders of one-third of the outstanding shares of Common Stock of the Company, present at the Meeting in person or represented by proxy, shall constitute a quorum. If a quorum is present, directors are elected by a plurality of the vote, i.e., the candidates receiving the highest number of votes cast in favor of their election will be elected to the Board of Directors. The 1996 Incentive and Nonstatutory Stock Option Plan and the amendment to the Restated Articles of Incorporation With Amendments will be approved and adopted, respectively, if a quorum exists and if the votes cast for approval and adoption, respectively, exceed the votes cast against approval and adoption, respectively. Where brokers have not received any instruction from their clients on how to vote on a particular proposal, brokers are permitted to vote on routine proposals but not on nonroutine matters. The absence of votes on nonroutine matters are "broker nonvotes." Abstentions and broker nonvotes will be counted as present for purposes of establishing a quorum, but will have no effect on the election of directors. Abstentions and broker nonvotes on proposals other than the election of directors, if any, will be counted as present for purposes of the proposal and will have the effect of a vote against the proposal. VOTING SECURITIES Voting rights at the Meeting are vested in the holders of the Company's $0.001 par value common stock (the "Common Stock") with each share entitled to one vote. Cumulative voting in the election of directors is not permitted. Only holders of record of the Common Stock at the close of business on June 13, 1997, are entitled to notice of and to vote at the Meeting or any adjournments thereof. On June 13, 1997, the Company had 3,824,836 shares of Common Stock outstanding. PROPOSAL NUMBER ONE ELECTION OF DIRECTORS Effective at the Meeting, the number of directors on the Company's Board of Directors has been established by resolution of the Board of Directors as three directors. The terms of all of the current directors expire at this Meeting. The persons named in the enclosed form of Proxy will vote the shares represented by Proxies received by them for the election of the three nominees for director named below. If, at the time of the Meeting, any of these nominees shall become unavailable for any reason, which event is not expected to occur, the persons entitled to vote the Proxies will vote for such substitute nominee or nominees, if any, as they determine in their sole discretion. If elected, Robert J. Cooney, William R. Bauerle and John E. McNutt will hold office until the next annual meeting of stockholders or until their successors are duly elected or appointed. The nominees for director, each of whom has consented to serve if elected, are as follows: 2
Name and Director Nominee Since Age Principal Occupation for Last Five Years - -------- -------- --- ---------------------------------------- Robert J. Cooney 1990 33 Chairman of the Board and Chief Executive Officer of the Company since March 1990 and the Treasurer of the Company from October 1994 to February 1997. President of the Company from February 1992 to April 1994. William R. Bauerle 1994 46 President and Chief Operating Officer of the Company since April 1994 and a director and the Secretary of the Company since July 1994. From 1985 to the present, President and a director of Asset Development Corporation, a software development and business consulting firm. John E. McNutt 1997 40 Chief Financial Officer, Treasurer and a director of the Company since February 1997 and was Vice President of Finance of the Company from July 1996 to February 1997. Associated with CAIRE, Inc., formerly Mountain Medical Equipment, Inc., a manufacturer and seller of home health care respiratory equipment, from 1981 to July 1996, where Mr. McNutt served in various capacities including corporate controller and Vice President of a subsidiary, Mountain Medical Leasing Co.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ELECTION OF THE NOMINEES LISTED ABOVE. SECURITY OWNERSHIP OF CERTAIN PERSONS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock, outstanding as of June 13, 1997, by (i) each person who owned of record, or who is known to the Company to own beneficially, more than 5% of the outstanding Common Stock with the address of each such person, (ii) each of the Company's directors and executive officers and (iii) all of the Company's executive officers and directors as a group. 3
Name and Address of Beneficial Owner Amount and Nature of Percent of or Name of Director or Executive Officer Beneficial Ownership(1) Class(2) - ---------------------------------------- ---------------------- ---------- Robert J. Cooney .................................. 841,800 22.0% 7808 Cherry Creek South Drive, Unit 301 Denver, Colorado 80231 William R. Bauerle ................................ 151,250(3) 3.9% John E. McNutt .................................... 75,000(4) 1.9% Frank J. Ball ..................................... 76,250 2.0% Harold Skripsky ................................... 50,000(5) 1.3% All Officers and Executive Directors as a ......... 1,194,300(6) 29.7% Group (5 Persons) Edward J. Bonis ................................... 411,750 10.8% 7808 Cherry Creek South Drive, Unit 301 Denver, Colorado 80231 - -----------------
(1) The beneficial owners listed have sole voting and investment power with respect to the shares of Common Stock. (2) Assumes the stock option of each person who has a stock option is exercised whether or not the stock option is vested. (3) Includes 75,000 shares of Common Stock underlying stock options, 50,000 shares of which are currently exercisable and the balance of which become exercisable in December 1997. (4) Consists of 75,000 shares of Common Stock underlying stock options, none of which are exercisable until August 1997. (5) Consists of 50,000 shares of Common Stock underlying a stock option, 37,500 of which are currently exercisable and 12,500 of which are not exercisable until October 1997. (6) Includes 200,000 shares of Common Stock underlying the outstanding stock options described above. EXECUTIVE OFFICERS The executive officers of the Company are Robert J. Cooney, William R. Bauerle and John E. McNutt, information pertaining to whom is set forth above under "Election of Directors." Each executive officer holds office until his or her successor is duly elected and qualified or until his resignation or until he shall be removed in the manner provided in the Company's bylaws. 4 DIRECTORS MEETINGS The Company's Board of Directors held 21 meetings during the Company's last fiscal year ended December 31, 1996. Fourteen of such meetings consisted of consent directors minutes signed by all directors and seven of such meetings were actual meetings at which all of the directors were present in person or by telephone. The Board of Directors currently has no standing audit, nominating or compensation committees or committees performing similar functions. No current director attended less than 75% of the aggregate of all board of director meetings and all committee meetings on which he served during the fiscal year ended December 31, 1996. There was no arrangement or understanding between any director or executive officer and any other person pursuant to which any person was selected as a director. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and officers and persons who beneficially own more than 10% of a registered class of the Company's equity securities to file various reports with the Securities and Exchange Commission concerning their holdings of, and transactions in, securities of the Company. Copies of these filings must be furnished to the Company. Based on a review of the copies of such forms furnished to the Company and written representations from the Company's officers and directors, the Company believes that all of the persons who were officers or directors of the Company during the year ended December 31, 1996, made all filings required under Section 16(a) on a timely basis during the year ended December 31, 1996, except for James E. Johnson, a former officer of the Company, who was late in filing his Form 3. COMPENSATION The following table sets forth certain information concerning the compensation paid by the Company for services rendered in all capacities to the Company for the fiscal years ended December 31, 1996, 1995 and 1994, to those persons who were, at December 31, 1996 (i) the chief executive officer of the Company and (ii) the other most highly compensated executive officers of the Company whose annual salary and bonus from the Company exceeded $100,000 for the fiscal year ended December 31, 1996. 5
Summary Compensation Table Long Term Annual Compensation Compensation ------------------------------- ------------ Securities Name and Principal Other Annual Underlying All Other Positions at 12/31/96 Year Salary Bonus Compensation Options Compensation - ---------------------------------------- ---------- ------- -------- ------------ -------- ------------ Robert J. Cooney ........................... 1996...$ 150,000 - 0 - $28,942(1) -0- None Chairman of the Board and 1995...$ 150,000 - 0 - $24,335(1) -0- None Chief Executive Officer 1994...$ 97,500 - 0 - $ 3,883(1) -0- None William R. Bauerle ......................... 1996...$ 150,000 -0- $26,681(2) -0- -0- President and Secretary 1995...$ 150,000 -0- $21,099(2) -0- -0- 1994...$ 71,250 -0- $ 2,934(2) -0- $21,727(4) Eric B. Schwartzman ........................ 1996...$ 100,000 -0- $11,294(5) -0- -0- Vice President of Marketing 1995...$ -0- -0- -0- 75,000(6) -0- and Product Development until January 1997 1994...$ -0- -0- -0- -0- -0- Frank J. Ball .............................. 1996...$ 120,000 -0- $12,016(7) -0- $15,238(8) Vice President of Manufacturing, 1995...$ 45,411 -0- $ 5,685(7) -0- $14,020(8) Executive Vice President, 1994...$ -0- -0- -0- -0- $14,000(8) Operations and General Counsel until December 1996, October 1996 and October 1996, respectively, and Director Michael D. Kessler 1996...$ 110,000 -0- $43,571(9) -0- -0- Vice President of Retail 1995...$ 13,749 -0- -0- 75,000(6) -0- Operations until December 1994...$ -0- -0- -0- -0- -0- 1996 - ------------------
(1) Includes amounts paid by the Company for automobile expenses ($12,159 in 1996, $8,988 in 1995 and $3,218 in 1994), health club dues ($1,490 in 1996, $1,559 in 1995 and $665 in 1994), life insurance premiums advanced on behalf of Mr. Cooney ($12,110 in 1996 and $12,111 in 1995) and disability insurance premiums ($3,183 in 1996 and $1,677 in 1995). Does not include any value that may have been realized by Mr. Cooney when he used whatever equity there was in a Company automobile as a down payment on a personal automobile. The Company estimates the amount of the equity to be less than $5,000. (2) Includes amounts paid by the Company for automobile expenses ($11,637 in 1996 and $7,204 in 1995), health club dues ($250 in 1995 and $660 in 1994), life insurance premiums advanced on behalf of Mr. Bauerle ($11,635 in 1996, $11,635 in 1995 and $1,939 in 1994) and disability insurance premiums ($3,407 in 1996, $2,010 in 1995 and $335 in 1994). (3) The stock options granted to Mr. Bauerle vest in increments of 25,000 shares each on December 12, 1995, December 12, 1996 and December 12, 1997 at an exercise price of $0.20 per share and expire on December 12, 2000, December 12, 2001 and December 12, 2002, respectively. 6 (4) Represents consulting fees paid to a corporation owned by Mr. Bauerle prior to Mr. Bauerle becoming an employee of the Company. (5) Includes amounts paid by the Company for automobile expenses ($11,294 in 1996). (6) These options terminated on the date upon which Mr. Schwartzman's and Mr. Kessler's employment with the Company terminated, which dates were January 6, 1997 and December 6, 1996, respectively. (7) Includes amounts paid by the Company for automobile expenses ($10,526 in 1996 and $4,605 in 1995) and health club dues ($1,490 in 1996 and $1,080 in 1995). (8) Represents amounts paid in legal fees for services rendered by the law firm owned by Mr. Ball. (9) Includes amounts paid by the Company for automobile expenses ($8,742 in 1996), health club dues ($1,320 in 1996) and a commission ($33,509 in 1996). FISCAL YEAR END OPTION VALUES The following table sets forth information with respect to the unexercised options held by the following persons as of December 31, 1996.
Aggregate Fiscal Year End Option Values ------------------------------------------------------------------------- Number of Securities Underlying Un- Value of Unexercised In-the- exercised Options at Fiscal Year End Money Options at Fiscal Year Exercisable/Unexercisable End Exercisable/Unexercisable ----------------------------------- ----------------------------- Robert J. Cooney............... -0- -0- William R. Bauerle............. 50,000/25,000 $40,000/$20,000(1) Eric B. Schwartzman............ 25,000/50,000 -0- Frank J. Ball.................. -0- -0- Michael D. Kessler............. 25,000/50,000 -0- - ----------------------
(1) The value is based on the closing sale price of $1.00 of the Company's Common Stock on December 31, 1996 minus the exercise price of the options. No options to purchase the Company's Common Stock were exercised by Messrs. Cooney, Bauerle, Schwartzman, Ball or Kessler during the Company's fiscal year ended December 31, 1996. 7 Until December 31, 1997, the Company has agreed with Laidlaw Equities, Inc., the representative of the underwriters of the Company's initial public offering which was completed in April 1996, that the Company will not increase, without shareholder approval, the compensation of Messrs. Cooney and Bauerle by more than an aggregate of 15% per annum above current levels. Subject to the foregoing limitations, the Company may reserve up to 10% of net pre-tax profits over $1,000,000 for bonuses to Company executives and employees. Compensation of Directors. During 1996, the Company paid to each of Harrison A. Price, a former director of the Company, and Harold Skripsky, a current director of the Company, $20,000 per year. From January 1, 1997, through the date of the Meeting, the Company will pay $5,000 per quarter to Harold Skripsky. In 1995, the Company also granted to each of Harrison A. Price and Harold Skripsky an option to purchase 50,000 shares of Common Stock at $4.00 per share. One-half of each option vested in October 1995 and one quarter of each option vested in October 1996. One quarter of Harrison A. Price's option (i.e., 12,500 shares) terminated when he resigned as a director of the Company in March 1997. One quarter of Harold Skripsky's option (i.e., 12,500 shares) will terminate on the date of the Meeting. The options must be exercised within 5 years from the date of vesting. The options were not granted under the 1996 Plan, defined and described below. Employment Contracts and Termination of Employment and Change-In-Control Arrangements. Messrs. Cooney and Bauerle have employment agreements with the Company. Each employment agreement contains provisions that the employee will not disclose Company confidential information and will not compete with the Company for 24 months after termination of the employee's agreement. Mr. Cooney's agreement was effective October 1, 1994, extends through September 10, 1998, and provides for an annual salary of $150,000. Effective February 1, 1997, Mr. Cooney temporarily reduced his annual salary to $100,000. The amount not being paid is being accrued by the Company for later payment. The Company may terminate the agreement with or without cause. If the Company terminates Mr. Cooney's agreement without cause, the Company must continue to pay Mr. Cooney his salary until September 10, 1998. Mr. Bauerle's agreement was effective October 1, 1994, extends through September 10, 1998, and provides for an annual salary of $150,000. Effective February 1, 1997, Mr. Bauerle temporarily reduced his annual salary to $100,000. The amount not being paid is being accrued by the Company for later payment. The Company may terminate the agreement with or without cause. If the Company terminates Mr. Bauerle's agreement without cause, the Company must pay Mr. Bauerle his salary for six months after the termination. Mr. McNutt does not have an employment agreement with the Company. Mr. McNutt receives a salary of $78,000 annually and was granted options to purchase 75,000 shares of the Company's Common Stock at an exercise price of $2.25 per 8 share. The options vest 25,000 on August 15, 1997, 25,000 on August 15, 1998, and 25,000 on August 15, 1999, and expire on August 15, 2002, August 15, 2003, and August 15, 2004, respectively. Each executive officer also receives a $725 per month vehicle allowance and is reimbursed for all other business related expenses. Termination Arrangements with Former Officers Frank J. Ball, the former Executive Vice President and General Counsel of the Company and a Director of the Company had an employment agreement with the Company that was terminated on December 6, 1996. As a result, the Company must pay Mr. Ball his salary and benefits through June 1997. Michael D. Kessler, the former Vice President of Retail Operations of the Company, had an employment agreement with the Company that was terminated on December 6, 1996. As a result, the Company must pay Mr. Kessler his salary and benefits through June 1997. Eric B. Schwartzman, the former Vice President of Marketing and Product Development, had an employment agreement with the Company that was terminated on January 16, 1997. As a result, the Company must pay Mr. Schwartzman his salary and benefits through July 1997. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Robert J. Cooney, the Company's Chairman of the Board and Chief Executive Officer, has individually guaranteed, until December 31, 2000, the obligations of the Company under the lease for the Company's facilities. The lease expires on January 31, 2006 and requires base rental rate payments of $20,645 per month for the first 36 months with increased rentals thereafter tied to the Consumer Price Index. Robert J. Cooney also has personally guaranteed an equipment lease for Laser Storm of Arapahoe Village, Inc., a wholly owned subsidiary of the Company that owns and operates a Laser Storm(R) game system. The lease is for a term of 36 months and requires monthly rental payments of approximately $4,929. PROPOSAL NUMBER TWO APPROVAL OF 1996 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN Summary. The Company's Board of Directors has adopted the 1996 Incentive and Nonstatutory Stock Option Plan (the "1996 Plan"), subject to stockholder 9 approval at the Meeting. A copy of the 1996 Plan is attached to this Proxy Statement as Exhibit A. The following is a brief summary of the 1996 Plan, which is qualified in its entirety by reference to Exhibit A. Options granted under the 1996 Plan may be either Nonstatutory Options or Incentive Options. The purpose of the 1996 Plan is to advance the interests of the Company, its stockholders and its subsidiaries by encouraging and enabling selected officers, directors, employees, and consultants of the Company, upon whose judgment, initiative and effort the Company is largely dependent for the successful conduct of its business, to acquire and retain a proprietary interest in the Company by ownership of its stock through the exercise of stock options. Amount of Common Stock Subject to Options Under the 1996 Plan. The 1996 Plan provides for the grant of stock options covering an aggregate of 1,000,000 shares of Common Stock. The number of shares of Common Stock subject to options is subject to equitable adjustments for any stock dividends, stock splits, reverse stock splits, combinations, recapitalizations, reclassifications or any other similar changes which may be required in order to prevent dilution. Any option which is not exercised prior to expiration or which otherwise terminates will thereafter be available for further grant under the 1996 Plan. Administration of the 1996 Plan. The 1996 Plan may be administered by the Board of Directors or by a committee appointed by the Board of Directors consisting of not fewer than two non-employee members of the Board of Directors (the "Committee"). Subject to the conditions set forth in the 1996 Plan, the Board of Directors or the Committee has full and final authority to determine the number of shares to be represented by each option, the individuals to whom and the time or times at which such options shall be granted and be exercisable, their exercise prices and the terms and provisions of the respective agreements to be entered into at the time of grant, which may vary. The 1996 Plan is intended to be flexible, and a significant amount of discretion is vested in the Board of Directors or the Committee with respect to all aspects of the options to be granted under the 1996 Plan. Participants. Nonstatutory Options may be granted under the 1996 Plan to any person who is or who agrees to become an officer, director, employee or consultant of the Company or any of its subsidiaries. Incentive Options may be granted only to persons who are employees of the Company or any of its subsidiaries. As of June 16, 1997, the Company and its subsidiaries had approximately 98 employees. The participants will not be required to pay any sums for the granting of options, but may be required to pay the Company for extending the options. On November 1, 1996, the Board of Directors granted Incentive Options to John E. McNutt and James E. Johnson to purchase a total of 100,000 shares of the Company's Common Stock. All 100,000 Incentive Options granted have an exercise price of $2.25 per share and expire at times between October 31, 2002 and October 31, 2004. Mr. McNutt is an employee of the Company. Mr. Johnson's employment with the Company terminated on February 15, 1997, thereby terminating 10 the option and making it available for further grant under the 1996 Plan. The Incentive Options are not exercisable until the earlier of the date that the 1996 Plan is approved by the shareholders or October 31, 1997. If the 1996 Plan is not approved by the shareholders, the Incentive Options granted under the 1996 Plan will automatically become Nonstatutory Options. The following table provides certain information as to the options that have been granted under the 1996 Plan: Number of Shares Optionee Underlying the Options Granted -------- ------------------------------ John E. McNutt ........................... 25,000 All executive officers (as a group) ...... 25,000 All directors (as a group) ............... 25,000 James E. Johnson ......................... 75,000(1) (1) This grant represented 5% or more of the total options to be granted under the 1996 Plan. However, Mr. Johnson's option terminated on February 15, 1997, when his employment with the Company terminated, and the shares underlying such option are available for further option grants under the 1996 Plan. Exercise Price. The exercise price of each Nonstatutory Option granted under the 1996 Plan is determined by the Board of Directors or the Committee. The exercise price of each Incentive Option granted under the 1996 Plan is determined by the Board of Directors or the Committee and shall in no event be less than 100% (110% in the case of a person who owns directly or indirectly more than 10% of the Common Stock) of the fair market value of the shares on the date of grant. The payment of the exercise price of an option may be made in cash or shares of Common Stock. Fair market value is to be determined by the Board of Directors or the Committee in accordance with the 1996 Plan and such determination shall be binding upon the Company and upon the holder. The closing sale price of the Common Stock on June 16, 1997 as reported on the Nasdaq Small-Cap Market was $0.50 per share. Terms of Options. Options may be granted for a term of up to 10 years (five years in the case of Incentive Options granted to a person who owns directly or indirectly more than 10% of the Company's outstanding Common Stock), which may extend beyond the term of the 1996 Plan. 11 Exercise of Options. The terms governing the exercise of options granted under the 1996 Plan are to be determined by the Board of Directors or the Committee, which may limit the number of options exercisable in any period. Payment of the exercise price upon exercise of an option may be made in any combination of cash and shares of Common Stock, including the automatic application of shares of Common Stock received upon exercise of an option to satisfy the exercise price of additional options (unless the Board of Directors or the Committee provides otherwise). Where payment is made in Common Stock, such Common Stock shall be valued for such purpose at the fair market value of such shares on the date of exercise. Nontransferability. Incentive Options granted under the 1996 Plan are not transferable or assignable, other than by will or the laws of descent and distribution, and, during the lifetime of the holder, options are exercisable only by the holder. Nonstatutory Options do not contain restrictions on transferability. Termination of Relationship. Except as the Board of Directors or the Committee may expressly determine otherwise, if the holder of an Incentive Option ceases to be employed by the Company or any of its subsidiaries other than by reason of the holder's death or permanent disability, all Incentive Options granted to such holder under the 1996 Plan terminate immediately. In the event of the death or permanent disability of the holder of an Incentive Option, the option may be exercised to the extent that the holder might have exercised the option on the date of death or permanent disability for a period of up to 12 months following the date of death or permanent disability, unless by its terms the option expires before the end of such 12 month period. Amendment and Termination of the 1996 Plan. The Board of Directors may at any time and from time to time amend or terminate the 1996 Plan, but may not, without the approval of the stockholders of the Company representing a majority of the voting power present at a stockholders' meeting or represented and entitled to vote thereon, or by unanimous written consent of the stockholders, (i) increase the maximum number of shares of Common Stock subject to options which may be granted under the 1996 Plan, other than in connection with an equitable adjustment, (ii) change the class of employees eligible for Incentive Options, or (iii) make any material amendment under the 1996 Plan that must be approved by the Company's stockholders for the Board of Directors to be able to grant Incentive Options under the 1996 Plan. No amendment or termination of the 1996 Plan by the Board of Directors may alter or impair any of the rights under any option granted under the 1996 Plan without the holder's written consent. Effective Date and Term of the 1996 Plan. Options may be granted under the 1996 Plan during its 10 year term which commenced on November 1, 1996. 12 Certain Federal Income Tax Consequences. Incentive Options. The Company believes that with respect to Incentive Options granted under the 1996 Plan, no income generally will be recognized by an optionee for federal income tax purposes at the time such an option is granted or at the time it is exercised. If the optionee makes no disposition of the shares so received within two years from the date the Incentive Option was granted and one year from the receipt of the shares pursuant to the exercise of the Incentive Option, the optionee will generally recognize long term capital gain or loss upon disposition of the shares. If the optionee disposes of shares acquired by exercise of an Incentive Option before the expiration of the applicable holding period, any amount realized from such a disqualifying disposition will be taxable as ordinary income in the year of disposition generally to the extent that the lesser of the fair market value of the shares on the date the option was exercised or the fair market value at the time of such disposition exceeds the exercise price. Any amount realized upon such a disposition in excess of the fair market value of the shares on the date of exercise generally will be treated as long term or short term capital gain, depending on the holding period of the shares. A disqualifying disposition will include the use of shares acquired upon exercise of an Incentive Option in satisfaction of the exercise price of another option prior to the satisfaction of the applicable holding period. The Company will not be allowed a deduction for federal income tax purposes at the time of the grant or exercise of an Incentive Option. At the time of a disqualifying disposition by an optionee, the Company will be entitled to a deduction for federal income tax purposes equal to the amount taxable to the optionee as ordinary income in connection with such disqualifying disposition (assuming that such amount constitutes reasonable compensation). Nonstatutory Options. The Company believes that the grant of a Nonstatutory Option under the 1996 Plan will not be subject to federal income tax. Upon exercise, the optionee generally will recognize ordinary income and the Company will be entitled to a corresponding deduction for federal income tax purposes (assuming that such compensation is reasonable) in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price. Gain or loss on the subsequent sale of shares received on exercise of a Nonstatutory Option generally will be long term or short term capital gain or loss, depending on the holding period of the shares. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE APPROVAL OF THE 1996 PLAN. 13 PROPOSAL NUMBER THREE ADOPTION OF AN AMENDMENT TO ARTICLE II OF THE RESTATED ARTICLES OF INCORPORATION WITH AMENDMENTS TO ADD PARAGRAPH 7 Background and Discussion of Proposed Amendment. The Company was incorporated under the laws of the State of Colorado on March 12, 1990. Under the Colorado Corporation Code in effect at that time ("Prior Corporate Code"), shareholders of a corporation were entitled to preemptive rights to purchase unissued shares of the corporation unless the corporation's articles of incorporation expressly denied such rights to its shareholders. Article V, Section 4 of the Company's Original Articles expressly denied preemptive rights to its shareholders. When the Colorado Business Corporation Act ("CBCA") became effective on July 1, 1994, Section 7-106-301(1) of the CBCA revised the Prior Corporate Code by providing that shareholders of a corporation do not have preemptive rights to acquire unissued shares of the corporation unless otherwise provided its articles of incorporation. In addition, the transition provisions (Section 7-117-101(3) of the CBCA) governing changes between the Prior Corporate Code and the CBCA provide that shareholders of an existing corporation (one that was in existence on June 30, 1994) shall have preemptive rights unless the original articles of incorporation denied such preemptive rights. Thus, shareholders of the Company continued to have no preemptive rights under the transition provisions as well. On November 1, 1994, the directors and shareholders of the Company by unanimous consent adopted and filed its Restated Articles of Incorporation With Amendments ("Restated Articles") so that the Company's Articles of Incorporation would comply with the CBCA. The Company filed Articles of Amendment to its Restated Articles on September 27, 1995, October 3, 1995 and February 13, 1996, and filed Articles of Correction on January 29, 1996. The Company's Restated Articles, as amended and corrected, are silent on the issue of shareholders' preemptive rights. Based upon Section 7-110-101(1) of the CBCA, which provides that "whether a provision is required or permitted in the articles of incorporation is determined as of the effective date of the amendment," the Company intended the silence in the Restated Articles regarding preemptive rights to indicate that Section 7-106-301(1) of the CBCA governed preemptive rights, rather than the transition provisions. In either case, however, the position of the Board of Directors of the Company is that the Company's shareholders have no preemptive rights. To resolve any confusion that may arise due to the silence in the Restated Articles, as amended and corrected, on the issue of shareholder preemptive rights, the Board of Directors of the Company recommends that the Restated Articles, as amended and corrected, be amended by adding paragraph 7 to Article II of the Restated Articles, as amended and corrected, which provides as follows: 14 "7. The shareholders of the corporation do not have a preemptive right to acquire unissued shares of the corporation." Effect of Amendment on Stockholders. When the Restated Articles, as amended and corrected, were adopted subsequent to the CBCA's enactment, the Board of Directors intended that Section 7-106-301(1) of the CBCA governed preemptive rights. Therefore, it is the position of the Company's Board of Directors that the proposed amendment will not change the preemptive rights of the Company's shareholders but will only serve to clarify the Company's position with respect to the silence in the Restated Articles, as amended and corrected, regarding preemptive rights. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF THE AMENDMENT TO ARTICLE II OF THE RESTATED ARTICLES OF INCORPORATION WITH AMENDMENTS TO ADD PARAGRAPH 7. INDEPENDENT PUBLIC ACCOUNTANTS The Company's principal independent public accountants for the fiscal year ended December 31, 1996 were HEIN + ASSOCIATES LLP. The Board of Directors has not met to select the principal independent public accountants for the fiscal year ended December 31, 1997. Representatives of HEIN + ASSOCIATES LLP are expected to be present at the Meeting, to have an opportunity to make a statement if they desire to do so and to be available to respond to appropriate questions. ANNUAL REPORT TO STOCKHOLDERS This proxy statement is accompanied by a copy of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1996. The Company will provide without charge to each person to whom a copy of this Proxy Statement has been delivered, on the written request of such person, by first class mail or equally prompt means, a copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as filed with the Securities and Exchange Commission. Requests for such copies should be directed to William R. Bauerle, Secretary, at the Company at its principal offices, 7808 Cherry Creek South Drive, Unit 301, Denver, Colorado 80231 STOCKHOLDER PROPOSALS Proposals of stockholders intended to be presented at the next annual meeting of the Company's stockholders must be received by the Company within a reasonable time prior to the mailing of the proxy statement for such Meeting but no later than March 17, 1998. 15 SOLICITATION OF PROXIES The cost of soliciting proxies, including the cost of preparing, assembling and mailing this proxy material to stockholders, will be borne by the Company. Solicitations will be made only by use of the mails, except that, if necessary to obtain a quorum, officers and regular employees of the Company may make solicitations of proxies by telephone or electronic facsimile or by personal calls. Brokerage houses, custodians, nominees and fiduciaries will be requested to forward the proxy soliciting material to the beneficial owners of the Company's shares held of record by such persons and the Company will reimburse them for their charges and expenses in this connection. OTHER BUSINESS The Company's Board of Directors does not know of any matters to be presented at the Meeting other than the matters set forth herein. If any other business should come before the Meeting, the persons named in the enclosed form of Proxy will vote such Proxy according to their judgment on such matters. BY ORDER OF THE BOARD OF DIRECTORS WILLIAM R. BAUERLE, SECRETARY Denver, Colorado July 15, 1997 16 PROXY LASER STORM, INC. PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST 15, 1997 The undersigned hereby constitutes and appoints Robert J. Cooney, William R. Bauerle and John E. McNutt and each of them, the true and lawful attorneys and proxies of the undersigned with full power of substitution and appointment, for and in the name, place and stead of the undersigned, to act for and to vote all of the undersigned's shares of $0.001 par value common stock ("Common Stock") of Laser Storm, Inc. (the "Company") at the Annual Meeting of Stockholders (the "Meeting") to be held at Laser Storm of Arapahoe Village, 5150 East Arapahoe Road, Littleton, Colorado 80122, on August 15, 1997, at 9:00 a.m. Mountain Time, and at all adjournments thereof for the following purposes: 1. Election of Directors; [ ] FOR THE DIRECTOR [ ] WITHHOLD AUTHORITY TO VOTE FOR NOMINEES LISTED BELOW ALL NOMINEES LISTED BELOW (EXCEPT AS MARKED TO THE CONTRARY BELOW) INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW. Robert J. Cooney William R. Bauerle John E. McNutt 2. Approve the 1996 Incentive and Nonstatutory Stock Option Plan; [ ] FOR [ ] AGAINST [ ] ABSTAIN FROM VOTING 3. Adopt an amendment to Article II of the Company's Restated Articles of Incorporation With Amendments to add paragraph 7 which specifically provides that the Company's shareholders do not have preemptive rights to acquire unissued shares of the Company; and [ ] FOR [ ] AGAINST [ ] ABSTAIN FROM VOTING 4. In their discretion, the Proxies are authorized to vote upon such other business as lawfully may come before the Meeting. The undersigned hereby revokes any proxies as to said shares heretofore given by the undersigned and ratifies and confirms all that said attorneys and proxies lawfully may do by virtue hereof. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THEN THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING (1) FOR ELECTION OF THE NOMINEES FOR DIRECTOR AS SELECTED BY THE BOARD OF DIRECTORS; (2) TO APPROVE THE 1996 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN; AND (3) TO ADOPT AN AMENDMENT TO ARTICLE II OF THE RESTATED ARTICLES OF INCORPORATION WITH AMENDMENTS TO ADD PARAGRAPH 7. It is understood that this proxy confers discretionary authority in respect to matters not known or determined at the time of the mailing of the Notice of Annual Meeting of Stockholders to the undersigned. The proxies and attorneys intend to vote the shares represented by this proxy on such matters, if any, as determined by the Board of Directors. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and the Proxy Statement and Annual Report to Shareholders furnished therewith. Dated and Signed: , 1997 ------------------------------ ------------------------------------ ------------------------------------ Signature(s) should agree with the name(s) stenciled hereon. Executors, administrators, trustee, guardians and attorneys should so indicate when signing. Attorneys should submit powers of attorney. EX-1 2 EXHIBIT A--STOCK OPTION PLAN LASER STORM, INC. 1996 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN 1. Purpose of the Plan. The purposes of this 1996 Incentive and Nonstatutory Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company's business. Options granted hereunder may be either "incentive stock options," as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or "nonstatutory stock options," at the discretion of the Board and as reflected in the terms of the written stock option agreement. 2. Definitions. As used herein, the following definitions shall apply: a. "Board" shall mean the Committee, if one has been appointed, or the Board of Directors of the Company if no Committee is appointed. b. "Code" shall mean the Internal Revenue Code of 1986, as amended. c. "Common Stock" shall mean the $0.001 par value common stock of the Company. d. "Company" shall mean Laser Storm, Inc., a Colorado corporation. e. "Committee" shall mean the Committee appointed by the Board in accordance with paragraph (a) of Section 4 of the Plan, if one is appointed, or the Board if no committee is appointed. f. "Consultant" shall mean any person who is engaged by the Company or any Subsidiary to render consulting services and is compensated for such consulting services, but does not include a director of the Company who is compensated for services as a director only with the payment of a director's fee by the Company. g. "Continuous Status as an Employee" shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. h. "Employee" shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. i. "Incentive Stock Option" shall mean an Option which is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and which shall be clearly identified as such in the written Stock Option Agreement provided by the Company to each Optionee granted an Incentive Stock Option under the Plan. j. "Non-Employee Director" shall mean a director who: (i) Is not currently an officer (as defined in Section 16a-1(f) of the Securities Exchange Act of 1934, as amended) of the Company or a Parent or Subsidiary of the Company, or otherwise currently employed by the Company or a Parent or Subsidiary of the Company. (ii) Does not receive compensation, either directly or indirectly, from the Company or a Parent or Subsidiary of the Company, for services rendered as a Consultant or in any capacity other than as a director, except for an amount that does not exceed the dollar amount for which disclosure would be required pursuant to Item 404(a) of Regulation S-K adopted by the United States Securities and Exchange Commission. (iii) Does not possess an interest in any other transaction for which disclosure would be required pursuant to Item 404(a) of Regulation S-K adopted by the United States Securities and Exchange Commission. k. "Nonstatutory Stock Option" shall mean an Option granted under this Plan which does not qualify as an Incentive Stock Option and which shall be clearly identified as such in the written Stock Option Agreement provided by the Company to each Optionee granted a Nonstatutory Stock Option under this Plan. To the extent that the aggregate fair market value of Optioned Stock to which Incentive Stock Options granted under Options to an Employee are exercisable for the first time during any calendar year (under the Plan and all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options under the Plan. The aggregate fair market value of the Optioned Stock shall be determined as of the date of grant of each Option and the determination of which Incentive Stock Options shall be treated as qualified incentive stock options under Section 422 of the Code and which Incentive Stock Options exercisable for the first time in a particular year in excess of the $100,000 limitation shall be treated as Nonstatutory Stock Options shall be determined based on the order in which such Options were granted in accordance with Section 422(d) of the Code. 2 l. "Option" shall mean an Incentive Stock Option, a Nonstatutory Stock Option or both as identified in a written Stock Option Agreement representing such stock option granted pursuant to the Plan. m. "Optioned Stock" shall mean the Common Stock subject to an Option. n. "Optionee" shall mean an Employee or other person who is granted an Option. o. "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. p. "Plan" shall mean this 1996 Incentive and Nonstatutory Stock Option Plan. q. "Share" shall mean a share of the Common Stock of the Company, as adjusted in accordance with Section 11 of the Plan. r. "Stock Option Agreement" shall mean the agreement to be entered into between the Company and each Optionee which shall set forth the terms and conditions of each Option granted to each Optionee, including the number of Shares underlying such Option and the exercise price of each Option granted to such Optionee under such agreement. s. "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 1,000,000 shares of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. 4. Administration of the Plan. a. Procedure. The Plan shall be administered by the Board or a Committee appointed by the Board consisting of two or more Non-Employee Directors to administer the Plan on behalf of the Board, subject to such terms and conditions as the Board may prescribe. 3 (i) Once appointed, the Committee shall continue to serve until otherwise directed by the Board (which for purposes of this paragraph (a)(i) of this Section 4 shall be the Board of Directors of the Company). From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. (ii) Members of the Board who are granted, or have been granted, Options may vote on any matters affecting the administration of the Plan or the grant of any Options pursuant to the Plan. b. Powers of the Board. Subject to the provisions of the Plan, the Board shall have the authority, in its discretion: (i) To grant Incentive Stock Options, in accordance with Section 422 of the Code, and Nonstatutory Stock Options or both as provided and identified in a separate written Stock Option Agreement to each Optionee granted such Option or Options under the Plan; provided however, that in no event shall an Incentive Stock Option and a Nonstatutory Stock Option granted to any Optionee under a single Stock Option Agreement be subject to a "tandem" exercise arrangement such that the exercise of one such Option affects the Optionee's right to exercise the other Option granted under such Stock Option Agreement; (ii) To determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (iii) To determine the exercise price per Share of Options to be granted, which exercise price shall be determined in accordance with Section 8(a) of the Plan; (iv) To determine the Employees or other persons to whom, and the time or times at which, Options shall be granted and the number of Shares to be represented by each Option; (v) To interpret the Plan; (vi) To prescribe, amend and rescind rules and regulations relating to the Plan; 4 (vii) To determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option; (viii) To accelerate or defer (with the consent of the Optionee) the exercise date of any Option, consistent with the provisions of Section 7 of the Plan; (ix) To authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Board; and (x) To make all other determinations deemed necessary or advisable for the administration of the Plan. c. Effect of Board's Decision. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other permissible holders of any Options granted under the Plan. 5. Eligibility. a. Persons Eligible. Options may be granted to any person selected by the Board. Incentive Stock Options may be granted only to Employees. An Employee, who is also a director of the Company, its Parent or a Subsidiary, shall be treated as an Employee for purposes of this Section 5. An Employee or other person who has been granted an Option may, if he is otherwise eligible, be granted an additional Option or Options. b. No Effect on Relationship. The Plan shall not confer upon any Optionee any right with respect to continuation of employment or other relationship with the Company nor shall it interfere in any way with his right or the Company's right to terminate his employment or other relationship at any time. 6. Term of Plan. The Plan became effective on November 1, 1996. It shall continue in effect until October 31, 2006, unless sooner terminated under Section 13 of the Plan. 7. Term of Option. The term of each Option shall be 10 years from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement. However, in the case of an Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, if the Option is an Incentive Stock Option, the term of the Option shall be five years from the date of grant thereof or such shorter time as may be provided in the Stock Option Agreement. 5 8. Exercise Price and Consideration. a. Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but the per Share exercise price under an Incentive Stock Option shall be subject to the following: (i) If granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall not be less than 110% of the fair market value per Share on the date of grant. (ii) If granted to any other Employee, the per Share exercise price shall not be less than 100% of the fair market value per Share on the date of grant. b. Determination of Fair Market Value. The fair market value per Share on the date of grant shall be determined as follows: (i) If the Common Stock is listed on the New York Stock Exchange, the American Stock Exchange or such other securities exchange designated by the Board, or admitted to unlisted trading privileges on any such exchange, or if the Common Stock is quoted on a National Association of Securities Dealers, Inc. system that reports closing prices, the fair market value shall be the closing price of the Common Stock as reported by such exchange or system on the day the fair market value is to be determined, or if no such price is reported for such day, then the determination of such closing price shall be as of the last immediately preceding day on which the closing price is so reported; (ii) If the Common Stock is not so listed or admitted to unlisted trading privileges or so quoted, the fair market value shall be the average of the last reported highest bid and the lowest asked prices quoted on the National Association of Securities Dealers, Inc. Automated Quotations System or, if not so quoted, then by the National Quotation Bureau, Inc. on the day the fair market value is determined; or 6 (iii) If the Common Stock is not so listed or admitted to unlisted trading privileges or so quoted, and bid and asked prices are not reported, the fair market value shall be determined in such reasonable manner as may be prescribed by the Board. c. Consideration and Method of Payment. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist entirely of cash, check, other shares of Common Stock having a fair market value on the date of exercise equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, or any combination of such methods of payment, or such other consideration and method of payment for the issuance of Shares to the extent permitted under the Colorado Business Corporation Act. 9. Exercise of Option. a. Procedure for Exercise: Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. In the sole discretion of the Board, at the time of the grant of an Option or subsequent thereto but prior to the exercise of an Option, an Optionee may be provided with the right to exchange, in a cashless transaction, all or part of the Option for Common Stock of the Company on terms and conditions determined by the Board. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment, as authorized by the Board, may consist of a consideration and method of payment allowable under Section 8(c) and this Section 9(a) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of the duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. 7 Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. b. Termination of Status as an Employee. In the case of an Incentive Stock Option, if any Employee ceases to serve as an Employee, he may, but only within such period of time not exceeding three months as is determined by the Board at the time of grant of the Option after the date he ceases to be an Employee of the Company, exercise his Option to the extent that he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of such termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate. c. Disability of Optionee. In the case of an Incentive Stock Option, notwithstanding the provisions of Section 9(b) above, in the event an Employee is unable to continue his employment with the Company as a result of his total and permanent disability (as defined in Section 22(e)(3) of the Code), he may, but only within such period of time not exceeding 12 months as is determined by the Board at the time of grant of the Option from the date of termination, exercise his Option to the extent he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate. d. Death of Optionee. In the case of an Incentive Stock Option, in the event of the death of the Optionee: (i) During the term of the Option if the Optionee was at the time of his death an Employee the Company and had been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised, at any time within 12 months following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had the Optionee continued living and remained in Continuous Status as an Employee 12 months after the date of death; or (ii) Within such period of time not exceeding three months as is determined by the Board at the time of grant of the Option after the termination of Continuous Status as an Employee, the Option may be exercised, at any time within 12 months following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. 8 10. Nontransferability of Options. In the case of an Incentive Stock Option, the Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes in Capitalization or Merger. Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of any Option, as well as the price per Share covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. In the event of the proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation in a transaction in which the Company is not the survivor, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Optionee shall have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. If the Board makes an Option fully exercisable in lieu of assumption or substitution in the event of such a merger or sale of assets, the Board shall notify the Optionee that the Option shall be fully exercisable for a period of 30 days from the date of such notice, and the Option will terminate upon the expiration of such period. 9 12. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Board makes the determination granting such Option. Notice of the determination shall be given to each Employee or other person to whom an Option is so granted within a reasonable time after the date of such grant. Within a reasonable time after the date of the grant of an Option, the Company shall enter into and deliver to each Employee or other person granted such Option a written Stock Option Agreement as provided in Sections 2(r) and 16 hereof, setting forth the terms and conditions of such Option and separately identifying the portion of the Option which is an Incentive Stock Option and/or the portion of such Option which is a Nonstatutory Stock Option. 13. Amendment and Termination of the Plan. a. Amendment and Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided that, the following revisions or amendments shall require approval of the shareholders of the Company in the manner described in Section 17 of the Plan: (i) An increase in the number of Shares subject to the Plan above 1,000,000 Shares, other than in connection with an adjustment under Section 11 of the Plan; (ii) Any change in the designation of the class of Employees eligible to be granted Incentive Stock Options; or (iii) Any material amendment under the Plan that would have to be approved by the shareholders of the Company for the Board to continue to be able to grant Incentive Stock Options under the Plan. b. Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if the Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, applicable state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of legal counsel for the Company with respect to such compliance. 10 As a condition to the existence of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares and such other representations and warranties which in the opinion of legal counsel for the Company, are necessary or appropriate to establish an exemption from the registration requirements under applicable federal and state securities laws with respect to the acquisition of such Shares. 15. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's legal counsel to be necessary for the lawful issuance and sale of any Share hereunder, shall relieve the Company of any liability relating to the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. Option Agreement. Each Option granted to an Employee or other persons shall be evidenced by a written Stock Option Agreement in such form as the Board shall approve. 17. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company on or before October 31, 1997. Such shareholder approval and any shareholder approval required under Section 13 of the Plan, may be obtained at a duly held shareholders meeting by the affirmative vote of the holders of a majority of the outstanding shares of the voting stock of the Company, who are present or represented and entitled to vote thereon, or by unanimous written consent of the shareholders in accordance with the provisions of the Colorado Business Corporation Act. 18. Information to Optionees. The Company shall provide to each Optionee, during the period for which such Optionee has one or more Options outstanding, copies of all annual reports and other information which are provided to all shareholders of the Company. The Company shall not be required to provide such information if the issuance of Options under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information. 19. Gender. As used herein, the masculine, feminine and neuter genders shall be deemed to include the others in all cases where they would so apply. 11 20. CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CON- STRUCTION, VALIDITY AND INTERPRETATION OF THIS PLAN AND THE INSTRUMENTS EVIDENCING OPTIONS WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF COLORADO. IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Plan effective as of November 1, 1996. LASER STORM, INC., a Colorado corporation By: ------------------------------ William R. Bauerle, President 12 -----END PRIVACY-ENHANCED MESSAGE-----