KATZ DIGITAL TECHNOLOGIES INC, DEF 14A, 1997-03-31

KATZ DIGITAL TECHNOLOGIES INC
DEF 14A, 1997-03-31
SERVICE INDUSTRIES FOR THE PRINTING TRADE

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<PAGE> 1

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 Section 240.14a-11(c) or Section 240.14a-2.

KATZ DIGITAL TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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 0-12.

(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.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE> 2

KATZ DIGITAL TECHNOLOGIES, INC.
TWENTY-ONE PENN PLAZA
NEW YORK, NY 10001

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 15, 1997

The Annual Meeting of Stockholders of KATZ DIGITAL TECHNOLOGIES, INC. (the
"Company") will be held in the Main Board Room of the Company's offices,
Twenty-One Penn Plaza, 8th Floor, New York, New York, on Thursday May 15, 1997,
at 11:00 a.m. local time, to consider and act upon the following matters:

1. To elect five directors to serve for the ensuing year.

2. To ratify and approve the Company's Amended and Restated 1996 Stock
Option Plan.

3. To ratify the selection by the Board of Directors of Grant Thornton
LLP as the Company's independent auditors for the current fiscal
year.

4. To transact such other business as may properly come before the
meeting or any adjournment thereof.

Stockholders of record as of the close of business on March 19, 1997 are
entitled to notice of and to vote at the meeting or any adjournment thereof. The
stock transfer books of the Company will remain open.

By Order of the Board of Directors

GEOFFREY BARSKY
Secretary

New York, New York
March 26, 1997

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES. YOU MAY REVOKE THE PROXY AT ANY TIME
BEFORE THE AUTHORITY GRANTED THEREIN IS EXERCISED.
<PAGE> 3

KATZ DIGITAL TECHNOLOGIES, INC.
TWENTY-ONE PENN PLAZA
NEW YORK, NY 10001

PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 15, 1997

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Katz Digital Technologies, Inc. (the
"Company") for use at the 1997 Annual Meeting of Stockholders to be held on
Thursday, May 15, 1997, and at any adjournment of that meeting (the "Annual
Meeting"). All proxies will be voted in accordance with a stockholder's
instructions and, if no choice is specified, the proxies will be voted in favor
of the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before it is exercised by delivery of
written revocation or a subsequently dated proxy to the Secretary of the Company
or by voting in person at the Annual Meeting.

The Company's Annual Report for the fiscal year ended December 31, 1996 is
being mailed to stockholders together with this Proxy Statement.

VOTING SECURITIES AND VOTES REQUIRED

At the close of business on March 19, 1997, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 4,425,000 shares of Common
Stock of the Company. Stockholders are entitled to one vote per share.

The affirmative vote of the holders of a plurality of the shares of Common
Stock present or represented at the Annual Meeting is required for election of
directors. The affirmative vote of the holders of a majority of the votes cast
at the Annual Meeting is required for the approval of the adoption of the
Company's Amended and Restated 1996 Stock Option Plan and the ratification of
the selection by the Board of Directors of Grant Thornton LLP as the Company's
independent auditors for the current fiscal year. Shares of Common Stock
represented in person or by proxy (including shares which abstain or do not vote
for any reason with respect to one or more of the matters presented for
stockholder approval) will be counted for purposes of determining whether a
quorum is present at the Annual Meeting. Abstentions will be treated as shares
that are present and entitled to vote for purposes of determining the number of
shares present and entitled to vote with respect to any particular matter, but
will not be counted as a vote in favor of such matter. Accordingly, an
abstention from voting on a matter has the same legal effect as a vote against
the matter. If a broker or nominee holding stock in "street name" indicates on
the proxy that it does not have discretionary authority to vote as to a
particular matter ("broker non-votes"), those shares will not be considered as
present and entitled to vote with respect to such matter. Accordingly, a broker
non-vote on a matter has no effect on the voting on such matter.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 19, 1997,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each current director and nominee for director of the Company, (ii) each
executive officer of the Company named in the Summary Compensation Table set
forth under the caption "Compensation of Executive Officers" below, (iii) all
directors and executive officers of the Company as a group and (iv) each person
known by the Company to own beneficially more than five per cent (5%) of the
outstanding shares of Common Stock of the Company.

2
<PAGE> 4

<TABLE>
<CAPTION>
NAME AND ADDRESS(1) AMOUNT AND NATURE OF PERCENTAGE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(2) OUTSTANDING SHARES OWNED
- ---------------------------------------------------- ---------------------- -----------------------
<S> <C> <C>
Murray L. Skala..................................... 25,000(8) *
750 Lexington Avenue
New York, NY 10022
Ronald B. Grudberg.................................. 45,000(9) 1.0
14 Kevin Court
Nanuet, NY 10954
Burtt R. Ehrlich.................................... 45,000(10) 1.0
667 Madison Avenue
New York, NY 10021
Wellington Management Company, LLP.................. 430,000(11) 9.7
75 State Street
Boston, Massachusetts 02109
The Dreyfus Corporation............................. 230,000(11) 5.2
c/o Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
All executive officers and directors as a group
(nine persons)(13)................................ 2,659,000(12) 58.9
</TABLE>

- ---------------
* Less than 1% of the Company's outstanding shares.

(1) Unless otherwise listed, the addresses of all of the persons in the
foregoing table are at the Company's offices, Twenty-One Penn Plaza, New
York, NY 10001.

(2) The number of Shares of Common Stock beneficially owned by each person or
entity is determined under rules promulgated by the Securities and Exchange
Commission (the "Commission"). Under such rules, beneficial ownership
includes any shares as to which the person or entity has sole or shared
voting power or investment power. The percentage of the Company's
outstanding shares is calculated by including among the shares owned by
such person any shares which such person or entity has the right to acquire
within 60 days after March 19, 1997. Unless otherwise indicated, each
person or entity referred to above has sole voting and investment power
with respect to the shares listed. The inclusion herein of any shares
deemed beneficially owned does not constitute an admission of beneficial
ownership of such shares.

(3) Includes 1,332,500 shares owned beneficially and of record by Rochelle
Katz, the wife of Mr. Katz.

(4) Includes 1,092,500 shares owned beneficially and of record by Gary Katz,
the husband of Mrs. Katz.

(5) Includes 4,000 shares issuable to Ms. Sklar upon exercise of an option and
5,000 shares owned beneficially and of record by, and an option for 4,000
shares issuable upon exercise of an option to, Michael Sklar, the husband
of Mrs. Sklar.

(6) Includes 4,000 shares issuable to Mr. Sklar upon exercise of an option and
102,000 shares owned beneficially and of record by, and an option for 4,000
shares issuable upon exercise of an option to, Lisa K. Sklar, the wife of
Mr. Sklar.

(7) Represents 4,000 shares of Common Stock issuable to Mr. Barsky upon
exercise of an option.

(8) Represents 25,000 shares of Common Stock issuable to Mr. Skala upon
exercise of an option.

(9) Includes 25,000 shares of Common Stock issuable to Mr. Grudberg upon
exercise of an option.

(10) Includes 25,000 shares of Common Stock issuable to Mr. Ehrlich upon
exercise of an option.

(11) Pursuant to information provided to the Company on Forms 13(g) filed with
the Securities and Exchange Commission by, or on behalf of, such beneficial
owners.

(12) See footnotes (3) and (5) through (10).

(13) Includes Carl S. Grossman, the Company's President and Chief Operating
Officer and Donald L. Flamm, the Company's Vice President -- Finance and
Chief Financial Officer, neither of whom has any beneficial ownership of
the Company's Common Stock.

3
<PAGE> 5

ELECTION OF DIRECTORS
(PROPOSAL NO. 1)

The persons named in the enclosed proxy will vote to elect as directors the
five nominees named below, unless authority to vote for the election of any or
all of the nominees is withheld by marking the proxy to that effect. All of the
nominees have indicated their willingness to serve, if elected, but if any
nominee should be unable to serve, the proxies may be voted for a substitute
nominee designated by management. Each director will be elected to hold office
until the next annual meeting of stockholders or until his successor is elected
and qualified.

NOMINEES

Set forth below for each nominee as a director of the Company is his name
and age, position with the Company, business experience during the past five
years, the date of the commencement of each director's term as a director, and
other directorships held in reporting companies.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- --- --------------------------------------
<S> <C> <C>
Gary Katz........................................ 59 Chairman of the Board and Chief
Executive Officer
Michael Sklar.................................... 33 Vice President -- Business Development
Murray L. Skala.................................. 50 Director
Ronald B. Grudberg............................... 58 Director
Burtt R. Ehrlich................................. 57 Director
</TABLE>

Gary Katz founded the Company and has been Chairman of the Board and Chief
Executive Officer of the Company since inception in 1987. Prior to such time,
and for a period of over thirty years, Mr. Katz was engaged in the typography
business in various sales capacities.

Michael Sklar has been a director of the Company since December 1995, Vice
President -- Business Development of the Company since August 1996, and Vice
President -- Operations of the Company from April 1994 until August 1996. From
June 1989 to April 1994, Mr. Sklar was Vice President of Marketing of the
Biomedical Device Division of Pall Corporation, a filter manufacturing company.

Murray L. Skala has been a director of the Company since December 1995. Mr.
Skala has been a partner of the law firm Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass, LLP since 1976. Mr. Skala is also a director of Quintel
Entertainment, Inc., a publicly-held company in the business of developing and
marketing telephone entertainment services, and JAKKS Pacific, Inc., a
publicly-held company in the business of developing and selling children's toys.

Ronald B. Grudberg has been a director of the Company since February 1996.
From 1984 until his retirement in January 1995, Mr. Grudberg was Chief Executive
Officer and a director of Finlay Fine Jewelry Corporation.

Burtt R. Ehrlich has been a director of the Company since March 1996. Mr.
Ehrlich has been a private investor since November 1992. From 1969 to November
1992, Mr. Ehrlich was president and Chairman of Ehrlich Bober Financial Corp.,
an investment banking/service firm listed on the American Stock Exchange. Mr.
Ehrlich is also a director of Armor Holdings, Inc., a publicly-held company
which manufactures and sells bullet-proof vests and other body armor products.

4
<PAGE> 6

EXECUTIVE OFFICERS

Set forth below are the Non-Director Executive Officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------- --- --------------------------------------
<S> <C> <C>
Carl S. Grossman................................... 47 President and Chief Operating Officer
Lisa K. Sklar...................................... 32 Executive Vice President -- Sales
Geoffrey Barsky.................................... 41 Vice President, Controller and
Secretary
Donald L. Flamm.................................... 53 Vice President -- Finance and Chief
Financial Officer
</TABLE>

Carl Grossman has been President and Chief Operating Officer of the Company
since January 6, 1997. From January 1995 through September 1996, Mr. Grossman
was President and Chief Executive Officer of Integrated Imaging Center, a
digital prepress company. From July 1990 through May 1994, Mr. Grossman was
Managing Partner of Sandy Alexander, Inc., a communications company.

Lisa K. Sklar has been Executive Vice President -- Sales of the Company
since January 1989.

Geoffrey Barsky has been Vice President of the Company since November 1995,
Controller of the Company since November 1992 and Secretary of the Company since
February 1996. From March 1980 to November 1992, Mr. Barsky was a comptroller
with Hilton Hotels Corporation.

Donald L Flamm has been Vice President -- Finance and Chief Financial
Officer of the Company since February 10, 1997. From February 1996 through
January 1997 Mr. Flamm was an independent consultant. From December 1994 through
January 1996, Mr. Flamm was Senior Vice President Finance and Administration and
Chief Financial Officer of Comtex Information Systems, Inc., a computer
consulting company. From October 1986 through November 1994 Mr. Flamm was Vice
President Finance and Chief Financial Officer of LCS Industries, Inc., a direct
marketing services company.

Two of the Company's executive officers, Gary Katz and Michael Sklar, are
also directors of the Company. Information with regard to such persons are set
forth above under the heading "Nominees" which is hereby incorporated by
reference.

All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Directors receive no cash
compensation for serving on the Board of Directors other than reasonable
expenses incurred in attending meetings. Directors who are not employees of the
Company are compensated for their services and attendance at meetings through
the grant of options pursuant to the Company's 1996 Stock Option Plan. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board. See "Approval of the Amended and Restated 1996 Stock Option Plan"
herein.

The Company has agreed, if so requested by the underwriter of the initial
public offering of the Company's Common Stock, Whale Securities Co., L.P.
("Whale"), to nominate and use its best efforts to elect a designee of Whale as
a director of the Company or, at Whale's option, as a non-voting adviser to the
Company's Board of Directors. The Company's officers, directors and the holders
of the Company's securities immediately prior to such initial public offering
have agreed to vote their shares of Common Stock in favor of such designee.
Whale has not yet exercised its right to designate such a person. Such right of
designation by Whale expires March 25, 2001.

Lisa K. Sklar is the daughter of Gary Katz and the wife of Michael Sklar.
Geoffrey A. Barsky is the nephew of Mr. Katz.

5
<PAGE> 7

THE COMMITTEES

The Board has an Audit Committee, a Compensation Committee and a Stock
Option Committee. The Board of Directors does not have a Nominating Committee
and the usual functions of such a committee are performed by the entire Board of
Directors.

Audit Committee. The functions of the Audit Committee include
recommendations to the Board of Directors with respect to the engagement of the
Company's independent certified public accountants and the review of the scope
and effect of the audit engagement. The current members of the Audit Committee
are Messrs. Katz, Grudberg and Ehrlich.

Compensation Committee. The function of the Compensation Committee is to
make recommendations to the Board with respect to compensation of management
employees. In addition, the Compensation Committee administers plans and
programs, with the exception of the Company's stock option plans, relating to
employee benefits, incentives and compensation. The current members of the
Compensation Committee are Messrs. Skala and Grudberg.

Stock Option Committee. The Stock Option Committee determines the persons
to whom options should be granted under the Company's stock option plans and the
number of options to be granted to each person. The current members of the Stock
Option Committee are Messrs. Skala and Ehrlich.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Murray L. Skala, a director of the Company, is a partner in the law firm of
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP, the Company's attorneys.
In 1996, the Company issued to such firm 25,000 shares of the Company's Common
Stock as part of the payment for legal services rendered in connection with the
Company's initial public offering of its shares of Common Stock. The Company
paid approximately $350,000 in 1996 and $87,000 in 1995 to Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass, LLP for legal services.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934

Based upon a review of Forms 3 and 4 and amendments thereto provided to the
Company during the fiscal year ended December 31, 1996, all filings of such
forms were made timely. One amendment to Mr. Ehrlich's Form 3 was filed to
reflect initial ownership of Common Stock of the Company.

ATTENDANCE AT MEETINGS

There were four meetings of the Board of Directors in the fiscal year ended
December 31, 1996. All of the directors were present at each such meeting.

The Audit Committee held one meeting during 1996. None of the Board's other
committees held meetings in 1996. All Committee action was done by written
consent.

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<PAGE> 8

EXECUTIVE COMPENSATION

The following table sets forth the Company's executive compensation paid
during the three fiscal years ended December 31, 1996, 1995 and 1994 to its
Chief Executive Officer, to each of its executive officers (collectively, the
"Named Officers"), and to one other highly compensated individual.

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------
AWARDS
-------------------- PAYOUTS
ANNUAL COMPENSATION -------------------------
---------------------------------- (F)
(E) RESTRICTED (H) (I)
(A) (C) (D) OTHER STOCK (G) PLAN ALL
NAME AND PRINCIPAL (B) SALARY BONUS ANNUAL AWARDS OPTIONS PAYOUTS OTHER
POSITION YEAR ($) ($) COMPENSATION($) ($) (#) ($) COMPENSATION($)
- -------------------- ---- ------- ------ --------------- ---------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Katz........... 1996 346,077 -- -- -- -- -- 11,538(1)
Chairman of the 1995 299,500 -- -- -- -- -- 38,867(1)
Board and Chief 1994 245,000 -- -- -- -- -- 111,445(1)
Executive Officer
Lisa K. Sklar....... 1996.. 346,711 -- -- -- -- -- --
Executive Vice 1995 448,833 -- -- -- -- -- --
President -- Sales 1994 460,879 -- -- -- -- -- --
Michael D. Sklar.... 1996 151,692 -- -- -- -- -- 490(1)
Vice President -- 1995 104,377 10,000 -- -- -- -- 4,979(1)
Business 1994 66,146 7,500 -- -- -- -- --
Development
Geoffrey Barsky..... 1996 106,154 -- -- -- -- -- 1,412(1)
Vice President, 1995 103,259 10,000 -- -- -- -- 9,702(1)
Controller and 1994 83,607 15,000 -- -- -- -- 8,772(1)
Secretary
Mitchell Cohen...... 1996 103,385 -- -- -- -- -- --
Former Chief 1995 -- -- -- -- -- -- --
Financial
Officer(2) 1994 -- -- -- -- -- -- --
</TABLE>

- ---------------
(1) Consists of approximate amount of contributions by the Company to the
Company's Pension Plan for 1996, 1995 and 1994 for the benefit of such
employees.

(2) Mr. Cohen's employment with the Company began in January 1996 and ended in
November 1996.

OPTION/SAR GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------
(B) (C)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS (D)
UNDERLYING GRANTED TO EXERCISE (E)
(A) OPTIONS/SARS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE
- ------------------------------------------------------ ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Gary Katz............................................. -- -- -- --
Michael Sklar......................................... 12,000 3.9 5.00 3/25/2001
Lisa Sklar............................................ 12,000 3.9 5.00 3/25/2001
Geoffrey Barsky....................................... 12,000 3.9 5.00 3/25/2001
Mitchell Cohen(1)..................................... 10,000 3.2 5.00 3/25/2001
</TABLE>

- ---------------
(1) Mr. Cohen's employment with the Company ended in November 1996 and therefore
his options have since been terminated.

EMPLOYEE STOCK PLANS

The Company currently does not maintain any employee stock plans. For a
discussion of the Company's proposed Amended and Restated 1996 Stock Option
Plan, see "Approval of the Amended and Restated 1996 Stock Option Plan" herein.

7
<PAGE> 9

BOARD COMPENSATION

As a result of the Company's policy to compensate directors who are not
employees of the Company for their services other than by cash payments, the
Company's 1996 Stock Option Plan provides for the automatic grant to each such
director of options to purchase 20,000 shares of Common Stock upon election to
the Board and for the additional automatic annual grant of options for each such
director to purchase 5,000 shares of Common Stock. The exercise price for all of
such director options is the market value of the Common Stock on the date of
each grant. The Company is proposing in this Proxy Statement to adopt the
Amended and Restated 1996 Stock Option Plan (the "Amended 1996 Plan"), whereby
the Company, among other things will increase the number of shares underlying
the annual grants of options to each of such directors who are not employees of
the Company from 5,000 to 20,000, granted quarterly in the amount of options for
5,000 shares per quarter. For a complete discussion of such proposal and the
Amended 1996 Plan, see "Approval of the Amended and Restated 1996 Stock Option
Plan."

EMPLOYMENT AGREEMENTS

The Company has entered into an employment agreement with Gary Katz,
effective March 25, 1996 and expiring on December 31, 1999. Such agreement
provides for Mr. Katz's continued employment as Chairman of the Board, President
and Chief Executive Officer for the term of the agreement. In 1997, the Board of
Directors appointed Mr. Grossman as President and Mr. Katz's title is now
Chairman of the Board and Chief Executive Officer. The employment agreement
provides for employment on a full-time basis and contains a provision that
prohibits Mr. Katz from competing or engaging in a business competitive with the
business of the Company during the term of employment and for two years
thereafter. Pursuant to such agreement, the Company has agreed to pay Mr. Katz a
base salary at the rate of $350,000 per year for the year ending December 31,
1996, with annual increases of 10% thereafter. Mr. Katz has elected to forego
the 10% increase for the year ending December 31, 1997. Mr. Katz is also
entitled to receive such bonuses as recommended by the Compensation Committee of
the Board of Directors.

The Company has entered into an employment agreement with Lisa K. Sklar,
effective March 25, 1996 and expiring on December 31, 1999. Such agreement
provides for Ms. Sklar's continued employment as Executive Vice
President -- Sales for the term of the agreement. The employment agreement
provides for employment on a full-time basis and contains a provision that
prohibits Ms. Sklar from competing or engaging in a business competitive with
the business of the Company during the term of employment and for one year
thereafter. Pursuant to such agreement, the Company has agreed to pay Ms. Sklar
a base salary at the rate of $25,000 per year for the year ending December 31,
1996, with annual increases of $5,000 thereafter. Such agreement also provides
for the payment of commissions to Ms. Sklar, at the Company's standard
commission rates, based on gross sales derived by the Company from her accounts,
including a non-refundable draw against commissions of $100,000 per year.

The Company has entered into an employment agreement with Michael Sklar
effective March 25, 1996 and expiring on December 31, 2001. Such agreement
provides for Mr. Sklar's continued employment as Vice President -- Operations
for the term of the agreement. On August 8, 1996, the Company's Board of
Directors, by resolution, changed Mr. Sklar's responsibilities and changed his
title to Vice President -- Business Development. The employment agreement
provides for employment on a full-time basis and contains a provision that
prohibits Mr. Sklar from competing or engaging in a business competitive with
the business of the Company during the term of employment and for one year
thereafter. Pursuant to such agreement, the Company has agreed to pay Mr. Sklar
a base salary at the rate of $160,000 per year for the year ending December 31,
1996, with annual increases thereafter, based on the Company's earnings before
taxes; provided, however, that no annual increase shall exceed $25,000. Mr.
Sklar is also entitled to receive such bonuses during the term of employment as
recommended by the Compensation Committee of the Board of Directors.

The Company has entered into an employment agreement with Geoffrey Barsky
effective March 25, 1996 and expiring on December 31, 1999. Such agreement
provides for Mr. Barsky's continued employment as Vice President and Controller
for the term of the agreement. The employment agreement provides for employment
on a full-time basis and contains a provision that prohibits Mr. Barsky from
competing or engaging in a

8
<PAGE> 10

business competitive with the business of the Company during the term of
employment and for one year thereafter. Pursuant to such agreement, the Company
has agreed to pay Mr. Barsky a base salary at the rate of $108,000 per year for
the year ending December 31, 1996, with annual increases to $118,000, $130,000
and $140,000 for the years ending December 31, 1997, 1998 and 1999,
respectively. Mr. Barsky is also entitled to receive such bonuses, during the
term of employment, as recommended by the Compensation Committee of the Board of
Directors.

RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
(PROPOSAL NO. 2)

Upon the recommendation of the Audit Committee of the Board of Directors,
the Board of Directors of the Company has selected the firm of Grant Thornton
LLP, independent certified public accountants, as the independent auditors of
the Company for the fiscal year ending December 31, 1997, subject to
ratification by the stockholders. Grant Thornton LLP served as the Company's
independent auditors during the year ended December 31, 1996. If the appointment
of the firm of Grant Thornton LLP is not approved or if that firm shall decline
to act or their employment is otherwise discontinued, the Board of Directors
will appoint other independent auditors. Representatives of Grant Thornton LLP
are expected to be present at the Annual Meeting, will have the opportunity to
make a brief statement at the Annual Meeting, if they so desire, and will be
available to answer appropriate questions from Stockholders.

APPROVAL OF THE COMPANY'S
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
(PROPOSAL NO. 3)

The Board of Directors has unanimously adopted, subject to stockholder
approval, an Amended and Restated 1996 Stock Option Plan (the "Amended 1996
Plan"), which amends certain aspects of the Company's 1996 Stock Option Plan,
which was adopted by the Company's stockholders and directors in February 1996.
If approved by the stockholders of the Company, the Amended 1996 Plan would (i)
increase the number of shares of the Company's Common Stock available for grants
of options under the Amended 1996 Plan from 350,000 to 650,000 shares, (ii)
increase the number of shares of the Company's Common Stock included in the
options automatically granted annually to each director who is not an employee
of the Company from 5,000 shares per year to 5,000 shares per calendar quarter
on the first day of each such calendar quarter (for an aggregate of 20,000
shares annually), and (iii) permit transferability of options pursuant to a
domestic relations order.

The above-described amendment was approved by unanimous consent of the
Company's Board of Directors on March 25, 1997, subject to stockholder approval.

The Amended 1996 Plan is summarized below. The full text of the Amended
1996 Plan is set forth in Appendix A to this Proxy Statement, and the following
discussion is qualified by reference thereto.

ADMINISTRATION AND ELIGIBILITY

The Amended 1996 Plan provides for the grant of stock options to officers,
directors, eligible employees, consultants and advisors of the Company. The
Company proposes to increase the maximum number of shares of Common Stock
available for issuance under the Amended 1996 Plan to 650,000 shares. Under the
Amended 1996 Plan, the Company may grant incentive stock options or options not
intended to qualify as incentive stock options.

The Amended 1996 Plan provides for the granting of (i) Incentive Stock
Options intended to meet the requirements of Section 422 of the Internal Revenue
Code of 1986 (the "Code") to the Company's eligible employees and (ii)
Nonstatutory Stock Options which are not to be treated as incentive stock
options to the Company's non-employee directors, eligible employees, consultants
or advisors.

9
<PAGE> 11

The Amended 1996 Plan is to be administered by the Board of Directors or
the Stock Option Committee (the "Committee"), which is comprised solely of two
or more "Non-Employee Directors," as such term is defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended. Any
construction or interpretation of terms and provisions of the Amended 1996 Plan
by the Board or Committee are final and conclusive. The class of persons which
shall be eligible to receive discretionary grants of Options under the Amended
1996 Plan shall be employees (including officers), consultants or advisors of
either the Company or any subsidiary corporation of the Company. Employees
(including officers) shall be entitled to receive Incentive Stock Options and
Nonstatutory Stock Options. Directors who are not employees of the Company,
consultants and advisors shall be entitled only to receive Nonstatutory Stock
Options. The Board or Committee, in its discretion, but subject to the
provisions of the Amended 1996 Plan, shall determine the employees, consultants
or advisors of the Company or its subsidiary corporations to whom Options shall
be granted and the number of shares to be covered by each Option, as well as the
type of option, taking into account the nature of the employment or services
rendered by the individuals being considered, their annual compensation, their
present and potential contributions to the success of the Company and such other
factors as the Board or Committee may deem relevant.

As of the date of the adoption of the Amended 1996 Plan by the Company's
stockholders, on the date any person who is not an employee of the Company first
becomes a director of the Company, such person will automatically be granted,
without further action by the Board or Committee, an option to purchase 20,000
shares of the Company's Common Stock. In addition, on the first day of each
calendar quarter during the term of the Amended 1996 Plan, each director then
serving in such capacity who is not an employee of the Company, is to be
automatically granted, without further action by the Committee, an Option to
purchase 5,000 shares of the Company's Common Stock (for an aggregate of 20,000
shares annually). For the purpose of these automatic grants, a director who is
not an employee of the Company includes attorneys, consultants, and advisors
who, in addition to performing services in such capacities, also serve as
directors.

Under the Amended 1996 Plan, grants to directors who are not employees of
the Company may only be Nonstatutory Stock Options.

No Incentive Stock Option granted under the Amended 1996 Plan shall be
exercisable after the expiration of ten (10) years from the date of its grant.
However, if an Incentive Stock Option is granted to an individual who owns, at
the time the Incentive Stock Option is granted, more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of a
subsidiary corporation of the Company, such Incentive Stock Option shall not be
exercisable after the expiration of five (5) years from the date of its grant.

The exercise price of the Nonstatutory Stock Options granted to directors
who are not employees of the Company shall be the "fair market value" (as
defined pursuant to the Amended 1996 Plan) of the Company's Common Stock on the
date such options are granted. The exercise price of all other Nonstatutory
Stock Options granted under the Amended 1996 Plan shall be determined by the
Board or Committee at the time of the grant of the Option.

A Nonstatutory Stock Option granted to directors who are not employees of
the Company shall vest entirely on the date granted and shall be exercisable for
a period of ten (10) years. All other Nonstatutory Stock Options granted under
the Amended 1996 Plan shall vest and may be of such duration as shall be
determined by the Board or Committee (not to exceed 10 years).

If the employment of an employee by the Company or any subsidiary of the
Company shall be terminated either voluntarily by the employee or for cause,
then such employee's Options shall immediately expire. If such employment or
services shall terminate for any other reason, except as provided in the two
paragraphs following, then such Options may be exercised at any time within
three (3) months after such termination to the extent such option is otherwise
exercisable at that time. The retirement of an individual either pursuant to a
pension or retirement plan adopted by the Company or at the normal retirement
date prescribed from time to time by the Company shall be deemed to be
termination of such individual's employment other than voluntarily or for cause.

10
<PAGE> 12

If the holder of any Options under the Amended 1996 Plan dies (i) while
employed by the Company or a subsidiary of the Company, or (ii) within three (3)
months after the termination of his employment or services other than
voluntarily by the employee or for cause, then such Options, to the extent
exercisable at that time, may be exercised by the estate of such employee or by
a person who acquired the right to exercise such Options by bequest or
inheritance or by reason of the death of such employee at any time within one
(1) year after such death.

If the holder of any Options under the Amended 1996 Plan ceases employment
because of permanent and total disability (within the meaning of Section
22(e)(3) of the Code) while employed by the Company or a subsidiary of the
Company, then such Options, to the extent exercisable at that time, may be
exercised at any time within one (1) year after his termination of employment
due to this disability.

If the services of a director who is not an employee of the Company shall
be terminated by the Company for cause, then his Options shall immediately
expire. If such services shall terminate for any other reason (including the
death or disability of a such director), he shall resign as a director of the
Company or his term shall expire, then such Options may be exercised at any time
within one (1) year after such termination. In the event of the death of a
director who is not an employee of the Company, his Options, to the extent
exercisable at that time, may be exercised by his estate or by a person who
acquired the right to exercise such Options by bequest or inheritance or by
reason of the death of such non-employee Director at any time within one (1)
year after such death.

Upon the death of any consultant or advisor to the Company or any of its
subsidiaries, who is granted any Options under the Amended 1996 Plan, such
Options, to the extent exercisable at that time, may be exercised by the estate
of such person or by a person who acquired the right to exercise such Options by
bequest or inheritance or by reason of the death of such person at any time
within one (1) year after such death.

Options granted under the Amended 1996 Plan may provide for the payment of
the exercise price by the delivery of a check to the order of the Company in an
amount equal to the exercise price, by delivery to the Company of shares of
Common Stock of the Company already owned by the optionee having a fair market
value equal in amount to the exercise price of the options being exercised, or
by any combination of such methods of payment.

All options are nontransferable other than by will or the laws of descent
and distribution or pursuant to a domestic relations order as defined by the
Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement
Income Security Act ("ERISA"), or the rules thereunder.

There are approximately 150 employees and three directors who are not
employees of the Company eligible for participation in the Amended 1996 Plan.
The Company cannot presently approximate the number of consultants and/or
advisors who will be eligible to receive Options under the Amended 1996 Plan.

ANTI-DILUTION PROVISIONS

In the event that the Company shall have effected one or more stock splits,
reverse splits, or readjustments, stock dividends, or other increases or
reductions of the number of outstanding shares of Common Stock of the Company,
or issued as dividends on the outstanding shares of Common Stock of the Company
other securities convertible into shares of Common Stock of the Company, without
receiving compensation therefor in money, services or property (any such event
being hereinafter referred to as a "Dilutive Event"), the optionee shall be
entitled to receive for the aggregate payments to be made by him for the Stock,
the number of shares of Common Stock or other securities the optionee would have
been entitled to receive as a result of any such Dilutive Event if optionee had
immediately prior to such Dilutive Event exercised this Option and paid for and
received the Stock. If fractional shares would result from any such adjustment,
the adjustment shall be revised to the next lower whole number of shares.

MERGER, CONSOLIDATION OR RECAPITALIZATION

In the event of the recapitalization, merger or consolidation of the
Company with or into another corporation the optionee shall be entitled to
receive upon payment of the option price, such securities of such

11
<PAGE> 13

other corporation with or into which the Company shall have been merged or
consolidated as the optionee would have received if optionee had immediately
prior to such recapitalization, merger or consolidation exercised this Option
and paid for and received the Stock.

AMENDMENT AND TERMINATION OF THE AMENDED 1996 PLAN

The Amended 1996 Plan shall terminate on February 28, 2006, which is within
ten (10) years after the adoption of the Company's original 1996 Stock Option
Plan by the Board of Directors and stockholders, or sooner as hereinafter
provided, and no Option shall be granted after termination of the Amended 1996
Plan.

The Amended 1996 Plan may from time to time be terminated, modified or
amended by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company present in person or by proxy at a
meeting of stockholders of the Company convened for such purpose.

The Board of Directors may at any time, on or before the termination date
of the Amended 1996 Plan, terminate the Amended 1996 Plan, or from time to time
make such modifications or amendments to the Amended 1996 Plan as it may deem
advisable; provided, however, that the Board of Directors shall not, without
approval by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company present in person or by proxy at a
meeting of stockholders of the Company convened for such purpose, increase the
maximum number of shares as to which Incentive Stock Options may be granted, or
change the designation of the employees or other persons, or class of employees
or other persons eligible to receive Options or make any other change which
would prevent any Incentive Stock Option granted hereunder which is intended to
be an "incentive stock option" from being disqualified as such under the then
existing provisions of the Code or any law amending or supplementing the Code.

FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the federal income tax treatment of incentive
stock options and non-statutory stock options. The tax consequences recognized
by an optionee may vary; therefore, an optionee should consult his or her tax
advisor for advice concerning any specific transaction.

Incentive Stock Options. No taxable income will be recognized by an
optionee upon the grant or exercise of an incentive stock option granted under
the Amended 1996 Plan. The difference between the exercise price and the fair
market value of the stock on the date of exercise will be included in
alternative minimum taxable income for purposes of the alternative minimum tax.
The alternative minimum tax is imposed upon an individual's alternative minimum
taxable income at rates of 26% to 28%, but only to the extent that such tax
exceeds the taxpayer's regular income tax liability for the taxable year.

Generally, if an optionee holds shares acquired upon the exercise of
incentive stock options until the later of (i) two years form the date of grant
of the option and (ii) one year from the date of transfer of the purchased
shares to him or her (the "Statutory Holding Period"), any gain recognized by
the optionee on a sale of such shares will be treated as capital gain. The gain
recognized upon the sale of the stock is the difference between the option price
and the sale price of the stock. The net federal income tax effect on the holder
of incentive stock options is to defer, until the stock is sold, taxation of any
increase in the stock's value from the time of grant to the time of exercise,
and to treat such increase as capital gain.

If the optionee sells the shares prior to the expiration of the Statutory
Holding Period, he or she will realize taxable income at ordinary income tax
rates in an amount equal to the lesser of (i) the fair market value of the
shares on the date of exercise less the option price, or (ii) the amount
realized on the disposition of the stock less the option price, and the Company
will receive a corresponding business expense deduction. However, special rules
may apply to options held by persons required to file reports under Section 16
of the Exchange Act. The amount by which the proceeds of the sale exceeds the
fair market value of the shares on the date of exercise will be treated as
long-term capital gain if the shares are held for a more than one year prior to
the sale and as short-term capital gain if the shares are held for a shorter
period. If an optionee sells the shares acquired upon exercise of an option at a
price less than the option price, he or she will recognize a capital loss equal
to the difference between the sale price and the option price. The loss will be
long-term

12
<PAGE> 14

capital loss if the shares are held for more than one year prior to the sale and
a short-term capital loss if the shares are held for a shorter period.

Non-Statutory Stock Options. No taxable income is recognized by the
optionee upon the grant of a Non-Statutory Option. The optionee must recognize
as ordinary income in the year in which the option is exercised the amount by
which the fair market value of the purchased shares on the date of exercise
exceeds the option price. However, special rules may apply to options held by
persons required to file reports under Section 16 of the Exchange Act. The
Company will be entitled to a business expense deduction equal to the amount of
ordinary income recognized by the optionee, subject to Section 162(m) of the
Code. Any additional gain or any loss recognized upon the subsequent disposition
of the purchased shares will be a capital gain or loss, and will be a long-term
gain or loss if the shares are held for more than one year.

NEW PLAN BENEFITS

Because the option grants under the Amended 1996 Plan are discretionary,
the Company cannot presently determine the benefits to be received by any
particular individual or particular group of individuals for such options under
the Amended 1996 Plan. The following table, however, sets forth the benefits
(losses) that would have been received in 1996 by the below-named Officers, all
executive officers as a group, non-executive directors as a group and
non-executive officer employees as a group, as if the Amended 1996 Plan had been
in effect during 1996.

<TABLE>
<CAPTION>
THE AMENDED 1996 PLAN(1)
--------------------------------
DOLLAR NUMBER OF
NAME AND POSITION VALUE($) SHARES
- -------------------------------------------------------------- ------------------- ---------
<S> <C> <C>
Gary Katz..................................................... * *
Lisa K. Sklar................................................. * *
Michael Sklar................................................. * *
Geoffrey Barsky............................................... * *
Executive Officer Group....................................... * *
Non-Executive Officer Director Group (3 persons).............. $5.00 per share(2) 60,000
Non-Executive Officer Employee Group.......................... * *
</TABLE>

- ---------------
* The Amended 1996 Plan provides for the automatic granting of Options only to
non-employee directors. Grants of Options under the Amended 1996 Plan to all
other groups, including executive officers and non-executive officer
employees, may include Incentive Stock Options, the granting of which are
discretionary and not determinable as to amount or dollar value as of the
date of this Proxy Statement.

(1) Subject to shareholder approval of the Amended 1996 Plan.

(2) As the shares of Common Stock underlying the Options would have been
unregistered at their time of grant had the Amended 1996 Plan been in effect
in fiscal 1996, the dollar value attributed to such shares for purposes of
this table is the exercise price of the Options for such shares ($5.00 on
1/1/96).

BOARD RECOMMENDATION

The Board of Directors believes that the approval of the foregoing three
proposals is in the best interests of the Company and its stockholders and
therefore recommends that the stockholders vote FOR such proposals.

13
<PAGE> 15

OTHER MATTERS

Management does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented at the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.

All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph, facsimile, mail and personal interviews, and the Company reserves the
right to compensate outside agencies for the purpose of soliciting proxies.
Brokers, custodians and fiduciaries will be requested to forward proxy
soliciting material to the owners of shares held in their names and the Company
will reimburse them for out-of-pocket expenses incurred on behalf of the
Company.

Proposals of stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company at its principal office
in New York, New York not later than March 1, 1998 for inclusion in the proxy
statement for that meeting.

By Order of the Board of Directors,

/s/ GEOFFREY BARSKY
--------------------------------------
GEOFFREY BARSKY, Secretary

March 26, 1997

THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE ANNUAL
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. STOCKHOLDERS
WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR SHARES PERSONALLY, EVEN THOUGH THEY
HAVE SENT IN THEIR PROXIES.

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<PAGE> 16

APPENDIX A

KATZ DIGITAL TECHNOLOGIES, INC.

AMENDED AND RESTATED 1996 STOCK OPTION PLAN

1. Purpose of the Plan. The Katz Digital Technologies, Inc. Amended and
Restated 1996 Stock Option Plan (the "Amended Plan") is intended to advance the
interests of Katz Digital Technologies, Inc. (the "Company") by inducing persons
of outstanding ability and potential to join and remain with the Company, by
encouraging and enabling employees to acquire proprietary interests in the
Company, and by providing the participating employees with an additional
incentive to promote the success of the Company. This is accomplished by
providing for the granting of "Options" (which term as used herein includes both
"Incentive Stock Options" and "Nonstatutory Stock Options," as later defined, to
qualified employees. In addition, the Amended Plan also provides for the
granting of "Nonstatutory Stock Options" to all Directors who are not employees
of the Company, as consideration for their services and for attending meetings
of the Board of Directors, and also provides for the granting of "Nonstatutory
Stock Options" to consultants and advisors who provide services to the Company.

2. Administration. The Amended Plan shall be administered by the Board of
Directors (the "Board"), or by a committee (the "Committee") consisting of at
least two (2) Directors chosen by the Board, each of which is a "Non-Employee
Director," as such term is defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Except as
herein specifically provided, the interpretation and construction by the Board
or Committee of any provision of the Amended Plan or of any Option granted under
it shall be final and conclusive. The receipt of Options by Directors, or any
members of the Committee, shall not preclude their vote on any matters in
connection with the administration or interpretation of the Amended Plan, except
as otherwise provided by law.

3. Shares subject to the Amended Plan. The stock subject to grant under
the Amended Plan shall be shares of the Company's common stock, $.001 par value
(the "Common Stock"), whether authorized but unissued or held in the Company's
treasury or shares purchased from stockholders expressly for use under the
Amended Plan. The maximum number of shares of Common Stock which may be issued
pursuant to Options granted under the Amended Plan shall not exceed six hundred
fifty thousand (650,000) shares, subject to adjustment in accordance with the
provisions of Section 13 hereof. The Company shall at all times while the
Amended Plan is in force reserve such number of shares of Common Stock as will
be sufficient to satisfy the requirements of all outstanding Options granted
under the Amended Plan. In the event any Option granted under the Amended Plan
shall expire or terminate for any reason without having been exercised in full
or shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject thereto shall again be available for Options under
this Amended Plan.

4. Stock Option Agreement. Each Option granted under the Amended Plan
shall be authorized by the Board or Committee and shall be evidenced by a Stock
Option Agreement which shall be executed by the Company and by the person to
whom such Option is granted or such other document which evidences the grant of
the option. The Stock Option Agreement shall specify the number of shares of
Common Stock as to which any Option is granted, the period during which the
Option is exercisable and the option price per share thereof.

5. Discretionary Grant Participation. The class of persons which shall be
eligible to receive discretionary grants of Options under the Amended Plan shall
be all key employees (including officers) of either the Company or any
subsidiary corporation of the Company and consultants and advisors who provide
services to the Company or any subsidiary of the Company, other than in
connection with the offer or sale of securities in a capital raising
transaction. Employees shall be entitled to receive (i) Incentive Stock Options,
as described in Section 7 hereafter, and (ii) Nonstatutory Stock Options, as
described in Section 8 hereafter. Consultants and advisors shall be entitled
only to receive Nonstatutory Stock Options. The Board or Committee, in its
discretion, but subject to the provisions of the Amended Plan, shall determine
the employees, consultants or advisors to whom Options shall be granted and the
number of shares to be covered by each Option taking into

A-1
<PAGE> 17

account the nature of the employment or services rendered by the individuals
being considered, their annual compensation, their present and potential
contributions to the success of the Company and such other factors as the
Committee may deem relevant.

6. Participation of Directors Who Are Not Employees of the Company.

(a) As of October 30, 1996, the date of the adoption of the Amended Plan by
the Company's Board of Directors and stockholders, on the date any person who is
not an employee of the Company first becomes a Director, such person shall
automatically be granted, without further action by the Board or Committee, an
option to purchase 20,000 shares of the Company's Common Stock.

(b) On the first day of each calendar quarter during the term of the
Amended Plan, Directors of the Company who are not employees of the Company then
serving in such capacity, shall each be granted an Option to purchase 5,000
shares of the Company's Common Stock (an aggregate of 20,000 shares annually to
each such director).

(c) The option price of the shares subject to the Options set forth in
Sections 6(a) and 6(b) hereof shall be the fair market value (as defined in
Section 7(f) hereafter) of the Company's Common Stock on the date such Options
are granted. All of such Options shall be Nonstatutory Stock Options, as
described in Section 8 hereafter. The Options granted pursuant to this Section 6
shall vest entirely on the date they are granted and shall be exercisable for a
period of ten (10) years.

(d) Directors who are not employees of the Company include attorneys,
accountants, consultants and advisors of the Company who, in addition to
providing services in such capacity, serve as Directors of the Company.

7. Incentive Stock Options. The Board or Committee may grant Options
under the Amended Plan which are intended to meet the requirements of Section
422 of the Internal Revenue Code of 1986 (the "Code") (such an Option referred
to herein as an "Incentive Stock Option"), and which are subject to the
following terms and conditions and any other terms and conditions as may at any
time be required by Section 422 of the Code:

(a) No Incentive Stock Option shall be granted to individuals other than
key employees of the Company or of a subsidiary corporation of the Company.

(b) Each Incentive Stock Option under the Amended Plan must be granted
prior to October 30, 2006, which is within ten (10) years from the date the
Amended Plan was adopted by the Board of Directors.

(c) The option price of the shares subject to any Incentive Stock Option
shall not be less than the fair market value of the Common Stock at the time
such Incentive Stock Option is granted; provided, however, if an Incentive Stock
Option is granted to an individual who owns, at the time the Incentive Stock
Option is granted, more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of a subsidiary corporation of
the Company, the option price of the shares subject to the Incentive Stock
Option shall be at least one hundred ten percent (110%) of the fair market value
of the Common Stock at the time the Incentive Stock Option is granted.

(d) No Incentive Stock Option granted under the Amended Plan shall be
exercisable after the expiration of ten (10) years from the date of its grant.
However, if an Incentive Stock Option is granted to an individual who owns, at
the time the Incentive Stock Option is granted, more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of a
subsidiary corporation, of the Company, such Incentive Stock Option shall not be
exercisable after the expiration of five (5) years from the date of its grant.
Every Incentive Stock Option granted under the Amended Plan shall be subject to
earlier termination as expressly provided in Section 11 hereof.

(e) For purposes of determining stock ownership under this Section 7, the
attribution rules of Section 425(d) of the Code shall apply.

(f) For purposes of the Amended Plan, fair market value shall be determined
by the Board or Committee and, if the Common Stock is listed on a national
securities exchange or traded on the Over-the-

A-2
<PAGE> 18

Counter market, the fair market value shall be the closing price of the Common
Stock on such exchange, or on the Over-the-Counter market as reported by the
National Quotation Bureau, Incorporated, as the case may be, on the day on which
the Option is granted or on the day on which a determination of fair market
value is required under the Amended Plan, or, if there is no trading or closing
price on that day, the closing price on the most recent day preceding the day
for which such prices are available.

8. Nonstatutory Stock Options. The Board or Committee may grant Options
under the Amended Plan which are not intended to meet the requirements of
Section 422 of the Code, as well as Options which are intended to meet the
requirements of Section 422 of the Code, but the terms of which provide that
they will not be treated as Incentive Stock Options (referred to herein as a
"Nonstatutory Stock Option"). Nonstatutory Stock Options which are not intended
to meet these requirements shall be subject to the following terms and
conditions:

(a) A Nonstatutory Stock Option may be granted to any person eligible to
receive an Option under the Amended Plan pursuant to Section 5 hereof.

(b) Persons eligible to receive Nonstatutory Stock Options pursuant to
Section 6 hereof are granted Options automatically under the Amended Plan,
without any determination by the Board or Committee.

(c) Subject to the price provisions of Section 6 hereof, the option price
of the shares subject to a Nonstatutory Stock Option shall be determined by the
Board or Committee, in its absolute discretion, at the time of the grant of the
Nonstatutory Stock Option.

(d) Subject to the provisions of Section 6 hereof, a Nonstatutory Stock
Option granted under the Amended Plan may be of such duration as shall be
determined by the Board or Committee (not to exceed 10 years), and shall be
subject to earlier termination as expressly provided in Section 11 hereof.

9. Rights of Option Holders. The holder of any Option granted under the
Amended Plan shall have none of the rights of a stockholder with respect to the
shares covered by his Option until such shares shall be issued to him upon the
exercise of his Option.

10. Transferability. No Option granted under the Amended Plan shall be
transferable by the individual to whom it was granted otherwise than by Will or
the laws of decent and distribution, or pursuant to a domestic relations order
as defined by the Internal Revenue Code of 1986, as amended, or Title I of the
Employee Retirement Income Securities Act, or the rules thereunder and, during
the lifetime of such individual, shall not be exercisable by any other person,
but only by him.

11. Termination of Employment or Death.

(a) If the employment of an employee by the Company or any subsidiary of
the Company shall be terminated voluntarily by the employee or for cause, then
his Options shall expire forthwith. Except as provided in subsections (b) and
(c) of this Section 11, if such employment or services shall, terminate for any
other reason, then such Options may be exercised at any time within three (3)
months after such termination, subject to the provisions of subparagraph (f) of
this Section 11. For purposes of the Amended Plan, the retirement of an
individual either pursuant to a pension or retirement plan adopted by the
Company or at the normal retirement date prescribed from time to time by the
Company shall be deemed to be termination of such individual's employment other
than voluntarily or for cause. For purposes of this subparagraph, an employee
who leaves the employ of the Company to become an employee of a subsidiary
corporation of the Company or a corporation (or subsidiary or parent corporation
of the corporation) which has assumed the Option of the Company as a result of a
corporate reorganization, etc., shall not be considered to have terminated his
employment.

(b) If the holder of any Options under the Amended Plan dies (i) while
employed by the Company or a subsidiary of the Company, or (ii) within three (3)
months after the termination of his employment or services other than
voluntarily by the employee or for cause, then such Options may, subject to the
provisions of subparagraph (f) of this Section 11, be exercised by the estate of
the employee or by a person who acquired the right to exercise such Options by
bequest or inheritance or by reason of the death of such employee at any time
within one (1) year after such death.

A-3
<PAGE> 19

(c) If the holder of any Options under the Amended Plan ceases employment
because of permanent and total disability (within the meaning of Section
22(e)(3) of the Code) while employed by the Company or a subsidiary of the
Company, then such Options may, subject to the provision of subparagraph (f) of
this Section 11, be exercised at any time within one (1) year after his
termination of employment due to this disability.

(d) If the services of a Director who is not an employee of the Company
shall be terminated by the Company for cause, then his Options shall expire
forthwith. If such services shall terminate for any other reason (including the
death or disability of such Director), he shall resign as a director of the
Company or his term shall expire, then such Options may be exercised at any time
within one (1) year after such termination, subject to the provisions of
subparagraph (f) of this Section 11. In the event of the death of a Director who
is not an employee, his Options may be exercised by his estate or by a person
who acquired the right to exercise such Options by bequest or inheritance or by
reason of the death of such Director at any time within one (1) year after such
death.

(e) Upon the death of any consultant or advisor to the Company or any of
its subsidiaries, who is granted any Options hereunder, such Options may,
subject to the provisions of subparagraph (f) of this Section 11, be exercised
by the estate of such person or by a person who acquired the right to exercise
such Options by bequest or inheritance or by reason of the death of such person
at any time within one (1) year after such death.

(f) An Option may not be exercised pursuant to this Section 11 except to
the extent that the holder was entitled to exercise the Option at the time of
termination of employment, termination of Directorship, or death, and in any
event may not be exercised after the expiration of the Option.

(g) For purposes of this Section 11, the employment relationship of an
employee of the Company or of a subsidiary corporation of the Company will be
treated as continuing intact while he is on military or sick leave or other bona
fide leave of absence (such as temporary employment by the Government) if such
leave does not exceed ninety (90) days, or, if longer, so long as his right to
reemployment is guaranteed either by status or by contract.

12. Exercise of Options.

(a) Unless otherwise provided in the Stock Option Agreement, any Option
granted under the Amended Plan shall be exercisable in whole at any time, or in
part from time to time, prior to expiration. The Board or Committee, in its
absolute discretion, may provide in any Stock Option Agreement that the exercise
of any Option granted under the Amended Plan shall be subject (i) to such
condition or conditions as it may impose, including but not limited to, a
condition that the holder thereof remain in the employ or service of the Company
or a subsidiary corporation of the Company for such period or periods of time
from the date of grant of the Option, as the Board or Committee, in its absolute
discretion, shall determine; and (ii) to such limitations as it may impose,
including, but not limited to, a limitation that the aggregate fair market value
of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any employee during any calendar year (under
all plans of the Company and its parent and subsidiary corporations) shall not
exceed One Hundred Thousand Dollars ($100,000). In addition, in the event that
under any Stock Option Agreement the aggregate fair market value of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by any employee during any calendar year (under all plans of the
Company and its parent and subsidiary corporations) exceeds One Hundred Thousand
Dollars ($100,000), the Board or Committee may, when shares are transferred upon
exercise of such Options, designate those shares which shall be treated as
transferred upon exercise of an Incentive Stock Option and those shares which
shall be treated as transferred upon exercise of a Nonstatutory Stock Option.

(b) An Option granted under the Amended Plan shall be exercised by the
delivery by the holder thereof to the Company at its principal office (attention
of the Secretary) of written notice of the number of shares with respect to
which the Option is being exercised. Such notice shall be accompanied by payment
of the full option price of such shares, and payment of such option price shall
be made by the holder's delivery of his check payable to the order of the
Company; provided, however, that notwithstanding the foregoing provisions

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<PAGE> 20

of this Section 12 or any other terms, provisions or conditions of the Amended
Plan, at the written request of the optionee and upon approval by the Board or
the Committee, shares acquired pursuant to the exercise of any Option may be
paid for in full at the time of exercise by the surrender of shares of Common
Stock of the Company held by or for the account of the optionee at the time of
exercise to the extent permitted by subsection (c)(5) of Section 422 of the Code
and, with respect to any person who is subject to the reporting requirements of
Section 16(a) of the Exchange Act, to the extent permitted by Section 16(b) of
the Exchange Act and the Rules of the Securities and Exchange Commission,
without liability to the Company. In such case, the fair market value of the
surrendered shares shall be determined by the Board or Committee as of the date
of exercise in the same manner as such value is determined upon the grant of an
Incentive Stock Option.

13. Anti-Dilution.

13.1 Adjustments. In the event that the Company shall have effected one or
more stock splits, reverse splits, or readjustments, stock dividends, or other
increases or reductions of the number of outstanding shares of Common Stock of
the Company, or issued as dividends on the outstanding shares of Common Stock of
the Company other securities convertible into shares of Common Stock of the
Company, without receiving compensation therefor in money, services or property
(any such event being hereinafter referred to as a "Dilutive Event"), the
optionee shall be entitled to receive for the aggregate payments to be made by
him for the Stock, the number of shares of Common Stock or other securities the
optionee would have been entitled to receive as a result of any such Dilutive
Event if optionee had immediately prior to such Dilutive Event exercised this
Option and paid for and received the Stock. If fractional shares would result
from any such adjustment, the adjustment shall be revised to the next lower
whole number of shares.

13.2 Merger, Consolidation or Recapitalization. In the event of the
recapitalization, merger or consolidation of the Company with or into another
corporation the optionee shall be entitled to receive upon payment of the option
price, such securities of such other corporation with or into which the Company
shall have been merged or consolidated as the optionee would have received if
optionee had immediately prior to such recapitalization, merger or consolidation
exercised this Option and paid for and received the Stock.

14. Further Conditions of Exercise.

(a) Unless prior to the exercise of the Option the shares issuable upon
such exercise have been registered with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the
notice of exercise shall be accompanied by a representation or agreement of the
individual exercising the Option to the Company to the effect that such shares
are being acquired for investment and not with a view to the resale of
distribution thereof or such other documentation as may be required by the
Company unless in the opinion of counsel to the Company such representation,
agreement or documentation is not necessary to comply with the Securities Act.

(b) The Company shall not be obligated to deliver any Common Stock until it
has been listed on each securities exchange on which the Common Stock may then
be listed or until there has been qualification under or compliance with such
state or federal laws, rules or regulations as the Company may deem applicable.
The Company shall use reasonable efforts to obtain such listing, qualifications
and compliance.

15. Effectiveness of the Amended Plan. The Amended Plan was adopted by
the unanimous consent of the Board of Directors on March 25, 1997. The Amended
Plan was approved by the affirmative vote of a majority of the outstanding
shares of capital stock of the Company present in person or by proxy at a
meeting of stockholders of the Company convened for such purpose on May 15,
1997.

16. Termination, Modification and Amendment.

(a) The Amended Plan (but not Options previously granted under the Amended
Plan shall terminate on February 28, 2006, which is within ten (10) years from
the date of the adoption of the Company's original 1996 Stock Option Plan by the
Board of Directors and the stockholders of the Company, or sooner as hereinafter
provided, and no Option shall be granted after termination of the Amended Plan.

A-5
<PAGE> 21

(b) The Amended Plan may from time to time be terminated, modified or
amended by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company present in person or by proxy at a
meeting of stockholders of the Company convened for such purpose.

(c) The Board of Directors may at any time, on or before the termination
date referred to in Section 16(a) hereof, terminate the Amended Plan, or from
time to time make such modifications or amendments to the Amended Plan as it may
deem advisable; provided, however, that the Board of Directors shall not,
without approval by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company present in person or by proxy
at a meeting of stockholders of the Company convened for such purpose, increase
(except as provided by Section 13 hereof) the maximum number of shares as to
which Incentive Stock Options may be granted, or change the designation of the
employees or class of employees eligible to receive Options or make any other
change which would prevent any Incentive Stock Option granted hereunder which is
intended to be an "incentive stock option" from disqualifying as such under the
then existing provisions of the Code or any law amendatory thereof or
supplemental thereto.

(d) No termination, modification or amendment of the Amended Plan, may
without the consent of the individual to whom an Option shall have been
previously granted, adversely affect the rights conferred by such Option.

17. Not a Contract of Employment. Nothing contained in the Amended Plan
or in any Stock Option Agreement executed pursuant hereto shall be deemed to
confer upon any individual to whom an Option is or may be granted hereunder any
right to remain in the employ or service of the Company or a subsidiary
corporation of the Company.

18. Use of Proceeds. The proceeds from the sale of shares pursuant to
Options granted under the Amended Plan shall constitute general funds of the
Company.

19. Indemnification of Board of Directors or Committee. In addition to
such other rights of indemnification as they may have, the members of the Board
or the Committee, as the case may be, shall be indemnified by the Company to the
extent permitted under applicable law against all costs and expenses reasonably
incurred by them in connection with any action, suit or proceeding to which they
or any of them may be a party by reason of any action taken or failure to act
under or in connection with the Amended Plan or any rights granted thereunder
and against all amounts paid by them in settlement thereof or paid by them in
satisfaction of a judgment of any such action, suit or proceeding, except a
judgment based upon a finding of bad faith. Upon the institution of any such
action, suit or proceeding, the member or members of the Board or the Committee,
as the case may be, shall notify the Company in writing, giving the Company an
opportunity at its own cost to defend the same before such member or members
undertake to defend the same on their own behalf.

20. Definitions. For purposes of the Amended Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the same meanings a set
forth in Sections 425(e) and 425(f) of the Code, respectively, and the masculine
shall include the feminine and the neuter as the context requires.

21. Governing Law. The Amended Plan shall be governed by, and all
questions arising hereunder shall be determined in accordance with, the law of
the State of New York.

A-6
<PAGE> 22

Proxy For Annual Meeting of Shareholders to be held May 15, 1997

KATZ DIGITAL TECHNOLOGIES, INC.

Know all men by these presents, that the undersigned hereby constitutes and
appoints Gary Katz and Geoffrey Barsky and each of them, the true and lawful
attorneys, agents and proxies of the undersigned, with full power of
substitution, to represent and vote with respect to all of the shares of the
common stock of Katz Digital Technologies, Inc., standing in the name of the
undersigned at the close of business on March 19, 1997, at the Annual Meeting of
Shareholders of the Company to be held on May 15, 1997 at the Main Board Room,
Twenty-One Penn Plaza, Eighth Floor, New York, New York, and at any and all
adjournments thereof, with all the powers that the undersigned would possess if
personally present, and especially (but without limiting the general
authorization and power hereby given) to vote as follows.

This proxy is solicited by the Board of Directors of the Company.

(Continued and to be signed on the reverse side.)
<PAGE> 23
/X/ Please mark your votes as this example

1. Election of Directors

For Against

/ / / /

Nominees are:

Gary Katz, Michael D. Sklar, Murray L. Skala, Ronald B. Grudberg and
Burtt R. Ehrlich

2. Approval of appointment of Grant Thornton LLP as the Company's auditors

For Against Abstain

/ / / / / /

3. Approval of the Company's Amended and Restated 1996 Stock Option Plan as to
which options may be granted to the Company's Employees and Others for
650,000 Shares

For Against Abstain

/ / / / / /

4. In their discretion upon such other measures as may properly come before
the meeting, hereby ratifying and confirming all that said proxy may
lawfully do or cause to be done by virtue hereof and hereby revoking all
proxies heretofore given by the undersigned to vote at said meeting or any
adjournment thereof.

For Against Abstain

/ / / / / /

(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)

________________________________________________________________________________

The shares represented by this proxy will be voted in the manner indicated, and
if no instructions to the contrary are indicated, will be voted FOR all
proposals listed above. Number of shares owned by undersigned ___________.

Signature(s): ______________________________________ Date: _____________________

IMPORTANT: Please sign exactly as your name or names are printed here.
Executors, administrators, trustees and other persons signing in a
representative capacity should give full title.