<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
Katz Digital Technologies Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Katz Digital Technologies Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
<PAGE> 2
KATZ DIGITAL TECHNOLOGIES, INC.
TWENTY-ONE PENN PLAZA
NEW YORK, NY 10001
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, APRIL 30, 1998
The Annual Meeting of Shareholders of KATZ DIGITAL TECHNOLOGIES, INC. (the
"Company") will be held at the New York Marriott Marquis Hotel, 1535 Broadway,
New York, New York, on Thursday April 30, 1998, at 10:00 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 the selection by the Board of Directors of Grant Thornton
LLP as the Company's independent auditors for the current fiscal
year.
3. To ratify and approve the Company's Second Amended and Restated
1996 Stock Option Plan.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record as of the close of business on March 2, 1998 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
/s/GEOFFREY BARSKY
GEOFFREY BARSKY
Secretary
New York, New York
March 27, 1998
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 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, APRIL 30, 1998
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 1998 Annual Meeting of Shareholders to be held on
Thursday, April 30, 1998, and at any adjournment of that meeting (the "Annual
Meeting"). All proxies will be voted in accordance with a shareholder'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 shareholder 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, 1997 was
mailed to shareholders together with this Proxy Statement on or about March 27,
1998.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on March 2, 1998, the record date for the
determination of shareholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 4,948,649 shares of Common
Stock of the Company. Shareholders 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 Second 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
shareholder 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.
2
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 2, 1998,
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.
<TABLE>
<CAPTION>
NAME AND ADDRESS(1) AMOUNT AND NATURE OF PERCENTAGE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(2) OUTSTANDING SHARES OWNED
------------------- ----------------------- ------------------------
<S> <C> <C>
Gary Katz........................................... 2,393,377(3) 48.2%
Rochelle Katz....................................... 2,393,377(4) 48.2
Wellington Management Company, LLP.................. 430,000(5) 8.7
75 State Street
Boston, Massachusetts 02109
Lisa J. Sklar....................................... 126,600(6) 2.6
Michael Sklar....................................... 126,600(7) 2.6
Burtt R. Ehrlich.................................... 60,000(8) 1.2
667 Madison Avenue
New York, NY 10021
Ronald B. Grudberg.................................. 60,000(9) 1.2
14 Kevin Court
Nanuet, NY 10954
Murray L. Skala..................................... 50,000(10) *
750 Lexington Avenue
New York, NY 10022
Donald L. Flamm..................................... 11,667(11) *
Geoffrey Barsky..................................... 9,667(12) *
All executive officers and directors as a group
(eight persons)................................... 2,711,311(13) 52.9
</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 2, 1998. 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 1,308,355 shares owned beneficially and of record by Rochelle
Katz, the wife of Mr. Katz, and 16,667 shares issuable to Mr. Katz upon the
exercise of an option.
(4) Includes 1,068,355 shares owned beneficially and of record by Gary Katz,
the husband of Ms. Katz, and 16,667 shares issuable to Mr. Katz upon the
exercise of an option.
(5) Pursuant to information provided to the Company on Form 13(g) filed with
the Commission by, or on behalf of, such beneficial owner.
(6) Includes 102,000 shares beneficially owned by Ms. Sklar, 5,000 shares
beneficially owned by Michael Sklar, the husband of Ms. Sklar, 3,600 shares
beneficially owned in the aggregate by Ms. Sklar's minor
3
<PAGE> 5
children, and 8,000 shares issuable to each of Ms. Sklar and Mr. Sklar
(16,000 shares in the aggregate) upon the exercise of options held by each
of them.
(7) Includes 5,000 shares beneficially owned by Mr. Sklar, 102,000 shares
beneficially owned by Lisa J. Sklar, the wife of Mr. Sklar, 3,600 shares
beneficially owned in the aggregate by Mr. Sklar's minor children and 8,000
shares issuable to each of Mr. Sklar and Ms. Sklar (16,000 shares in the
aggregate) upon the exercise of options held by each of them.
(8) Includes 40,000 shares of Common Stock issuable to Mr. Ehrlich upon
exercise of an option.
(9) Includes 40,000 shares of Common Stock issuable to Mr. Grudberg upon
exercise of an option.
(10) Includes 40,000 shares of Common Stock issuable to Mr. Skala upon exercise
of an option.
(11) Represents 11,667 shares of Common Stock issuable to Mr. Flamm upon
exercise of an option.
(12) Represents 9,667 shares of Common Stock issuable to Mr. Barsky upon
exercise of an option.
(13) Includes 174,001 shares issuable upon the exercise of options held by the
executive officers and directors of the Company. See footnotes (3), (4) and
(6) through (12).
4
<PAGE> 6
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 shareholders 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 his term as a director, and other
directorships held by such nominee in other reporting companies.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -------------------------------------
<S> <C> <C>
Gary Katz.......................................... 60 Chairman of the Board and Chief
Executive Officer
Michael Sklar...................................... 34 President, Chief Operating Officer
and Director
Murray L. Skala.................................... 51 Director
Ronald B. Grudberg................................. 59 Director
Burtt R. Ehrlich................................... 58 Director
</TABLE>
Gary Katz founded the Company and has been Chairman and Chief Executive
Officer of the Company since inception. 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,
President and Chief Operating Officer of the Company since March 1998, Vice
President -- Business Development of the Company from August 1996 to March 1998,
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.
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
5
<PAGE> 7
such designee. Whale has not yet exercised its right to designate such a person.
Such right of designation by Whale expires March 25, 2001.
All directors hold office until the next annual meeting of shareholders 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 Stock Option Plan.
EXECUTIVE OFFICERS
Set forth below are the Non-Director Executive Officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -------------------------------------
<S> <C> <C>
Lisa J. Sklar.................................. 33 Executive Vice President -- Sales
Donald L. Flamm................................ 54 Vice President -- Finance and Chief
Financial Officer
Geoffrey Barsky................................ 42 Vice President, Controller and
Secretary
</TABLE>
Lisa J. Sklar has been Executive Vice President -- Sales of the Company
since January 1989.
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.
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.
Two of the Company's executive officers, Gary Katz and Michael Sklar, are
also directors of the Company. Information with regard to such persons is set
forth above under the heading "Nominees". Lisa J. Sklar is the daughter of Gary
Katz and the wife of Michael Sklar. Geoffrey A. Barsky is the nephew of Mr.
Katz. Officers are elected by the Board of Directors and serve at the discretion
of the Board.
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 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. Grudberg and Ehrlich.
6
<PAGE> 8
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 ("Feder Kaszovitz"), the
Company's attorneys. The Company paid approximately $207,000 in 1997 to Feder
Kaszovitz for legal services rendered. Feder Kaszovitz continues to provide
services to the Company during the current fiscal year. Its fees are based
primarily on hourly rates. The Company believes that its relationship with such
firm is on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934
To the best of the Company's knowledge, each of Gary Katz, Lisa J. Sklar,
Michael Sklar, Geoffrey Barsky and Burtt Ehrlich, executive officers, directors
and/or beneficial owners of more than 10% of the Company's Common Stock,
untimely filed during 1997 one Form 4. To the best of the Company's knowledge,
all other Forms 4 and all Forms 3 and 5 required to be filed during 1997 were
filed timely.
ATTENDANCE AT MEETINGS
There were eleven meetings of the Board of Directors and one meeting of
each of the Audit Committee and Stock Option Committee during 1997. All of the
members of the Board or such Committees were present at such meetings. The
Compensation Committee did not meet during 1997.
EXECUTIVE COMPENSATION
The following table sets forth the Company's executive compensation paid
during the three fiscal years ended December 31, 1997, 1996 and 1995 to its
Chief Executive Officer and to each of its other executive officers
(collectively, the "Named Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------- -------------------- -------------------------
(A) (B) (C) (D) (F) (G)
(E) RESTRICTED (H) (I)
OTHER STOCK PLAN ALL
NAME AND PRINCIPAL SALARY BONUS ANNUAL AWARDS OPTIONS PAYOUTS OTHER
POSITION YEAR ($) ($) COMPENSATION($) ($) (#) ($) COMPENSATION($)
------------------ ---- ------- ------ --------------- ---------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Katz............ 1997 362,168(1) -- -- -- -- -- 3,231(2)
Chairman of the 1996 346,077 -- -- -- -- -- 11,538(3)
Board and Chief 1995 299,500 -- -- -- -- -- 38,867(3)
Executive Officer
Michael D. Sklar..... 1997 179,525(1) -- -- -- -- -- 1,900(2)
President and 1996 151,692 -- -- -- -- -- 490(3)
Chief Operating 1995 104,377 10,000 -- -- -- -- 4,979(3)
Officer
Lisa J. Sklar........ 1997 438,853(1) -- -- -- -- -- 3,199(2)
Executive Vice 1996 346,711 -- -- -- -- -- 166(3)
President -- Sales 1995 448,833 -- -- -- -- -- 3,717(3)
Donald L. Flamm...... 1997 125,158(1) -- -- -- -- -- 1,454(2)
Vice President --
Finance and Chief
Financial
Officer(4)
Geoffrey Barsky...... 1997 120,576(1) -- -- -- -- -- 1,180(2)
Vice President, 1996 106,154 -- -- -- -- -- 1,412(3)
Controller and 1995 103,259 10,000 -- -- -- -- 9,702(3)
Secretary
</TABLE>
- ---------------
(1) Includes amounts paid by the Company for the personal use of automobiles by
the Named Officers.
(2) Consists of matching contributions made by the Company to each Named
Officer's 401(k) retirement savings plan.
(3) Consists of the amount of contributions by the Company in accordance with
the Company's Pension Plan for 1995 and 1996, such Plan no longer being in
effect.
(4) Mr. Flamm's employment with the Company began in February 1997.
7
<PAGE> 9
OPTION/SAR GRANTS IN 1997
The following table sets forth certain information regarding the granting
of options to the Named Officers during 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN OR BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE
---- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Gary Katz.................................. 25,000 7.2% $2.75 2/20/02
25,000 7.2 3.85 2/20/02
Michael Sklar.............................. 50,000 14.4 5.1875 9/24/02
Lisa J. Sklar.............................. 20,000 5.8 5.1875 9/24/02
Donald L. Flamm............................ 35,000 10.1 3.00 3/18/02
Geoffrey Barsky............................ 25,000 7.2 5.1875 9/24/02
5,000 1.4 3.00 3/18/02
</TABLE>
- ---------------
(1) Options to purchase a total of 347,500 shares of Common Stock were granted
to the Company's employees, including the Named Officers, during 1997.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUE
The following table sets forth certain information regarding options
exercised, if any, and exercisable during 1997, and the value of options held as
of December 31, 1997 by the Named Officers:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
---------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Gary Katz......................... 0 25,000 -- $25,000(1)
0 25,000 -- (2)
Michael Sklar..................... 4,000 8,000 (2) (2)
0 50,000 -- (2)
Lisa J. Sklar..................... 4,000 8,000 (2) (2)
0 20,000 -- (2)
Donald L. Flamm................... 0 35,000 -- 26,250(1)
Geoffrey Barsky................... 0 5,000 -- 3,750(1)
4,000 8,000 (2) (2)
0 25,000 -- (2)
</TABLE>
- ---------------
(1) The difference between (x) the product of the unexercised options and the
exercise price of such options, less (y) the product of the unexercised
options and $3.75 (the closing price of the Company's Common Stock on
December 31, 1997, as listed on the Nasdaq National Market).
(2) Such options were out-of-the-money as of December 31, 1997.
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 Amended and Restated 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 quarterly grant of
options for each such director to purchase 5,000 shares of Common Stock (20,000
shares per annum). The exercise price for all of such options is the market
value of the Common Stock on the date of each grant.
8
<PAGE> 10
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 and Chief
Executive Officer for the term of the agreement. 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. During February 1997, Mr. Katz
elected to forego the 10% increase for the balance of the year ended December
31, 1997, and his salary returned to $350,000 per annum. Mr. Katz is also
entitled to receive such bonuses during the term of employment, as recommended
by the Compensation Committee of the Board of Directors.
During 1997, Lisa J. Sklar operated under an employment agreement effective
March 25, 1996, which provided for Ms. Sklar's continued employment as Executive
Vice President -- Sales for the term of the agreement. The employment agreement
provided for employment on a full-time basis and contained a provision that
prohibited 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 agreed to pay Ms. Sklar a
base salary at the rate of $30,000 per year for the year ended December 31,
1997, with annual increases of $5,000 thereafter. Such agreement also provided
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.
Effective January 1, 1998, the Company entered into a new Employment Agreement
with Ms. Sklar whereby Ms. Sklar is only required to work on a part-time basis
on behalf of the Company, her salary was increased to $125,000 per annum and the
rates of commission to be paid her were revised. Such new Employment Agreement
is scheduled to expire on December 31, 1999.
The Company entered into an employment agreement with Michael Sklar
effective as of September 24, 1997 and expiring on December 31, 2002. Such
agreement provides for Mr. Sklar's continued employment as Vice
President -- Business Development for the term of the agreement. On March 9,
1998, the Company's Board of Directors, by resolution, restated Mr. Sklar's
responsibilities, and as such, his title was changed to President and Chief
Operating Officer. 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 agreed to pay Mr. Sklar a base salary at the rate of $225,000 per
year for the year ended December 31, 1997, to be increased to $250,000 per year
for the year ending December 31, 1998 and to be further increased by 10% per
annum for the remainder of the term of such agreement. 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 and approved by the
Board.
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 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
$118,000, $130,000 and $140,000 per year 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.
9
<PAGE> 11
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, 1998, subject to
ratification by the shareholders. Grant Thornton LLP has served as the Company's
independent auditors since 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 shareholders.
APPROVAL OF THE COMPANY'S
SECOND AMENDED AND RESTATED 1996 STOCK OPTION PLAN
(PROPOSAL NO. 3)
The Board of Directors has unanimously adopted, subject to shareholder
approval, a Second Amended and Restated 1996 Stock Option Plan (the "Plan"),
which amends certain aspects of the Company's Amended and Restated 1996 Stock
Option Plan, which was adopted by the Company's directors in March 1997 and
approved by the Company's shareholders in May 1997. If approved by the
shareholders of the Company, the Plan would (i) increase the number of shares of
the Company's Common Stock available thereunder from 650,000 shares to 900,000
shares, and (ii) provide for the inclusion of a provision in any options granted
under the Plan requiring the optionee, for a period of one year after
termination of employment, not to compete with the Company or disclose certain
confidential information obtained during the course of the optionee's employment
with the Company.
The above-described amendments were approved by unanimous consent of the
Company's Board of Directors on March 16, 1998, subject to shareholder approval.
The Plan is summarized below. The full text of the Plan is set forth in
Appendix A to this Proxy Statement, and the following discussion is qualified in
its entirety by reference thereto.
ADMINISTRATION AND ELIGIBILITY
The 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 Plan from 650,000 shares to 900,000 shares. Under the Plan,
the Company may grant incentive stock options or options not intended to qualify
as incentive stock options (together, the "Options").
The 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
directors, eligible employees, consultants or advisors.
The Plan is to be administered by the Board of Directors or the Stock
Option Committee (the "Committee"). Any construction or interpretation of terms
and provisions of the 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 Plan shall be employees (including officers), consultants or
advisors of either the Company or any subsidiary corporation of the Company.
Employees shall be entitled to receive Incentive Stock Options and Nonstatutory
Stock Options. Consultants and advisors shall be entitled only to receive
Nonstatutory Stock Options. The Board or the Committee, in their sole
discretion, but subject to the provisions of the 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 taking
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<PAGE> 12
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.
On the date any person first becomes a Director of the Company during the
term of the Plan, and such person is not an employee of the Company, such person
will automatically be granted, without further action by the Board or Committee,
a one-time grant of an option to purchase 20,000 shares of the Company's Common
Stock.
On the first day of each calendar quarter during the term of the Plan,
directors who are not employees of the Company then serving in such capacity,
are each to be automatically granted, without further action by the Board or
Committee, an Option to purchase 5,000 shares of the Company's Common Stock.
Under the Plan, directors who are not employees of the Company may only be
granted Nonstatutory Stock Options. Such individuals include attorneys,
accountants, consultants and advisors of the Company who, in addition to
providing services in such capacities, also serve as directors of the Company.
No Incentive Stock Option granted under the 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 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 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 Plan 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, then such Options may be
exercised at any time within three (3) months after such termination. 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.
If the holder of any Options under the 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 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 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 be exercised at any time within one (1) year after his termination
of employment due to such 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 director who is not an employee of the Company), 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 may be exercised by his estate or by a person who acquired the right
to exercise such
11
<PAGE> 13
Options by bequest or inheritance or by reason of the death of such 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 Plan, such Options 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 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
Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder.
There are approximately 400 employees and three (3) directors who are not
employees of the Company who are eligible for participation in the Plan. The
Company cannot presently approximate the number of consultants and/or advisors
who will be eligible to receive Options under the Plan.
MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
In the event that the outstanding Common Stock is hereafter changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, stock dividends or the
like, an appropriate adjustment shall be made by the Board or Committee in the
aggregate number of shares available under the Plan and in the number of shares
and option price per share subject to outstanding Options. If the Company shall
be reorganized, consolidated or merged with another corporation, or if all or
substantially all of the assets of the Company shall be sold or exchanged, the
holder of an Option shall, at the time of issuance of the stock under such a
corporate event, be entitled to receive upon the exercise of his Option and
payment of the exercise price, the same number and kind of shares of stock or
the same amount of property, cash or securities as he would have been entitled
to receive upon the happening of such corporate event as if he had been,
immediately prior to such event, the holder of the number of shares covered by
his Option; provided, however, that in such event the Board or Committee shall
have the discretionary power to take any action necessary or appropriate to
prevent any Incentive Stock Option granted pursuant to the Plan from being
disqualified as an "incentive stock option" under the then existing provisions
of the Code or any law amendatory thereof or supplemental thereto.
AMENDMENT AND TERMINATION OF THE PLAN
The 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 shareholders, or sooner as hereinafter
provided, and no Option shall be granted after termination of the Plan.
The 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
shareholders of the Company convened for such purpose.
The Board of Directors may at any time, on or before the termination date
of the Plan, terminate the Plan, or from time to time make such modifications or
amendments to the 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 shareholders 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
12
<PAGE> 14
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 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 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.
RESTRICTIVE COVENANTS
The Plan provides for the inclusion in any future grants of options made
under the Plan a provision requiring the optionee, for a period of one year
after termination of employment (the "Restrictive Period"), to agree to the
following restrictive covenants:
Nondisclosure. Upon the grant of any option under the Plan, the optionee
will agree not to divulge, furnish, or make accessible to any third person,
company or other organization or entity (other than in the regular course of the
Company's business) any confidential and privileged information relating to
customer files and special customer information, vendor sources and information,
financing, mergers, acquisitions, selective personnel information and
confidential processes, designs, ideas, machinery, plans, devices and materials,
and other similar matters treated by the Company as confidential ("Confidential
Information"),
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<PAGE> 15
without the prior written consent of the Company; provided, however, that such
covenant will not apply to any Confidential Information that was known by the
optionee prior to the Company's disclosure thereof to such optionee, that is or
becomes through no fault of the optionee generally available to the public, or
that is independently developed and supplied to the optionee by a source other
than the Company.
Covenant not to Compete. Upon the grant of any option under the Plan, the
optionee will agree that during the continuation of his employment with the
Company and during the Restrictive Period if his employment with the Company is
terminated by him voluntarily or by the Company for cause, the optionee will
not, directly or indirectly, within the states of New York, New Jersey,
Connecticut and Pennsylvania:
a. own, manage, operate, control, be employed by, render advisory
services to, support or assist (by loans or otherwise), participate in or
be connected in the management or control of any person, corporation,
association, joint venture, partnership, or other business entity that
engages in any part of the business of the Company in competition with the
Company (a "Competitive Company"), unless his affiliation with such
Competitive Company is not related in any way, directly or indirectly to
the sale or marketing of products or the provisions of services that are of
the same kind or a like nature as those products sold or services provided
by the Company at the time the optionee's employment terminates; or
b. solicit or attempt in any manner to persuade or influence any
present or future customer of the Company to divert its business from the
Company to any Competitive Company.
NEW PLAN BENEFITS
Because the option grants under the Plan are discretionary, or the exercise
prices of options automatically granted thereunder are equal to currently
unknown closing prices of the company's Common Stock on the Nasdaq National
Market, the Company cannot presently determine the benefits to be received by
any particular individual or particular group of individuals from such option
grants. The following table, however, sets forth the benefits that would have
been received in 1997 by the Named Officers, all executive officers as a group,
the non-executive directors as a group and the non-executive officer employees
as a group, as if the Plan had been in effect during 1997.
<TABLE>
<CAPTION>
THE PLAN(1)
---------------------------------
DOLLAR NUMBER OF
NAME AND POSITION VALUE($) SHARES
----------------- -------------------- ---------
<S> <C> <C>
Gary Katz................................................... * *
Michael Sklar............................................... * *
Lisa J. Sklar............................................... * *
Donald L. Flamm............................................. * *
Geoffrey Barsky............................................. * *
Executive Officer Group..................................... * *
Non-Executive Officer Director Group (3 Persons)(2).........
January 1, 1997........................................... $3.50 per share(3) 15,000
April 1, 1997............................................. $3.0625 per share(3) 15,000
July 1, 1997.............................................. $2.625 per share(3) 15,000
October 1, 1997........................................... $5.00 per share(3) 15,000
Non-Executive Officer Employee Group........................ * *
</TABLE>
- ---------------
* The Plan provides for the automatic granting of Options only to directors
who are not employees of the Company. Such individuals receive options to
purchase 5,000 shares of Common Stock on the first day of each calendar
quarter the Plan is in effect. Grants of Options under the 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 Plan.
14
<PAGE> 16
(2) The information provided represents the benefits that would have been
received in 1997 by the Non-Executive Officer Group, as if the Plan had been
in effect during 1997.
(3) Represents the closing price of the Company's Common Stock on the date the
Options would have been granted had the Plan been in effect during 1997.
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 shareholders and
therefore recommends that the shareholders vote FOR such proposals.
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 shareholders intended to be presented at the 1998 Annual
Meeting of Shareholders must be received by the Company at its principal office
in New York, New York not later than March 1, 1999 for inclusion in the proxy
statement for that meeting.
By Order of the Board of Directors,
/s/ GEOFFREY BARSKY
--------------------------------------
GEOFFREY BARSKY, Secretary
March 27, 1998
THE BOARD OF DIRECTORS HOPES THAT SHAREHOLDERS 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. SHAREHOLDERS
WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR SHARES PERSONALLY, EVEN THOUGH THEY
HAVE SENT IN THEIR PROXIES.
15
<PAGE> 17
EXHIBIT A
KATZ DIGITAL TECHNOLOGIES, INC.
SECOND AMENDED AND RESTATED 1996 STOCK OPTION PLAN
1. Purpose of the Plan. The Katz Digital Technologies, Inc. Second
Amended and Restated 1996 Stock Option Plan (the "Second 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 Second
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 Second 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 Second 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 Second
Amended Plan, except as otherwise provided by law.
3. Shares subject to the Second Amended Plan. The stock subject to grant
under the Second 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 Second Amended Plan. The maximum number of shares of Common Stock
which may be issued pursuant to Options granted under the Second Amended Plan
shall not exceed nine hundred thousand (900,000) shares, subject to adjustment
in accordance with the provisions of Section 13 hereof. The Company shall at all
times while the Second 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 Second Amended Plan. In the event any
Option granted under the Second 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 Second 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 Second 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 Second Amended Plan, shall
determine the employees, consultants or advisors to whom Options shall be
granted and the number of shares to be covered
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<PAGE> 18
by each 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.
6. Participation of Directors Who Are Not Employees of the Company
(a) 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 Second
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 Second 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 Second Amended Plan must be
granted prior to February 28, 2006, which is within ten (10) years from the date
the Second Amended Plan was adopted by the Board of Directors and shareholders
of the Company.
(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 Second 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 Second 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 Second 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> 19
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 Second 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 Second 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 Second 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 Second 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 Second 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
Second 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 Second Amended Plan
shall be transferable by the individual to whom it was granted otherwise than by
last will and testament 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 Second 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 Second 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
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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.
(c) If the holder of any Options under the Second 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 of the Company, 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.
(h) Restrictive Covenants. In consideration of the Options granted
pursuant to this Second Amended Plan and to induce the Company to grant such
Options, all option agreements entered into as a result of Options granted
hereunder shall require each optionee to agree as follows:
(i) Definitions. As used in this Section 11(h), the following terms
shall have the meanings ascribed to them in this subsection:
"Business" shall mean the business of providing digital pre-press
and digital printing services, traditional comp services and
photographic and electronic reproduction services.
"Competitive Company" shall mean any person, corporation,
association, joint venture, partnership, or other business entity
that engages in any part of the Business in competition with the
Company.
"Restrictive Period" shall mean a period of one year following
the optionee's voluntary termination of his employment with the
Company or the termination of his employment with the Company for
cause; provided, however, that the Restrictive Period shall be
extended for an additional period equal to any period during
which the optionee is in violation of any of the provisions of
Section 11(h)(iv), below.
"Territory" shall mean the states of New York, New Jersey,
Connecticut and Pennsylvania.
(ii) Acknowledgements. The optionee will acknowledge that by reason
of his position with the Company he is and will be acquainted with
confidential and privileged information relating to customer files and
special customer information, vendor sources and information, financing,
mergers, acquisitions,
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selective personnel information and confidential processes, designs, ideas,
machinery, plans, devices and materials, and other similar matters treated
by the Company as confidential (the "Confidential Information") and that
use of the Confidential Information might seriously damage the Company in
its Business.
(iii) Nondisclosure. The optionee will agree not to divulge, furnish,
or make accessible to any third person, company or other organization or
entity (other than in the regular course of the Company's Business) any
Confidential Information, without the prior written consent of the Company;
provided, however, that such covenant will not apply to any Confidential
Information that was known by the optionee prior to the Company's
disclosure thereof to such optionee, that is or becomes through no fault of
the optionee generally available to the public, or that is independently
developed and supplied to the optionee by a source other than the Company.
(iv) Covenant Not to Compete. The Optionee will agree that during the
continuation of his employment with the Company and during the Restrictive
Period if his employment with the Company is terminated by him voluntarily
or by the Company for cause, the optionee will not, directly or indirectly,
within the Territory:
a. own, manage, operate, control, be employed by, render advisory
services to, support or assist (by loans or otherwise), participate in or
be connected in the management or control of any Competitive Company,
unless his affiliation with such Competitive Company is not related in any
way, directly or indirectly to the sale or marketing of products or the
provisions of services that are of the same kind or a like nature as those
products sold or services provided by the Company at the time the
optionee's employment terminates; or
b. solicit or attempt in any manner to persuade or influence any
present or future customer of the Company to divert its business from the
Company to any Competitive Company.
(v) Enforcement. The optionee will agree that in the event of any
breach or threatened breach by the optionee of the foregoing covenants
contained in this Section 11(h), the Company, in addition to any other
rights and remedies it may have, will be entitled to an injunction
restraining such breach or threatened breach, the optionee agreeing to
stipulate that a breach by the optionee would cause irreparable damage to
the Company and that its remedies at law would be inadequate. The optionee
will further agree that the existence of any claim or cause of action on
the part of the optionee against the Company shall not constitute a defense
to the enforcement of these provisions and that the terms of the foregoing
covenants, including without limitation the Restrictive Period and the
Territory, are reasonable in all respects and necessary for the protection
of the Company. If any court of competent jurisdiction will finally
adjudicate that any of the covenants are too broad as to area, activity or
time covered, the optionee will agree that such area, activity or time
covered may be reduced to whatever extent the court deems reasonable and
the covenants and the remedy of injunctive relief may be enforced as to
such reduced area, activity or time.
12. Exercise of Options.
(a) Unless otherwise provided in the Stock Option Agreement, any Option
granted under the Second 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 Second 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
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<PAGE> 22
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 Second 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
of this Section 12 or any other terms, provisions or conditions of the Second
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.
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<PAGE> 23
15. Effectiveness of the Second Amended Plan. The Second Amended Plan was
adopted by the unanimous consent of the Board of Directors on March 16, 1998.
The Second 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
April 30, 1998.
16. Termination, Modification and Amendment.
(a) The Second Amended Plan (but not Options previously granted under the
Second 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 Second Amended Plan.
(b) The Second 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 Second Amended Plan, or
from time to time make such modifications or amendments to the Second 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 Second 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 Second 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 Second 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 Second 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 Second 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 Second 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.
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<PAGE> 24
Proxy for Annual Meeting of Shareholders to be held April 30, 1998
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 2, 1997, at the Annual Meeting of
Shareholders of the Company to be held on April 30, 1998 at the New York
Marriott Marquis Hotel, 1535 Broadway, 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.)
SEE REVERSE SIDE
<PAGE> 25
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 Grudberg and
Burtt Ehrlrich
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
___________________________________________________
2. Approval of Grant Thornton LLP as the Company's Auditors.
FOR AGAINST ABSTAIN
/ / / / / /
3.Approval of the Company's Second Amended and Restated 1996 Stock Option Plan
as to which options may be granted to the Company's employees and others for
900,000 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
/ / / / / /
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.
