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:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
BEL FUSE INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
B E L F U S E I N C.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Bel Fuse
Inc. will be held at the Newark Airport Hilton Hotel, 1170 Spring Street,
Elizabeth, New Jersey 07201, on ________, July __, 1998 at 2:00 p.m. for the
following purposes:
1. To elect three directors.
2. To amend the Company's Stock Option Plan to provide for the
issuance of an additional 500,000 shares of common stock under
the Plan.
3. To consider a proposal to approve an amendment to Article VI of
the Company's Certificate of Incorporation that would (i)
authorize a new voting Class A Common Stock, par value $.10 per
share, and a new non-voting Class B Common Stock, par value $.10
per share, (ii) increase the authorized number of shares of
common stock from 10,000,000 to 20,000,000, consisting of
10,000,000 shares of Class A Common Stock and 10,000,000 shares
of Class B Common Stock, (iii) establish the rights, powers and
limitations of the Class A Common Stock and the Class B Common
Stock and (iv) reclassify each share of the Company's issued
Common Stock, par value $.10 per share, as one-half share of
Class A Common Stock and one-half share of Class B Common Stock.
4. To consider and act upon other matters which may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on June 9, 1998 as
the date for determining the shareholders of record entitled to receive notice
of, and to vote at, the Annual Meeting.
By Order of the Board of Directors
ROBERT H. SIMANDL, Secretary
Jersey City, New Jersey
June __, 1998
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO ATTEND THE
MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
<PAGE>
B E L F U S E I N C.
PROXY STATEMENT
The following statement is furnished in connection with the solicitation by
the Board of Directors of Bel Fuse Inc. ("Bel" or the "Company"), a New Jersey
corporation with its principal executive offices at 198 Van Vorst Street, Jersey
City, New Jersey 07302, of proxies to be used at Bel's Annual Meeting of
Shareholders to be held at the Newark Airport Hilton Hotel, 1170 Spring Street,
Elizabeth, New Jersey 07201 on ________, July __, 1998 at 2:00 P.M. This Proxy
Statement and the enclosed form of proxy are first being sent to shareholders on
or about June __, 1998.
Voting; Revocation of Proxies
A form of proxy is enclosed for use at the Annual Meeting if a shareholder
is unable to attend in person. Each proxy may be revoked at any time before it
is exercised by giving written notice to the secretary of the meeting. A
subsequently dated proxy will, if properly presented, revoke a prior proxy. Any
shareholder may attend the meeting and vote in person whether or not he has
previously given a proxy. All shares represented by valid proxies pursuant to
this solicitation (and not revoked before they are exercised) will be voted as
specified in the form of proxy. If a proxy is signed but no specification is
given, the shares will be voted FOR the Board's nominees to the Board of
Directors, FOR approval of the amendment to the Company's Stock Option Plan and
FOR approval of the amendment to the Company's Certificate of Incorporation and
the reorganization described therein (the amendment to Bel's Certificate of
Incorporation and such reorganization are collectively referred to herein as the
"Recapitalization").
Proxy Solicitation
The entire cost of soliciting these proxies will be borne by Bel. In
following up the original solicitation of the proxies by mail, Bel may make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy materials to the beneficial owners of
stock held of record by such persons and may reimburse them for their expenses
in so doing. If necessary, Bel may also use its officers and their assistants to
solicit proxies from the shareholders, either personally or by telephone or
special letter.
Vote Required; Shares Entitled to Vote; Principal Shareholders
The presence in person or by proxy of holders of a majority of the
outstanding shares of the Company's Common Stock, par value $.10 per share (the
"Common Stock"), will constitute a quorum for the transaction of business at the
Company's Annual Meeting. Assuming that a quorum is present, the election of
directors will require the affirmative vote of a plurality of the shares of
Common Stock represented and entitled to vote at the Annual Meeting, approval of
the proposal to amend the Company's Stock Option Plan will require the
affirmative vote of holders of a majority of the votes cast thereon at the
Annual Meeting, and approval of the
<PAGE>
proposal to approve the Recapitalization will require the affirmative vote of
holders of a majority of the votes cast thereon at the Annual Meeting. For
purposes of determining the votes cast with respect to any matter presented for
consideration at the Annual Meeting, only those cast "for" or "against" are
included. Abstentions and broker non-votes are counted only for the purpose of
determining whether a quorum is present at the Annual Meeting. Holders of Common
Stock are not entitled to cumulative voting in the election of directors.
Holders of record of the Common Stock at the close of business on June 9,
1998 (the record date fixed by the Board of Directors) will be entitled to
receive notice of, and to vote at, the Annual Meeting. At the close of business
on the record date, there were ____________ shares of Common Stock outstanding
and entitled to vote at the meeting. Each such share is entitled to one vote on
all matters to come before the meeting.
The Company's management is not aware of any individual or entity that
owned of record or beneficially more than five percent of the Common Stock as of
the record date other than Elliot Bernstein, Howard B. Bernstein, Dimensional
Fund Advisors Inc. ("Dimensional") and Denver Investment Advisers LLC ("Denver
Investment"). Elliot Bernstein is the Chairman of the Board, Chief Executive
Officer and a Director of the Company. Howard B. Bernstein is a Director of the
Company. The business address of Elliot Bernstein and Howard B. Bernstein is 198
Van Vorst Street, Jersey City, New Jersey 07302. For information regarding the
number of shares owned by Elliot Bernstein and Howard B. Bernstein, see
"Proposal One-Election of Directors."
Pursuant to filings made by Dimensional and Denver Investment with the
Securities and Exchange Commission, Dimensional and Denver Investment each
beneficially owned the following number of shares of the Company's Common Stock
as of December 31, 1997 and April 30, 1998, respectively.
Name and Address of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
Dimensional Fund 388,100(A) 7.6%
Advisors, Inc.
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Denver Investment Advisers LLC 522,100(B) 10.2%
1225 17th Street, 26th Floor
Denver, CO 80202
- -----------------
(A) Dimensional, a registered investment advisor, is deemed to have
beneficial ownership of 388,100 shares of Bel's Common Stock as of
December 31, 1997, all of which shares were owned by advisory clients
of Dimensional, no one of which, to the knowledge of Dimensional, owned
more than 5% of Bel's outstanding Common Stock. Dimensional disclaims
beneficial ownership of all such shares.
<PAGE>
(B) Denver Investment, a registered investment advisor, has sole voting
power with respect to 451,700 shares of Bel's Common Stock and sole
dispositive power with respect to 522,100 shares. Various persons other
than Denver Investment have the right to receive or the power to direct
the receipt of dividends from, or the proceeds from the sale of, Bel's
Common Stock.
The information furnished in Notes A and B above is based on filings made by
Dimensional and Denver Investment with the Securities and Exchange Commission.
1999 Annual Meeting; Nominations
Shareholders intending to present proposals at the 1999 Annual
Meeting of Shareholders must deliver their written proposals to the Company no
later than February __, 1999 in order for such proposals to be eligible for
inclusion in the Company's proxy statement and proxy card relating to next
year's meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's directors are elected on a staggered term basis, with each
class of directors being as nearly equal as possible, and standing for
re-election once in each three-year period. At the Annual Meeting, the holders
of the Common Stock will elect three directors for three year terms.
Unless a shareholder either indicates "withhold authority" on his proxy or
indicates on his proxy that his shares should not be voted for certain nominees,
it is intended that the persons named in the proxy will vote for the election as
a director of the persons named in Table I below to serve until the expiration
of their terms and thereafter until their successors shall have been duly
elected and shall have qualified. Discretionary authority is also solicited to
vote for the election of a substitute for said nominees if they, for any reason
presently unknown, cannot be candidates for election.
Table I sets forth the name and age of each of the nominees for election to
the Board of Directors, the positions and offices presently held by each such
person within Bel, the period during which each such person has served on the
Board of Directors of Bel, the expiration of his respective term, the principal
occupations and employment of each such person during the past five years, and
the number of shares of Bel's Common Stock which he beneficially owned as of May
15, 1998. Table II sets forth comparable information with respect to those
directors whose terms of office will continue beyond the date of the Annual
Meeting. Unless otherwise indicated, positions have been held for more than five
years. Unless otherwise stated in the footnotes following the tables, the
nominees and other directors listed in the tables have sole power to vote and
dispose of the shares which they beneficially owned as of May 15, 1998.
<PAGE>
<TABLE>
TABLE I
NOMINEES FOR ELECTION AS DIRECTOR
<CAPTION>
Expiration Shares Beneficially Owned
of as of May 15, 1998(A)
Director Term Business Number Percent
Name and Age Since if Elected Experience of Shares of Class
- ------------ ------ ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Daniel
Bernstein, 44 1986 2001 President (June 1992 to 230,058(C) 4.4%
Present) of the Company;
Vice President and Treas- urer
of the Company (prior years to
June 1992); Managing Director of
the Company's Macau subsidiary
(1991 to Present)(B).
Peter
Gilbert, 50 1987 2001 Chairman and Chief Executive 1,000 *
Officer (January 1997 to
Present) and President
and Chief Executive Officer
(prior years to December
1996) of The Gilbert
Manufacturing Company,
a division of Larsdale, Inc.,
Boston, Massachusetts
(manufacturer of electrical
components).
John S.
Johnson, 68 1996 2001 Independent consultant (April 3,800(D) *
1993 to Present) for various
companies, including the
Company (during 1995); Corporate
Controller of AVX Corporation
(manufacturer of electronic
components) (1978 to March
1993).
</TABLE>
<PAGE>
<TABLE>
TABLE II
OTHER DIRECTORS
<CAPTION>
Shares Beneficially Owned
Expiration as of May 15, 1998(A)
Director of Business Number Percent
Name and Age Since Term Experience of Shares of Class
<S> <C> <C> <C> <C> <C>
Howard B.
Bernstein, 72 1954 2000 Retired (B). 280,500(E) 5.4%
John F.
Tweedy, 52 1996 2000 Director of Corporate 500 *
Communications of Standard
Microsystems Corp. (supplier of
computer LAN systems) (July 1995
to Present); Independent
consultant (November 1994 to July
1995); President and Chief
Executive Officer of NetVision
Corp. (developer of computer
networking products) (November
1993 to October 1994);
Independent Consultant (June 1993
to November 1993); Corporate Vice
President, Systems Engineering,
of Standard Microsystems Corp.
(1988 to June 1993).
Elliot
Bernstein, 74 1949 1999 Chairman of the Board 492,601(F) 9.5%
(June 1992 to Present)
and Chief Executive
Officer of the Company;
President of the Company (prior
years to June 1992)(B).
Robert H.
Simandl, 69 1967 1999 Secretary of the Company; 3,170(G) *
Practicing Attorney; Member of
the law firm of Simandl & Gerr
(January 1992 to January 1995);
member of the law firm of Robert
H. Simandl, Counselor of Law
(prior years).
</TABLE>
- -------------
(A) There were 5,188,745 shares of Common Stock outstanding as of May 15, 1998.
(B) Messrs. Elliot and Howard B. Bernstein are brothers. Daniel Bernstein is
Elliot Bernstein's son and Howard B. Bernstein's nephew.
(C) Includes 25,000 shares held by Daniel Bernstein as trustee for his
children. Also includes 3,059 shares allocated to Daniel Bernstein in the
Company's 401(k) Plan over which he has voting but no investment power.
(D) Includes 300 shares held by Mr. Johnson as custodian for his grandchildren.
(E) Includes 500 shares held of record by Howard Bernstein's wife. Mr.
Bernstein disclaims beneficial ownership of these shares.
(F) Includes 15,000 shares which may be acquired by Elliot Bernstein on or
before July 15, 1998 upon the exercise of stock options, 26,800 shares held
of record by Elliot Bernstein's wife, 32,600 shares owned by a
not-for-profit foundation of which Mr. Bernstein is President and Trustee
and 200,000 shares owned by a family partnership of which Mr. Bernstein is
the general partner. Also includes an aggregate of 4,631 shares allocated
to Elliot Bernstein in the Company's Far East Retirement Plan over which he
has voting but no investment power.
(G) Includes 2,400 shares held of record by Mr. Simandl's wife.
*Shares constitute less than one percent of the shares of Common Stock
outstanding.
The current executive officers and directors of Bel as a group (11 persons)
beneficially owned 1,025,416 shares of Common Stock (or 19.6% of the outstanding
shares of Common Stock) as of May 15, 1998, including 15,000 shares which may be
acquired on or before July 15, 1998 upon the exercise of stock options and
15,714 shares allocated in the Company's 401(k) Plan and Far East Retirement
Plan over which they have voting but no investment power.
Of the shares of Common Stock beneficially owned by the Company's Named
Officers (as defined below), the tables above present information regarding the
beneficial ownership of the Company's Chairman of the Board and Chief Executive
Officer (Mr. Elliot Bernstein) and President (Mr. Daniel Bernstein). The other
Named Officers beneficially owned the following number of shares as of May 15,
1998, all of which constituted less than one percent of the shares of Common
Stock outstanding: Arnold Sutta, 5,807 shares, including 2,794 shares allocated
to Mr. Sutta in the Company's 401(k) Plan over which he has voting but no
investment power; Colin Dunn, 2,271 shares, representing shares allocated to Mr.
Dunn in the Company's 401(k) Plan over which he has voting but no investment
power; and Joseph Meccariello, 417 shares, representing shares allocated to Mr.
Meccariello in the Company's Far East Retirement Plan over which he has voting
but no investment power.
Summary of Cash and Certain Other Compensation
The following table sets forth, for the fiscal years ended December 31,
1995, 1996 and 1997, the annual and long-term compensation of the Company's
Chief Executive Officer and the four other most highly compensated executive
officers of Bel during 1997 (the "Named Officers"):
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Awards Securities
Name and Annual Compensation Underlying All Other
Principal Position Year Salary Bonus Other (A) Options/SARs (#) Compensation (B)
<S> <C> <C> <C> <C> <C>
Elliot Bernstein 1997 $350,000 $ -- $ -- -- $23,756
Chairman and Chief 1996 350,000 -- -- -- 30,756
Executive Officer 1995 350,000 -- -- -- 32,621
Daniel Bernstein 1997 173,807 75,000 -- -- 11,849
President 1996 148,704 75,000 -- -- 8,850
1995 138,800 10,769 -- -- 8,873
Arnold Sutta 1997 122,317 9,420 -- -- 4,397
Vice President 1996 121,895 9,420 -- 10,000 4,328
1995 116,099 8,971 -- -- 4,118
Colin Dunn 1997 142,074 20,769 -- -- 5,525
Vice President and 1996 134,204 20,269 -- -- 5,023
Treasurer 1995 117,776 9,152 -- -- 4,193
Joseph Meccariello 1997 132,290 31,200 100,906 10,000 6,611
Vice President 1996 119,615 20,004 97,957 -- 8,374
1995 104,410 7,012 97,025 -- 7,312
</TABLE>
- ---------------
(A) During the periods presented above, no Named Officer received perquisites
(i.e., personal benefits) in excess of 10% of such individual's reported
salary and bonus, except that Mr. Meccariello received housing allowances
of $100,906, $97,957 and $97,025 during 1997, 1996 and 1995, respectively.
(B) Compensation reported under this column for 1997 includes: (i)
contributions of $17,500 for Elliot Bernstein and $6,611 for Joseph
Meccariello to the Company's Far East Retirement Plan and contributions of
$7,849, $4,397 and $5,525, respectively, for Daniel Bernstein, Arnold Sutta
and Colin Dunn, respectively, to the Company's 401(k) Plan, to match 1997
pre-tax elective deferral contributions (included under "Salary") made by
each Named Officer to such Plans, such contributions being made in shares
of the Company's Common Stock, (ii) $4,000 paid to each of Elliot Bernstein
and Daniel Bernstein as directors' fees, and (iii) $2,256 paid by the
Company as a premium for term life insurance for Elliot Bernstein.
Employment Agreement
The Company and Mr. Elliott Bernstein have entered into an employment
agreement, dated October 29, 1997. Pursuant to his employment agreement, Mr.
Bernstein will continue to serve as Chairman of the Board of Bel for on-going
three year terms, at a base salary of $350,000 per year. Mr. Bernstein will also
be entitled to receive those benefits which he is currently receiving, including
health care and insurance benefits. The employment agreement provides that if
Mr. Bernstein is disabled and cannot perform his duties under the agreement or
if he dies, the Company will continue to pay to Mr. Bernstein or his estate his
base salary for the balance of the term in effect at the time of such
termination. The employment agreement also contains non-
<PAGE>
competition provisions which extend during the term of the agreement and for a
period of one year following termination of employment.
Stock Option Grants
The Company maintains a Stock Option Plan (the "Plan") for employees. The
options granted under the Plan generally have terms of five years and terminate
at or within a specified period of time after the optionee's employment with the
Company ends. Options are exercisable in installments determined at the date of
grant. For more information concerning the Plan, see Proposal Two. The following
table contains information regarding the grant of stock options under the Plan
to Joseph Meccariello, the only Named Officer who received a stock option grant
during the year ended December 31, 1997:
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable
----------------------------------------------------------------------
Number of Percent of Total Value at Assumed
Securities Options/SARs Annual Rates of Stock
Underlying Granted to Exercise or Price Appreciation
Options/SARs Employees Base Price Expiration For Option Term (A)
Name Granted (#) in 1997 ($/sh.) Date 5%($) 10%($)
- ---- --------------- --------------- --------------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph Meccariello....... 10,000 9.5% $13.25 3/7/2002 $36,607 $80,893
</TABLE>
- ---------------
(A) Amounts represent hypothetical gains that could be achieved if the
listed options were exercised at the end of the option term. These
gains are based on assumed rates of stock price appreciation of 5% and
10%, compounded annually from the date the options were granted to
their expiration date, based upon the fair market value of the Common
Stock as of the date the options were granted. Actual gains, if any, on
stock option exercises and Common Stock holdings are dependent upon the
future performance of the Company and overall financial market
conditions. There can be no assurance that amounts reflected in this
table will be achieved.
Option Exercises and Holdings
The following table sets forth information regarding stock option exercises
by the Named Officers during the year ended December 31, 1997, including the
aggregate value of gains on the date of exercise. In addition, the following
table provides data regarding the number of shares covered by both exercisable
and non-exercisable stock options at December 31, 1997. Also reported are the
values for "in-the-money" options, which represent the positive spread between
the exercise price of existing options and $19.125, the closing sale price of
the Company's Common Stock on December 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Common Value realized Value of
Shares (Market Price Number of Securities Unexercised
Acquired on Exercise Underlying Unexercised In-the-Money
on Date Less Options/SARs at Year-End (#) Options/SARs at Year-End ($)
Name Exercise (#) Exercise Price) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Elliot Bernstein......... -- -- 15,000 5,000 171,375 57,125
Daniel Bernstein......... -- -- 15,000 5,000 171,375 57,125
Arnold Sutta............. 2,500 10,000 -- 7,500 -- 38,437
Colin Dunn............... 3,750 37,500 3,750 3,750 45,469 45,469
Joseph Meccariello....... 2,500 25,391 -- 11,250 -- 74,531
</TABLE>
<PAGE>
The Board of Directors; Committees of the Board; Directors' Compensation
The Company's Board of Directors holds a regular meeting immediately before
the Annual Meeting of Shareholders and meets on other occasions throughout the
year. During 1997, the Board held four meetings.
Bel's Board has an Executive Committee, a Compensation Committee and an
Audit Committee. The Executive Committee is composed of Elliot Bernstein, Daniel
Bernstein and Robert H. Simandl; the Compensation Committee is composed of
Daniel Bernstein, Peter Gilbert and Robert H. Simandl; and the Audit Committee
is composed of Peter Gilbert and John S. Johnson. The function of the Executive
Committee is to act in the place of the Board when the Board cannot be convened.
The Compensation Committee is charged with the responsibility of administering
the Company's Stock Option Plan and also reviews the compensation of Bel's
executive officers. The Audit Committee reviews significant audit and accounting
principles, policies and practices, and meets with the Company's independent
auditors. During 1997, the Executive Committee held one meeting and the Audit
Committee and Compensation Committee each held two meetings.
In 1997, directors of the Company received an annual retainer of $6,000,
$750 for each Board meeting they attended and $500 for each committee meeting
which they attended. Directors who are executive officers of the Company will
not receive directors' fees otherwise payable to directors of the Company, but
will receive an annual retainer of $4,000 if they are directors of the Company's
foreign subsidiaries.
John S. Johnson, a director of the Company, provides consulting services to
the Company from time to time. In 1997, fees received by Mr. Johnson for such
services were not material.
<PAGE>
Performance Graph
The following graph compares the cumulative total return on a hypothetical
$100 investment made at the close of business on December 31, 1992 in (i) Bel's
Common Stock, (ii) the NASDAQ Stock Index, and (iii) the NASDAQ Electronic
Components Stock Index. The graph is calculated assuming that all dividends are
reinvested during the relevant periods. The graph shows how a $100 investment
would increase or decrease in value over time, based on dividends and increases
or decreases in market prices.
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
BEL FUSE INC. 100.0 47.9 46.5 59.2 79.6 107.7
Nasdaq Stock Market (US Companies) 100.0 114.8 112.2 158.7 195.2 239.5
Nasdaq Electronic Components Stocks 100.0 137.3 151.7 251.3 434.4 455.4
SIC 3670-3679 US & Foreign
</TABLE>
Compensation Committee Report on Executive Compensation
Decisions on compensation of Bel's executive officers generally are made by
the Compensation Committee of the Board of Directors (the "Committee"). Pursuant
to Securities and Exchange Commission rules designed to enhance disclosure of
corporate policies regarding executive compensation, Bel has set forth below a
report submitted by the Committee addressing Bel's compensation policies for
1997 as they affected Elliot Bernstein (the Chief Executive Officer) and the
other Named Officers.
The goals of Bel's compensation policies for executive officers are to
provide a competitive level of base salary and other benefits to attract, retain
and motivate high caliber personnel.
The Company's compensation program consists primarily of base salary and
long-term incentive awards. In making its compensation decisions, the Committee
analyzes the Company's performance, the individual's performance in terms of the
fulfillment of responsibilities related to the applicable position, and the
individual's contribution to the Company. Mr. Daniel Bernstein, a member of the
Committee, did not participate with respect to determinations regarding his own
compensation.
Executive officers receive performance and salary reviews each year. Salary
increases are based on an evaluation of the extent to which a particular
executive officer is determined to have assisted the Company in meeting its
business objectives and in contributing to the growth and performance of the
Company.
The Company and the Chief Executive Officer agreed in each of the last five
years that the Chief Executive Officer's salary would not be increased. The
salary of Daniel Bernstein, President of the Company, was raised during each of
the last three years to reflect Mr. Bernstein's increased responsibilities and
his performance of those responsibilities as President of the
<PAGE>
Company. Daniel Bernstein also received a bonus in 1997 and 1996 as a result of
his performance and that of the Company. In establishing Daniel Bernstein's
salary and bonus for 1997, the Compensation Committee also considered a survey
of compensation paid to executives with similar positions at comparable
companies. Bonuses were granted to the other Named Officers for 1997 and their
salaries were increased in 1997 as a result of their individual performance and
that of the Company.
The Company's long-term incentive award program includes the grant of stock
options. Stock options only produce value to executives if the price of the
Company's stock appreciates, thereby directly linking the interests of
executives with those of stockholders. All of the Company's stock options have
been granted at exercise prices at least equal to the market price on the grant
date. No stock options were granted to the Named Officers during 1997 other than
to Mr. Meccariello, in light of the outstanding options previously granted to
such persons.
At December 31, 1997, approximately 53,500 shares of Common Stock remained
available for future stock option grants under the Company's Stock Option Plan.
In light of the importance of stock options to Bel's compensation program, the
Compensation Committee recommended to the Board of Directors, and the Board
(subject to shareholder approval) approved, an increase of 500,000 shares in the
number of shares authorized for issuance under the Stock Option Plan.
Pursuant to the Company's domestic 401(k) Plan and Far East Retirement
Plan, the Company makes matching contributions of pre-tax elective deferral
contributions made by executive officers. The Company's matching contributions
are made in shares of Bel's Common Stock. Bel believes that these plans are an
important element in executive long-term compensation and foster the retention
and motivation of qualified executives.
During 1993, the Omnibus Reconciliation Act of 1993 was enacted. This Act
includes potential limitations on the deductibility of compensation in excess of
$1 million paid to the Company's five highest paid officers beginning in 1994.
Based on regulations issued by the Internal Revenue Service and an analysis by
the Company to date, the Company believes that any compensation realized in
connection with the exercise of stock options granted by the Company will
continue to be deductible as performance-based compensation. The Committee and
the entire Board of Directors will continue to evaluate the impact of this
legislation on Bel's compensation program and intends to submit appropriate
proposals to stockholders at future meetings if necessary in order to maintain
the deductibility of executive compensation.
Respectfully submitted,
Robert H. Simandl
Peter Gilbert
Daniel Bernstein
<PAGE>
Compensation Committee Interlocks and Insider Participation
Robert H. Simandl served as a member of the Compensation Committee of the
Company's Board of Directors during 1997. Mr. Simandl has served as the
Company's Secretary for more than the past five years.
Mr. Simandl and his predecessor firms have served as general counsel to the
Company for more than five years. Fees received by Mr. Simandl's firm from the
Company during 1997 were not material. The Company will retain Mr. Simandl in
1998.
Daniel Bernstein served as a member of the Compensation Committee of the
Company's Board of Directors during 1997, although he did not participate with
respect to determinations regarding his own compensation. Daniel Bernstein has
been President of the Company since 1992, served the Company in other capacities
in prior years, and has been a director of the Company since 1986.
PROPOSAL TWO
AMENDMENT TO STOCK OPTION PLAN TO INCREASE
AUTHORIZED SHARES BY 500,000
The Company's Stock Option Plan (the "Plan") was designed to encourage key
employees to acquire a proprietary interest in the Company, to continue their
employment with the Company and to render superior performance during such
employment. The Plan enables the Company, on or before April 29, 2002, to grant
incentive stock options and non-qualified stock options to key employees of the
Company and its subsidiaries.
In April, 1998, Bel's Board of Directors approved an increase in the number
of shares of the Company's common stock issuable pursuant to the Plan from
700,000 shares to 1,200,000 shares. If the Recapitalization (see Proposal Three)
is approved, the amendment to the Plan provides that the 500,000 additional
shares authorized for issuance under the Plan upon the exercise of stock options
may be shares of voting common stock (the "Voting Common Stock") or of
non-voting common stock ("Non-Voting Common Stock"), or a combination of Voting
Common Stock and Non-Voting Common Stock, as the Board of Directors or the
Committee administering the Plan may in its discretion determine at the time of
each option grant. If the Recapitalization is not approved by the shareholders
or effectuated for any reason, the additional shares authorized under the Plan
will be shares of the Company's existing Common Stock.
At December 31, 1997, absent such amendment to the Plan, there were 53,500
shares available for the grant of new options under the Plan. The Board approved
the increase in the number of shares covered by the Plan because the Board
believes that a stock option program is an important factor in attracting,
retaining and motivating key employees who will dedicate their maximum
productive efforts toward the advancement of the Company. The Board believes
<PAGE>
that the amendment increasing the number of authorized shares under the Plan
furthers these objectives by assuring continuing availability of stock options
in appropriate circumstances.
The principal aspects of the Plan are summarized below:
Administration
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"), which is presently composed of Daniel Bernstein,
Peter Gilbert and Robert H. Simandl. The Committee has the power to grant
options under the Plan and is charged with general supervision of the Plan.
Eligibility
All employees of the Company (approximately 1,000 persons as of December
31, 1997) are eligible to receive options under the Plan. As discretion for the
grant of options is vested in the Committee, the Company is unable, at the
present time, to determine the identity or number of officers and other
employees who may be granted options under the Plan in the future. No member of
the Committee or non-employee director may be granted an option under the Plan.
Types of Options
The Committee may designate any option granted as either an incentive stock
option or a non-qualified stock option, or the Committee may designate a portion
of the option as an incentive stock option and the remaining portion as a
non-qualified stock option. Any portion of an option that is not designated as
an incentive stock option will be a non-qualified stock option.
Exercise Period
Subject to modification by the Committee, options are generally exercisable
in 25% installments beginning one year after the date of grant and continuing
for each of the four years thereafter.
Unless previously terminated by the Board of Directors, the Plan will
terminate in 2002. Such termination will have no impact upon options granted
prior to the termination date. The maximum term of all options granted under the
Plan is 10 years, provided, however, that any incentive stock option granted to
a person who is the beneficial owner of more than 10% of the Company's capital
stock shall cease to be exercisable five years after the date such option is
granted. The Company has generally granted options with five year terms.
Exercise Price
The exercise price of all stock options granted under the Plan must be at
least equal to the fair market value of the shares underlying the options on the
date of grant, provided,
<PAGE>
however, that if incentive stock options are granted to a person who is the
beneficial owner of more than 10% of the Company's capital stock, such options
may be granted only at a price of not less than 110% of the fair market value of
shares covered by the option. If on the date of grant the Voting Common Stock or
Non-Voting Common Stock (the class of stock subject to the option), as the case
may be, is listed on a stock exchange or is quoted on the automated quotation
system of Nasdaq, the fair market value shall be the closing sale price (or if
such price is unavailable, the average of the high bid price and the low asked
price) on such date, but if there were no sales on such date or if such stock is
neither listed on a stock exchange nor quoted on the automated quotation system
of Nasdaq, the fair market value shall be determined in good faith by the Board
of Directors in accordance with generally accepted valuation principles and such
other factors as the Board of Directors deems relevant. On June __, 1998, the
closing sale price of a share of Bel's Common Stock on the Nasdaq National
Market was $_____.
Payment
The purchase price for shares acquired pursuant to the exercise of any
option under the Plan is payable in full at the time of exercise. Payment of the
exercise price may be made by delivering a certified or bank cashier's check
and/or transfer to the Company of shares of capital stock of the Company having
a fair market value (as determined by the Board of Directors) on the date of
exercise equal to the excess of (i) the purchase price for the shares purchased
over (ii) the amount of the certified or bank cashier's check delivered in
payment. Payment of the purchase price with shares of Bel's capital stock may
result in significant tax advantages for optionees and may enable optionees to
limit or avoid out-of-pocket expenditures. The proceeds of the sale of Voting
Common Stock or Non-Voting Common Stock under the Plan will constitute general
funds of the Company.
Transferability
Options are not transferable other than by will or the laws of descent and
distribution or pursuant to certain domestic relations orders. During the
employee's lifetime, an option shall be exercisable only by the employee, and
after the employee's death only by the employee's executor, administrator or
personal representative.
Termination of Employment
In the event of termination of employment with the Company because of
termination by the Company or a subsidiary without cause, the option will lapse
at the earlier of the end of the term of the option or one month after such
termination of employment. If any optionee shall cease to be an employee of the
Company or any subsidiary because of voluntary termination at the election of
the optionee or termination for cause by the Company or such subsidiary, all
options shall lapse on the date of termination. In the event of termination due
to death or disability, the option shall lapse at the earlier of the end of the
term of the option or six months after termination due to such a cause, provided
that the Board of Directors shall have discretion to extend the period for the
exercising of such option for a period not exceeding six additional months.
<PAGE>
Amendment and Termination
The Board of Directors has the right, at any time, to terminate or amend
the Plan; however, no such termination or amendment shall deprive any optionee
of any right to exercise any option granted under the Plan once such option has
become exercisable or deprive any optionee of any right then accrued by reason
of the exercise of an option. In addition, without the approval of the Company's
shareholders, no amendment may materially increase the cost of the Plan to the
Company.
Shares Subject to the Plan
Excluding the impact of the proposed amendment to the Plan, a total of
700,000 shares of Common Stock (subject to adjustment as described below) may be
issued upon the exercise of options under the Plan. Shares subject to options
which lapse may be utilized for subsequently granted options. As of December 31,
1997, 410,100 shares of Common Stock had been issued upon the exercise of stock
options under the Plan, options covering an additional 236,400 shares (net of
lapsed shares) of Common Stock had been granted and were outstanding, leaving
53,500 shares of Common Stock available (excluding the effect of the amendment
described herein) for future grants under the Plan. If the amendment to the Plan
is approved by shareholders, an aggregate of 553,500 shares will be available
for future grants under the Plan.
Adjustments
The number of shares available for option grants and the shares covered by
options shall be adjusted equitably for stock splits, stock dividends,
recapitalizations, mergers and other changes in the Company's capital stock.
Comparable changes shall be made to the exercise price of outstanding options.
If any option should terminate for any reason without having been exercised in
full, the unpurchased shares will again become available for option grants.
Additional Limitation
No participant may receive incentive stock options that first become
exercisable in any calendar year in an amount exceeding $100,000.
Federal Income Tax Consequences
BECAUSE OF THE COMPLEXITY OF THE FEDERAL INCOME TAX LAWS AND THE
APPLICATION OF VARIOUS STATE INCOME TAX LAWS, THE FOLLOWING DISCUSSION OF TAX
CONSEQUENCES IS GENERAL IN NATURE AND RELATES SOLELY TO FEDERAL INCOME TAX
MATTERS. OPTIONEES ARE ADVISED TO CONSULT THEIR PERSONAL TAX ADVISORS BEFORE
EXERCISING AN OPTION OR DISPOSING OF ANY STOCK RECEIVED PURSUANT TO THE EXERCISE
OF ANY SUCH OPTION. IN ADDITION, THE FOLLOWING SUMMARY IS BASED UPON AN ANALYSIS
OF THE INTERNAL REVENUE CODE
<PAGE>
OF 1986, AS AMENDED, AS CURRENTLY IN EFFECT, EXISTING LAWS, JUDICIAL DECISIONS,
ADMINISTRATIVE RULINGS, REGULATIONS AND PROPOSED REGULATIONS, ALL OF WHICH ARE
SUBJECT TO CHANGE.
The Internal Revenue Code of 1986, as amended (the "Code"), treats
incentive stock options and non-qualified options differently. However, as to
both, no income will be recognized to the optionee at the time of the grant of
an option, nor will the Company be entitled to a tax deduction at that time.
Upon the exercise of a non-qualified stock option, the optionee will be
subject to ordinary income tax on the excess of the fair market value of the
stock on the exercise date over the exercise price. The Company will be entitled
to a tax deduction in an amount equal to the ordinary income recognized by the
optionee. If shares acquired upon such exercise are held for more than one year
before disposition, any gain on disposition of such shares will be treated as
long-term capital gain.
For incentive stock options, there is no tax to an optionee at the time of
exercise. However, the excess of the fair market value of the stock on the date
of exercise over the exercise price will be taken into account in determining
whether the "alternative minimum tax" will apply for the year of exercise. If
the shares acquired upon the exercise are held at least two years from the date
of grant and one year from the date of exercise, any gain or loss upon the sale
of such shares, if held as capital assets, will be long-term capital gain or
loss (measured by the difference between the sales price of the stock and the
exercise price). Under current law, a capital gain will be taxed at a rate which
may be less than the maximum rate of tax on ordinary income. If the two-year and
one-year holding period requirements are not met (a "disqualifying
disposition"), an optionee will recognize ordinary income in the year of
disposition in an amount equal to the lesser of (i) the fair market value of the
stock on the date of exercise minus the exercise price or (ii) the amount
realized on disposition minus the exercise price. The remainder of the gain will
be treated as long-term or short-term capital gain, depending upon whether the
stock has been held for more than twelve months. If an optionee makes a
disqualifying disposition, the Company will be entitled to a tax deduction equal
to the amount of ordinary income recognized by the optionee.
In general, if an optionee in exercising an option tenders shares of Common
Stock in partial or full payment of the option price, no gain or loss will be
recognized on the tender. However, if the tendered shares were previously
acquired upon the exercise of an incentive stock option and the tender is within
two years from the date of grant or one year after the date of exercise of the
other option, the tender will be a disqualifying disposition of the tendered
shares.
As noted above, the exercise of an incentive stock option could subject the
optionee to the alternative minimum tax. The application of the alternative
minimum tax to any particular optionee depends upon the particular facts and
circumstances which exist with respect to the optionee in the year of exercise.
However, as a general rule, the amount by which the fair market value of the
Common Stock on the date of exercise of an option exceeds the exercise price of
the option will constitute an item of "adjustment" for purposes of determining
the alternative minimum tax that may be imposed. As such, this item will enter
into the tax base on
<PAGE>
which the alternative minimum tax is computed, and may therefore cause the
alternative minimum tax to become applicable in a given year.
The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve the adoption of the amendment to the Stock Option Plan.
The Board of Directors recommends a vote FOR the proposal to amend the
Company's Stock Option Plan.
PROPOSAL THREE
THE RECAPITALIZATION PROPOSAL
General
At the Annual Meeting, the shareholders of the Company are being asked to
consider and act upon a proposal (the "Recapitalization Proposal") to approve
and adopt an amendment (the "Amendment") to Article VI of the Company's
certificate of incorporation, as heretofore amended (the "Current Certificate").
The Amendment would (i) authorize a new voting Class A Common Stock, par value
$.10 per share (the "Class A Common Stock"), and a new non-voting Class B Common
Stock, par value $.10 per share (the "Class B Common Stock"), (ii) increase the
authorized number of shares of common stock from 10,000,000 to 20,000,000,
consisting of 10,000,000 shares of Class A Common Stock and 10,000,000 shares of
Class B Common Stock, (iii) establish the rights, powers and limitations of the
Class A Common Stock and the Class B Common Stock, and (iv) reclassify each
share of the Company's issued Common Stock, par value $.10 per share (the
"Existing Common Stock"), as one-half share of Class A Common Stock and one-half
share of Class B Common Stock. (The Class A Common Stock, the Class B Common
Stock and the Existing Common Stock are sometimes hereinafter referred to
collectively as the "Common Stock".) Accordingly, upon the effectiveness of the
Recapitalization, each shareholder who owned shares of Existing Common Stock
immediately prior to the Recapitalization will own the same number of shares of
capital stock after the Recapitalization, one-half of which will be shares of
voting Class A Common Stock and one-half of which will be shares of non-voting
Class B Common Stock.
Under the Current Certificate and New Jersey law, the affirmative vote of a
majority of the votes cast by the holders of shares entitled to vote thereon is
required to approve and adopt the Amendment.
As of May 15, 1998, Messrs. Howard Bernstein, Elliot Bernstein and Daniel
Bernstein (together with (i) members of their immediate families and (ii) trusts
and partnerships whose shares of Existing Common Stock, by virtue of their
relationships to the individuals named above, are deemed to be beneficially
owned by such persons, the "Bernstein Family Group") and other directors and
officers of the Company beneficially owned approximately 1,192,611 shares of
Existing Common Stock (not including unexercised options), which represented
approximately 23.0% of the voting stock of the Company. The members of the
Bernstein Family Group intend to vote all of their shares of Existing Common
Stock in favor of the Amendment.
If the Amendment is approved by the Company's shareholders, the Board of
Directors intends to file a certificate of amendment to the Current Certificate
(the "Certificate of
<PAGE>
Amendment") with the Secretary of State of the State of New Jersey. Upon
acceptance of filing thereof by the Secretary of State of the State of New
Jersey, each share of the Existing Common Stock will, automatically and without
the necessity of presenting any stock certificate for exchange, be reclassified
as one-half share of Class A Common Stock and one-half share of Class B Common
Stock (the time of such reclassification being hereinafter referred to as the
"Effective Time"). Fractional shares of Class A Common Stock or Class B Common
Stock will not be issued. In lieu thereof, the Company will, as provided below,
pay a cash amount to the shareholders otherwise entitled to such fractional
shares equal to the total fractional amount represented by such shares times the
greater of (i) the average closing price of a share of Existing Common Stock on
the National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") National Market System for the fifteen trading days immediately
preceding the date on which the Effective Time occurs, and (ii) the closing
price of a share of Existing Common Stock on the NASDAQ National Market System
on the trading day immediately preceding the date on which the Effective Time
occurs.
Although the Board of Directors presently intends to file the Certificate
of Amendment promptly following approval of the Amendment by the shareholders of
the Company, the Board reserves the right not to file the Certificate of
Amendment, or to delay doing so, even if the Amendment is so approved.
As soon as practicable after the effectiveness of the Certificate of
Amendment, Continental Stock Transfer & Trust Company, the Company's transfer
agent, will mail a letter of transmittal (the "Letter of Transmittal") to each
record holder of Existing Common Stock as of the close of business on the date
on which the Effective Time occurs. New certificates representing the whole
shares of Class A Common Stock and Class B Common Stock into which shares of
Existing Common Stock shall have been reclassified will be issued to each such
record holder that delivers a properly executed Letter of Transmittal
accompanied by one or more certificates representing such shares of Existing
Common Stock. If the aggregate number of shares of Existing Common Stock
represented by the certificate(s) delivered by such a record holder is an odd
number, then, in lieu of the fractional shares of Class A Common Stock and Class
B Common Stock that would otherwise have been issuable, a check for the cash
amount indicated above will be issued to such record holder. Shareholders should
not submit any certificates representing shares of Existing Common Stock with
their proxies and instead should retain them pending the effectiveness of the
Certificate of Amendment and the receipt of Letters of Transmittal.
Under the provisions of the Amendment, the Class A Common Stock will have
the rights, powers and limitations now attached to the Existing Common Stock,
except as described below under "Description of Class A Common Stock and Class B
Common Stock -- Class B Protection." The new Class B Common Stock will have
certain special characteristics more fully described below. In particular, the
holders of shares of Class B Common Stock will not be entitled to vote such
shares on any matters except as provided under the Current Certificate as
amended by the Certificate of Amendment (the "Amended Certificate") or as
required by law. This will not change the relative voting power or equity of
existing shareholders of the Company (except as a result of the treatment of
fractional shares), since the Amendment will apply equally
<PAGE>
to all shareholders in proportion to the number of shares of Existing Common
Stock owned by them immediately prior to the Effective Time.
If implemented, the Recapitalization Proposal will enable the Company to
issue and sell additional equity securities for various corporate purposes
without diluting the voting power of any existing shareholder and will permit
existing shareholders to dispose of up to 50% of their equity holdings in the
Company without reducing their current voting position. These and other aspects
of the Recapitalization Proposal are described under "Summary of Certain
Potential Advantages and Disadvantages of the Recapitalization Proposal" and
"Recommendation of the Board of Directors; Reasons for the Recapitalization
Proposal." Certain other anticipated effects of the Recapitalization Proposal,
including effects on the relative ownership interest and voting power of
existing shareholders and on the market prices for the Common Stock, are
described under "Certain Effects of the Recapitalization Proposal."
The Board of Directors recognizes that there may be potential disadvantages
to shareholders resulting from the Recapitalization Proposal. See "Summary of
Certain Potential Advantages and Disadvantages of the Recapitalization Proposal"
and "Certain Potential Disadvantages of the Recapitalization Proposal." In
particular, by enabling the Bernstein Family Group and other management
shareholders to retain their current voting power even if they should decide to
dispose of up to 50% of their equity interest in the Company, the
Recapitalization Proposal may continue to limit the possibility of a merger
proposal, or of an unsolicited tender offer or proxy contest for the removal of
directors, and therefore might deprive shareholders of an opportunity to sell
their shares at a premium over prevailing market prices and make it more
difficult to replace the Company's current Board of Directors or management.
Furthermore, Messrs. Elliot Bernstein and Daniel Bernstein, directors of the
Company who approved the Recapitalization Proposal, are also executive officers
of the Company and may be deemed to have an interest in the Recapitalization
Proposal as a result of the potential anti-takeover effect and other potential
effects of the Amendment. See "Interests of Certain Persons." Accordingly, the
Board of Directors urges each shareholder to read and review carefully the
description of the Recapitalization Proposal set forth in this proxy statement
and the exhibits to this proxy statement.
Summary of Certain Potential Advantages and Disadvantages of the
Recapitalization Proposal
Certain potential advantages to the Company and its shareholders of
implementing the Recapitalization Proposal, which are more fully discussed on
pages __ - __, are summarized as follows:
o Provides the Company with increased flexibility in the
future to issue equity securities (or securities convertible into or
exercisable for equity securities) for financings, acquisitions,
incentive compensation plans and other proper corporate purposes
without diluting the voting power of any existing shareholder. See
"Background of the Recapitalization Proposal" and "Recommendation of
the Board of Directors; Reasons for the Recapitalization Proposal --
Financing Flexibility."
<PAGE>
o Permits current shareholders of the Company to dispose of up
to 50% of their equity holdings in the Company without affecting their
relative voting rights. In addition, shareholders could, subject to the
requirement in certain cases to purchase a proportionate amount of
Class B Common Stock pursuant to the Class B Protection Provisions (see
"Description of Class A Common Stock and Class B Common Stock -- Class
B Protection"), increase their relative voting power without increasing
their equity investment in the Company. See "Recommendation of the
Board of Directors; Reasons for the Recapitalization Proposal --
Shareholder Flexibility" and "Certain Effects of the Recapitalization
Proposal -- Effects on Relative Ownership Interest and Voting Power."
o Reduces the risk of an unsolicited takeover that might not
be in the best interests of the Company and its shareholders, and
the risk of disruption in the continuity of the leadership, involvement
and substantial voting interests of the Company's current management.
See "Background of the Recapitalization Proposal" and "Recommendation
of the Board of Directors; Reasons for the Recapitalization Proposal --
Continuity."
o Implementation of the Recapitalization Proposal may enhance
the Company's ability to attract and retain highly qualified key
employees and may enhance existing and potential business
relationships. See "Recommendation of the Board of Directors; Reasons
for the Recapitalization Proposal -- Key Employees" and "-- Business
Relationships" and "Certain Effects of the Recapitalization Proposal --
Effects on Stock Option Plan."
The Class B Common Stock has certain terms designed to
reduce or eliminate the economic reasons for the Class A Common Stock
and Class B Common Stock to trade at materially different market
prices. See "Recommendation of the Board of Directors; Reasons for the
Recapitalization Proposal" and "Description of Class A Common Stock and
Class B Common Stock -- Dividends and Other Distributions" and "--
Class B Protection."
Certain potential disadvantages to the Company and its shareholders of the
Recapitalization Proposal, which are more fully discussed on pages __- __, are
summarized as follows:
o May inhibit a merger proposal, or an unsolicited tender
offer or proxy contest for the removal of directors. See "Certain
Potential Disadvantages of the Recapitalization Proposal --
Anti-Takeover Effect."
o Enables the Bernstein Family Group and other management
shareholders to sell shares of Class B Common Stock and use the
proceeds to purchase additional shares of Class A Common Stock, thereby
increasing their relative voting power in the Company. See "Certain
Potential Disadvantages of the Recapitalization Proposal --
Anti-Takeover Effect." See "Recommendation of the Board of Directors;
Reasons for the Recapitalization Proposal -- Continuity." See
"Description of Class A Common Stock and Class B Common Stock -- Class
B Protection."
o There can be no assurance as to the relative trading
prices of the two classes of Common Stock, if issued, or as to the
liquidity of such Common Stock as compared to the Existing Common
Stock. See "Certain Effects of the Recapitalization Proposal --
Effect on Market Price" and "-- Effect on Trading Market."
o The Class B Common Stock may not be used to effect a
business combination that would be accounted for using the "pooling
of interests" method. See "Certain Potential Disadvantages of the
Recapitalization Proposal -- Acquisition Accounting."
o Some state securities statutes may restrict an offering
of equity securities by the Company or secondary trading of its equity
securities.See "Certain Potential Disadvantages of the Recapitalization
Proposal -- State Statutes."
o May dissuade certain institutional investors that would
otherwise consider investing in Common Stock. See "Certain Potential
Disadvantages of the Recapitalization Proposal -- Investment by
Institutions."
Background of the Recapitalization Proposal
In recent years, a number of publicly held companies (many of them, like
the Company, with a substantial percentage of shareholder voting power held by
their founding shareholders and families) have adopted dual-class capital
structures. In early 1998, the Company's management and Board of Directors
became interested in effecting such a "dual class" structure for the Existing
Common Stock in order to provide flexibility in considering, proposing and
structuring acquisition and financing transactions to augment the Company's
growth.
During the next several months, the Board undertook to investigate whether
adoption of a dual-class capital structure would be in the best interests of the
Company and its shareholders. During this period, the Board reviewed similar
recapitalizations effected by other public companies, engaged, on a "no-names"
basis, in discussions with the NASDAQ Stock Market, Inc. ("NASDAQ") as to
whether such a reclassification could be implemented in accordance with
applicable rules, and consulted with its legal advisors. The NASDAQ confirmed
informally that a dual-class structure could be implemented consistent with
applicable regulations.
At a regular meeting held on April 7, 1998, the Board reviewed and
considered materials provided by the Company's legal advisors and, after
considerable discussion on the matter, decided to retain a financial advisor to
analyze the proposal and its impact on the Company and any potential disparity
in the relative prices at which the two classes of stock would trade.
Thereafter, the Company's management discussed with representatives of Wharton
Valuation Associates, Inc. (the "Financial Advisor") and with the Company's
legal advisors the Company's capital structure, the Bernstein Family Group's
concerns about voting power dilution
<PAGE>
resulting from possible issuances of additional voting Common Stock, and
possible dual-class capital structures. As a result of such discussions, the
Company's management determined that a dual-class structure, subject to
applicable regulatory limitations, could offer the Company possible advantages
that outweighed the potential disadvantages, and determined to submit such a
structure for consideration by the Board of Directors. The Financial Advisor was
retained to act as the Company's financial advisor in connection with the
Company's proposed reclassification and to advise management and the Board of
Directors in connection therewith.
The Company's management considered as particularly favorable to the
Company and its shareholders those attributes of a dual-class capital structure
that would provide financing and shareholder flexibility. Management also
specifically considered the benefits of such a structure to the Bernstein Family
Group and other management shareholders, and the potential anti-takeover effect
of such a structure. In this connection, management considered the significant
voting power of these shareholders and the possibility that, since the Bernstein
Family Group and other members of management could retain such voting power even
if they determined to dispose of up to 50% of their equity interest, such
persons could be regarded as the primary beneficiaries of such a structure,
particularly in view of the fact that the Class B Protection Provisions, which
require certain shareholders acquiring 10% or more of the Class A Common Stock
to purchase a proportionate amount of Class B Common Stock under certain
circumstances, do not apply to any shareholders (alone or together with any
affiliate) owning 4% or more of the aggregate number of outstanding shares of
Class A Common Stock and Class B Common Stock immediately after the Effective
Time, which exception is expected to apply to each member of the Bernstein
Family Group. See "Description of Class A Common Stock and Class B Common Stock
- -- Class B Protection".
Management was also aware of the potential conflicts of interest of the
Bernstein Family Group and other management shareholders between, on the one
hand, their desire not to lose individual or collective relative voting power as
a result of the possible issuance of additional voting Common Stock by the
Company or of their disposing of a portion of their Common Stock and, on the
other hand, their fiduciary obligations as executive officers and directors of
the Company. Management did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the foregoing factors in determining to
present a dual-class capital structure to the Board of Directors for its
consideration but gave significant weight to the financing flexibility and
continuity provided by such a structure, while balancing the dilution concerns
of the Bernstein Family Group.
On April 23, 1998, the Board of Directors held a special meeting by
telephone, at which time the Board, having previously received drafts of proxy
materials prepared by its counsel and the draft opinion to be issued by the
financial advisor, reviewed the overall terms of the proposed reclassification.
After extensive discussion on the matter, the Board approved the proposed terms
of the Recapitalization Proposal, and directed its counsel to seek confirmation
from the NASDAQ that such proposed terms would not violate its voting rights
policy.
On May 11, 1998, the Company's legal advisors informed the Board that it
had received notification from the NASDAQ that the proposed reclassification
would not violate its
<PAGE>
voting rights policy. Thereafter, at a special meeting held by telephone on May
15, 1998, the Board of Directors, including members of management, having
received revised drafts of preliminary proxy materials for implementing the
Recapitalization Proposal, reviewed again the draft of the opinion of the
financial advisor, which, at the request of the Board, addressed the effects of
the Recapitalization Proposal on the market value and liquidity of the Common
Stock, the Company's ability to obtain access to the capital markets through
future issuances of common equity securities and the anticipated relative
trading prices of the voting and non-voting Common Stock. Thereafter, following
additional discussion, Messrs. Howard Bernstein, Elliot Bernstein and Daniel
Bernstein excused themselves from the meeting and the remaining members of the
Board voted to approve the Recapitalization Proposal. The full Board then (a)
authorized the filing of preliminary proxy materials with the Securities and
Exchange Commission (the "SEC"), (b) determined that implementation of the
Recapitalization Proposal is in the best interests of the Company and its
shareholders, and (c) voted to approve the Recapitalization Proposal and
recommend its approval by the Company's shareholders.
A summary of the financial advisor's opinion is set forth under "Opinion of
the Financial Advisor," and a copy of such opinion is attached as Exhibit B to
this proxy statement.
Recommendation of the Board of Directors; Reasons for the Recapitalization
Proposal
The Board of Directors unanimously recommends that shareholders vote "For"
the Amendment.
In reviewing with the Financial Advisor the Company's capital structure,
the Board of Directors concluded that the Company's ability to achieve continued
growth may require the availability of additional capital for use in financings,
acquisitions and incentive compensation plans, and for other proper corporate
purposes. The Board also considered management's concern that the issuance of
additional amounts of Existing Common Stock would dilute the voting interests of
the Company's present shareholders, including the Bernstein Family Group and
other officers and directors, who collectively beneficially owned as of May 15,
1998 (including and assuming the exercise of all vested but unexercised options)
approximately 23.2% of the Existing Common Stock. The Board believes that the
significant voting interest of such shareholders has substantially helped
maintain the stability of the Company's management, and that the Company's
history of growth, profitability and financial strength is due in large part to
the leadership provided by the Bernstein Family Group. The Board also recognizes
that such voting interest could have an anti-takeover effect, limiting the
opportunities for public shareholders to sell their shares at a premium over
prevailing market prices and making it more difficult to replace the current
Board of Directors or management of the Company. Accordingly, the Board
considered the possibility that the Recapitalization Proposal, by permitting the
Bernstein Family Group and other members of management to maintain their
significant voting interest in the Company even if they significantly reduce
their equity interest, (i) would decrease the risk of an unsolicited takeover
attempt that was not in the best interests of shareholders but (ii) would also
continue to limit the possibility of a takeover proposal that unaffiliated
shareholders might view as being in their best interests. The Board also
considered the benefits of the Recapitalization Proposal to the Bernstein Family
Group and other management shareholders as a result of their
<PAGE>
current significant voting power as well as the potential conflict of interest
they might face as a result of future needs for additional capital and the
dilutive effect any additional issuances of Common Stock would have on their
relative voting interests. These and other aspects of the Recapitalization
Proposal are more fully described below.
Of importance to management and the Board of Directors in approving the
Recapitalization Proposal was their desire that the Class B Common Stock have
certain terms designed to enhance its value for future financing, acquisition,
incentive compensation and other proper corporate purposes. In this regard, the
Company was advised by the Financial Advisor that, while either class of Common
Stock might trade at a premium relative to the other, the non-voting or
low-voting common stocks of public companies with dual-class capital structures
sometimes trade at a discount from the full-voting common stocks of such
companies. In reviewing features included in the dual-class capital structures
of other public companies for the Board, the Financial Advisor advised the Board
that certain companies that have adopted such structures have included
provisions permitting, in the discretion of their respective boards of
directors, a higher cash dividend on the non-voting or low-voting stock, as well
as provisions protecting the holders of such stock by enabling them to
participate in any premium paid for a significant block (10% or more) of the
full-voting stock by a purchaser that has not acquired a proportionate share of
the non-voting or low-voting stock. The Financial Advisor advised the Board
that, while the empirical evidence was limited, such features could possibly
minimize any potential discount on the non-voting or low-voting stock. Based on
this advice, and on the view of management and the Board of Directors that both
a dividend differential on the Class B Common Stock and a protection feature of
the type described in favor of the Class B Common Stock could be implemented
without having a material adverse effect on the Company, the Recapitalization
Proposal was structured to provide that if the Board determines to declare any
dividends, the dividend payable on the Class B Common Stock in any year will be
at least 5% greater than the dividend payable on the Class A Common Stock and,
in addition, to include the Class B protection feature described below under the
caption "Description of Class A Common Stock and Class B Common Stock -- Class B
Protection." The Board further determined that it would be appropriate for
reasons of management continuity to exclude from the Class B Protection
provisions acquisitions of shares of Class A Common Stock by a shareholder who,
alone or together with any affiliate, owns at the Effective Time at least 4% of
the total number of shares of Common Stock then outstanding, since each member
of the Bernstein Family Group is expected to fall within such exception.
The Board of Directors has no present intention to declare any dividends on
its Common Stock. The respective amounts of future dividends, if any, to be
declared on each class of Common Stock will depend on circumstances existing at
the time, including the Company's financial condition, capital requirements,
earnings, legally available funds for the payment of dividends and other
relevant factors. In addition, the Company is not aware of any interest by any
person or group in acquiring any significant amount of Common Stock. There can
be no assurance as to the relative trading prices of the Class A Common Stock
and Class B Common Stock, if issued.
<PAGE>
In determining whether to approve the Recapitalization Proposal and
recommend adoption of the Recapitalization Proposal to the Company's
shareholders, the Board of Directors, in the exercise of its fiduciary
obligations to the Company's shareholders, considered the potential advantages,
disadvantages and effects of the Recapitalization Proposal, which are described
herein and under the captions "Certain Potential Disadvantages of the
Recapitalization Proposal," "Certain Effects of the Recapitalization Proposal"
and "Interests of Certain Persons." The Board gave particular consideration to
the potential conflicts of interest of the Bernstein Family Group between (i)
their desire not to lose individual or collective relative voting power as a
result of the possible issuance of additional voting Common Stock by the Company
or of their disposing of a portion of their Common Stock and (ii) their
fiduciary obligations as executive officers and directors of the Company. The
Board of Directors also considered the advice of its financial and legal
advisors, including the written opinion of the Financial Advisor, the text of
which is set forth under "Opinion of the Financial Advisor" and a copy of which
is attached as Exhibit B hereto. Although the Board discussed whether adoption
of the Amendment should be conditioned on approval by a majority of shareholders
unaffiliated with the Bernstein Family Group, in addition to the vote required
under New Jersey law and the Current Certificate, it determined not to so
condition such adoption because the Recapitalization Proposal does not change
the relative voting power or equity ownership of any existing shareholder
(except as a result of the treatment of fractional shares) and in the opinion of
the Financial Advisor should not adversely impact the aggregate market valuation
of the Company. For the same reason, the Board did not separately consider the
fairness of the Recapitalization Proposal to unaffiliated shareholders or retain
an investment banker to opine as to such fairness.
Financing Flexibility. Implementation of the Recapitalization Proposal
would provide the Company with increased flexibility in the future to issue
Common Stock in connection with acquisitions and to raise equity capital or
issue securities convertible into or exercisable for Common Stock as a means to
finance future growth without diluting the voting power of the Company's
existing shareholders, including the Bernstein Family Group. The non-voting
Class B Common Stock could also be used, rather than the voting Class A Common
Stock, for future grants of options or restricted stock under the Company's
incentive compensation plans and for other proper corporate purposes.
Accordingly, the Recapitalization Proposal will help mitigate any reluctance the
Bernstein Family Group and other management shareholders might otherwise have to
support the issuance of significant additional shares of Common Stock because of
the voting dilution such issuance would entail.
The Company from time to time considers various acquisition and financing
possibilities. In the event the Company determines at any time to proceed with
any such acquisition or financing, its current intent is to issue Class B Common
Stock to the exclusion of Class A Common Stock, in order to minimize dilution of
voting power to existing shareholders.
Although either the Class A Common Stock or the Class B Common Stock may
trade at a premium to the other class of Common Stock, the Amendment will
expressly permit, but not require, the Board of Directors to issue, subject to
compliance with applicable rules of the NASDAQ and other applicable regulations,
either Class A Common Stock or Class B Common Stock even if the consideration
that would be obtained by issuing or selling the other class of
<PAGE>
Common Stock would be greater. See "Certain Effects of the Recapitalization
Proposal -- Effect on Market Price."
Shareholder Flexibility. Following the implementation of the
Recapitalization Proposal, shareholders desiring to maintain their current
voting positions will be able to do so even if they decide to sell or otherwise
dispose of up to 50% of their equity holdings in the Company. The
Recapitalization Proposal thus gives all shareholders, including the Bernstein
Family Group and other management shareholders, increased flexibility to dispose
of a substantial portion of their equity interests in the Company without
affecting their relative voting power. In addition, the Recapitalization
Proposal would allow shareholders (subject to the Class B Protection feature,
which would require such shareholders (other than the Company and any
shareholder owning 4% or more of the aggregate number of outstanding shares of
Class A Common Stock and Class B Common Stock immediately following the
Effective Time) to purchase a proportionate amount of Class B Common Stock under
certain circumstances (see "Description of Class A Common Stock and Class B
Common Stock -- Class B Protection")) to increase their relative voting power
without increasing their aggregate equity holdings in the Company by selling
shares of Class B Common Stock and buying shares of Class A Common Stock with
the proceeds. See "Interests of Certain Persons" for a discussion of potential
effects of the Recapitalization Proposal on the interests of the Bernstein
Family Group and other management shareholders. The Company has been informed
that it is the Bernstein Family Group's present intention to hold their shares
of Class A Common Stock and Class B Common Stock and to sell shares of Class B
Common Stock if they sell any shares of Common Stock.
Continuity. The Company's Board believes that the Company's history of
growth, profitability and financial strength over a period of years is due in
large part to the continuous, stable leadership provided by the Bernstein Family
Group. Implementation of the Recapitalization Proposal should reduce the risk of
disruption in the continuity of the Company's management that could otherwise
result if the Bernstein Family Group or other management shareholders were to
sell a substantial amount of Common Stock, for estate tax, diversification or
other reasons. Implementation of the Recapitalization Proposal would allow such
shareholders to maintain a significant voting position in the Company even if
they should decide to reduce significantly their total equity position. The
Recapitalization Proposal may thereby reduce the possibility of a merger
proposal, or of an unsolicited tender offer or proxy contest for the removal of
directors, and may also reduce the risk that the Company could in the future be
compelled to consider a potential acquisition of the Company, which acquisition
might not be in the best interests of the shareholders, under circumstances
influenced by market anomalies, the financial circumstances of the Bernstein
Family Group or other significant shareholders, or third parties that may be
anticipating or speculating about such circumstances. The Board of Directors
believes such independence to be important to the long-term growth prospects of
the Company. See "Certain Potential Disadvantages of the Recapitalization
Proposal -- Anti-Takeover Effect."
Key Employees. The Board of Directors believes that implementation of the
Recapitalization Proposal should allow all employees to continue to concentrate
on their responsibilities without undue concern that the future of the Company
could be affected by possible succession issues or an unsolicited takeover. In
addition, the Amendment will provide
<PAGE>
the Company with increased flexibility in structuring compensation in the future
so that key employees may further participate in the growth of the Company. The
Board of Directors has amended the Company's Stock Option Plan to provide that,
if the Recapitalization Proposal is approved by the shareholders, options
granted thereunder may, in the discretion of the Board of Directors, relate
solely to shares of Class A Common Stock or to shares of Class B Common Stock,
or to a combination of shares of Class A Common Stock and Class B Common Stock.
See "Proposal Two - Amendment to Stock Option Plan to Increase Authorized Shares
by 500,000." While the Company has not experienced difficulty in attracting or
retaining qualified personnel to date, the Board believes that, by reducing the
risk of an unsolicited takeover and related uncertainty and by increasing the
Company's flexibility in structuring employee compensation, the Recapitalization
Proposal may enhance the ability of the Company to attract and retain highly
qualified key employees.
Business Relationships. The Board of Directors believes that implementation
of the Recapitalization Proposal may enhance existing and potential business
relationships of the Company with parties that may in the future become
concerned about a change in control of the Company in the event that the
holdings of the Bernstein Family Group or other members of management are
diluted. The Board further believes that while the Company has not experienced
difficulty in its business relationships to date, the Company may be better able
to attract business partners willing to make long-term plans and commitments if
it is perceived to be less vulnerable to a takeover or to disruption because of
uncertainty concerning its ownership.
Certain Potential Disadvantages of the Recapitalization Proposal
While the Board of Directors has unanimously determined that implementation
of the Recapitalization Proposal is in the best interests of the Company and its
shareholders, the Board recognizes that such implementation may result in
certain disadvantages, including the following:
Anti-Takeover Effect. As of May 15, 1998, the Bernstein Family Group
beneficially owned (not including unexercised options) shares representing
approximately 22.6% of the Existing Common Stock and, consequently, have a
substantial voting interest in the Company. The Bernstein Family Group held as
of May 15, 1998 currently exercisable options to acquire an additional 15,000
shares of Existing Common Stock. The Bernstein Family Group, together with all
other officers and directors, beneficially owned as of such date (not including
unexercised options) approximately 23.0% of the Existing Common Stock, and held
currently exercisable options to acquire an additional 15,000 shares of Existing
Common Stock. See "Continuity." Regardless of whether the Recapitalization
Proposal is implemented, all shareholders will maintain their current ability to
keep or dispose of their voting position in the Company. Implementation of the
Recapitalization Proposal will, however, allow the Bernstein Family Group and
other members of management to continue to exercise their current voting power
even if they choose to reduce their total equity position by up to 50%. In
addition, following implementation of the Recapitalization Proposal, the
Bernstein Family Group and other members of management will be able to sell
shares of Class B Common Stock and use the proceeds to purchase additional
shares of Class A Common Stock, thereby increasing their
<PAGE>
relative voting power in the Company. The Class B Protection Provisions, which
require certain shareholders acquiring 10% or more of the Class A Common Stock
to purchase a proportionate amount of Class B Common Stock under certain
circumstances, do not apply to any shareholders owning 4% or more of the
aggregate number of outstanding shares of Class A Common Stock and Class B
Common Stock immediately after the Effective Time. See "Description of Class A
Common Stock and Class B Common Stock - - Class B Protection". It is expected
that each member of the Bernstein Family Group will fall within this exception
to the Class B Protection Provisions. Consequently, implementation of the
Recapitalization Proposal is likely to continue to limit the possibility of a
merger proposal, or of an unsolicited tender offer or a proxy contest for the
removal of directors, and thus might deprive shareholders of an opportunity to
sell their shares at a premium over prevailing market prices and make it more
difficult to replace the current Board of Directors and management of the
Company.
The Company is not aware of any interest by any person or group in
obtaining control of the Company by means of a merger, tender offer,
solicitation in opposition to management or otherwise, or in replacing the
Company's current Board of Directors or management.
Increased Availability of Number of Authorized Shares. As of May 15, 1998,
there were 10,000,000 shares of Existing Common Stock authorized, of which
5,188,745 shares were outstanding. There were also 1,000,000 shares of preferred
stock authorized, none of which were outstanding. If the Amendment is approved
by the shareholders, its implementation will result in 20,000,000 shares (in the
aggregate) of Class A Common Stock and Class B Common Stock being authorized, of
which approximately 2,594,373 shares of Class A Stock and 2,594,372 shares of
Class B Stock will be issued and outstanding. The remaining authorized shares of
Common Stock will be available for future issuance without any requirement of
further shareholder approval, except as may be required by the NASDAQ or by New
Jersey law. There will be no change in the number of authorized shares of the
Company's preferred stock. As noted above, the number of shares of Class A
Common Stock authorized under the Amended Certificate is intended to enable the
Company to reserve for issuance upon conversion of the Class B Common Stock
under certain specified circumstances the requisite number of shares of Class A
Common Stock. The Company intends, if it consummates any acquisition or
financing arrangement, to issue shares of Class B Common Stock to the exclusion
of shares of Class A Common Stock.
The Board of Directors believes it desirable that the Company have the
flexibility of being able to issue additional Common Stock without shareholder
approval. Shareholders have no preemptive rights to purchase any stock of the
Company, and may not cumulate votes in the election of directors. The additional
Common Stock might be issued at such times and under such circumstances as to
have a dilutive effect on earnings per share and on the equity ownership or
voting power of the present holders of the Existing Common Stock.
While the Recapitalization Proposal is not being proposed for this reason,
the availability of additional Common Stock could enhance the Board of
Directors' bargaining capability on behalf of the Company's shareholders in a
takeover situation. The additional
<PAGE>
Common Stock could also be used, either alone or in combination, to render more
difficult or discourage a merger, tender offer or proxy contest, the assumption
of control by a holder of a large block of the Company's securities, or the
removal of incumbent management, even if such a transaction were favored by the
holders of the requisite number of shares, by increasing the aggregate
outstanding shares and, thus, the number of shares required to accomplish such a
transaction.
State Statutes. Some state securities statutes contain provisions that
disfavor or restrict the registration of non-voting common stock in their
states. As a result of the issuance of Class B Common Stock, such states may
restrict an offering of equity securities by the Company or the secondary
trading of its equity securities. However, given the limited number of states in
which such restrictive provisions would apply, and because of the existence of
exemptions which otherwise allow such securities to be offered or secondarily
traded, the Company does not believe that such provisions will have a material
adverse effect on the amount of equity securities that the Company will be able
to offer, or on the price obtainable for such equity securities in such an
offering or in the secondary trading market for the Company's equity securities.
Acquisition Accounting. The Class B Common Stock may not be used to effect
a business combination to be accounted for using the "pooling of interests"
method. In order for such method to be used, the Company would be required to
issue shares of Class A Common Stock as the consideration for the combination.
Security for Credit. The Company does not expect implementation of the
Recapitalization Proposal to affect the ability of present holders of Existing
Common Stock to use Class A Common Stock or Class B Common Stock as security for
the extension of credit by financial institutions, securities brokers or
dealers.
Investment by Institutions. Implementation of the Recapitalization Proposal
may affect the decision of certain institutional investors that would otherwise
consider investing in Common Stock. The holding of non-voting common stock may
not be permitted by the investment policies or charter provisions of certain
institutional investors or may be less attractive to managers of certain
institutional investors.
Description of Class A Common Stock and Class B Common Stock
The Amendment will reclassify each share of the Existing Common Stock into
one-half share of Class A Common Stock and one-half share of Class B Common
Stock. The rights, powers and limitations of Class A Common Stock and Class B
Common Stock are set forth in full in Article VI of the Current Certificate as
proposed to be amended pursuant to the Amendment. The full text of Article VI as
proposed to be amended by the Amendment is set forth in Exhibit A of this proxy
statement and incorporated herein by reference. The following summary should be
read in conjunction with, and is qualified in its entirety by reference to, such
Exhibit A. Although the Board of Directors presently intends promptly to file
the Certificate of Amendment if the Amendment is approved by the Company's
shareholders, the Board of Directors has reserved the right to abandon or delay
the Recapitalization Proposal and not file the
<PAGE>
Certificate of Amendment, or to delay doing so, even if the Amendment is
approved by shareholders.
Voting. Under the Current Certificate, each share of Existing Common Stock
has one vote per share, and holders of the Existing Common Stock are entitled to
vote for the election of all directors and on all other matters submitted to the
shareholders of the Company. After the Recapitalization Proposal is implemented,
each share of Class A Common Stock will, except as described below under the
caption "Class B Protection," continue to entitle the holder thereof to one vote
per share on all matters on which shareholders are entitled to vote, including
the election of directors. The Class B Common Stock will not entitle the holder
thereof to any vote except as otherwise provided or as required by law. The
Recapitalization Proposal will not, however, affect the relative voting power of
the holders of shares of Existing Common Stock except as a result of the
treatment of fractional shares.
After the Amendment becomes effective, actions submitted to a vote of
shareholders will generally be voted on only by holders of Class A Common Stock.
Under the Amended Certificate and the New Jersey Business Corporation Act, the
affirmative vote of a majority of the votes cast by the holders of outstanding
shares of Class A Common Stock will be required to further amend the Amended
Certificate or approve a merger or consolidation of the Company with or into any
other corporation, the sale of all or substantially all of the Company's
property or assets, or the dissolution of the Company. The holders of Class A
Common Stock will elect the entire Board of Directors. In addition, as permitted
under the New Jersey Business Corporation Act, the Amended Certificate will
provide that the number of authorized shares of the Class B Common Stock may be
increased or decreased (but not below the number of shares then outstanding) by
the affirmative vote of a majority of the votes cast by the holders of the
outstanding shares of Class A Common Stock. Under the Amended Certificate and
the New Jersey Business Corporation Act, the holders of the Class B Common Stock
will not be entitled to vote on any further amendment to the Amended Certificate
that increases or decreases (but not below the amount outstanding) the number of
authorized shares of Class B Common Stock or on any merger or consolidation that
affects their interests as shareholders (unless required under the New Jersey
Business Corporation Act based on the terms of such merger or consolidation).
Under the Amended Certificate and the New Jersey Business Corporation Act,
holders of Class B Common Stock will be entitled to vote only on proposals to
change the par value of the Class B Common Stock or to alter or change the
powers, preferences or special rights of the shares of Class B Common Stock
(including the dividend and Class B Protection features described below) so as
to affect them adversely, and such other matters as are set forth in the New
Jersey Business Corporation Act.
Dividends and Other Distributions. Cash dividends shall be payable to the
holders of Class A Common Stock and Class B Common Stock only as and when
declared by the Board of Directors. Subject to the foregoing, cash dividends
declared on shares of Class B Common Stock in any calendar year beginning in the
calendar year in which the Recapitalization Proposal is implemented will not be
less than 5% higher per share than the annual amount of cash dividends per share
declared in such calendar year on shares of Class A Common Stock. No cash
<PAGE>
dividends may be paid on shares of Class A Common Stock unless, at the same
time, cash dividends are paid on shares of Class B Common Stock, subject to the
annual 5% provision described above. Cash dividends may be paid at any time or
from time to time on shares of Class B Common Stock without corresponding cash
dividends being paid on shares of Class A Common Stock.
Each share of Class A Common Stock and Class B Common Stock will otherwise
be equal with respect to dividends (other than cash) and distributions
(including distributions in connection with any recapitalization and upon
liquidation, dissolution or winding up of the Company), except that dividends or
other distributions payable on the Common Stock in shares of Common Stock may be
made only as follows: (i) in shares of Class B Common Stock to the holders of
both Class A Common Stock and Class B Common Stock; or (ii) in shares of Class A
Common Stock to the holders of Class A Common Stock and in shares of Class B
Common Stock to the holders of Class B Common Stock. The Amended Certificate
will also provide that neither the Class A Common Stock nor the Class B Common
Stock may be split, subdivided or combined unless the other is proportionately
split, subdivided or combined.
The Board of Directors has no present intention to declare any dividend on
either class of Common Stock. The respective amounts of future dividends, if
any, to be declared on each class of Common Stock will depend on circumstances
existing at the time, including the Company's financial condition, capital
requirements, earnings, legally available funds for the payment of dividends and
other relevant factors.
Merger and Consolidations. Each holder of Class B Common Stock will be
entitled to receive the same amount and form of consideration per share as the
per-share consideration, if any, received by any holder of the Class A Common
Stock in a merger or consolidation of the Company (whether or not the Company is
the surviving corporation).
Class B Protection. After the Recapitalization Proposal is implemented,
voting rights disproportionate to equity ownership could be acquired through
acquisitions of Class A Common Stock. The Financial Advisor has advised the
Board of Directors that the non-voting or low-voting common stocks of other
public companies with dual-class capital structures sometimes trade at a
discount from the full-voting common stocks of such companies. In order to help
reduce or eliminate the economic reasons for the Class A Common Stock and Class
B Common Stock to trade at materially different market prices, and to enable
holders of Class B Common Stock to participate in any premium paid in the future
for a significant block (10% or more) of the Class A Common Stock by certain
buyers that have not acquired a proportionate share of the Class B Common Stock,
the Amendment includes "Class B Protection Provisions", as summarized below. The
Class B Protection Provisions might have an anti-takeover effect by making the
Company a less attractive target for a takeover bid. In addition, there can be
no assurance as to the relative trading prices of the Class A Common Stock and
the Class B Common Stock, if issued. Furthermore, there can be no assurance that
the Company will in all instances be able to readily identify Persons (as
defined below) whose holdings subject them to the Class B Protection Provisions.
<PAGE>
Certain Definitions
For purposes of the Class B Protection Provisions, the following
definitions apply:
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For purposes of this definition, control when used with respect to
any specified Person means the possession of the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
controlling and controlled have meanings correlative to the foregoing.
"4% Shareholder" means any Person that, alone or together with any
Affiliate, or any member of the immediate family (or trusts for the benefit
thereof) of any such Person or Affiliate, immediately after the Effective Time
beneficially owns at least 4% of the aggregate number of shares of Class A
Common Stock and Class B Common Stock then outstanding.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Person" means any individual, partnership, joint venture, limited
liability company, corporation, association, trust, incorporated organization,
government or governmental department or agency or any other entity (other than
the Company).
The following shares of Class A Common Stock shall be excluded for the
purpose of determining the shares of Class A Common Stock beneficially owned or
acquired by any Person or group but not for the purpose of determining shares
outstanding:
(a) shares beneficially owned by such Person or group (or, in the case of a
group, shares beneficially owned by Persons that are members of such group),
immediately after the Effective Time;
(b) shares acquired by will or by the laws of descent and distribution, or
by a gift that is made in good faith and not for the purpose of circumventing
the Class B Protection Provisions, or by termination or revocation of a trust or
similar arrangement or by a distribution from a trust or similar arrangement if
such trust or similar arrangement was created, and such termination, revocation
or distribution occurred or was effected, in good faith and not for the purpose
of circumventing the Class B Protection Provisions, or by reason of the ability
of a secured party (following a default) to exercise voting rights with respect
to, or to dispose of, shares that had been pledged in good faith as security for
a bona fide loan, or by foreclosure of a bona fide pledge which secures a bona
fide loan;
(c) shares acquired upon issuance or sale by the Company;
(d) shares acquired by operation of law (including a merger or
consolidation effected for the purpose of recapitalizing such Person or
reincorporating such Person in another
<PAGE>
jurisdiction but excluding a merger or consolidation effected for the purpose of
acquiring another Person);
(e) shares acquired in exchange for Common Stock by a holder of Common
Stock (or by a parent, lineal descendant or donee of such holder of Common Stock
who received such Common Stock from such holder) if the Common Stock so
exchanged was acquired by such holder directly from the Company as a dividend on
shares of Class A Common Stock;
(f) shares acquired by a plan of the Company qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended, or any successor provision
thereto, or acquired by reason of a distribution from such a plan;
(g) shares beneficially owned by a Person or group immediately after the
Effective Time which are thereafter acquired by an Affiliate of such Person or
group (or by the members of the immediate family (or trusts for the benefit
thereof) of any such Person or Affiliate) or by a group which includes such
Person or group or any such Affiliate; and
(h) shares acquired indirectly through the acquisition of securities, or
all or substantially all of the assets, of a Person that has a class of its
equity securities registered under Section 12 (or any successor provision) of
the 1934 Act.
Notwithstanding anything to the contrary contained in the Class B Protection
Provisions, no Person (and no group including such Person) shall be deemed to
have acquired after the Effective Time beneficial ownership of any shares of
Class A Common Stock owned by any other Person solely by reason of such Person
being or becoming an officer, director, executive, trustee, executor, custodian,
guardian, and/or other similar fiduciary or employee of or for such other Person
under circumstances not intended to circumvent the Class B Protection
Provisions.
For purposes of calculating the number of shares of Common Stock
beneficially owned or acquired by any Person or group:
(a) shares of Common Stock acquired by gift shall be deemed to be
beneficially owned by such Person or member of a group if such gift was made in
good faith and not for the purpose of circumventing the operations of the Class
B Protection Provisions; and
(b) only shares of Common Stock owned of record by such Person or member of
a group or held by others as nominees of such Person or member of a group and
identified as such to the Company shall be deemed to be beneficially owned by
such Person or group (provided that shares of Common Stock with respect to which
such Person or member of a group has sole investment and voting power shall be
deemed to be beneficially owned thereby).
Subject to the other definitional provisions applicable to the Class B
Protection Provisions, "beneficial ownership" shall be determined pursuant to
Rule 13d-3 (as in effect on February 1, 1996) promulgated under the 1934 Act,
and the formation or existence of a "group"
<PAGE>
shall be determined pursuant to Rule 13d-5(b) (as in effect on May 1, 1998)
promulgated under the 1934 Act, in each case subject to the following additional
qualifications:
(a) relationships by blood or marriage between or among any Persons will
not constitute any of such Persons as a member of a group with any such other
Person(s), absent affirmative attributes of concerted action; and
(b) any Person acting in his official capacity as a director or officer of
the Company shall not be deemed to beneficially own shares where such ownership
exists solely by virtue of such Person's status as a trustee (or similar
position) with respect to shares held by plans or trusts for the general benefit
of employees or former employees of the Company, and actions taken or agreed to
be taken by a Person in such Person's official capacity as an officer or
director of the Company will not cause such Person to become a member of a group
with any other Person.
Description of the Class B Protection Provisions
If any Person or group (other than any 4% Shareholder) acquires after the
Effective Time beneficial ownership of shares representing 10% or more of the
then outstanding Class A Common Stock, and such Person or group (a "Significant
Shareholder") does not then beneficially own an equal or greater percentage of
all then outstanding shares of Common Stock, all of which Common Stock must have
been acquired by such Person or group after the Effective Time, the Class B
Protection Provisions require that such Significant Shareholder must, in order
to maintain all of its voting power, make (within a ninety-day period beginning
the day after becoming a Significant Shareholder) a public cash tender offer to
acquire additional shares of Common Stock, as described below (a "Class B
Protection Transaction"). The 10% ownership threshold of the number of shares of
Class A Common Stock which triggers a Class B Protection Provision may not be
waived by the Board of Directors, nor may this threshold be amended without
shareholder approval, including a majority vote of the votes cast by the then
outstanding shares of Common Stock entitled to vote tabulated separately as a
class.
For example, if a shareholder owns 3% of the outstanding shares of Class A
Common Stock immediately after the Effective Time and thereafter acquires
additional shares of Class A Common Stock representing an additional 16% of the
outstanding shares of Class A Common Stock without acquiring any additional
shares of Common Stock, such shareholder must either commence a tender offer for
an additional 16% of the Common Stock at the prescribed price or he will not be
allowed to vote the 16% of the shares of Class A Common Stock acquired after the
Effective Time. Alternatively, such shareholder could sell 7% of the shares of
outstanding Class A Common Stock, thus dropping the net amount of Class A Common
Stock acquired after the Effective Time to 9%, leaving the shareholder with an
aggregate of 12% of shares of Class A Common Stock, all of which could be voted.
In a Class B Protection Transaction, the Significant Shareholder must make
a public cash tender offer to acquire from the holders of Common Stock at least
that number of additional shares of Common Stock (the "Additional Shares")
determined by (i) multiplying (x)
<PAGE>
the percentage of the number of outstanding shares of Class A Common Stock that
are beneficially owned by such Significant Shareholder by (y) the total number
of shares of Common Stock outstanding on the date such Person or group became a
Significant Shareholder, and (ii) subtracting therefrom the number of shares of
Common Stock beneficially owned by such Significant Shareholder on the date such
Person or group became a Significant Shareholder (including shares acquired at
or prior to the time such Person or group became a Significant Shareholder)
which were acquired after the Effective Time (as adjusted for stock splits,
stock dividends and similar recapitalizations). The Significant Shareholder must
acquire all shares of Common Stock validly tendered and not withdrawn or, if the
number of shares of Common Stock tendered to the Significant Shareholder, and
not withdrawn, exceeds the number determined pursuant to such formula, a
pro-rata number from each tendering holder (based on the number of shares
tendered by each tendering shareholder).
The cash offer price for any Additional Shares required to be purchased by
the Significant Shareholder pursuant to the Class B Protection Provisions shall
be the greatest of: (i) the highest price per share paid by the Significant
Shareholder for any Class A Common Share or any share of Common Stock during the
six-month period ending on the date such Person or group became a Significant
Shareholder (or such shorter period after the Effective Time if the date such
Person or group became a Significant Shareholder is not more than six months
following the Effective Time); and (ii) the highest reported bid price for any
share of Class A Common Stock or Class B Common Stock (whichever is higher) on
the NASDAQ/National Market System or such other quotation system or securities
exchange constituting the principal trading market of either class of Common
Stock on the business day preceding the date the Significant Shareholder
commences the required tender offer.
If a Significant Shareholder fails to make a tender offer required by the
Class B Protection Provisions, or to purchase validly tendered and not withdrawn
shares (after proration, if any), the voting rights of all of the shares of
Class A Common Stock beneficially owned by such Significant Shareholder which
were acquired after the Effective Time would be automatically suspended until
completion of a Class B Protection Transaction or until divestiture of the
excess shares of Class A Common Stock that triggered such requirement. To the
extent that the voting power of any shares of Class A Common Stock is so
suspended, such shares will not be included in the determination of aggregate
voting shares for any purpose.
A Class B Protection Transaction would also be required of any Significant
Shareholder each time that the Significant Shareholder acquires after the
Effective Time beneficial ownership of an additional amount of shares of Class A
Common Stock equal to or greater than the next higher integral multiple of 5% in
excess of 10% (e.g., 20%, 25%, 30%, etc.) of the outstanding shares of Class A
Common Stock and such Significant Shareholder does not then own an equal or
greater percentage of all then outstanding shares of Common Stock that such
Significant Shareholder acquired after the Effective Time. Such Significant
Shareholder would be required to offer to buy that number of Additional Shares
prescribed by the formula set forth above; provided that, for purposes of such
formula, the date on which the Significant Shareholder acquired the next higher
integral multiple of 5% of the outstanding shares of Class A Common
<PAGE>
Stock will be deemed to be the date on which such Person or group became a
Significant Shareholder.
The requirement to engage in a Class B Protection Transaction will be
satisfied by making the requisite offer and purchasing validly tendered and not
withdrawn shares, even if the number of shares tendered is less than the number
of shares included in the required offer.
The Class B Protection Provisions specifically exclude any 4% Shareholder;
that is, any Person, alone or together with any Affiliate, or any member of the
immediate family (or trusts for the benefit thereof) of any such Person or
Affiliate, owning 4% or more of the aggregate number of outstanding shares of
Class A Common Stock and Class B Common Stock immediately after the Effective
Time. A 4% Shareholder would therefore not be required to engage in a Class B
transaction regardless of the number of shares of Class A Common Stock acquired
by such shareholder after the Effective Time, even if such shareholder were to
dispose of all or any portion of his or her shares of Common Stock and
thereafter re-acquire any shares of Class A Common Stock. It is expected that
each member of the Bernstein Family Group will fall within this exception to the
Class B Protection Provisions.
Neither the Class B Protection Transaction requirement nor the related
possibility of suspension of voting rights applies to any increase in percentage
beneficial ownership of shares of Class A Common Stock resulting solely from a
change in the total number of shares of Class A Common Stock outstanding,
provided that any acquisition after such change which results in any Person or
group having acquired after the Effective Time beneficial ownership of 10% or
more of the number of then outstanding shares of Class A Common Stock (or, after
the last acquisition which triggered the requirement for a Class B Protection
Transaction, additional shares of Class A Common Stock in an amount equal to the
next higher integral multiple of 5% in excess of the number of shares of Class A
Common Stock then outstanding) shall be subject to any Class B Protection
Transaction requirement that would be otherwise imposed. All calculations with
respect to percentage beneficial ownership of issued and outstanding shares of
either class of Common Stock shall be based upon the number of issued and
outstanding shares reported by the Company on the last to be filed of (i) the
Company's most recent Annual Report on Form 10-K, (ii) its most recent Quarterly
Report on Form 10-Q, (iii) its most recent Current Report on Form 8-K, and (iv)
its most recent definitive proxy statement filed with the SEC.
Since the definition of Significant Shareholder is based on the beneficial
ownership percentage of shares of Class A Common Stock acquired after the
Effective Time of the Recapitalization Amendment, a Person or group who is a
shareholder of the Company at the Effective Time will not become a Significant
Shareholder unless such Person or group acquires an additional 10% of the then
outstanding shares of Class A Common Stock, regardless of the number of shares
of Existing Common Stock owned prior to the Effective Time of the
Recapitalization Amendment.
The Class B Protection Provisions do not prevent any Person or group from
acquiring a significant or controlling interest in the Company, provided such
Person or group acquires a proportionate percentage of the Common Stock,
undertakes a Class B Protection
<PAGE>
Transaction or incurs the suspension of the voting rights of the shares of Class
A Common Stock as provided by the Class B Protection Provisions. If a Class B
Protection Transaction is required, the purchase price to be paid in such offer
may be higher than the price at which a Significant Shareholder might otherwise
be able to acquire an identical number of shares of Common Stock. Such
requirement could make an acquisition of a significant or controlling interest
in the Company more expensive and, if the Class B Protection Transaction is
required, more time-consuming, than if such requirement did not exist.
Consequently, a Person or group might be deterred from acquiring a significant
or controlling interest in the Company as a result of such requirement. See
"Certain Potential Disadvantages of the Recapitalization Proposal--Anti-Takeover
Effect." Moreover, by restricting the ability of an acquiror to acquire a
significant interest in the shares of Class A Common Stock by paying a "control
premium" for such shares without acquiring a similar percentage of Common Stock,
the Class B Protection Provisions are designed to help reduce or eliminate any
discount on either of these classes of Common Stock.
There can be no assurance that the Company will be able to readily identify
a Person or group as a Significant Shareholder. Although the 1934 Act will
require Persons or groups holding 5% or more of the shares of Class A Common
Stock or the Common Stock to file reports specifying the level of their
ownership with the SEC and to send a copy of such filing to the Company, there
can be no assurance that a Person or group will comply with such law or that
alternative methods of identifying such holders will be available. As a result,
the benefits of the Class B Protection Provisions may be difficult to enforce.
Convertibility. Except as described below, neither the Class A Common Stock
nor the Class B Common Stock will be convertible into another class of Common
Stock or any other security of the Company.
The Class B Common Stock could be converted into Class A Common Stock on a
share-for-share basis by resolution of the Board of Directors if, as a result of
the existence of the Class B Common Stock, the Class A Common Stock or the Class
B Common Stock or both become excluded from quotation on the NASDAQ National
Market System or, if such shares are then quoted on another national quotation
system or listed on a national securities exchange, from trading on the
principal national quotation system or national securities exchange on which the
shares are then traded. See "Certain Effects of the Recapitalization Proposal --
Potential Changes in Law or Regulations."
In addition, if at any time, as a result of additional issuances by the
Company of Class B Common Stock, repurchases by the Company of Class A Common
Stock or a combination of such issuances and repurchases, the number of
outstanding shares of Class A Common Stock as reflected on the stock transfer
books of the Company falls below 10% of the aggregate number of outstanding
shares of Class A Common Stock and Class B Common Stock, then immediately upon
the occurrence of such event all of the outstanding shares of Class B Common
Stock will be automatically converted into shares of Class A Common Stock, on a
share-for-share basis. For purposes of the immediately preceding sentence, any
shares of Class A Common Stock or Class B Common Stock repurchased or otherwise
acquired by the Company and held as treasury shares will no longer be deemed
"outstanding" from and after the date of
<PAGE>
acquisition. The foregoing provision was included in the Amendment to preserve
the general relationship between the economic value and voting power of the
Common Stock. As noted above, the Company from time to time considers various
acquisition and financing proposals and intends, if any such acquisitions or
financing arrangements are consummated following the effectiveness of the
Recapitalization Proposal, to issue Class B Common Stock to the exclusion of
Class A Common Stock. The Company has no present intention to repurchase any
shares of Class A Common Stock. In view of the substantial number of shares of
Class A Common Stock whose repurchase, or shares of Class B Common Stock whose
issuance, would be required to be issued to reach the 10% threshold, the Board
of Directors believes it unlikely that the foregoing provision will be triggered
in the foreseeable future.
The respective numbers of shares of Class A Common Stock and Class B Common
Stock authorized under the Amended Certificate are intended to enable the
Company to reserve for issuance upon conversion of the Class B Common Stock the
requisite number of shares of Class A Common Stock.
Preemptive Rights. The Common Stock will not carry any preemptive rights
enabling a holder thereof to subscribe for or receive shares of any class of
stock of the Company or any securities convertible into shares of any class of
stock of the Company.
Transferability; Trading Market. Like the Existing Common Stock, the Class
A Common Stock and the Class B Common Stock will be freely transferable. The
Company is filing applications with the NASDAQ with respect to the Class A
Common Stock and the Class B Common Stock and expects that both such classes
will be listed for quotation on the NASDAQ National Market System. See "Certain
Effects of the Recapitalization Proposal -- Potential Changes in Law or
Regulations."
Shareholder Information. The Class A Common Stock and the Class B Common
Stock will be registered with the SEC pursuant to Section 12(g) of the Exchange
Act. The Company will deliver to the holders of Class B Common Stock the same
proxy statements, annual reports and other information and reports as it
delivers to holders of Class A Common Stock.
Certain Effects of the Recapitalization Proposal
Effects on Relative Ownership Interest and Voting Power. The Amendment
provides that each share of Existing Common Stock will be reclassified as
one-half share of Class A Common Stock and one-half share of Class B Common
Stock. Thus, implementation of the Recapitalization Proposal will not alter the
relative ownership interest and voting power of holders of Existing Common Stock
(except as a result of the treatment of fractional shares).
Shareholders that sell their shares of Class A Common Stock after
implementation of the Recapitalization Proposal will lose a greater amount of
voting control in proportion to equity than they would have prior to such
implementation. Conversely, shareholders that purchase only additional shares of
Class A Common Stock after implementation of the Recapitalization Proposal will,
subject to the Class B Protection feature (see "Description of
<PAGE>
Class A Common Stock and Class B Common Stock -- Class B Protection"), increase
their voting power in the Company relative to their equity ownership. At the
same time, shareholders desiring to maintain a long-term investment in the
Company will be able to continue to hold their shares of Class A Common Stock
and retain the voting power attached to such Common Stock.
The number of shares of Class A Common Stock outstanding immediately after
implementation of the Recapitalization Proposal will be approximately half the
number of shares of Existing Common Stock (see "Effect on Trading Market").
Assuming for purposes of illustration only that the per-share price of the Class
A Common Stock remains approximately the same as that of the Existing Common
Stock, it will be possible after the Recapitalization Proposal is implemented to
acquire twice the voting power for a given amount of consideration, subject to
the requirement to purchase a proportionate amount of Class B Common Stock under
certain circumstances pursuant to the Class B Protection feature. As a
consequence, implementation of the Recapitalization Proposal would permit
shareholders to increase their relative voting control at a lower cost or to
sell shares of Class B Common Stock and use the proceeds to acquire additional
shares of Class A Common Stock.
See "Interest of Certain Persons" for a discussion of potential effects of
the Recapitalization Proposal on the ownership and voting interests of the
Bernstein Family Group and other management shareholders.
Effect on Trading Market. As of May 15, 1998, 5,188,745 shares of Existing
Common Stock are issued and outstanding. Upon implementation of the
Recapitalization Proposal, and disregarding effects of the treatment of
fractional shares, approximately 2,594,373 shares of Class A Common Stock will
be issued and outstanding and approximately 2,594,372 shares of Class B Common
Stock will be issued and outstanding. A reduction in the number of issued and
outstanding shares of each class of Common Stock as compared with the number of
shares of Existing Common Stock issued and outstanding prior to the
implementation of the Recapitalization Proposal could by itself affect the
liquidity of the Common Stock. At the same time, in order to minimize dilution
of voting power to existing shareholders, the Company presently intends in
general to issue additional shares of Class B Common Stock to the exclusion of
Class A Common Stock in the future, and the Company has been informed that the
members of the Bernstein Family Group are more likely to sell their shares of
Class B Common Stock than their shares of Class A Common Stock. See
"Recommendation of the Board of Directors; Reasons for the Recapitalization --
Financing Flexibility" and "-- Shareholder Flexibility." Any issuances of
additional Class B Common Stock by the Company or public sales of Class B Common
Stock by the Bernstein Family Group may serve to increase market activity in the
Class B Common Stock relative to the Class A Common Stock. In addition, the
Company expects that both the Class A Common Stock and the Class B Common Stock
will be listed for quotation on the NASDAQ National Market System. See
"Potential Changes in Law or Regulations" below. Although no assurances can be
given as to the liquidity of the Common Stock following implementation of the
Recapitalization Proposal, the Board of Directors has been advised by the
Financial Advisor that, absent other factors, and subject to the considerations
described in the opinion of the Financial Advisor (see Exhibit B hereto), the
Recapitalization Proposal will not materially adversely affect the liquidity of
the Common Stock outstanding immediately after
<PAGE>
implementation of the Recapitalization Proposal compared with the liquidity of
the Common Stock outstanding immediately prior to the announcement of the
Recapitalization Proposal. Relative market liquidity for the shares of Class A
Common Stock and the shares of Class B Common Stock may thereafter be affected
by the extent to which the Company issues additional shares of, or repurchases
shares of, Class A Common Stock or Class B Common Stock and major shareholders
effect public sales of Class A Common Stock or Class B Common Stock, as well as
by other factors.
Effect on Market Price. The market price of shares of Class A Common Stock
and Class B Common Stock after implementation of the Recapitalization Proposal
will depend, as is presently the case, on many factors. Since the total number
of shares of Class A Common Stock and Class B Common Stock will approximate the
number of shares of Existing Common Stock, each share of Class A Common Stock
and Class B Common Stock is expected to have approximately the same market price
as each share of Existing Common Stock, depending upon, among others things, the
future performance of the Company, general market conditions and conditions
relating to companies in businesses and industries similar to those of the
Company. Accordingly, the Company cannot predict the prices at which the Class A
Common Stock and Class B Common Stock will trade following implementation of the
Recapitalization Proposal. On [DATE], 1998, the closing price on the NASDAQ
National Market System of the Existing Common Stock was $[AMOUNT] per share. The
Board of Directors has been advised by the Financial Advisor that, absent other
factors, and subject to the considerations described in the opinion of the
Financial Advisor (see Exhibit B hereto), following the commencement of normal
trading after implementation of the Recapitalization Proposal, (i) the
Recapitalization Proposal will not materially adversely affect the market value
of the Common Stock outstanding, after implementation of the Recapitalization
Proposal as compared to the market value of the Common Stock outstanding
immediately prior to the announcement of the Recapitalization Proposal and (ii)
the Class A Common Stock and the Class B Common Stock are expected to trade at
approximately equal per-share prices.
As stated above, the Company was advised by the Financial Advisor that the
non-voting or low-voting common stocks of public companies with dual-class
capital structures sometimes trade at a discount from the full-voting common
stocks of such companies. See "Recommendation of the Board of Directors; Reasons
for the Recapitalization Proposal." The Recapitalization Proposal was structured
to provide a dividend differential on, and to include a Class B Protection
feature in favor of, the Class B Common Stock, in each case to reduce or
eliminate the economic reasons for the Class A Common Stock and the Class B
Common Stock to trade at materially different market prices. See "Description of
Class A Common Stock and Class B Common Stock." Should there be a premium on one
class of Common Stock compared to the other class of Common Stock, the Amendment
expressly permits, but does not require, the Board of Directors, subject to
compliance with the rules of the NASD and other applicable regulations, to issue
and sell shares of Class B Common Stock or Class A Common Stock, even if the
consideration that could be obtained by issuing or selling the other class of
Common Stock would be greater. The Amendment also expressly permits, but does
not require, the Board of Directors to authorize the Company to purchase shares
of one class of Common Stock even if the consideration that would be paid by
purchasing the other class of Common Stock would be less.
<PAGE>
Effect on Book Value and Earnings Per Share. The percentage interest of
each shareholder in the total equity of the Company as well as the book value
and earnings per share of the Company will remain unchanged as a result of the
Recapitalization Proposal.
Effects on Stock Option Plan. Pursuant to the terms of the Plan, each
option outstanding prior to the effectiveness of the Amendment will, upon
effectiveness of the Amendment, be adjusted to become an option to acquire
one-half share of Class A Common Stock and one-half share of Class B Common
Stock for each share of Existing Common Stock previously subject to such option.
The exercise price of each such option will be unaffected. Options granted in
the future under the Plan may, in the discretion of the Board of Directors or
the Committee administering the Plan, relate solely to shares of Class A Common
Stock or to shares of Class B Common Stock, or to a combination of shares of
Class A Common Stock and Class B Common Stock. See "Proposal Two - Amendment to
Stock Option Plan to Increase Authorized Shares by 500,000."
Effect on Preferred Stock. The Recapitalization Proposal will have no
effect on the number or terms of any authorized shares of the Company's
preferred stock or the rights, powers or limitations thereof. No preferred stock
of the Company is presently issued or outstanding.
Federal Income Tax Consequences. The Company has been advised by counsel
that, in general, for federal income tax purposes: (i) the reclassification of
Existing Common Stock as Class A Common Stock and Class B Common Stock pursuant
to the Amendment will not result in any gain or loss to the Company or result in
taxable income being recognized by the shareholders of the Company that do not
receive cash in lieu of fractional shares (the tax consequences of the receipt
of cash in lieu of fractional shares is discussed below); (ii) neither the Class
A Common Stock nor the Class B Common Stock will constitute "section 306 stock"
within the meaning of section 306(c) of the Internal Revenue Code of 1986, as
amended (the "Code"); (iii) the tax basis of a holder of Existing Common Stock
in the Class A Common Stock and Class B Common Stock received by such holder
pursuant to the Recapitalization Proposal will be determined by allocating such
holder's tax basis in his or her Existing Common Stock among the shares of Class
A Common Stock and Class B Common Stock actually received and any fractional
shares for which such holder is receiving cash, the allocation between the Class
A Common Stock and the Class B Common Stock to be made in proportion to the
relative fair market values of such shares on the date of the Effective Time;
and (iv) a shareholder's holding period for the shares of Class A Common Stock
and Class B Common Stock received by such shareholder pursuant to the
Recapitalization Proposal will include the period during which he or she held
shares of Existing Common Stock.
In general, a shareholder who receives cash in lieu of fractional shares of
Class A Common Stock and Class B Common Stock will have taxable gain or loss
equal to the difference between the amount received for such fractional shares
and the portion of the basis in his or her shares of Existing Common Stock
allocable to such fractional shares. Such gain or loss will be capital, if the
shareholder held the Existing Common Stock as a capital asset, and will be
long-
<PAGE>
term capital gain or loss if the shareholder held the Existing Common Stock for
more than one year. Individual shareholders will be eligible for the lowest
rates applicable to capital gain if such shareholders held the Existing Common
Stock for more than eighteen months.
The above discussion is believed to be a fair and accurate summary of the
material federal income tax consequences to the Company's shareholders with
respect to the Recapitalization Proposal, based on the current provisions of the
Code, applicable regulations thereunder, judicial authority and administrative
rulings and practices. The discussion, however, does not address any aspects of
state, local or foreign taxation. In addition, legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conclusions set forth above. Any such changes or
interpretations may or may not be retroactive. Accordingly, each shareholder
should consult his or her tax advisor concerning the potential tax consequences
to such shareholder of implementation of the Recapitalization Proposal.
Securities Act of 1933. The Company has been advised by its counsel that
the Recapitalization Proposal is not subject to the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"). Consequently, the
Company has not registered the Class A Common Stock or the Class B Common Stock
under the Securities Act. Shares of Class A Common Stock and Class B Common
Stock held at the Effective Time, other than any such shares held by affiliates
of the Company within the meaning of the Securities Act, may be offered for sale
and sold in the same manner as the Existing Common Stock without registration
under the Securities Act. Affiliates of the Company will continue to be subject
to the restrictions specified in Rule 144 under the Securities Act, with each
class of Common Stock considered separately.
NASDAQ Criteria. The Existing Common Stock is currently traded on the
NASDAQ National Market System, and application is being made to trade the Class
A Common Stock and the Class B Common Stock on the NASDAQ National Market
System. The Recapitalization Proposal is intended to comply with the
requirements of NASDAQ Marketplace Rule 4460(j) (the "Rule"). The Rule prohibits
an issuer from issuing any class of security, or taking other corporate action,
that has the effect of nullifying, restricting, or disparately reducing the per
share voting rights of the existing security-holders of the issuer.
The NASDAQ has advised the Company that the implementation of the
Recapitalization Proposal will not violate the Rule. The Company presently
anticipates that both the Class A Common Stock and the Class B Common Stock will
be traded on the NASDAQ National Market System. Future issuances of Class A
Common Stock may be subject to the Rule, and the Company may be required to seek
and obtain NASD approval in connection with such issuances.
Potential Changes in Law or Regulations. In recent years, bills have been
introduced in Congress that, if enacted, would have prohibited the registration
of common stock on a national securities exchange or the quoting of such common
stock on the NASDAQ National Market System if such common stock was part of a
class of securities having no voting rights or
<PAGE>
carrying disproportionate voting rights. While these bills have not been acted
upon by Congress, there can be no assurance that such a bill (or a modified
version thereof) will not be introduced in Congress in the future. Legislation
or other regulatory developments could make the Class A Common Stock and Class B
Common Stock ineligible for trading on national securities exchanges and for
quotation on the NASDAQ National Market System following implementation of the
Recapitalization Proposal. The Company is unable to predict whether any such
regulatory proposals will be adopted or whether they will have such effect. If
such legislation is adopted, however, it could possibly include "grandfather"
provisions, in which event the Company might not be affected as to any action
taken.
The Amendment provides that the Board of Directors may cause the conversion
of the Class B Common Stock into Class A Common Stock if, as a result of the
existence of the Class B Common Stock, either the Class A Common Stock or the
Class B Common Stock is, or both are, excluded from quotation on the NASDAQ
National Market System or, if such shares are then quoted on another national
quotation system or listed on a national securities exchange, from trading on
the principal national quotation system or national securities exchange on which
the shares are then traded. The respective numbers of shares of Class A Common
Stock and Class B Common Stock authorized under the Amended Certificate are
intended to enable the Company to reserve for issuance upon such conversion the
requisite number of shares of Class A Common Stock.
Interests of Certain Persons
As of May 15, 1998, the Bernstein Family Group beneficially owned (not
including unexercised options) shares representing approximately 22.6% of the
Existing Common Stock and held currently exercisable options to acquire an
additional 15,000 shares of Existing Common Stock. The Bernstein Family Group,
together with all other officers and directors, beneficially owned as of such
date (not including unexercised options) approximately 23.0% of the Existing
Common Stock, and held currently exercisable options to acquire an additional
15,000 shares of Existing Common Stock. The Bernstein Family Group and other
officers and directors of the Company will receive an aggregate of approximately
596,305 shares of Class A Common Stock and 596,305 shares of Class B Common
Stock (excluding shares issuable pursuant to any options) pursuant to the
Recapitalization Proposal. As described above, following implementation of the
Recapitalization Proposal, such persons could sell or otherwise dispose of some
or all of their shares of Class B Common Stock without reducing their relative
voting power. In addition, as noted above, the Class B Protection Provisions,
which require certain shareholders acquiring 10% or more of the Class A Common
Stock to purchase a proportionate amount of Class B Common Stock under certain
circumstances, do not apply to any shareholders (together with their affiliates
and immediate family members) owning 4% or more of the aggregate number of
outstanding shares of Class A Common Stock and Class B Common Stock immediately
after the Effective Time. It is expected that each member of the Bernstein
Family Group will fall within this exception to the Class B Protection
Provisions.
The Bernstein Family Group may be deemed to have an interest in the
Recapitalization Proposal because its implementation may enhance their ability
to retain a
<PAGE>
significant voting interest in the Company even if the Company issues additional
Common Stock or if the Bernstein Family Group disposes of a substantial portion
of their Common Stock. In addition, two of the seven directors who approved the
Recapitalization Proposal are executive officers of the Company (Messrs. Elliot
Bernstein and Daniel Bernstein) and may be deemed to have an interest in the
Recapitalization Proposal as a result of the potential anti-takeover effect and
other potential effects of the Recapitalization Proposal.
Opinion of the Financial Advisor
The Financial Advisor has delivered to the Board of Directors its written
opinion dated June __, 1998, attached as Exhibit B to this proxy statement, with
respect to the impact of the Recapitalization Proposal upon the market value and
the liquidity of the Common Stock, on the ability of the Company to issue Common
Stock and on the relative trading prices of the two classes of stock. The
Financial Advisor opined that, barring material changes in the financial
condition of the Company, the industry in which the Company operates, the
regulatory environment and general market and economic conditions, following the
commencement of normal trading after implementation of the Recapitalization
Proposal, (i) the Recapitalization Proposal will not have a material adverse
effect on the market value or the liquidity of the Common Stock outstanding as
compared with the market value and liquidity of the Existing Common Stock
outstanding immediately prior to the announcement of the Recapitalization
Proposal, (ii) the Recapitalization Proposal will not have a material adverse
effect on the Company's ability to issue Common Stock, and (iii) the Class A
Common Stock and Class B Common Stock will trade at approximately equal
per-share prices.
The Company retained the Financial Advisor to advise the Board of Directors
in connection with the Recapitalization Proposal. The Company is obligated to
pay $10,000 to the Financial Advisor in connection with the rendering of such
financial advisory services and the opinion of the Financial Advisor, and may
pay an additional $2,000 for such services. Such firm, as part of its investment
banking business, is regularly engaged in the evaluation of businesses and their
securities and has previously rendered advice with respect to dual-class
recapitalizations for privately held companies.
Expenses
The approximate cost of adoption and implementation of the Recapitalization
Proposal is estimated to be $98,000, inclusive of fees of financial and legal
advisors, of which $10,000 had been paid as of May 15, 1998, and NASDAQ fees.
The Company will not pay any commission or other remuneration to any proxy
solicitor or to any broker, dealer, salesman or other person for soliciting
consents to the Amendment. Officers, directors and employees of the Company may
solicit such consents and will answer inquiries concerning the Recapitalization
Proposal, but they will not receive additional compensation therefor.
Shareholders' Equity and Financial Information
Shareholders' Equity. Implementation of the Recapitalization Proposal will
be accounted for under generally accepted accounting principles. The costs of
implementing the
<PAGE>
Recapitalization Proposal (such as transfer agent fees, printing, engraving and
mailing costs, legal fees, financial advisory fees, proxy solicitation fees and
NASD listing fees) will be charged against the Company's pre-tax earnings.
The shareholders' equity of the Company and its subsidiaries as of March
31, 1998 was as follows:
Shareholders' Equity
Preferred stock, no par value,
authorized 1,000,000 shares;
none issued.......................................................$ --
Common stock, par value $.10 per
share - authorized 10,000,000
shares; outstanding 5,147,420
shares (net of 2,145,539 treasury shares)........................ 514,742
Additional paid-in capital......................................... 7,849,078
Retained earnings................................................... 67,737,786
Cumulative currency translation
adjustment........................................................ 1,552
------------
Total Stockholders' Equity .........................................$ 76,103,158
===========
<PAGE>
Pro forma shareholders' equity as of March 31, 1998 assuming the
Recapitalization Proposal had been implemented prior to that date but without
regard to the treatment of fractional shares, is as follows:
Shareholders' Equity
Preferred stock, no par value,
authorized 1,000,000 shares;
none issued................................................... $ --
Class A Common Stock,
par value $.10 per
share - authorized 10,000,000
shares; outstanding 2,573,710 (net of 1,072,769 Treasury shares). 257,371
Class B Common Stock,
par value $.10 per
share - authorized 10,000,000
shares; outstanding 2,573,710 (net of 1,072,770 Treasury shares).. 257,371
Additional paid-in capital.......................................... 7,849,078
Retained earnings................................................... 67,737,786
Cumulative currency translation
adjustment........................................................ 1,552
-----------
Total Stockholders' Equity ..........................................$76,103,158
==========
Financial Information. While Management believes that sufficient information has
been provided to enable shareholders to exercise prudent judgment with respect
to the decision whether to vote to approve and adopt the Amendment, further
information on the Company and its financial condition can be found in the
Annual Report to Shareholders which accompanies this Proxy Statement.
The Board of Directors recommends a vote FOR the Recapitalization Proposal.
<PAGE>
Relationship With Independent Public Accountants
Deloitte & Touche LLP, independent certified public accountants, has been
selected by the Board of Directors to audit and report on Bel's financial
statements for the year ending December 31, 1998. Deloitte & Touche LLP began
auditing Bel in 1983. A representative of Deloitte & Touche LLP is expected to
be present at the Annual Meeting and will have an opportunity to make a
statement if he so desires. The representative is expected to be available to
respond to appropriate questions from shareholders.
Other Matters
At the time this Proxy Statement was mailed to shareholders, management was
not aware that any matter other than those referred to in the accompanying
Notice of Annual Meeting would be presented for action at the Annual Meeting. If
other matters properly come before the Meeting, it is intended that the shares
represented by proxies will be voted with respect to those matters in accordance
with the best judgment of the persons voting them.
By Order of the Board of Directors
Robert H. Simandl, Secretary
Dated: June __, 1998
A copy of the Company's annual report for the year ended December 31, 1997,
including financial statements, accompanies this Proxy Statement. The annual
report is not to be regarded as proxy soliciting material or as a communication
by means of which any solicitation is to be made.
<PAGE>
Exhibit A
ARTICLE VI OF THE RESTATED CERTIFICATE OF
INCORPORATION OF BEL FUSE INC., AS AMENDED
(as proposed to be amended and restated by the Amendment)
6. Authorized Capital. The total number of shares of all classes of capital
stock that the Company shall have authority to issue shall be 21,000,000,
consisting of 1,000,000 shares of preferred stock, without par value ("Preferred
Stock"), and 20,000,000 shares of common stock, consisting of 10,000,000 shares
of Class A Common Stock, par value $0.10 per share ("Class A Common Stock"), and
10,000,000 shares of Class B Common Stock, par value $0.10 per share ("Class B
Common Stock" and, together with the Class A Common Stock, "Common Stock").
6.1. Terms of the Class A Common Stock and Class B Common Stock. The
powers, preferences and rights of the Class A Common Stock and the Class B
Common Stock, and the qualifications, limitations and restrictions thereof,
shall be in all respects identical except as otherwise required by law or
expressly provided in this Restated Certificate of Incorporation, as amended.
6.1.1. Voting. Except as otherwise provided by the Board of Directors in
fixing the voting rights of any series of Preferred Stock in accordance with
Section 6.2 of this Article VI or as otherwise required by law or expressly
provided in this Restated Certificate of Incorporation, voting power in the
election of directors and for all other purposes shall be vested exclusively in
the holders of Class A Common Stock, and each holder of Class A Common Stock
shall be entitled to one vote for each share of Class A Common Stock held.
Notwithstanding anything to the contrary contained in this Restated Certificate
of Incorporation, no action may be taken without the affirmative vote of a
majority of the votes cast by the holders of the outstanding shares of Class A
Common Stock with respect to any (i) amendment of this Restated Certificate of
Incorporation, (ii) reduction of capital, (iii) merger or consolidation of the
Company with one or more other corporations, (iv) sale, conveyance, lease,
mortgage, pledge, or exchange of all or substantially all of the Company's
property or assets or (v) liquidation, dissolution, or winding up of the
Company, except as otherwise provided in the New Jersey Business Corporation
Act. The Class B Common Stock shall have no voting rights on any matters except
as otherwise required by law or expressly provided in this Restated Certificate
of Incorporation.
6.1.2. Dividends and Other Distributions.
(a) Cash Dividends. Cash dividends shall be payable to the record holders
of Class A Common Stock and Class B Common Stock only as and when declared by
the Board of Directors out of funds legally available therefor. Subject to the
foregoing, cash dividends declared on shares of Class B Common Stock in any
calendar year will not be less than 5% higher per share annually than the annual
amount of cash dividends per share declared in such calendar year on shares of
Class A Common Stock. Without limiting the provisions of the preceding
<PAGE>
sentence, the Board of Directors will not declare a cash dividend on shares of
Class A Common Stock unless at the same time it declares a cash dividend on
shares of Class B Common Stock (payable on the same payment date as the
dividends then being declared on Class A Common Stock) in an amount which,
together with all prior cash dividend payments in the calendar year, is at least
5% greater than the cash dividend then being declared on Class A Common Stock,
together with all prior cash dividend payments declared on Class A Common Stock
in such calendar year. The Board of Directors may at any time declare a cash
dividend on shares of Class B Common Stock without declaring a cash dividend on
shares of Class A Common Stock.
(b) Other Dividends and Distributions. Each share of Class A Common Stock
and each share of Class B Common Stock shall have identical rights with respect
to dividends (other than cash) and distributions (including distributions in
connection with any recapitalization, and upon liquidation, dissolution or
winding up of the Company) when and as declared in the form of stock or other
property of the Company; provided that dividends or other distributions payable
on Common Stock in shares of Common Stock shall be made to all holders of Common
Stock and may be made only as follows: (i) in shares of Class B Common Stock to
the record holders of Class A Common Stock and to the record holders of Class B
Common Stock; or (ii) in shares of Class A Common Stock to the record holders of
Class A Common Stock and in shares of Class B Common Stock to the record holders
of Class B Common Stock.
6.1.3. Convertibility. Except as described below, neither the Class A
Common Stock nor the Class B Common Stock shall be convertible into another
class of Common Stock or any other security of the Company.
(a) All outstanding shares of Class B Common Stock may be converted into
shares of Class A Common Stock on a share-for-share basis by resolution of the
Board of Directors if, as a result of the existence of the Class B Common Stock,
either the Class A Common Stock or the Class B Common Stock is, or both are,
excluded from quotation on the National Association of Securities Dealers, Inc.
Automated Quotation System National Market System (the "NASDAQ/NMS") or, if such
shares are quoted on another national quotation system or listed on a national
securities exchange, from trading on the principal national quotation system or
principal national securities exchange on which such securities are traded.
(b) All outstanding shares of Class B Common Stock shall be immediately
converted into shares of Class A Common Stock on a share-for-share basis if at
any time the number of outstanding shares of Class A Common Stock as reflected
on the stock transfer records of the Company falls below 10% of the aggregate
number of outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, any shares of Common Stock repurchased or otherwise acquired
by the Company and held as treasury shares shall not be deemed "outstanding"
from and after the date of acquisition.
(c) In the event of any conversion of the Class B Common Stock pursuant to
subsection (a) or (b) of this Section 6.1.3, certificates that formerly
represented outstanding shares of Class B Common Stock will thereafter be deemed
to represent a like number of shares
<PAGE>
of Class A Common Stock and all shares of Common Stock authorized by this
Restated Certificate of Incorporation shall be deemed to be shares of Class A
Common Stock.
6.1.4. Class B Protection.
(a) If, at any time after the effective time of the amendment of Article VI
which first authorizes the issuance of Class A Common Stock and Class B Common
Stock (the "Effective Time"), any Person or group, other than a 4% Shareholder
(in each case as hereinafter defined in this Section 6.1.4), acquires beneficial
ownership of shares representing 10% or more of the number of then outstanding
shares of Class A Common Stock, and such Person or group (a "Significant
Shareholder") does not then beneficially own an equal or greater percentage of
all then outstanding shares of Common Stock, all of which Common Stock must have
been acquired by such Person or group after the Effective Time, such Significant
Shareholder must, within a ninety-day period beginning the day after becoming a
Significant Shareholder, make a public cash tender offer to acquire additional
shares of Common Stock as provided in this Section 6.1.4 (a "Class B Protection
Transaction"). The 10% ownership threshold of the number of shares of Class A
Common Stock which triggers a Class B Protection Provision may not be waived by
the Board of Directors, nor may this threshold be amended without shareholder
approval, including a majority vote of the outstanding Common Stock voting
separately as a class.
(b) In each Class B Protection Transaction, the Significant Shareholder
must make a public cash tender offer to acquire from the holders of Common Stock
at least that number of additional shares of Common Stock (the "Additional
Shares") determined by (i) multiplying the percentage of the number of
outstanding shares of Class A Common Stock that are beneficially owned and
acquired after the Effective Time by such Significant Shareholder by the total
number of shares of Common Stock outstanding on the date such Person or group
became a Significant Shareholder, and (ii) subtracting therefrom the number of
shares of Common Stock beneficially owned by such Significant Shareholder on the
date such Person or group became a Significant Shareholder and which were
acquired after the Effective Time (as adjusted for stock splits, stock dividends
and similar recapitalizations). The Significant Shareholder must acquire all
shares of Common Stock validly tendered and not withdrawn or, if the number of
shares of Common Stock tendered to the Significant Shareholder, and not
withdrawn, exceeds the number of shares required to be acquired pursuant to this
subparagraph (b), the number of shares acquired from each tendering holder shall
be pro rata based on the percentage that the number of shares tendered by such
shareholder bears to the total number of shares tendered and not withdrawn by
all tendering holders.
(c) The cash offer price for any Shares required to be purchased by the
Significant Shareholder pursuant to this Section 6.1.4 shall be the greatest of:
(i) the highest price per share paid by the Significant Shareholder for any
Class A Common Share or any share of Common Stock during the six-month period
ending on the date such Person or group became a Significant Shareholder (or
such shorter period after the Effective Time if the date such Person or group
became a Significant Shareholder is not more than six months following the
Effective Time; and (ii) the highest reported bid price for any share of Class A
Common Stock or Class B Common Stock (whichever is higher) on the NASDAQ/NMS (or
such other quotation system or securities
<PAGE>
exchange constituting the principal trading market for either class of Common
Stock) on the business day preceding the date the Significant Shareholder makes
the tender offer required by this Section 6.1.4. For purposes of subparagraph
(d) below, the applicable date for each calculation required by clauses (i) and
(ii) of the preceding sentence shall be the date on which the Significant
Shareholder becomes required to engage in the Class B Protection Transaction for
which such calculation is required. In the event that the Significant
Shareholder has acquired shares of Class A Common Stock or Class B Common Stock
in the six-month period ending on the date such Person or group becomes a
Significant Shareholder for consideration other than cash, the value of such
consideration per share of Class A Common Stock or Class B Common Stock, as the
case may be, shall be as determined in good faith by the Board of Directors.
(d) A Class B Protection Transaction shall also be required to be effected
by any Significant Shareholder each time that the Significant Shareholder
acquires after the Effective Time beneficial ownership of an additional amount
of shares of Class A Common Stock equal to or greater than the next higher
integral multiple of 5% in excess of 10% (e.g., 20%, 25%, 30%, etc.) of the
outstanding shares of Class A Common Stock and such Significant Shareholder does
not then own an equal or greater percentage of all then outstanding shares of
Common Stock that such Significant Shareholder acquired after the Effective
Time. Such Significant Shareholder would be required to offer to buy that number
of Additional Shares prescribed by the formula set forth above; provided that,
for purposes of such formula, the date on which the Significant Shareholder
acquired the next higher integral multiple of 5% of the outstanding shares of
Class A Common Stock will be deemed to be the date on which such Person or group
became a Significant Shareholder.
(e) If a Significant Shareholder fails to make a tender offer required by
the Class B Protection Provisions, or to purchase validly tendered and not
withdrawn shares (after proration, if any), the voting rights of all of the
shares of Class A Common Stock beneficially owned by such Significant
Shareholder which were acquired after the Effective Time would be automatically
suspended until completion of a Class B Protection Transaction or until
divestiture of the excess shares of Class A Common Stock that triggered such
requirement. To the extent that the voting power of any shares of Class A Common
Stock is so suspended, such shares will not be included in the determination of
aggregate voting shares for any purpose.
(f) Neither the Class B Protection Transaction requirement nor the related
possibility of suspension of voting rights applies to any increase in percentage
beneficial ownership of shares of Class A Common Stock resulting solely from a
change in the total number of shares of Class A Common Stock outstanding,
provided that any acquisition after such change which results in any Person or
group having acquired after the Effective Time beneficial ownership, of 10% or
more of the number of then outstanding shares of Class A Common Stock (or, after
the last acquisition which triggered the requirement for a Class B Protection
Transaction, additional shares of Class A Common Stock in an amount equal to the
next higher integral multiple of 5% in excess of the number of shares of Class A
Common Stock then outstanding) shall be subject to any Class B Protection
Transaction requirement that would be otherwise imposed pursuant to this Section
6.1.4.
<PAGE>
(g) In connection with subparagraphs (a) through (d) and (f) above, the
following shares of Class A Common Stock shall be excluded for the purpose of
determining the shares of Class A Common Stock beneficially owned or acquired by
any Person or group but not for the purpose of determining shares outstanding:
(i) shares beneficially owned by such Person or group, (or, in
the case of a group, shares beneficially owned by Persons that are
members of such group) immediately after the Effective Time:
(ii) shares acquired by will or by the laws of descent and
distribution, or by gift that is made in good faith and not for the
purpose of circumventing the Class B Protection Provisions, or by
termination or revocation of a trust or similar arrangement or by a
distribution from a trust or similar arrangement if such trust or
similar arrangement was created, and such termination, revocation or
distribution occurred or was effected, in good faith and not for the
purpose of circumventing the Class B Protection Provisions, or by
reason of the ability of a secured party (following a default) to
exercise voting rights with respect to, or to dispose of, shares that
had been pledged in good faith as security for a bona fide loan, or by
foreclosure of a bona fide pledge which secures a bona fide loan;
(iii) shares acquired upon issuance or sale by the Company;
(iv) shares acquired by operation of law (including a merger
or consolidation effected for the purpose of recapitalizing such Person
or reincorporating such Person in another jurisdiction but excluding a
merger or consolidation effected for the purpose of acquiring another
Person);
(v) shares acquired in exchange for Common Stock by a holder
of Common Stock (or by a parent, lineal descendant or donee of such
holder of Common Stock who received such Common Stock from such holder)
if the Common Stock so exchanged was acquired by such holder directly
from the Company as a dividend on shares of Class A Common Stock;
(vi) shares acquired by a plan of the Company qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended, or any
successor provision thereto, or acquired by reason of a distribution
from such a plan;
(vii) shares beneficially owned by a Person or group
immediately after the Effective Time which are thereafter acquired by
an Affiliate of such Person or group (or by the members of the
immediate family (or trusts for the benefit thereof) or any such Person
or Affiliate) or by a group which includes such Person or group or any
such Affiliate; and
(viii) shares acquired indirectly through the acquisition of
securities, or all or substantially all of the assets, of a Person that
has a class of its equity securities registered under Section 12 (or
any successor provision) of the Securities Exchange Act of 1934, as
amended (the "1934 Act").
<PAGE>
Notwithstanding anything to the contrary contained in this 6.1.4, no Person (and
no group including such Person) shall be deemed to have acquired after the
Effective Time beneficial ownership of any shares of Class A Common Stock owned
by any other Person solely by reason of such Person being or becoming an
officer, director, executive, trustee, executor, custodian, guardian, and/or
other similar fiduciary or employee of or for such other Person under
circumstances not intended to circumvent the provisions of this Section 6.1.4.
(h) In connection with subparagraphs (a) through (d) and (f) above, for
purposes of calculating the number of shares of Common Stock beneficially owned
or acquired by an Person of group:
(i) shares of Common Stock acquired by gift shall be deemed
to be beneficially owned by such Person or member of a group if such
gift was made in good faith and not for the purpose of circumventing
the operations of this Section 6.1.4; and
(ii) only shares of Common Stock owned of record by such
Person or member of a group or held by others as nominees of such
Person or member of a group and identified as such to the Company
shall be deemed to be beneficially owned by such Person or group
(provided that shares of Common Stock with respect to which such
Person or member of a group has sole investment and voting power shall
be deemed to be beneficially owned thereby).
(i) All calculations with respect to percentage beneficial
ownership of issued and outstanding shares of either class of Common Shares
shall be based upon the number of issued and outstanding shares reported by the
Company on the last to be filed of (i) the Company's most recent Annual Report
on Form 10-K, (ii) its most recent Quarterly Report on Form 10-Q, (iii) its most
recent Current Report on Form 8-K, and (iv) its most recent definitive proxy
statement filed with the Securities and Exchange Commission.
(j) For purposes of this Section 6.1.4, the term "Person"
means any individual, partnership, joint venture, limited liability company,
corporation, association, trust, incorporated organization, government or
governmental department or agency or any other entity (other than the Company).
Subject to subparagraphs (g) and (h) above, "beneficial ownership" shall be
determined pursuant to Rule 13d-3 (as in effect of February 1, 1996) promulgated
under the 1934 Act, and the formation of existence of a "group" shall be
determined pursuant to Rule 13d-5(b) (as in effect on May 1, 1998) promulgated
under the 1934 Act, in each case subject to the following additional
qualifications:
(i) relationships by blood or marriage between or among any
Persons will not constitute any of such Persons as a member or a group
with any such other Person(s), absent affirmative attributes of
concerted action; and
(ii) any Person acting in his official capacity as a
director or officer of the Company shall not be deemed to beneficially
own shares where such ownership exists solely by virtue of such
Person's status as a trustee (or similar position) with respect to
shares held by plans
<PAGE>
or trusts for the general benefit of employees or former employees of
the Company, and actions taken or agreed to be taken by a Person in
such Person's official capacity as an officer or director of the
Company will not cause such Person to become a member of a group with
any other Person.
For purposes of this Section 6.1.4, an "Affiliate" of any Person means any other
Person directly or indirectly controlling of controlled by or under direct or
indirect common control with such Person. For purposes of this definition,
"control" when used with respect to any specified Person means the possession of
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms controlling and controlled have meanings correlative to
the foregoing. For purposes of this Section 6.1.4, "4% Shareholder" means any
Person that, alone or together with any Affiliate, or any member of the
immediate family (or trusts for the benefit thereof) of any such Person or
Affiliate, immediately after the Effective Time beneficially owns at least 4% of
the aggregate number of shares of Class A Common Stock and Class B Common Stock
then outstanding.
6.1.5. Merger and Consolidation. In the event of a merger or consolidation
of the Company with or into another entity (whether or not the Company is the
surviving entity), the holders of Class B Common Stock shall be entitled to
receive the same amount and form of consideration per share as the per-share
consideration, if any, received by any holder of the Class A Common Stock in
such merger or consolidation.
6.1.6. Subdivision of Shares. If the Company shall in any manner split,
subdivide or combine the outstanding shares of Class A Common Stock or Class B
Common Stock, the outstanding shares of the other such class of Common Stock
shall be proportionally split, subdivided or combined in the same manner and on
the same basis as the outstanding shares of the other class of Common Stock have
been split, subdivided or combined.
6.1.7. Power to Sell and Purchase Shares. The Board of Directors shall have
the power to cause the Company to issue and sell all or any part of any class of
stock herein or hereafter authorized to such persons, firms, associations or
corporations, and for such consideration, as the Board of Directors shall from
time to time, in its discretion, determine, whether or not greater consideration
could be received upon the issue or sale of the same number of shares of another
class, and as otherwise permitted by law. The Board of Directors shall have the
power to cause the Company to purchase, out of funds legally available therefor,
any class of stock herein or hereafter authorized from such persons, firms,
associations or corporations, and for such consideration, as the Board of
Directors shall from time to time, in its discretion, determine, whether or not
less consideration could be paid upon the purchase of the same number of shares
of another class, and as otherwise permitted by law.
6.1.8. Increase or Decrease in Number of Shares. The number of authorized
shares of Class B Common Stock may be increased or decreased (but not below the
number of shares then outstanding) by the affirmative vote of a majority of the
votes cast by the holders of the outstanding shares of the Class A Common Stock.
<PAGE>
6.2. Preferred Stock. The Board of Directors shall have the power by
resolution to (i) provideEfor the issuance of shares of Preferred Stock in
series, (ii) determine the number of shares in any such series and (iii) fix the
designations, preferences, qualifications, limitations, restrictions, and
special or relative rights of the Preferred Stock or any series thereof.
6.3 Reclassification. Upon this Certificate of Amendment of Restated
Certificate of Incorporation, as amended, becoming effective pursuant to the New
Jersey Business Corporation Act (the "Effective Time"), and without any further
action on the part of the Company or its shareholders, each share of the
Company's Common Stock then issued (including shares held in the treasury of the
Company) (the "Existing Common Stock"), shall be automatically converted onto
and reclassified as (i) one-half (1/2) of a fully paid and non-assessable share
of Class A Common Stock, and (ii) one-half (1/2) of a fully paid and
non-assessable share of Class B Common Stock. Any stock certificate that,
immediately prior to the Effective Time, represents shares of Existing Common
Stock, will, from and after the Effective Time, automatically and without the
necessity of presenting the same for exchange, represent that number of shares
of Class A Common Stock and Class B Common Stock equal, in each case, to the
product obtained by multiplying (a) the number of shares of Common Stock
represented by such certificate prior to the Effective Time by (b) one-half
(1/2); provided, however, that no fractional shares of Common Stock shall be
issued to any holder of the Existing Common Stock or reflected on the transfer
records of the Company (based upon the number of shares owned by such holder
regardless of the number of certificates issued to such holder) by reason of the
reclassification provided for herein. As soon as practicable after the Effective
Time, the Company's transfer agent shall mail a letter of transmittal to each
record holder who would be entitled to receive a half share of Common Stock. In
lieu of issuing half shares, the Company shall pay to each holder of such a half
share, upon delivery of a properly executed letter of transmittal accompanied by
a stock certificate, an amount in cash equal to the greater of (i) the average
closing price per share of the Common Stock on the National Association of
Securities Dealers, Inc. Automated Quotation System National Market System for
the fifteen trading days immediately preceding the date on which the Effective
Time occurs and (ii) the closing price per share of Common Stock on the National
Association of Securities Dealers, Inc. Automated Quotation System National
Market System on the trading day immediately preceding the Effective Time
occurs.
ARTICLE X OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED,
WHICH DESCRIBED THE VOTING RIGHTS OF THE EXISTING COMMON STOCK, WILL BE DELETED
IN ITS ENTIRETY.
<PAGE>
EXHIBIT B
[Letterhead of Wharton Valuation Services, Inc.]
June ___, 1998
Board of Directors
Bel Fuse Inc.
198 Van Vorst Street
Jersey City, New Jersey 07302
Dear Sirs:
You have asked us to advise you with respect to the effect of the proposal (the
"Recapitalization Proposal") to adopt a proposed charter amendment (the
"Amendment") that would, among other things, (i) authorize a new voting Class A
Common Stock, par value $.10 per share (the "Voting Common Stock"), and a new
non-voting Class B Common Stock, par value $.10 per share (the "Non-Voting
Common Stock" and, together with the Voting Common Stock, the "Common Equity"),
and (ii) reclassify each share of the Company's issued Common Stock, par value
$.10 per share, as one-half share of Class A Common Stock and one-half share of
Class B Common Stock, on (a) the market value and the relationship between the
volume of trading and changes in the market price (the "Liquidity") of the
Common Equity of the Company, (b) the ability of the Company to issue shares of
Common Equity or securities convertible into Common Equity ("Equity Market
Access") and (c) the relative per share trading prices of the Voting Common
Stock and the Non-voting Common Stock. The terms of the Voting Common Stock, the
Non-voting Common Stock (including the dividend preference accorded the
Non-voting Common Stock) and the Recapitalization Proposal are as set forth in
the Company's Proxy Statement dated ____________, 1998, a draft of which has
been provided to us. We understand that, prior to implementation of the
Recapitalization Proposal, the Existing Common Stock will be the only class of
common stock outstanding and that, immediately after implementation of the
Recapitalization Proposal, the Voting Common Stock and the Non-voting Common
Stock will be the only classes of Common Equity then outstanding. We assume that
following implementation of the Recapitalization Proposal both the Voting Common
Stock and the Non-voting Common Stock will be eligible for and will be listed on
the National Association of Securities Dealers, Inc. Automated Quotation System
National Market System.
In arriving at our opinion, we have reviewed certain publicly available
financial, market and trading information relating to the Company, as well as
certain other information provided to us by the Company. We have considered the
terms of the proposed Class A and Class B Common Stock as set forth in the Proxy
Statement. We have also considered such other information,
<PAGE>
financial studies, analyses, investigations and financial, economic, market and
trading criteria as we deemed relevant.
We have assumed and relied upon the accuracy and completeness of the information
reviewed by us for purposes of this opinion and we have not assumed any
responsibility for independent verification of such information (including the
information contained in the Proxy Statement) or for any independent evaluation
or appraisal of the assets of the Company. Our opinion is necessarily based upon
business, market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter and does not address the Company's
underlying business decision to effect the Recapitalization Proposal or
constitute a recommendation to any holder of Existing Common Stock as to how
such holder should vote with respect to the Recapitalization Proposal.
We do not express any opinion, other than as set forth in the final paragraph of
this letter, as to what the Market Value, the Liquidity or the Relative Trading
Prices of the Voting Common Stock and the Non-voting Common Stock will be when
such stock is issued to the shareholders of the Company pursuant to the
Recapitalization Proposal. Any analysis of the future market value, liquidity or
relative trading prices of securities is only an approximation, subject to
uncertainties and contingencies all of which are difficult to predict and beyond
the control of the firm preparing such analysis. Because of the length of time
that may elapse between the announcement of the Recapitalization Proposal and
implementation of the Recapitalization Proposal, the Market Value and the
Liquidity of the Common Equity will be affected by, among other factors, changes
in the financial condition of the Company, changes in the industry in which the
Company operates, changes in the regulatory environment and changes in general
market and economic conditions. Accordingly, our opinion with respect to changes
in the Market Value and Liquidity and with respect to Relative Trading Prices of
the Common Equity excludes the impact of all such factors. The Market Value of
the Common Equity could also be affected upon announcement of the
Recapitalization Proposal by a change in perception by some investors as to the
future plans of the Company, including plans with respect to the future issuance
of Common Equity. Such a change in perception may have a short-term negative
effect on the Market Value of the Existing Common Stock or the Common Equity.
Consequently, our opinion as to the Market Value of the Common Equity relates to
such value after the market has had a reasonable opportunity to understand and
evaluate the Recapitalization Proposal. In addition, because of the large
aggregate amount of Non-voting Common Stock being issued to the shareholders of
the Company and other factors, such securities may trade initially at market
prices below those at which they would trade following the commencement of
normal trading after implementation of the Recapitalization Proposal.
It is understood that this letter is for the information of the Board of
Directors only and is not to be quoted, summarized or referred to, in whole or
in part, in any registration statement or prospectus, in any other proxy
statement or in any other document used to solicit consents or in connection
with the offering or sale of securities, nor shall this letter be used for any
other purposes without our prior written consent, except that we specifically
consent to the use of this letter in the Proxy Statement.
<PAGE>
We are acting as financial advisor to the Company with respect to the
Recapitalization Proposal and will receive a fee from the Company for our
services, including the rendering of this opinion.
Based upon and subject to the foregoing, as of the date hereof, it is our
opinion that, following the commencement of normal trading after implementation
of the Recapitalization Proposal, (i) the Recapitalization Proposal will not
have a material adverse effect on the Market Value or the Liquidity of the
Common Equity outstanding as compared with the market value and liquidity of the
Existing Common Stock outstanding immediately prior to the announcement of the
Recapitalization Proposal, (ii) the Recapitalization Proposal will not have a
material adverse effect on Equity Market Access of the Company, and (iii) the
Voting Common Stock and Non-voting Common Stock will trade at approximately
equal per-share prices.
Very truly yours,
WHARTON VALUATION SERVICES, INC.
<PAGE>
BEL FUSE INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS,
________, 1998
The undersigned hereby appoints Howard B. Bernstein, Robert H. Simandl and
Daniel Bernstein, and each of them, attorneys and proxies, with power of
substitution in each of them, to vote for and on behalf of the undersigned at
the annual meeting of the shareholders of the Company to be held on __________,
1998, and at any adjournment thereof, upon matters properly coming before the
meeting, as set forth in the related Notice of Meeting and Proxy Statement, both
of which have been received by the undersigned. Without otherwise limiting the
general authorization given hereby, said attorneys and proxies are instructed to
vote as follows:
1. Election of the Board's nominees for Director. (The Board of Directors
recommends a vote "FOR".)
FOR the nominees listed below (except as marked to the contrary below) [ ]
WITHHOLD AUTHORITY to vote for the nominees listed below [ ]
Nominees: Daniel Bernstein, Peter Gilbert and John S. Johnson
INSTRUCTION: To withhold authority to vote for any individual nominee
listed above, write the nominee's name in the space provided below.
- --------------------------------------------------------------------------
2. Proposal to amend the Company's Stock Option Plan to increase the number
of shares authorized for issuance under such Plan by 500,000 shares
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to amend the Company's Certificate of Incorporation to
authorize a new class of non-voting Common Stock and to effect the
Recapitalization described in the accompanying Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Upon all such other matters as may properly come before the meeting
and/or any adjournment or adjournments thereof, as they in their discretion may
determine. The Board of Directors is not aware of any such other matters.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES OR SPACE PROVIDED IN THIS PROXY, THIS
PROXY WILL BE VOTED FOR EACH OF THE BOARD'S NOMINEES AND FOR EACH OF PROPOSAL
TWO AND PROPOSAL THREE.
Dated: _______________________, 1998
Signed_____________________________
-----------------------------------
Please sign this proxy and return it
promptly whether or not you expect to
attend the meeting. You may nevertheless
vote in person if you attend.
Please sign exactly as your name appears
hereon. Give full title if an Attorney,
Executor, Administrator, Trustee, Guardian,
etc.
For an account in the name of two or more
persons, each should sign, or if one
signs, he should attach evidence of his
authority.
<PAGE>
APPENDIX TO PROXY STATEMENT
BEL FUSE INC. STOCK OPTION PLAN
(As Amended and Restated Through June 1, 1998)
Section 1. NAME. The Plan set forth herein shall be known as the "BEL FUSE
INC. STOCK OPTION PLAN", and is referred to herein as the "Plan".
Section 2. PURPOSE. The purpose of the Plan is to attract qualified
personnel to accept positions of responsibility with Bel Fuse Inc. (the
"Company") or its subsidiaries, to provide incentives for personnel to remain in
the employ of the Company and its subsidiaries and to induce personnel to
maximize the Company's performance during the terms of their options.
Section 3. STOCK SUBJECT TO THE PLAN. There shall be reserved for use upon
the exercise of the options granted from time to time under the Plan
(hereinafter referred to as "Options") an aggregate of 1,200,000 shares of the
capital stock (hereinafter referred to as "Stock") of the Company, subject to
adjustment as provided in Section 6 hereof.
Upon the effectuation of the reclassification described in the Company's
definitive proxy materials pertaining to its 1998 Annual Meeting of Shareholders
(the "Recapitalization"), each Option outstanding prior to the effectiveness of
the Recapitalization will be adjusted to become an Option to acquire one-half
share of Class A Common Stock and one-half share of Class B Common Stock for
each share of the Company's Common Stock existing prior to the Recapitalization
(the "Existing Common Stock") previously subject to such Option. The exercise
price of each such Option will be unaffected. Options granted under the Plan
subsequent to the effectiveness of the Recapitalization may, in the discretion
of the Board of Directors, relate solely to shares of Class A Common Stock or to
shares of Class B Common Stock, or to a combination of shares of Class A Common
Stock and Class B Common Stock. If the Recapitalization is not effectuated, the
"Stock" shall mean the Existing Common Stock. The Board of Directors shall
determine from time to time whether all or part of such shares shall be
authorized but unissued shares of Stock or previously issued shares of Stock
which have been reacquired by the Company and which are held in its treasury.
Section 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Compensation Committee of the Board of Directors, which committee (the
"Committee") shall consist solely of members of the Board (at least two in
number) who have not, during the twelve months preceding their election to such
Committee, been granted any Options under the Plan or granted or awarded any
equity securities pursuant to any other plan of the Company or its affiliates.
Subject to the provisions of the Plan, the Committee shall have full discretion:
(a) to designate the employees of the Company and its subsidiaries to
whom Options shall be granted, whether individual optionees shall be
granted Incentive Stock Options or Nonqualified Stock Options (as defined
below), the number of shares to be covered by each of the Options and, if
the Recapitalization is implemented, whether those shares will be shares of
Class A Common Stock or Class B Common Stock or a combination of shares of
Class A Common Stock and Class B Common Stock, the term of each
<PAGE>
such Option, the exercise price of Options granted hereunder (subject to
the provisions of the Plan) and the time or times at which Options shall be
granted;
(b) to interpret the Plan; and
(c) to prescribe, amend and rescind rules and regulations relating to
the Plan.
The Plan shall be so administered as to qualify the Options granted under
it and designated as Incentive Stock Options as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Section 5. EMPLOYEES ELIGIBLE. Employees eligible to receive Options under
the Plan shall be selected by the Committee from among the key employees of the
Company and its subsidiaries. Non-employee directors and members of the
Committee shall be ineligible to receive Options under the Plan.
Section 6. CHANGES IN CAPITAL STRUCTURE. Subject to the provisions of
Sections 18 and 25, in the event that the outstanding shares of capital stock of
the Company are hereafter increased or decreased, or changed into or exchanged
for a different number or kind of shares or other securities of the Company, or
of any other corporation, by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares, or dividends payable in capital stock, appropriate adjustments shall
be made by the Committee to the number and kind of shares or other securities
reserved for issuance under the Plan upon the grant and exercise of Options. In
addition, the Board of Directors shall make appropriate adjustments to the
Option price and number and kind of shares subject to outstanding Options. Any
such adjustment made by the Committee shall be conclusive and binding on all
participants. If the Recapitalization is effectuated, outstanding Options shall
be adjusted as set forth in Section 3 hereof.
Section 7. FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of any Option nor shall any fractional shares be taken into account for
the adjustment provided in Section 6 hereof. Any rights to fractional shares
accruing by reason of the provisions of Section 6 hereof and remaining after all
of the whole shares covered by any Option have been acquired by exercise, shall
be satisfied by the payment to such optionee of an amount equal to the fair
market value of such fractional shares, determined by comparison with the fair
market value of a whole share on the date of the exercise of such Option as to
the last of such whole shares covered thereby.
Section 8. TEN YEAR LIMITATION. Notwithstanding any other provision of the
Plan, no Option may be granted pursuant to the Plan on or after April 29, 2002.
Section 9. INCENTIVE STOCK OPTIONS. The following provisions shall apply
solely with respect to Options which are designated by the Committee as
"Incentive Stock Options" at the time of the grant:
(a) Option Price. The price at which shares of Stock shall be
purchased upon exercise of an Incentive Stock Option shall not be less than
the "fair market value" (as defined below) of such shares on the grant
date, except that if on the grant date an optionee owns capital stock
possessing more than 10% of the total combined voting power of all classes
of capital stock of the Company or of the Company's parent (if any) or
subsidiary corporations, then the price at which shares of Stock shall be
purchased upon exercise of an Incentive Stock Option granted to such
optionee shall not be less than 110% of the fair market value of such
shares on the grant date.
(b) Expiration. Except as otherwise provided in Sections 9(c) and 15
hereof, each Incentive Stock Option granted hereunder shall cease to be
exercisable ten years after the date on which it is granted.
(c) Limited Term. Notwithstanding Section 9(b) hereof, any Incentive
Stock Option granted to a person who, at the time the Option is granted,
owns capital stock possessing more than 10% of the total combined voting
power of all classes of capital stock of the Company or its parent (if any)
or subsidiary corporation, shall cease to be exercisable five years after
the date that such Option is granted.
(d) $100,000 Limitation. The fair market value (determined at the time
that the Incentive Stock Option is granted) of Stock with respect to which
Incentive Stock Options are exercisable for the first time by any person
during any calendar year (under this Plan and all other plans of the
Company and its parent or subsidiary corporations) cannot be greater than
$100,000.
Section 10. NONQUALIFIED STOCK OPTIONS. The following provisions shall
apply with respect to Options which are designated by the Committee as
"Nonqualified Stock Options" at the time of grant:
(a) Option Price. The price at which shares of Stock shall be
purchased upon exercise of a Nonqualified Stock Option shall be not less
than the "fair market value" (as defined below) of such shares on the grant
date.
(b) Expiration. Except as otherwise provided in Section 15 hereof,
each Nonqualified Stock Option granted hereunder shall cease to be
exercisable ten years after the date on which it is granted.
(c) Designation. Any Option which is not designated by the Committee
as an Incentive Stock Option shall be deemed to be a Nonqualified Stock
Option.
Section 11. FAIR MARKET VALUE. If on the date an Option is granted the
Stock is listed on a stock exchange or is quoted on the automated quotation
system of NASDAQ, then "fair market value" shall mean the closing sale price (of
if such price is unavailable, the average of the high bid price and the low
asked price) on such date, but if there were no sales on such date or if the
Stock is neither listed on a stock exchange nor quoted on the automated
quotation
<PAGE>
system of NASDAQ, then "fair market value" shall be determined in good faith by
the Board of Directors in accordance with generally accepted valuation
principles and such other factors as the Board of Directors deems relevant.
Section 12. TRANSFERABILITY. Every Option granted pursuant to the Plan
shall, by its terms, not be transferable by the employee to whom granted
otherwise than by will or by laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or the rules
thereunder, in which event the terms of this Plan, including all restrictions
and limitations set forth herein, shall continue to apply to the transferee.
Section 13. METHOD OF EXERCISE. Any optionee may exercise his or her Option
from time to time by giving written notice thereof to the Company at its
principal office. The date of such exercise shall be the date on which the
Company receives such notice. Such notice shall state the number of shares to be
purchased.
Section 14. RATE OF EXERCISE. Subject to the last sentence of this Section,
any Option granted pursuant to the Plan shall, unless otherwise specified by the
Committee at the time of grant, be exercisable in accordance with the length of
time held since the date of grant as set forth in the table below. During the
time specified in the left hand column of the table below, the holder of the
Option may exercise the Option as to the number of shares which when added to
all shares as to which the Option has previously been exercised does not exceed
the percentage of all shares included in the Option specified in the right hand
column of the table below.
Maximum percentage of
all shares included
in Option which
may be purchased
pursuant to Option
During
Twelve month period commencing one year after grant date........ 25%
Twelve month period commencing two years after grant date....... 50%
Twelve month period commencing three years after grant date..... 75%
After end of fourth year from grant date and until
termination date of option.................................... 100%
The Committee shall from time to time have the right, but shall not be
obligated, to modify the foregoing limitations on the rate of exercise of any
particular Option or Options in its sole discretion so as to permit an Option or
Options to be exercised in whole or in part earlier or later than the time
specified in this Section 14.
<PAGE>
Section 15. CONTINGENT ON CONTINUED EMPLOYMENT.
(a) If any optionee shall cease to be an employee of the Company or
any subsidiary because of termination by the Company or such subsidiary
without cause, the Option shall automatically lapse one month after the
date on which such employment shall terminate, but in any event not later
than the date on which such Option would terminate pursuant to Sections
9(b), 9(c), or 10(b) hereof. If any optionee shall cease to be an employee
of the Company or any subsidiary because of voluntary termination at the
election of the optionee or termination for cause by the Company or such
subsidiary, all Options shall lapse on the date of termination.
(b) If any optionee shall die or become disabled at a time when his
Option is, but for such death or disability, exercisable, such option may
be exercised by such optionee or his legal representative, to the extent
exercisable at the date of death or disability, during the six-month period
following the date of such death or disability, but in any event not later
than the date on which such Option would terminate pursuant to Sections
9(b), 9(c), or 10(b) hereof. In addition, in the case of such death or
disability, the Board of Directors shall have discretion to extend the
period for the exercising of such Option for a period not exceeding six
additional months and the decision of the Board of Directors with respect
thereto shall be conclusive.
(c) No exercise permitted by this Section 15 shall entitle an optionee
or his personal representative, executor or administrator to exercise any
portion of any Option beyond the extent to which such Option is exercisable
pursuant to Section 14 hereof on the date such optionee's employment with
the Company terminates.
Section 16. CLOSING; PAYMENT FOR SHARES. The closing with respect to any
sale of shares pursuant to the Plan shall be at the principal office of the
Company on the tenth day following the date of exercise. Payment for the full
purchase price shall be made by the optionee by delivery of the following: (A) a
certified or bank cashier's check made payable to the Company and/or (B)
transfer to the Company of Stock of the Company having a fair market value (as
determined by the Board of Directors) on the date of exercise equal to the
excess of (i) the purchase price for the shares purchased over (ii) the amount
of the certified or bank cashier's check delivered in payment. In addition, the
optionee shall deliver the investment letter referred to in Section 17 and the
Company shall issue the shares with respect to which such Option was exercised.
Section 17. INVESTMENT LETTER. RESTRICTIVE LEGEND. Any person exercising an
Option pursuant to the Plan may be required to submit a letter to the Company as
a condition precedent to receiving the shares subject to such Option, stating
that the shares are purchased for investment and not with a view to the
distribution thereof. If required by the Committee, all shares of Stock issued
pursuant to the Plan shall bear a restrictive legend summarizing the
restrictions on transferability applicable thereto.
<PAGE>
Section 18. TERMINATION OR AMENDMENT. The Board of Directors of the Company
may at any time terminate or amend the Plan or any Option granted pursuant to
the Plan except that no such termination or amendment shall deprive any optionee
of any right to exercise any Option granted under the Plan once such Option has
become exercisable or deprive any optionee of any right then accrued by reason
of exercise of an Option.
Section 19. FORM OF OPTION. Company counsel shall prepare a form of Option
consistent with the provisions of the Plan and shall submit it to the Company
for approval.
Section 20. NO EMPLOYMENT RIGHT. Nothing in the Plan shall be deemed to
give any employee any right to employment nor shall it be deemed to give any
employee any other right not specifically and expressly provided in the Plan.
Section 21. PORTION OF OPTION EXERCISED. An optionee may exercise less than
the entire portion of the Option then exercisable pursuant to the Plan, but only
in multiples of fifty shares.
Section 22. RESTRICTION ON ISSUANCE OF SHARES. The Company shall not be
obligated to sell or issue any shares pursuant to this Plan unless such shares
on the closing date specified in the Plan or Option shall be (A) listed for
trading on any national securities exchange on which the Stock of the Company is
then listed and (B) either registered under the Securities Act of 1933, as
amended, and all applicable state securities laws, or exempt from registration
thereunder in the opinion of counsel to the Company.
Section 23. RIGHTS AS A SHAREHOLDER. The optionee shall have no rights as a
shareholder with respect to any shares covered by this Option until the date of
issuance of a stock certificate to him for such shares. No adjustment shall be
made for dividends or other rights accruing prior to the date such stock
certificate is issued, except as provided in Section 6 hereof.
Section 24. SUNDAY OR HOLIDAY. In the event that the time for the
performance of any action or the giving of any notice is called for under the
Plan within a period of time which ends or falls on a Sunday or legal holiday,
such period shall be deemed to end or fall on the next date following such
Sunday or legal holiday which is not a Sunday or legal holiday.
Section 25. MANDATORY EXERCISE. In the event that the Company should adopt
a plan of reorganization pursuant to which it shall merge with, consolidate
with, or sell its assets to, any other corporation, of if the Company should
adopt a plan of complete liquidation, the Company may give an optionee written
notice in accordance with Section 18 terminating the Plan and any Option granted
pursuant to the Plan and requiring such optionee either (A) to exercise within
thirty days after receipt of the notice such Option to the fullest extent
exercisable at the end of that thirty day period or (B) to surrender such Option
or any unexercised portion thereof. Any portion of such Option which shall not
have been exercised in accordance with the provisions of this Plan by the end of
such thirty day period shall automatically lapse irrevocably and the optionee
shall have no further rights thereunder.
<PAGE>
Section 26. TAX WITHHOLDING. The Company, as and when appropriate, shall
have the right to require each optionee purchasing or receiving shares of Stock
under the Plan to pay any federal, state, or local taxes required by law to be
withheld.
Section 27. INTERPRETATION OF PLAN. This Plan shall be interpreted in a
manner which is consistent with the Company's intention that all Incentive Stock
Options granted pursuant to the Plan shall constitute "incentive stock options"
within the meaning of Section 422 of the Code.
