<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SURGE COMPONENTS, INC.
(Name of Registrant as Specified In Its Charter)
None
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:(1)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- - ------------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE>
SURGE COMPONENTS, INC.
1016 Grand Boulevard
Deer Park, NY 11729
(516) 595-1818
Notice of Annual Meeting of Shareholders
to be held
July 6, 1998
To the Shareholders of Surge Components, Inc.:
You are cordially invited to attend the Annual Meeting of the
Shareholders (the "Annual Meeting") of Surge Components, Inc. (the "Company"),
which will be held at the headquarters of the Company, 1016 Grand Boulevard,
Deer Park, New York 11729 at 10:00 a.m., Eastern Standard Time, on July 6,
1998, to consider and act upon the following matters:
(1) The election of four (4) members to the Board of Directors
to hold office for a one-year term or until their successors
are duly elected and qualified. The persons nominated by the
Board of Directors (Messrs. Ira Levy, Steven J. Lubman,
David Siegel and Mark Siegel) are described in the
accompanying Proxy Statement.
(2) To approve the amendment of the Company's 1995 Stock Option
Plan to increase the number of shares included therein from
350,000 to 850,000.
(3) To ratify the appointment of Seligson & Giannattasio, LLP,
as the Company's auditors for the fiscal year ending
November 30, 1998.
(4) To transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
Only shareholders of record at the close of business on May 20, 1998,
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournments thereof.
A list of shareholders entitled to vote at the Annual Meeting will be
open to examination by any shareholder, for any purpose germane to the
meeting, at the offices of the Company, 1016 Grand Boulevard, Deer Park, New
York 11729, during ordinary business hours for ten days prior to the Annual
Meeting. Such list shall also be available during the Annual Meeting.
Dated: Deer Park, New York
June 9, 1998
By order of the Board of Directors,
Steven J. Lubman, Secretary
Whether or not you expect to attend the Annual Meeting in person,
please complete, date and sign the accompanying proxy card and return it
without delay in the enclosed postage prepaid envelope. Your proxy will not be
used if you are present and prefer to vote in person or if you revoke the
proxy.
<PAGE>
SURGE COMPONENTS, INC.
1016 Grand Boulevard
Deer Park, NY 11729
(516) 595-1818
Proxy Statement
Annual Meeting of Shareholders
July 6, 1998
These proxy materials are furnished in connection with the
solicitation of proxies by the Board of Directors of Surge Components, Inc., a
New York corporation (the "Company"), for use at the Annual Meeting of
Shareholders of the Company and for any adjournment or adjournments thereof
(the "Annual Meeting"), to be held at the headquarters of the Company, 1016
Grand Boulevard, Deer Park, New York at 10:00 a.m., Eastern Standard Time, on
July 6, 1998, for the purposes set forth in the accompanying Notice of Annual
Meeting of Shareholders. A Board of Directors' proxy (the "Proxy") for the
Annual Meeting is enclosed, by means of which you may indicate your votes as
to each of the proposals described in this Proxy Statement.
All Proxies which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will be
voted in accordance with the shareholder's instructions contained in such
Proxy. The affirmative vote by holders of a majority of the votes cast by
holders of the Company's shares of common stock, $.001 par value (the "Common
Stock"), the only shares of the Company entitled to vote at the Annual
Meeting, is required for the election of Directors and by a majority of the
shares present at the Annual Meeting, on the proposals to amend the 1995 Stock
Option Plan and to approve the selection of auditors. In the absence of
contrary instructions, shares represented by such Proxy will be voted "FOR"
the election of the nominees for Directors as set forth herein (Proposal 1),
"FOR" approving the increase in the number of shares of Common Stock of the
Company included in the Company's 1995 Stock Option Plan (Proposal 2) and
"FOR" ratification of the appointment of the Company's auditors for the fiscal
year ending November 30, 1998 (Proposal 3). Shares represented by proxies
which are marked "abstain" for any Proposal on the proxy card and proxies
which are marked to deny discretionary authority on all other matters will not
be included in the vote totals, and therefore will have no effect on the vote.
In addition, where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not provided voting instructions
(commonly referred to as "broker non-votes"), those shares will not be
included in the vote totals.
The Board of Directors does not anticipate that any of its nominees
will be unavailable for election and does not know of any other matters that
may be brought before the Annual Meeting. In the event that any other matter
shall come before the Annual Meeting or any nominee is not available for
election, the persons named in the enclosed Proxy will have discretionary
authority to vote all Proxies not marked to the contrary with respect to such
matter in accordance with their best judgment.
A shareholder may revoke his Proxy at any time before it is exercised
by filing with the Secretary of the Company at its executive offices in Deer
Park, New York, either a written notice of revocation or a duly executed Proxy
bearing a later date, or by appearing in person at the Annual Meeting and
expressing a desire to vote his or her shares in person. All costs of this
solicitation are to be borne by the Company.
The Company has fixed May 20, 1998 as the record date (the 'Record
Date") for the determination of shareholders entitled to notice of and to vote
at the Meeting or any adjournment or adjournments thereof. As of the Record
Date, the Company had 4,692,673 shares of Common Stock outstanding, the only
outstanding voting securities of the Company. Shareholders are entitled to one
vote for each share owned upon all matters to be considered at the Annual
Meeting.
1
<PAGE>
This Proxy Statement, the accompanying Notice of Meeting of
Shareholders, the Proxy and the 1997 Annual Report to Shareholders for the
year ended November 30, 1997, are expected to be mailed commencing on or about
June 9, 1998, to shareholders of record on the Record Date.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of the Record Date, certain
information concerning those persons known to the Company, based on
information obtained from such persons, with respect to the beneficial
ownership (as such term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934, hereinafter referred to as the "Exchange Act") of Common Stock by
(i) each person known by the Company to be the owner of more than 5% of the
outstanding Common Stock, (ii) each nominee and Director of the Company, (iii)
each executive officer named in the Summary Compensation Table, and (iv) all
Executive Officers and Directors as a group:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage of
of Beneficial Owner(1) Beneficial Ownership(2) Common Stock owned(3)
- - ---------------------- ----------------------- ---------------------
<S> <C> <C>
Ira Levy 330,000(4) 6.9%
Steven J. Lubman 330,000(5) 6.9%
David Siegel 10,000(6) (8)
Mark Siegel 31,887(6) (8)
All directors and executive officers
as a group (4 persons) 701,887(7) 14.4%
</TABLE>
- - ---------------
(1) The business address of each person is Surge Components, Inc., 1016 Grand
Boulevard, Deer Park, New York 11729.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all Common Stock
beneficially owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants that
are held by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof have been exercised.
(3) Based on 4,692,673 shares issued and outstanding as of May 20, 1998.
(4) Includes 75,000 shares issuable upon exercise of currently exercisable
stock options. Includes shares of Common Stock held by Mr. Levy which are
subject to certain voting and transfer restrictions pursuant to a Stock
Purchase Agreement made by and between Mr. Lubman and Mr. Levy. See "Certain
Relationships and Related Transactions."
(5) Includes 75,000 shares issuable upon exercise of currently exercisable
stock options. Includes shares of Common Stock held by Mr. Lubman which are
subject to certain voting and transfer restrictions pursuant to a Stock
Purchase Agreement made by and between Mr. Levy and Mr. Lubman. See "Certain
Relationships and Related Transactions."
2
<PAGE>
(6) Includes 10,000 shares issuable upon exercise of currently exercisable
options.
(7) Includes 170,000 shares issuable upon exercise of currently exercisable
options.
(8) Represents less than one percent ownership.
Proposal 1.
ELECTION OF DIRECTORS
The Company's Board of Directors is comprised of four Directors. The
Board of Directors has nominated Ira Levy, Steven J. Lubman, David Siegel and
Mark Siegel, each of whom currently serves as a Director for election as
Directors at the Annual Meeting, to hold office, subject to the provisions of
the Company's By-laws, for a one-year term, or until their successors are duly
elected and qualified. It is intended that the accompanying form of Proxy will
be voted FOR the election as Directors of the four (4) nominees named above,
unless the Proxy contains contrary instructions. Proxies which direct the
Proxy holders to abstain and do not direct the Proxy holders to vote for or
withhold authority in the matter of electing Directors will be voted for the
election of the four (4) Directors named below. Proxies cannot be voted for a
greater number of persons than the number of nominees named in the Proxy
Statement.
Management has no reason to believe that any of the nominees will not
be a candidate or will be unable to serve. However, in the event that any of
the nominees should become unable or unwilling to serve as a Director, the
Proxy will be voted for the election of such person or persons as shall be
designated by the Directors.
Set forth is certain information, as of the Record Date, concerning
each nominee.
Name Age Positions
---- --- ---------
David Siegel(1) 72 Chairman of the Board
Ira Levy 41 President and Director
Steven J. Lubman 42 Vice President, Principal Financial
Officer, Secretary and Director
Mark Siegel(1) 43 Director
-----------
(1) Member of the Audit Committee and the Compensation Committee.
DIRECTORS AND EXECUTIVE OFFICERS
David Siegel has served as Chairman of the Board of Directors of the
Company since 1983. Mr. Siegel also serves on the Boards of Directors of Kent
Electronics Corp. and Micronetics Corp., both of which are publicly owned
companies. David Siegel is the father-in-law of Ira Levy and the father of
Mark Siegel.
Ira Levy has served as President of the Company and a Director since
its inception on November 24, 1981. From 1976 to 1981, Mr. Levy was employed
by Capar Components Corp. ("Capar"), an importer and supplier of capacitor and
resistor products.
Steven J. Lubman has served as Vice President, Principal Financial
Officer, Secretary and a Director of the Company since its inception on
November 24, 1981. From 1975 to 1981, Mr. Lubman was employed by Capar.
Mark Siegel has served as a Director of the Company since October
1996. Since 1985, Mr. Siegel has been the President of Mark Siegel Inc., d/b/a
Great American Electronics Corp., an electronics parts distributor. Mark
Siegel is the son of David Siegel.
3
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION
FOR THE NOMINEES NAMED ABOVE (PROPOSAL 1).
Committees and Meetings of the Board of Directors
The Company held three meetings of the Board of Directors during the
fiscal year ended November 30, 1997 and took other action by unanimous written
consent in lieu of a meeting. David Siegel and Mark Siegel serve on the
Company's Audit and Compensation Committees. The Compensation Committee
reviews and approves the compensation to be paid to certain officers of the
Company. David Siegel currently receives $750 per month in recognition for his
service to the Board of Directors as a member and President of the Audit and
Compensation Committees. Mark Siegel currently receives $500 per month for
serving on the Audit and Compensation Committees. Each outside director also
receives reimbursement of expenses incurred on behalf of the Company, as well
as options from time to time, at the discretion of the Board of Directors. On
January 8, 1997, Mark Siegel and David Siegel were each granted 10,000 shares
of Common Stock exercisable at $3.50 per share in recognition of their service
on the Board of Directors, all of which vested immediately. These options were
re-granted on June 30, 1997 at an exercise price of $1.25 per share. No member
of the Board of Directors attended, in person or telephonically, fewer than
75% of the total number of meetings of the Board and committees thereof upon
which he served during the fiscal year ended November 30, 1997.
The Company's Managing Underwriter, Maidstone Financial, Inc.
("Maidstone") has the right during the three-year period ending July 31, 1999,
in its sole discretion, to designate one person for election as a director, or
alternatively to designate an individual to serve as a non-voting advisor to
the Company's Board of Directors. The Company's officers, directors and their
affiliates, have agreed to vote their Common Stock in favor of such designee.
The underwriter has not exercised its right to designate such a person.
Executive Compensation
Summary Compensation Table
The following table sets forth all compensation awarded to, earned
by, or paid for all services rendered to the Company during the fiscal year
ended November 30, 1997 ("Fiscal 1997"), the fiscal year ended November 30,
1996 ("Fiscal 1996") and the fiscal year ended November 30, 1995 ("Fiscal
1995") by those persons who served as Chief Executive Officer and any Named
Executive Officer who received compensation in excess of $100,000 during such
years.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Other Annual Shares
Name and Salary Bonus Compensation Underlying
Principal Position Year ($) ($) ($)(1) Options(#)
- - ------------------ ---- ----- ----- -------- -----------
<S> <C> <C> <C> <C> <C>
Ira Levy.................. 1997 $197,500 $52,325 0 0
President and CEO 1996 $137,116 $107,500 0 0
1995 $143,500 $103,600 0 0
Steven J. Lubman.......... 1997 $199,000 $53,565 0 0
Vice President 1996 $128,742 $107,500(1) 0 0
1995 $162,845 $103,600(1) 0 0
</TABLE>
- - --------------
4
<PAGE>
(1) The above compensation figures do not include the cost to the Company of
the use of automobiles leased by the Company, the cost to the Company of
benefits, including premiums for life insurance and any other perquisites
provided by the Company to such persons in connection with the Company's
business all of which does not exceed the lesser of $50,000 or 10% of such
person's annual salary and bonus.
Option Grants in Last Fiscal Year
The table below includes the number of stock options granted to the
executive officers named in the Summary Compensation Table during Fiscal 1997
and exercise information.
<TABLE>
<CAPTION>
Individual Grants
-----------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted(#) Fiscal Year Price ($/sh) Date
- - ---- ---------- ----------- ------------ ----
<S> <C> <C> <C> <C> <C>
Ira Levy 25,000 9.1% $1.25 6/29/02
50,000 18.1% $1.53 10/27/02
Steven J. Lubman 25,000 9.1% $1.25 6/29/02
50,000 18.1% $1.53 10/27/02
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and FY End Option Values
The table below includes information regarding the value realized on
option exercises and the market value of unexercised options held by the
executive officers named in the Summary Compensation Table during Fiscal 1997.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options Options
Acquired at FY-End(#) at FY-End($)
on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
None
</TABLE>
Directors Compensation
Directors currently receive no compensation for serving on the Board
of Directors other than reimbursement of reasonable expenses incurred in
attending meetings. David Siegel currently receives $750 per month in
recognition for his service to the Board of Directors as a member and
President of the Audit and Compensation Committees. Mark Siegel currently
receives $500 per month for serving on the Audit and Compensation Committees.
Each outside director also receives reimbursement of expenses, as well as
options from time to time, at the discretion of the Board of Directors. On
January 8, 1997, Mark Siegel and David Siegel were each granted 10,000 shares
of Common Stock
5
<PAGE>
exercisable at $3.50 per share in recognition of their service on the Board of
Directors, all of which vested immediately. On June 30, 1997, these options
were re-granted with an exercise price of $1.25.
Employment Agreements
The Company entered into Employment Agreements (the "Agreements")
dated as of February 1, 1996 with Ira Levy, President, and Steven J. Lubman,
Vice President. The Agreements provide that Messrs. Levy and Lubman shall
devote all of their business time to the Company, each in consideration of an
annual salary of $200,000 for the five-year period commencing on July 31,
1996. Bonuses to Messrs. Levy and Lubman are to be based upon the performance
of the Company and determined at the discretion of the Board of Directors.
Their salaries may be increased annually during the term of their employment
at the discretion of the Board of Directors (or a Compensation Committee).
Their Agreements provide that during the term of employment with the Company
and for a period of one year following termination of employment, Messrs. Levy
and Lubman are prohibited from engaging in activities which are competitive
with those of the Company. The Agreements further provide that in the event of
a change of control, where Ira Levy or Steven J. Lubman is not elected to the
Board of Directors of the Company and/or is not elected as an officer of the
Company and/or there has been a change in the ownership of at least 25% of the
issued and outstanding stock of the Company, and such issuance was not
approved by either Ira Levy or Steven J. Lubman, then the non-approving
person(s) may elect to terminate his employment contract and receive 2.99
times his annual compensation (or such other amount then permitted under the
Internal Revenue Code without an excess penalty), in addition to the remainder
of his compensation under his existing employment contract.
The Company has agreements with independent representatives who
receive commissions of 5% on the net amount of invoices rendered by the
representative after all trade discounts, freight, transportation allowances,
sales taxes, insurance and the like have been deducted. The representatives
agree to not represent any person or entity manufacturing or selling products
which are competitive with products and services sold by the Company
throughout the term of the agreement. The agreements continue unless
terminated by written notice by either party or the agreement is breached by
either party.
Stock Option Plan
In January 1996 the Company adopted and in February 1996 the
shareholders ratified, the 1995 Employee Stock Option Plan (the "Option
Plan"). The Option Plan currently provides for the grant of options to
qualified employees (including officers and directors) of the Company,
employees of the Company's subsidiary, independent contractors, consultants
and other individuals to purchase an aggregate of 350,000 shares of Common
Stock. The exercise price of all options must be at least 85% of fair market
value of the Common Stock on the date of grant.
Stock Options
On February 19, 1996, the Company granted five-year incentive stock
options under the Option Plan to ten (10) employees to purchase an aggregate
of 86,000 Common Stock. The options became effective on July 31, 1996 and were
exercisable at $3.20 per share of Common Stock and vest in either 25%
increments at the end of each of the first four years from July 31, 1996 or in
50% increments at the end of each of the first two years from July 31, 1996.
On June 30, 1997, the Company re-granted these options at an exercise price of
$1.25 per share, with the same vesting terms and a termination date of June
30, 2002. The Company also granted five-year non-qualified stock options under
the Option Plan to seven (7) persons with whom the Company has a business
relationship, to purchase an aggregate of 60,000 shares of Common Stock. These
options become effective on July 31, 1996 and are exercisable at $3.20 per
share and vest in 25% increments at the end of each of the first four years
from July 31, 1996.
On January 8, 1997, the Company granted Tsung-Ming Chen and Gerald
Schimmel, the Quality Assurance Director of Marketing, and the then National
Sales Manager, respectively, each 20,000 options, or an aggregate of 40,000
options subject to the vesting schedule specified in the agreements, at an
exercise price of $3.50 per share. These options were re-granted on June 30,
1997 at an exercise price of $1.25 per share and the same vesting schedule. On
6
<PAGE>
January 8, 1997, Mark Siegel and David Siegel, non-officer directors, were
each granted 10,000 options exercisable at $3.50 per share in recognition of
their service on the Board of Directors, all of which vested immediately.
These options were re-granted on June 30, 1997 at an exercise price of $1.25
per share. On June 30, 1997, Ira Levy and Steven J. Lubman, officers and
directors, were each granted 25,000 options at an exercise price of $1.25, and
on October 28, 1997 each were granted 50,000 options at an exercise price of
$1.53.
Certain Relationships and Related Transactions
The Company has entered into five-year employment agreements with Ira
Levy, President, and Steven J. Lubman, Vice President, effective July 31, 1996
at an annual salary of $200,000. These agreements contain non-competition
provisions and the payment of "golden parachutes" in the event of a change in
control of the Company, as defined.
The Company's executive offices and warehouse facility are leased
from Great American Realty of Deer Park Co., a company whose stock is owned 33
1/3 % each by Ira Levy and Steven J. Lubman, officers of the Company and Mark
Siegel, a Director. The monthly rental was $4,598 and $5,078 during 1996, and
1997, respectively increasing at 5% per annum during the term of the lease
which expires on December 31, 1998.
Ira Levy and Steven J. Lubman entered into a Stock Purchase Agreement
in March 1992 which relates to their respective share ownership in the
Company. Pursuant to the agreement, Messrs. Levy and Lubman each agreed to
vote their shares, for as long as the other party continues to own voting
shares of the Company, in such manner to elect each of them as a director of
the Company. Furthermore, in the event of the death of either Messrs. Levy or
Lubman, the survivor shall buy the decedent's shares of the Company. The
purchase shall be funded through the use of life insurance policies held by
Messrs. Levy and Lubman which name the other party as beneficiary. In
addition, the agreement grants Messrs. Levy and Lubman a right of first
refusal to purchase each other's shares in the event of disability, retirement
or sales to third parties at an agreed upon price.
On January 8, 1997, Mark Siegel and David Siegel , non-officer
directors, were each granted 10,000 shares of Common Stock exercisable at
$3.50 per share in recognition of their service on the Board of Directors, all
of which vested immediately. These options were re-granted on June 30, 1997,
at an exercise price of $1.25 per share. On June 30, 1997, Ira Levy and Steven
J. Lubman, officers and directors, were each granted options to purchase
25,000 shares of common stock at an exercise price of $1.25 per share, and on
October 28, 1997 each were granted 50,000 options at an exercise price of
$1.53 per share.
The Company believes that the terms of each of the foregoing
transactions were no less favorable to the Company than could have been
obtained from non-affiliated third parties, although no independent appraisals
were obtained. Future transactions with affiliates of the Company, if any,
will be on terms believed by the Management to be no less favorable than are
available from unaffiliated third parties and will be approved by a majority
of disinterested directors.
Proposal 2 Amendment of the Company's Stock Option Plan
At the Annual Meeting, Shareholders will be asked to ratify
amendments to the Company's 1995 Employee Stock Option Plan ("1995 Option
Plan") to increase the number of shares available to be granted thereunder
from 350,000 to 850,000.
The 1995 Option Plan provides for the grant of options to qualified
employees (including officers) and directors of the Company, employees of
Company subsidiaries, independent contractors, consultants and other
individuals. The Company currently employs approximately 18 persons and has
two outside directors. The closing price of the Common Stock on May 20, 1998
was $1.46 per share.
7
<PAGE>
Summary of 1995 Option Plan
The following discussion, which summarizes certain provisions of the
1995 Option Plan, as amended, is qualified in its entirety by reference to the
text of the 1995 Option Plan. Copies of the 1995 Option Plan are available for
examination at the Securities and Exchange Commission and at the principal
executive offices of the Company at 1016 Grand Boulevard, Deer Park, New York
11729.
Eligibility for Participation
Under the 1995 Option Plan, incentive stock options ("ISOs'") as
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), or ISOs in tandem with Stock Appreciation Rights ("SARs") which
are subject to the requirements set forth in Temp. Reg. Section 14a.422A-1,
A-39 (a)-(e), may be granted, from time to time, to officers and other
employees of the Company and its subsidiaries. Non-Qualified Stock Options
("NQSOs"), not intended to qualify under Section 422(b) of the Code, may also
be granted under the 1995 Option Plan to employees, officers and directors of
the Company and its subsidiaries, as well as independent contractors,
consultants and other individuals who are not employees of, but are involved
in the continuing development of the Company's business ("Participants").
Administration
The 1995 Option Plan is to be administered by the Board of Directors
or by the Stock Option Committee of the Board of Directors (referred to below
as the "Committee"), which may not contain fewer than two non-employee
directors (as defined in Rule 16b-3 promulgated under Section 16 of the
Exchange Act). The Board of Directors or the Committee has the authority, in
its discretion, to determine the persons to whom options shall be granted, the
character of such options, the manner of exercising and making payment for
shares of Common Stock and the number of shares of Common Stock to be subject
to each option. It is the intention of the Company that the 1995 Option Plan
shall comply in all respects with Rule 16b-3. Compliance with Rule 16b-3
generally allows a Section 16(b) Participant to avoid the effect of the
"short-swing" profit rules of Section 16(b) with respect to the exercise and
sale of the shares underlying the Options.
Terms of Options
The terms of Options granted are to be determined by the Board of
Directors or the Committee. Options must be granted within ten years from the
date the 1995 Option Plan was adopted. Each Option is to be evidenced by a
stock option agreement between the Company and the Participant, and is subject
to the following additional terms and conditions:
(a) Exercise of the Option. The Board of Directors or the Committee
shall determine the time periods during which Options may be exercised.
Options will be exercisable in whole or in part at any time prior to
expiration, but may not expire later than ten years from the date of grant. If
an ISO or an SAR granted in tandem with an ISO is granted to an individual
who, immediately before the grant owns directly, or through attribution, more
than 10% of the total combined voting power of all classes of capital stock of
the Company or a subsidiary or parent of the Company, such ISO or SAR granted
in tandem with an ISO shall not be exercisable after the expiration of five
years from the date of grant. An Option is exercised by the Participant's
giving written notice of exercise to the Company specifying the number of full
shares of Common Stock to be purchased and tendering payment of the purchase
price to the Company in cash or certified check, or, at the discretion of the
Board of Directors or the Committee, by delivery of shares of Common Stock
having a fair market value equal to the option price or the delivery of a
promissory note or by a combination of the above forms of payment. The ability
to pay the option exercise price in shares of Common Stock may enable a
Participant to engage in a series of successive stock-for-stock exercises of
an Option and thereby fully exercise an Option with little or no cash
investment.
8
<PAGE>
(b) Option Price. The option price of an NQSO or an SAR in tandem
with an NQSO granted pursuant to the 1995 Option Plan is determined by the
Board of Directors or the Committee in its sole discretion. In no event may
the option price of an ISO be less than the fair market value on the date of
grant. The fair market value of an ISO shall be determined by the Board of
Directors or the Committee and, if the Common Stock is listed on a national
securities exchange or traded in the over-the-counter market, the fair market
value shall be the closing price on such exchange, or the mean of the reported
bid and asked prices of the Common Stock in the over-the-counter market as
reported by NASDAQ, the OTC Bulletin Board or the National Quotation Bureau,
Incorporated, as the case may be, on such date. ISOs or SARs granted in tandem
with ISOs to holders of more than 10% of the Company's Common Stock are
subject to the additional restriction that the option price must be at least
110% of the fair market value of the Company's Common Stock on the date of
grant.
(c) Vesting. The Board of Directors or the Committee will determine
the time or times the Options become exercisable. The 1995 Option Plan
provides, however, that with respect to holders of more than 10% of the Common
Stock, such Options must become fully exercisable initially not later than
five years from the date of grant, and no less than 20% of the shares subject
to an Option must become exercisable in each of the first five years of the
Option until fully exercisable.
(d) Termination of Employment, Death, Disability. Except as provided
in the 1995 Option Plan, upon termination of employment with the Company for
any reason other than cause or death or disability of the Participant, a
Participant may exercise its ISOs at any time within three months after the
date of such termination. Other Options are not extinguished by termination
without cause. Any Options granted under the 1995 Option Plan shall
immediately terminate in the event the Participant is terminated for cause by
the Company or any of its subsidiaries.
If the holder of an Option dies while employed by the Company or a
subsidiary or parent corporation of the Company or within three (3) months
after the termination of such holder's employment, such Option may be
exercised by a legatee or legatees of such holder under such individual's last
will or by such individual's personal representatives within such time as
determined by the Board of Directors or the Committee, but in no less than six
months after death, in the case of ISOs, or through the end of the term
otherwise.
If the holder of an Option becomes disabled within the definition of
Section 22(e)(3) of the Code while employed by the Company or a subsidiary or
parent corporation of the Company, such Option may be exercised at any time
within six months after termination of such holder's employment due to the
disability.
No Option may in any event be exercised after the original expiration
date of the Option.
(e) Nontransferability of ISOs. Any option granted under the 1995
Plan shall be nontransferable and non-assignable except by will or the laws of
intestacy, and is exercisable during the lifetime of the Participant only by
the Participant, or in the event of his or her death, by a person who acquires
the right to exercise the Option by bequest or inheritance or by reason of the
death of the Participant.
(f) Maximum Number of ISOs or SARs in Tandem with ISOs Which May Be
Issued. A maximum aggregate fair market value of $100,000, determined as of
the time any ISO or SAR in tandem with an ISO is granted and in the manner
provided in the 1995 Option Plan, may not be exceeded for any Participant as
the maximum aggregate value of (A) the Common Stock with respect to which ISOs
and/or SARs in tandem with ISOs granted under the 1995 Option Plan are
exercisable for the first time during any calendar year, together with (B) the
Common Stock with respect to which ISOs and/or SARs in tandem with ISOs
granted under ISOs qualifying as such in accordance with Section 422 of the
Code were granted under any other incentive stock option plan maintained by
the Company or its parent or subsidiary corporations. Any options granted in
excess of this limit shall be deemed to be NQSO's under the 1995 Option Plan.
An option agreement issued under the 1995 Option Plan may contain
such other terms, provisions and conditions not inconsistent therewith as may
be determined by the Board of Directors or the Committee.
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Termination, Modification and Amendment
The 1995 Option Plan shall terminate ten years from the date of its
adoption by the Board of Directors. No Options will be granted after
termination of the 1995 Option Plan.
The Board of Directors of the Company may terminate the 1995 Option
Plan at any time prior to its expiration date or make such modifications or
amendments thereto from time to time as the Board of Directors or the
Committee may deem advisable. The Board of Directors or the Committee may not,
however, without the approval of a majority of the then outstanding shares of
the Company entitled to vote thereon, except under conditions described under
"Adjustments Upon Changes in Capitalization," increase the maximum number of
shares as to which Options may be granted under the 1995 Option Plan or
materially change the standards of eligibility thereunder.
No termination, modification or amendment to the 1995 Option Plan may
adversely affect the terms of any outstanding Options without the consent of
the holders thereof.
Adjustments Upon Changes in Capitalization
In the event that the number of outstanding shares of Common Stock is
changed by reason of recapitalization, reclassification, stock split, stock
dividend, combination, exchange of shares, or the like, the Board of Directors
or the Committee will make an appropriate adjustment in the aggregate number
of shares of Common Stock available and reserved for issuance upon the
exercise of then outstanding Options and in the exercise prices of such
Options. Any adjustment in the number of shares will apply proportionately
only to the unexercised portion of Options granted under the 1995 Option Plan.
Fractions of shares resulting from any such adjustment shall be further
adjusted to the next higher whole number of shares.
In the event of the dissolution or liquidation of substantially all
of the assets of the Company, all outstanding Options will automatically
terminate, unless otherwise provided by the Board of Directors or the
Committee.
Federal Income Tax Consequences
The following discussion is only a summary of the principal Federal
income tax consequences of the grant and exercise of Options and is based on
existing Federal law, which is subject to change, in some cases retroactively.
This discussion is also qualified by the particular circumstances of each
Participant which may substantially alter or modify the Federal income tax
consequences herein discussed.
Generally, under current law, when an Option qualifies as an ISO
under Section 422 of the Code, (i) an employee will not realize taxable income
either upon the grant or the exercise of the Option, (ii) the amount by which
the fair market value of the shares acquired upon exercise of the Option at
the time of exercise exceeds the Option price is included in determining a
Participant's alternative minimum tax, (iii) any gain or loss (the difference
between the net proceeds received upon the disposition of the shares and the
Option Price paid therefor), upon a qualifying disposition of the shares
acquired by exercise of an Option will be treated as a capital gain or loss if
the shares qualify as a capital asset in the hands of the Participant, and
(iv) no deduction will be allowed to the Company for Federal income tax
purposes in connection with the grant or exercise of an ISO or a qualifying
disposition of shares. A disposition by an employee of shares acquired upon
exercise of an ISO will constitute a qualifying disposition if the disposition
occurs more than two years after the grant of the Option and more than one
year after the issuance of the shares to the employee. If such shares are
disposed of by the employee before the expiration of those time limits, the
transfer would be a "disqualifying disposition" and the employee will
typically recognize ordinary income (and the Company will receive an
equivalent deduction) equal to the lesser of (i) the aggregate fair market
value of the shares as of the date of exercise less the Option Price, and (ii)
the amount realized on the disqualifying disposition less the Option Price.
Ordinary income from a disqualifying disposition will also constitute
compensation for which withholding may be required under Federal and state
law. The maximum Federal tax rate on ordinary income is greater than the
Federal tax rate for long-term capital gains. Proposals have been made to
decrease the marginal tax rate further on
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certain types of capital gains. No assurance can be given as to when, if ever,
new Federal tax legislation will be enacted into law, or as to the effective
date of any such legislation.
In the case of an NQSO granted under the 1995 Option Plan, generally
no income is recognized by the Participant at the time of the grant of the
Option assuming such NQSO does not have a readily ascertainable fair market
value. The Participant generally will recognize ordinary income upon exercise
of an NQSO equal to the aggregate fair market value of the shares acquired
less the Option Price. Withholding may be required, and the Company will
receive an equivalent deduction, subject to the provisions of Section 162(m)
of the Code relating to excessive employee remuneration. Section 162(m)
disallows a deduction for an employer with respect to remuneration paid in any
taxable year to an executive officer named in the Summary Compensation Table
in excess of $1,000,000. For purposes of determining remuneration paid, the
excess of the fair market value of the Common Stock received upon exercise of
an NQSO over the exercise price is considered remuneration paid in the year of
exercise unless the income is considered performance-based compensation as
defined in Section 162(m) and the tax regulations.
Shares acquired upon exercise of an NQSO will have a tax basis equal
to their fair market value on the exercise date or other relevant date on
which ordinary income is recognized and the holding period for the shares
generally will begin on the date of exercise or such other relevant date. Upon
subsequent disposition of the shares, a Participant will recognize capital
gain or loss if the shares constitute a capital asset in the Participant's
hands. Provided the shares are held by the Participant for more than one year
prior to disposition, such gain or loss will be recognized as long-term
capital gain or loss. As set forth above, the maximum federal tax rate on
ordinary income is currently greater than the maximum federal tax rate on
long-term capital gains. To the extent a Participant recognizes a capital
loss, such loss generally may offset capital gains and up to $3,000 of
ordinary income. Any excess capital loss may be carried forward indefinitely.
The grant of an SAR is generally not a taxable event for an optionee.
Upon the exercise of an SAR, however, the Optionee will recognize ordinary
income in an amount equal to the amount of cash and the fair market value of
any Common Stock received upon such exercise, and the Company will be entitled
to a deduction equal in amount.
The foregoing discussion is only a brief summary of the applicable
Federal income tax laws as in effect on this date and should not be relied
upon as being a complete treatment thereof. The Federal tax laws are complex,
and they are subject to legislative changes and new or revised judicial and
administrative interpretations at any time. In addition to the Federal income
tax consequences described herein, a Participant may also be subject to state
and/or local income tax consequences in the jurisdiction in which the
Participant works and/or resides.
The Board of Directors deems it to be in the best interests of the
Company that the amendments be approved in order to give the Board of
Directors or the Committee greater flexibility in awarding Participants
Options affording them a stock interest with the opportunity to grow with the
Company. The Board recommends a vote in favor of approval of the amendments to
the 1995 Option Plan.
The affirmative vote of the majority of shares represented and
entitled to vote at the Annual Meeting is required to ratify the amendments to
the 1995 Option Plan, except as described above.
The Board of Directors Recommends Shareholders Vote "FOR" the
Ratification of the Amendments to the 1995 Option Plan (Proposal 2).
Proposal 3. Ratification of Appointment of Auditors
The Board of Directors has appointed Seligson & Giannattasio, LLP, of
White Plains, New York, to continue as the Company's auditors and to audit the
books of account and other records of the Company for the fiscal year ending
November 30, 1998. The Board recommends that shareholders vote "FOR"
ratification of such appointment. A representative of Seligson & Giannattasio,
LLP, is expected to attend the Meeting.
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The Board of Directors Recommends Shareholders Vote "FOR" the
Ratification of the Appointment of Seligson Giannattasio, LLP, as the
Company's Auditors (Proposal 3).
OTHER MATTERS
The Board of Directors is not aware of any business to be presented
at the Annual Meeting except the matters set forth in the Notice and described
in this Proxy Statement. Unless otherwise directed, all shares represented by
Board of Directors' Proxies will be voted in favor of the proposal of the
Board of Directors described in this Proxy Statement. If any other matters
come before the Annual Meeting, the persons named in the accompanying Proxy
will vote on those matters according to their best judgment.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, Directors and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Officers, Directors and ten percent shareholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on the Company's copies of such forms received or written
representations from certain reporting persons that no forms were required for
those persons, the Company believes that, during the time during the Company's
Fiscal year ended November 30, 1997, all filing requirements applicable to its
officers, Directors and greater than ten percent beneficial owners were
complied with in a timely manner.
Expenses
The entire cost of preparing, assembling, printing and mailing this
Proxy Statement, the enclosed Proxy and other materials, and the cost of
soliciting Proxies with respect to the Annual Meeting, will be borne by the
Company. The Company will request banks and brokers to solicit their customers
who beneficially own shares listed of record in names of nominees, and will
reimburse those banks and brokers for the reasonable out-of-pocket expenses of
such solicitations. The original solicitation of Proxies by mail may be
supplemented by telephone and telegram by officers and other regular employees
of the Company, but no additional compensation will be paid to such
individuals.
Shareholder Proposals
No person who intends to present a proposal for action at a
forthcoming shareholders' meeting of the Company may seek to have the proposal
included in the proxy statement or form of proxy for such meeting unless that
person (a) is a record beneficial owner of at least 1% or $1,000 in market
value of shares of Common Stock, has held such shares for at least one year at
the time the proposal is submitted, and such person shall continue to own such
shares through the date on which the meeting is held, (b) provides the Company
in writing with his name, address, the number of shares held by him and the
dates upon which he acquired such shares with documentary support for a claim
of beneficial ownership, (c) notifies the Company of his intention to appear
personally at the meeting or by a qualified representative under New York law
to present his proposal for action, and (d) submits his proposal timely. A
proposal to be included in the proxy statement or proxy for the Company's next
annual meeting of shareholders, will be submitted timely only if the proposal
has been received at the Company's executive offices no later than January 20,
1999. If the date of such meeting is changed by more than 30 calendar days
from the date such meeting is scheduled to be held under the Company's
By-Laws, or if the proposal is to be presented at any meeting other than the
next annual meeting of shareholders, the proposal must be received at the
Company's principal executive office at a reasonable time before the
solicitation of proxies for such meeting is made.
Even if the foregoing requirements are satisfied, a person may submit
only one proposal of not more than 500 words with a supporting statement if
the latter is requested by the proponent for inclusion in the proxy materials,
and under certain circumstances enumerated in the Securities and Exchange
Commission's rules relating to the solicitation
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of proxies, the Company may be entitled to omit the proposal and any statement
in support thereof from its proxy statement and form of proxy.
Request for Annual Report on Form 10-KSB
Copies of the Company's Annual Report on Form 10-KSB for the fiscal
year ended November 30, 1997, as filed with the Securities and Exchange
Commission, including the financial statements (but without exhibits), can be
obtained without charge by shareholders (including beneficial owners of the
Company's Common Stock) upon written request to Steven J. Lubman, the
Company's Secretary, Surge Components, Inc. 1016 Grand Boulevard, Deer Park,
NY 11729. The Company's EDGAR filings may be found on the Worldwide Web at
www.sec.gov.
BY ORDER OF THE BOARD OF DIRECTORS
Deer Park, New York Steven J. Lubman
June 9, 1998 Secretary
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SURGE COMPONENTS, INC.
1016 Grand Boulevard
Deer Park, N.Y. 11729
PROXY
The undersigned, a holder of Common Stock of Surge Components, Inc.,
a New York corporation (the "Company"), hereby appoints IRA LEVY the proxy of
the undersigned, with full power of substitution, to attend, represent and
vote for the undersigned, all of the shares of the Company which the
undersigned would be entitled to vote, at the Annual Meeting of Shareholders
of the Company to be held on July 6, 1998 and any adjournments thereof, as
follows:
1. The election of four members to the Board of Directors to hold office for a
one-year term and until their successors are duly elected and qualified.
[ ] FOR all nominees listed below
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
(Instructions: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH OR OTHERWISE STRIKE OUT HIS OR HER
NAME BELOW)
Ira Levy, Steven J. Lubman, David Siegel and Mark Siegel
2. The ratification of the amendment to the Company's 1995 Stock Option Plan
to increase the number of shares included therein from 350,000 to 850,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. The ratification of the appointment of Seligson & Giannattasio, LLP, as the
Company's auditors for the fiscal year ending November 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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4. Upon such other matters as may properly come before the meeting or any
adjournments thereof.
The undersigned hereby revokes any other proxy to vote at such Annual
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue hereof. With respect to matters
not known at the time of the solicitations hereof, said proxies are authorized
to vote in accordance with their best judgment.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH
THE INSTRUCTIONS ON THE OTHER SIDE HEREOF. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE FOUR DIRECTORS NAMED IN PROPOSAL 1, AND
FOR THE ADOPTION OF PROPOSALS 2 AND 3, AND AS SAID PROXIES SHALL DEEM
ADVISABLE ON SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING.
The undersigned acknowledges receipt of a copy of the Notice of
Annual Meeting dated June 9, 1998 relating to the Annual Meeting.
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Signature(s) of Shareholders(s)
The signature(s) hereon should correspond exactly with the name(s) of
the Shareholder(s) appearing on the Stock Certificate. If stock is jointly
held, all joint owners should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If signer
is a corporation, please sign the full corporate name, and give title of
signing officer.
Date: ___________, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
SURGE COMPONENTS, INC.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
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