HMG WORLDWIDE CORPORATION
475 Tenth Avenue
New York, New York 10018
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on October 29, 1998
To the Stockholders of
HMG WORLDWIDE CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of HMG WORLDWIDE CORPORATION, a Delaware corporation (the "Company"),
will be held at the offices of the Company, 475 Tenth Avenue, New York, New York
on October 29, 1998 at the hour of 10:00 a.m., for the following purposes:
1) To elect seven Directors of the Company for the ensuing year.
2) To consider and vote on a proposed resolution to amend the
Company's Certificate of Incorporation to authorize the
issuance by the Company of 5,000,000 shares of Preferred
Stock.
3) To approve the Company's 1998 Stock Option Plan.
4) To ratify the selection of Friedman Alpren & Green LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1998.
5) To transact such other business as may properly come before the
Meeting.
Only stockholders of record at the close of business on September 29,
1998 are entitled to notice of and to vote at the Meeting or any adjournment
thereof.
HERBERT F. KOZLOV
Secretary
New York, New York
October , 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED
PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND PROMPTLY
RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED FOR THAT PURPOSE. ANY
STOCKHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE THE MEETING BY GIVING
WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY
ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE>
HMG WORLDWIDE CORPORATION
475 Tenth Avenue
New York, New York 10018
PROXY STATEMENT
This Proxy Statement is being mailed on or about October , 1998 to all
stockholders of record at the close of business on September 29, 1998 in
connection with the solicitation by the Board of Directors of Proxies for the
Annual Meeting of Stockholders (the "Meeting") to be held on October 29, 1998.
Proxies will be solicited by mail, and all expenses of preparing and soliciting
such proxies will be paid by the Company. All Proxies duly executed and received
by the persons designated as proxy therein will be voted on all matters
presented at the Meeting in accordance with the specifications given therein by
the person executing such Proxy or, in the absence of specified instructions,
will be voted for the named nominees to the Company's Board of Directors and in
favor of each of the proposals indicated on such Proxy. The Board does not know
of any other matter that may be brought before the Meeting but, in the event
that any other matter should come before the Meeting, or any nominee should not
be available for election, the persons named as proxy will have authority to
vote all Proxies not marked to the contrary in their discretion as they deem
advisable.
Any stockholder may revoke his Proxy at any time before the Meeting by
written notice to such effect received by the Company at the address set forth
above, Attn: Corporate Secretary, by delivery of a subsequently dated Proxy or
by attending the Meeting and voting in person.
Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business
at the Meeting. Abstentions will be counted in tabulations of the votes cast on
each of the proposals presented at the Meeting, whereas broker non-votes will
not be counted for purposes of determining whether a proposal has been approved.
The total number of shares of the Company's Common Stock outstanding as
of September 29, 1998 was [9,147,205]. The Common Stock is the only class of
securities of the Company entitled to vote, each share being entitled to one
non-cumulative vote. Only stockholders of record as of the close of business on
September 29, 1998 will be entitled to vote. A majority of the shares of Common
Stock outstanding and entitled to vote, or [4,723,603] shares, must be present
at the Meeting in person or by proxy in order to constitute a quorum for the
transaction of business.
The majority of the votes present in person or by proxy and entitled to
vote are necessary to pass each of the proposals to be made at the Meeting,
other than the proposal to amend the Certificate of Incorporation, which
requires the affirmative vote of the majority of votes evidenced by all of the
outstanding shares of Common Stock of the Company.
A list of stockholders entitled to vote at the Meeting will be
available at the Company's offices, 475 Tenth Avenue, New York, New York 10018
for a period of ten days prior to the Meeting and at the Meeting itself for
examination by any stockholder.
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ELECTION OF DIRECTORS
Seven directors are to be elected at the Meeting to serve for a term of
one year or until their respective successors are elected and qualified.
Information Concerning Nominees
The following table sets forth the positions and offices presently held
with the Company by each nominee, his age, his tenure as a director and the
number of shares of the Company's Common Stock beneficially owned as of
September 29, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Positions Number of
Presently Held Shares Approximate
with the Director Beneficially Percentage
Name Age Company Since Owned(1) of Class (1)
- - ---- --- -------------- -------- ------------ ------------
Michael Wahl 60 Chairman of the Board and 1984 1,316,725(2) 13.46%
Chief Executive Officer
Andrew Wahl 37 President and Director 1984 897,203(3) 9.22%
Robert V. Cuddihy, Jr. 38 Chief Operating Officer, 1987 393,408(4) 4.18%
Chief Financial Officer
and Director
L. Randy Riley 46 Executive Vice President 1993 368,183(5) 3.91%
and Director
Herbert F. Kozlov 45 Secretary and Director 1988 245,476(6) 2.62%
Lawrence J. Twill, Sr. 60 Director 1987 126,150(7) 2.62%
Ivan Berkowitz 53 Director 1998 143,000(8) 1.54%
</TABLE>
(1) Includes shares that the stockholder has the right to acquire within 60
days of September 29, 1998. Except as otherwise indicated, the persons
named herein have sole voting and dispositive power with respect to the
shares beneficially owned.
(2) Includes 634,828 shares issuable upon exercise of options.
(3) Includes 551,750 shares issuable upon exercise of options and 40,000
shares issuable upon the conversion of debentures.
(4) Includes 258,850 shares issuable upon exercise of options.
(5) Includes 258,850 shares issuable upon exercise of options.
(6) Includes 227,600 shares issuable upon exercise of options. Does not
include 100,000 shares of Common Stock beneficially owned by
Parker Duryee Rosoff & Haft, P.C., of which Mr. Kozlov is a member.
(7) Includes 115,400 shares issuable upon exercise of options.
(8) Includes 143,000 shares issuable upon exercise of options and warrants.
Does not include 640,000 shares of Common Stock beneficially owned by
Great Court Analysis LLC. Mr. Berkowitz is President and sole
stockholder of Great Holdings Corporation, which is sole stockholder of
Great Court Analysis LLC.
MICHAEL WAHL has been a director of the Company since its inception in May
1984. Mr. Wahl became the Company's Chairman and Chief Executive Officers,
effective October 1, 1993. Since 1984, Mr. Wahl has served as the Chairman of
the Board of HMG Worldwide In-Store Marketing, Inc. ("HMG"). Since May 1986, Mr.
Wahl has also served as the Chief Executive Officer of the Company. Mr. Wahl
served as the Company's President from 1976 to April 1986.
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ANDREW WAHL has been a director of the Company since its inception in May
1984. Mr. Wahl became the President, effective October 1, 1993 when he
relinquished his role as Chairman and Chief Executive Officer. From May 1984 to
October 1993, Mr. Wahl served as the Company's Chief Executive Officer. In
December 1990, Mr. Wahl became the Secretary of the Company. From July 1987 to
October 1993, Mr. Wahl also served as the Company's Chairman of the Board.
Additionally, Mr. Wahl served as the Company's President from May 1984 until
December 1990. From September 1980 until May 1984, Mr. Wahl served as Vice
President for HMG, where his primary responsi bilities were in the areas of new
business development and pension and profit-sharing management.
ROBERT V. CUDDIHY, JR. has been the Company's Chief Financial Officer and
Secretary since July 1987 and a director since February 1988. In March 1989, Mr.
Cuddihy also assumed the responsibilities of Chief Operating Officer of the
Company. In December 1990, Mr. Cuddihy became the Company's President and
discontinued his function as its Secretary. On October 1, 1993, he relinquished
his role as President. From July 1981 until July 1987, Mr. Cuddihy was with KPMG
Peat Marwick, Certified Public Accountants, where he last served as a senior
audit manager.
L. RANDY RILEY has been a director of the Company since March 1994. Mr.
Riley is, and for at least the past five years has been, employed by HMG in an
executive capacity, most recently as President of HMG. He was previously
employed by Ernest & Julio Gallo and by Colgate-Palmolive Company in senior
marketing positions.
HERBERT F. KOZLOV has been a director of the Company since February 1988.
From August 1989 until December 1995, Mr. Kozlov also served as the Chief
Executive Officer of Electronic Voting Systems, Inc., a subsidiary of the
Company. Effective October 1, 1993, Mr. Kozlov assumed the responsibilities of
Corporate Secretary. Mr. Kozlov is a member of Parker Duryee Rosoff & Haft,
counsel to the Company. Mr. Kozlov has been a practicing attorney for more than
ten years.
LAWRENCE J. TWILL, SR., has been a director of the Company since July 1987.
Since March 1991, Mr. Twill has been President of Ashwood Capital, a private
merchant banking firm. From February 1990 to February 1991, he was a Managing
Director of Peers & Co., which at the time was a subsidiary of Kemper
Securities, Inc. From June 1988 to February 1990, Mr. Twill served as Executive
Vice President, Investment Banking and a member of the Executive Committee of
Bateman Eichler, Hill Richards, a subsidiary of Kemper Securities, Inc. From
February 1986 to June 1988, Mr. Twill was Chairman of Woolcott & Co., Inc., an
investment banking firm which served as the managing underwriter of the
Company's 1987 secondary public offering. From February 1985 to January 1986,
Mr. Twill was the Chairman and Chief Executive Officer of Lawrence Twill
Associates, a financial consulting firm. From April 1984 to March 1985, Mr.
Twill was the President and Chief Executive Officer of New York Air, Inc.
IVAN BERKOWITZ has been a director of the Company since January 1998. Mr.
Berkowitz has been the President of Great Court Holdings Corporation since 1989.
Mr. Berkowitz is also the Managing General Partner of Steib & Company since
1993. From 1995 to 1997, Mr. Berkowitz served as the Chief Executive Officer of
PolyVision Corporation.
Michael Wahl is the father of Andrew Wahl. There are no other family
relationships among the Company's officers and directors.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Executive officers are
elected annually by the Board of Directors to hold office until the first
meeting of the Board following the next annual meeting of stockholders and until
their successors are chosen and qualified.
Information Concerning the Board
The Board of Directors held five meetings, including actions taken by
unanimous written consent, during the year ended December 31, 1997. All then
incumbent directors attended all of such meetings.
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The Compensation and Stock Option Committee of the Board is responsible
for oversight and administration of executive compensation and also reviews and
implements appropriate action with respect to all matters pertaining to stock
options granted under the Company's 1991, 1993 and 1994 stock option plans. The
Committee is presently composed solely of Mr. Twill.
The Audit Committee of the Board is charged with the review of the
activities of the Company's independent auditors, including, but not limited to,
fees, services and scope of audit. The Audit Committee is presently composed of
Messrs. M. Wahl, Kozlov, Twill and Cuddihy. The Audit Committee did not meet
during the year ended December 31, 1997.
The Retirement Committee of the Company Board administers the Company's
Capital Accumulation Plans andPension Plan. Mr. Twill is presently the sole
member of the Retirement Committee.
Section 16(a) - Reporting Delinquencies
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than 10%
of the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than 10% stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that through December 31, 1997,
all filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
AUTHORIZE PREFERRED STOCK
At the Meeting, Stockholders will be asked to ratify an amendment to
the Company's Certificate of Incorporation (the "Certificate") proposed by
resolution of the Board of Directors which would create a series of, and
authorize the issuance of, five million shares of Preferred Stock.
The Company's authorized capital stock currently consists of 50,000,000
shares of Common Stock. As of the Record Date, 9,147,205 shares of Common Stock
were outstanding.
The Board of Directors has approved, and recommends that the
stockholders adopt the proposal to amend Article IV of the Certificate of
Incorporation of the Company (the "Certificate") to authorize 5,000,000 shares
of Preferred Stock, $.01 par value per share. The Certificate presently
authorizes 50,000,000 shares of Common Stock, $.01 par value per stock, and no
Preferred Stock. The language of proposed Article IV is set forth in Appendix A
to this Proxy Statement.
The Board of Directors believes that the authorization of Preferred
Stock will afford the Company greater flexibility in meeting its capital
requirements. Such shares of Preferred Stock would be available for issuance
from time to time for any proper corporate purpose, which might include issuance
in public or private sales for cash as a means of obtaining capital for use in
the Company's business, and issuance as part or all of the consideration paid by
the Company for the possible acquisition of property or a business.
The proposed amendment would empower the Board of Directors, without
the necessity and delay of further action or authorization by the Company's
stockholders (unless required by applicable laws or regulatory authorities or
pursuant to the rules of any stock exchange on which the Company's securities
may then be listed), to designate the
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<PAGE>
series and, before issuance, to fix the designations, preferences and relative
rights, powers, privileges, qualifications and limitations of each series. Each
series of Preferred Stock could, as determined by the Board of Directors at the
time of issuance, rank with respect to dividends, voting power, redemption
and/or liquidation rights senior to the Company's Common Stock.
The proposed amendment would authorize the Board of Directors to
determine, among other things, with respect to each series of Preferred Stock
which may be issued: (a) the divided rates, conditions and preferences, if any,
in respect of the Common Stock and among all series of Preferred Stock; (b)
whether dividends would be cumulative and, if so, the date from which dividends
on the series would accumulate; (c) whether, and under what circumstances and to
what extent, the holders of the series would have voting rights in addition to
those prescribed by law, including whether the holders would vote, if at all,
together with holders of Common stock for directors or wold vote for a separate
class of directors; (d) whether, and upon what terms, the series would be
convertible into or exchangeable for other securities; (e) whether, and upon
what terms, the series would be redeemable or could be called; (f) the
preference, if any, to which the series would be entitled in the event of
voluntary or involuntary liquidation, dissolution or winding up of the Company,
and (g) whether a sinking fund would be provided for the redemption of the
series and, if so, the terms, and conditions thereof. The Board also may
determine whether any particular series of the proposed Preferred Stock will
rank junior to, on a parity with, or senior to any other series of Preferred
Stock in respect of dividends and liquidation rights.
The general effect of the authorization and issuance of the Preferred
Stock, to the extent that dividends may be paid thereon, would be to reduce the
amount otherwise available for payment of dividends on the then outstanding
Common Stock, although no dividends have been paid by the Company to date and
there is no present intention to do so. However, to the extent that a particular
series of Preferred Stock is made convertible into Common Stock, a dilution of
the equity of the outstanding Common Stock wold result upon conversion. Holders
of capital stock of the Company have no preemptive rights and, accordingly, have
no preferential right to purchase nay of the capital stock in order to maintain
their proportionate ownership. In addition, to the extent that holders of
Preferred Stock receive preferences in the event of dissolution, liquidation or
winding up of the Company, the rights of holders of Common Stock to distribution
of the Company's assets will be diminished.
When considering the issuance of Preferred Stock, the Board of
Directors will consider the above-described general effects upon the holders of
Common Stock. The Board of Directors does not intend to issue any Preferred
Stock except on terms which the Board of Directors deems to be in the best
interest of the Company and its then existing stockholders.
The principal reason for creating the Preferred Stock is to enable the
Company to have the maximum flexibility to meet its current capital
requirements. However, although the Board of Directors does not deem the
proposed amendment to be anti-takeover proposal, it may be deemed to have such
effect in the event of a proposed merger, tender offer or other attempt to gain
control of the Company, which the Board of Directors does not approve, it might
be possible for the Board of Directors to authorize as an anti-takeover device
the issuance of a series of Preferred Stock with rights and preferences which
could impede the completion of such a transaction, by, among other things,
establishing a class vote and/or granting more than one vote per share to such
series of Preferred Stock. The availability of the Preferred Stock may,
depending on the rights, powers and privileges and terms thereof, make it more
difficult to effect or may discourage an attempt to gain control of the Company
by means of a merger, tender offer or proxy contest, which is not approved by
incumbent management, but which certain stockholders may deem to be in their
best interests.
The affirmative vote of the holders of a majority of the shares of
Common Stock entitled to notice of and to vote at the meeting is required for
the adoption of the Amendment to Article IV of the Company's Certificate of
Incorporation.
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Board Recommendation
A quorum being present, the affirmative vote of the holders of
the outstanding shares of Common Stock representing a majority of the votes
entitled to vote at the Meeting is required for the adoption of the foregoing
Amendment to the Company's Certificate of Incorporation. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL TO APPROVE 1998 STOCK OPTION PLAN
The Company's Board of Directors adopted the Company's 1998 Stock
Option Plan (the "1998 Plan") on July 20 , 1998, subject to stockholder approval
within one year thereafter. The following summary of the provisions of the 1998
Plan is qualified in its entirety by express reference to the text of the 1998
Plan attached as Appendix B hereto.
Purpose
The purpose of the 1998 Plan is to advance the interests of the Company
by inducing persons of outstanding ability and potential to join and remain with
the Company, by encouraging and enabling employees, directors and consultants to
acquire proprietary interests in the Company and by providing the participating
employees, directors and consultants with additional incentive to promote the
success of the Company.
Administration
The 1998 Plan provides for its administration by the Board of Directors
or by a committee consisting of at least two persons chosen by the Board of
Directors (the "Committee"). The Committee has discretionary authority (subject
to certain restrictions) to determine the individuals to whom, the times at
which and the exercise price for which options will be granted. The Committee
also interprets the 1998 Plan and prescribes rules, regulations and forms
relating to its administration. The receipt of options by directors shall not
preclude their vote on any matters in connection with the administration or
interpretation of the 1998 Plan.
Shares Subject to the 1998 Plan
A total of 500,000 shares of Common Stock of the Company has been
reserved for issuance under the 1998 Plan. The 1998 Plan provides for
appropriate adjustments in the event of stock dividends, stock splits,
recapitalizations and other changes in the Company's capital structure. No
options have been granted under the 1998 Plan as of the date hereof.
Nature of Options
The Committee may grant options under the 1998 Plan ("Incentive Stock
Options") which are intended to meet the requirements of Section 422A of the
Internal Revenue Code of 1986, as amended ("the Code"). In addition, the
Committee may grant options under the 1998 Plan which are not intended to meet
the requirements of Section 422A of the Code ("Nonstatutory Stock Options"). The
Federal income tax consequences of both Incentive Stock Options and Nonstatutory
Stock Options are described below under "Federal Income Tax Consequences".
Eligibility
Subject to certain limitations as set forth in the 1998 Plan, options
to purchase shares may be granted thereunder to persons, including Committee
members, who, in the case of Incentive Stock Options, are full time employees
(including officers and directors) of either the Company or any subsidiary of
the Company, or, in the case of
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Nonstatutory Stock Options, are employees of or non-employee directors of, or
consultants to, the Company or any subsidiary.
Option Price
The option price of the shares of Common Stock subject to an Incentive
Stock Option under the 1998 Plan may not be less than the fair market value of
the shares on the date upon which such option is granted. In addition, in the
case of an option holder of an Incentive Stock Option who owns, at the time the
option is granted, more than 10% of the total combined voting power of all
classes of stock of the Company or of a subsidiary of the Company (a "10%
Shareholder"), the purchase price of the shares may not be less than 110% of the
fair market value of the shares on the date upon which such option is granted.
Under the 1998 Plan, the option price may be paid for in full by the
surrender of shares of Common Stock of the Company. In such case, the fair
market value of the surrendered shares shall be determined by the Committee as
of the date of exercise in the same manner as the value is determined upon the
grant of an Incentive Stock Option.
The option price of the shares of Common Stock subject to Nonstatutory
Stock Options shall be determined by the Committee in its sole discretion.
Non-Transferability
Options granted under the 1998 Plan are not transferable other than by
will or the laws of descent and distribution and such options are exercisable,
during a holder's lifetime, only by such holder.
Restrictions on Exercise
No Incentive Stock Option granted under the 1998 Plan shall be
exercisable after the expiration of ten years from the date of its grant.
However, if an Incentive Stock Option is granted to a 10% Shareholder, such
option shall not be exercisable after the expiration of five years from the date
of its grant.
In no case may an option be exercised as to less than 100 shares at any
one time (or the remaining shares covered by the option if less than one
hundred).
Death, Disability or Termination of Employment
If the employment of an option holder under the 1998 Plan shall be
terminated voluntarily by the employee or if such termination shall be made for
cause, or if the services of a non-employee director shall be terminated
voluntarily by the director or for cause, such option may be exercised at any
time within three months after such termination (but in no event after the
expiration of the option). For the purposes of the 1998 Plan, the retirement of
an individual either pursuant to a pension or retirement plan adopted by the
Company or at the normal retirement date prescribed from time to time by the
Company shall be deemed to be a termination of such individual's employment
other than voluntarily by the employee or for cause.
If an option holder under the 1998 Plan (i) dies or becomes permanently
or totally disabled while employed by the Company or while serving as a
non-employee director of the Company or (ii) dies within three months after the
termination of his employment of service other than voluntarily or for cause,
then such options may be exercised by the option holder or his legatee,
legatees, his personal representatives or distributees at any time within one
year after his death or termination of employment due to disability.
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Effect of Changes in the Capitalization of the Company
In the event of any merger, reorganization or other recapitalization of
the Company, an option holder under the Plan would be entitled to receive, upon
the exercise of his Option, the same consideration that he would have been
entitled to receive upon the happening of such corporate event, as if the option
holder had been, immediately prior to the event, the holder of the total number
of shares underlying his Option.
Notwithstanding the foregoing, if the Company's Common Stock should
cease to be publicly traded at any time in the future, an option holder under
the 1998 Plan who exercises his option at any time thereafter would be entitled
to receive only such number of shares or other consideration to the extent that
his option had vested on the date of the cessation of such public trading.
Management is neither planning nor aware of any changes or potential
changes in the capitalization of the Company.
Amendment and Termination
The 1998 Plan (but not options previously granted thereunder) shall
terminate on June 30, 2008. Subject to certain limitations, the 1998 Plan may be
amended or terminated at an earlier date by the Company's Board of Directors or
by a majority of the outstanding shares entitled to vote thereon.
Federal Income Tax Consequences
The following material summarizes the principal anticipated federal
income tax consequences of grants under the 1998 Plan to participants and the
Company.
Consequences to Participants
Incentive stock options. No income results to the holder of an
Incentive Stock Option upon the grant of the option or issuance of shares. The
amount realized on the sale or taxable exchange of such shares in excess of the
option price will be considered a capital gain, except that, if a disposition
occurs within one year after exercise of the option or two years after the grant
of the option, the option holder will realize compensation, for federal income
tax purposes, on the amount by which the lesser of (i) the fair market value on
the date of exercise or (ii) the amount realized on the sale of the shares,
exceeds the option price. For the purpose of determining alternative minimum
taxable income, an Incentive Stock Option is treated as a non-qualified option.
The fair market value of shares for which an option holder may be granted
Incentive Stock Options which are exercisable for the first time during any year
may not exceed $100,000.
Non-statutory options. In connection with the exercise of a
non-statutory option, an option holder will generally realize compensation, for
federal income tax purposes, on the difference between the option price and the
fair market value of the shares acquired.
Payment of option price in shares. If an option is exercised and
payment is made by means of previously held shares, there is no gain or loss
recognized to the option holder on the previously held shares. In the case of a
non-statutory option, the option holder's basis and holding period of the
previously held shares will be carried over to an equivalent number of shares
received upon exercise of the option. Any additional shares received under the
option will have a basis equal to the compensation realized by the option holder
for federal income tax purposes plus the amount of any additional cash paid.
Disqualifying Disposition. Exercising a non-statutory option with
shares which were originally acquired on the exercise of an Incentive Stock
Option will not constitute a "disqualifying disposition" of such previously held
shares. If, however, the new shares are not held for the balance of the required
holding period, there will be a disqualifying
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disposition for federal income tax purposes, resulting in recognition of
compensation to the option holder in an amount equal to the excess of the fair
market value over the option price at the time such incentive shares were
originally acquired (but not in excess of the option holder's gain). However,
exercising an Incentive Stock Option with shares acquired on the exercise of an
Incentive Stock Option will constitute a disqualifying disposition of such
previously held shares if the one-and-two-year holding periods described above
have not been met before such exercise.
Tax withholding rights. Upon delivery to the Company of previously-held
shares to satisfy withholding or other tax obligations of a participant pursuant
to tax withholding rights, the difference between the fair market value of, and
the participant's basis for, such shares would be a capital gain or loss to the
participant for federal income tax purposes.
Consequences to the Company
To the extent individual option holders qualify for capital gains tax
treatment, neither the Company nor its affiliates will generally be entitled to
a deduction for federal income tax purposes. In other cases, the Company or its
affiliates will generally receive a federal income tax deduction at the same
time as and in the same amount as the amount which is taxable to the employee as
compensation, except as provided below.
Board Recommendation
The affirmative vote of the holders of a majority of the shares of
Common Stock of the Company present and voting in person or by proxy at the
Meeting is required for approval of this proposal. The Board recommends a vote
FOR such proposal.
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EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation for services rendered in
all capacities to the Company during its fiscal years ended December 31, 1997,
1996 and 1995 by its Chief Executive Officer and each of its executive officers
whose compensation exceeded $100,000 during its fiscal year ended December 31,
1997:
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
<S> <C> <C> <C> <C> <C> <C>
Other Number of All
Name and Annual RestrictedSecurities Long Term Other
Principal Compen- Stock Underlying Incentive Compen-
Position Year Salary Bonus sation(1) Awards Options Payouts sation
- - --------- ---- ------ ----- --------- ------ ------- --------- ------
Michael Wahl 1997 $250,000 - - 35,000 - -
Chief Executive 1996 $250,000 - 140,000 - -
Officer 1995 $250,000 100,000 - - - - -
Andrew Wahl 1997 $250,000 - - 35,000 - -
President 1996 $250,000 - - 140,000 - -
1995 $190,000 76,500 - - - - -
Robert V. Cuddihy, Jr. 1997 $250,000 - - - 35,000 - -
Chief Operating and 1996 $200,000 - - 70,000 - -
Financial Officer 1995 $150,000 100,000 - - - -
L. Randy Riley 1997 $250,000 - - - 35,000 - -
Executive Vice 1996 $250,000 $ 70,000 - 129,450 - -
President 1995 $210,000 - - - - -
</TABLE>
(1) Personal benefits provided to Messrs. Michael Wahl, Andrew Wahl, Cuddihy
and Riley did not exceed the disclosure thresholds established under SEC
rules, and therefore are not included in this table.
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Set forth below is information with respect to options to purchase the
Company's Common Stock granted in the year ended December 31, 1997 and prior
years under the Company's 1986, 1991, 1993 and 1994 Stock Option Plans.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Securities
Number of Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired December 31, 1997 at December 31, 1997
------------------------ --------------------
on Value
Name Exercise Realized Exercisable UnexercisableExercisable Unexercisable
Michael Wahl - - 634,828 - $ 5,625 -
Andrew Wahl - - 556,750 - $ 27,419 -
Robert V.
Cuddihy, Jr. - - 258,850 - $ 22,550 -
L. Randy Riley - - 258,850 - $ 7,725 -
</TABLE>
Employment Agreements
The Company maintains an employment agreement ("Wahl Employment
Agreement") with Michael Wahl, Chairman of the Board and Chief Executive
Officer, at a base salary of no less than $250,000 per year. He is also entitled
to receive such bonuses as may be awarded to him from time to time by the Board
in its sole discretion. The Wahl Employment Agreement expires December 31, 2002.
Upon termination of the Wahl Employment Agreement by the Company for any
reason other than for cause, the Company will be obligated to continue to make
salary payments to Mr. Wahl, or to his estate in the event of his death, for a
period of up to two years after such termination. The Wahl Employment Agreement
also precludes Mr. Wahl from competing with the Company for a period of two
years following termination of employment.
With the exception of Michael Wahl, none of the executive officers of the
Company is employed by the Company pursuant to an employment agreement.
Compensation of Directors
The Company's policy is to reimburse directors for travel and
out-of-pocket expenses incurred, if any, to attend its directors' meetings. See
"Compensation Committee Interlocks and Insider Participation".
Board of Directors Report on Executive Compensation
Although the Company has a Compensation Committee, the Board as a whole
rather than the Compensation Committee has set compensation for its executive
officers for each of the past three years. Four of such directors received cash
compensation as executive officers of the Company.
Compensation levels afforded to Michael Wahl, Andrew Wahl, Robert V.
Cuddihy, Jr., L. Randy Riley and to the Company's other executive officers are
based in substantial part upon a comparative evaluation by the Company's Board
of Directors of each such person's functional responsibility and performance in
that particular segment of the Company's operations for which each is
responsible and, where discernable, the profitability of that segment.
During 1997 the Board approved the grant of stock options, to a number of
employees, including executive officers. The grant of options were approved
after considering the significant transactions initiated and consummated
11
<PAGE>
by the executive officers on behalf of the Company during the past year and the
Company's return to profitability. The Board noted that the Company's executive
officers accomplishments included (i) consolidated its principal manufacturing
operations in Reading in January 1997, (ii) acquired certain wire and metal
fabrication equipment and opened a 21,000 square foot wire and metal fabrication
facility in Brooklyn, New York in April 1997, (iii) opened a full service office
in Toronto through the acquisition of certain assets of Griffith Communications,
Inc. effective July 1997, (iv) full conversion to and implementation of a new
management information system tailored to the Company's operations, (v)
exercised its option to purchase a previously leased 72,500 square foot
secondary manufacturing and warehousing facility in Reading for $1.2 million
(vi) consummated a new term loan facility with a financial institution whereby
the Company obtained a $600,000 secured term loan for the purchase of the 72,500
square foot Reading facility in November 1997. This term loan, which expires in
November 1999, bears interest at the lending institution's prime rate plus 1%
per annum and is secured by the acquired real estate, (vii) consummation of a
private placement ("HMG Private Placement") whereby the Company sold an
aggregate of 1,012,500 shares of its Common Stock from which it derived net
proceeds of approximately $917,000 and (viii) effective September 30, 1997, the
Company issued $2.2 million 10% Convertible Debentures due September 30, 2000
("Debentures") through a private placement ("Private Placement"). The Debentures
bear interest at the rate of 10% per annum and are convertible, at the option of
the holder at any time, into shares of the Company's Common Stock ("Conversion
Shares"), $0.01 par value, based upon the conversion price of $1.25 per share.
The Company may prepay the Debentures on 30 days prior notice, at such time as
the average closing price of the Common Stock exceeds $1.75 per share for a 30
day period prior to notice of such prepayment provided that the Conversion
Shares have been registered under the Securities Act at the time of such
prepayment.
March 1, 1998
Michael Wahl - Chairman Herbert F. Kozlov
Andrew Wahl Lawrence J. Twill, Sr.
Robert V. Cuddihy, Jr. Louis Perlman
L. Randy Riley Ivan Berkowitz
12
<PAGE>
Performance Graph
The following graph compares the yearly percentage change in the
Company's cumulative total stockholder return on its Common Stock (based on the
market price of the Company's Common Stock) with the cumulative total return of
U.S. companies on The Nasdaq Stock Market and non-financial companies on The
Nasdaq Stock Market.
[GRAPHIC OMITTED]
1/1/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
HMG Worldwide $100 $411 $142 $126 $ 47 $ 53
Nasdaq US $100 $115 $112 $159 $195 $240
Nasdaq Non-
Financial $100 $115 $111 $155 $188 $221
13
<PAGE>
Compensation Committee Interlocks and Insider Participation
Each member of the Board of Directors participated in the determination
of the level of compensation of the Company's executive officers. Five of such
directors are officers of the Company, i.e., Michael Wahl - Chief Executive
Officer, Andrew Wahl - President, Robert V. Cuddihy, Jr. - Chief Operating
Officer and Chief Financial Officer, L.
Randy Riley - Executive Vice President and Herbert F. Kozlov - Secretary.
In September 1997, Ivan Berkowitz, director of the Company, and Louis
Perlman, a director of the Company from January 1998 until his resignation on
May 13, 1998, entered into a two year financial consulting agreement with the
Company through Lazam Properties Ltd ("Lazam"). Under the terms of the
consulting agreement, Mr. Berkowitz and Mr. Perlman shall provide to the Company
with financial consulting services relating to corporate finance matters. During
the term of the agreement, Lazam shall receive $260,000 in consideration of the
performance of services. Additionally, Lazam, or its designees, shall receive
warrants to purchase an aggregate of 200,000 shares of the Company's Common
Stock at an exercise price of $1.25 per share. The consulting agreement expires
September 30, 1999. Fees paid to Lazam by the Company in full satisfaction of
the consulting agreement for the year ended December 31, 1997 were approximately
$289,000. The Company issued warrants to purchase an aggregate of 113,000 shares
of the Company's Common Stock at an exercise price of $1.25 per share to each of
Mr. Berkowitz and Perlman.
Herbert F. Kozlov, a director of the Company, is a member of Parker
Duryee Rosoff & Haft, counsel to HMG. Fees paid to such firm by the Company for
the year ended December 31, 1997 were approximately $147,000.
Lawrence J. Twill, Sr., a director of the Company, is President of
Ashwood Capital. Such firm, from time to time, also serves as an investment
banking advisor to the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 29, 1998, based on the
information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each
director of the Company, (ii) certain executive officers of the Company, (iii)
each person known by the Company to be the owner of more than 5% of its
outstanding shares of Common Stock and (iv) all executive officers and directors
as a group:
Name and Address of Number of Approximate
Beneficial Holder Shares (1) Percentage of Class
Michael Wahl 1,316,725(2) 13.46%
475 Tenth Avenue
New York, New York 10018
Andrew Wahl 897,803(3) 9.22%
475 Tenth Avenue
New York, New York 10018
Robert V. Cuddihy, Jr. 393,408(4) 4.18%
475 Tenth Avenue
New York, New York 10018
14
<PAGE>
Herbert F. Kozlov 245,476(5) 2.62%
529 Fifth Avenue
New York, NY 10017
L. Randy Riley 368,183(6) 3.91%
475 Tenth Avenue
New York, New York 10018
Lawrence J. Twill, Sr. 126,150(7) 1.36%
111 East 30th Street (16A)
New York, New York 10016
Gilmour 1994 Jersey Trust 972,222(8)(9) 10.63%
7 Bond Street
St. Helier
Jersey, Channel Island
State of Wisconsin Investment Board 740,000 8.09%
P.O. Box 78
Madison, Wisconsin 53707
Great Court Analysis LLC 640,000(10) 7.00%
5150 Overland Avenue
Culver City, California 90230
Wynnefield Partners Small
Cap Value L.P. 617,000(11) 6.63%
One Penn Plaza
Suite 4720
New York, New York 10119
Ivan Berkowitz 143,000(12) 1.54%
1790 Broadway
Suite 1500
New York, NY 10019
All executive officers (10)(13) 37.2%
and directors as a group
(7 persons)
(1) Includes shares issuable pursuant to currently exercisable options and
options which will be exercisable within 60 days of June __, 1998. Except
as otherwise indicated, the persons named herein have sole voting and
dispositive power with respect to the shares beneficially owned.
(2) Includes 634,828 shares issuable upon exercise of options.
(3) Includes 551,750 shares issuable upon exercise of options and 40,000
shares issuable upon conversion of debentures.
(4) Includes 258,850 shares issuable upon exercise of options.
(5) Includes 227,600 shares issuable upon exercise of options.
(6) Includes 258,850 shares issuable upon exercise of options.
(7) Includes 115,400 shares issuable upon exercise of options.
(8) The trustee of the Gilmour 1994 Jersey trust (the "Trust") is Hill Samuel
(Channel Islands) Trust Company Limited. The directors of the trustee
have indirect shared voting and dispositive powers with respect to such
shares.
15
<PAGE>
(9) Does not include 35,000 shares beneficially owned by David Harrison
Gilmour a private beneficiary of the trust and 100,002 shares
beneficially owned by Mr. Gilmour's spouse.
(10) Ivan Berkowitz, a director of the Company, is the President and sole
stockholder of Great Holdings Corporation, sole stockholder of Great
Court Analysis LLC.
(11) Includes 160,000 shares issuable upon conversion of debentures.
(12) Includes 113,000 shares issuable upon exercise of warrants. Does not
include 640,000 shares beneficially owned by Great Court Analysis
LLC.
(13) Includes 2,160,278 shares issuable upon exercise of options and warrants
and 40,000 shares issuable upon the conversion of debentures owned by
such executive officers and directors. Includes shares beneficially owned
by Great Court Analysis LLC.
Certain Relationships and Related Transactions
In 1994, the Company advanced $250,000 to Robert V. Cuddihy, Jr., an
officer and Director. Such amount is due to be repaid in one installment due
January 31, 1999. Unpaid amounts bear interest at a fluctuating rate equal to
the six months U.S. Treasury bill rate. In 1995, 1996 and 1997, Mr. Cuddihy made
prepayments of $66,422, $4,906 and $49,863, respectively, plus accrued interest.
At September 29, 1998, the unpaid balance of such advance was $137,266.
In 1995, the Company advanced $100,000 to Andrew Wahl, an officer and
director. Such amount is due to be repaid in one installment due January 1,
1999. Unpaid amounts bear interest at a fluctuating rate equal to the six months
U.S. Treasury bill rate. In 1995 and 1997, Mr. Wahl made prepayments of $25,000
and $20,000, respectively. At September 30, 1998, the unpaid balance of such
advance was $55,000, and no interest was paid during 1997.
In September 1997, Ivan Berkowitz and Louis Perlman, directors of the
Company entered into a two year financial consulting agreement with the Company
through Lazam Properties Ltd ("Lazam"). Under the terms of the consulting
agreement, Mr. Berkowitz and Mr. Perlman shall provide to the Company with
financial consulting services relating to corporate finance matters. During the
term of the agreement, Lazam shall receive $260,000 in consideration of the
performance of services. Additionally, Lazam, or its designees, shall receive
warrants to purchase an aggregate of 200,000 shares of the Company's Common
Stock at an exercise price of $1.25 per share. The consulting agreement expires
September 30, 1999. Fees paid to Lazam by the Company in full satisfaction of
the consulting agreement for the year ended December 31, 1997 were approximately
$289,000. The Company issued warrants to purchase an aggregate of 113,000 shares
of the Company's Common Stock at an exercise price of $1.25 per share to each of
Mr.
Berkowitz and Perlman.
Herbert F. Kozlov, a director of the Company, is a member of Parker
Duryee Rosoff & Haft, counsel to the Company. Fees paid to such firm by the
Company for the year ended December 31, 1997 were approximately $147,000.
Lawrence J. Twill, Sr., a director of the Company, is President of
Ashwood Capital. Such firm, from time to time, also serves as an investment
banking advisor to the Company.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Friedman Alpren & Green LLP to audit
the financial statements of the Company for the fiscal year ending December 31,
1998. Such firm, which has served as the Company's independent auditors since
1989 has reported to the Company that none of its members has any direct
financial interest or material indirect financial interest in the Company.
Unless instructed to the contrary, the persons named in the enclosed
proxy intend to vote the same in favor of the ratification of Friedman Alpren &
Green LLP as the Company's independent auditors.
16
<PAGE>
A representative of Friedman Alpren & Green LLP is expected to attend the
meeting and will be afforded the opportunity to make a statement and/or respond
to appropriate questions from stockholders.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 1999
Annual Meeting of Stockholders pursuant to the provisions of Rule 14a-8 of the
Securities and Exchange Commission, promulgated under the Exchange Act, must be
received by the Company's offices in New York, New York by April 30, 1999 for
inclusion in the Company's proxy statement and form of proxy relating to such
meeting.
17
<PAGE>
APPENDIX A
The following sets forth the proposed new Article IV of the Certificate
of Incorporation of HMG Worldwide Corporation.
ARTICLE IV
(a) The Corporation shall be authorized to issue fifty five million
(55,000,000) shares, consisting of fifty million (50,000,000) shares of Common
Stock, $.01 par value per share ("Common Stock"), and five million (5,000,000)
shares of Preferred Stock, $.01 par value per share.
(b) The Preferred Stock shall be issued from time to time in one or more
series, with such distinctive serial designations as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
shares from time to time adopted by the Board of Directors; and in such
resolution or resolutions providing for the issue of shares of each particular
series the Board of Directors is expressly authorized to fix the annual rate or
rates for dividends for the particular series, the dividend payment dates for
the particular series and the date from which dividends on all shares of such
series issued prior to the record date for the first dividend payment date shall
be cumulative, the redemption price or prices for the particular series, the
rights, if any, of holders of the shares of the particular series to convert the
same into shares of any other series or other securities of the Corporation or
of any other corporation, with any provisions for the subsequent adjustment of
such conversion rights, and to classify or reclassify any unissued Preferred
Stock by fixing or altering from time to time any of the foregoing rights,
privileges and qualifications.
All the Preferred Stock of any one series shall be identical with each
other in all respects, except that shares of any one series issued at different
times may differ as to the dates from which dividends thereon shall be
cumulative; and all Preferred Stock shall be of equal rank, regardless of
series, and shall be identical in all respects except as to the particulars
fixed by the Board as hereinabove provided.
A:\PROXY98E.HMG
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<PAGE>
APPENDIX B
HMG WORLDWIDE CORPORATION
1998 Stock Option Plan
1. Purpose of the Plan. The purpose of the HMG Worldwide Corporation 1998
Stock Option Plan (the "Plan") is to encourage key employees of HMG Worldwide, a
Delaware corporation (the "Company") and of any present or future parent or
subsidiary of the Company (collectively, "Related Corporations") and other
individuals who render services to the Company or a Related Corporation, by
providing opportunities to participate in the ownership of the Company and its
future growth through (a) the grant of options which qualify as "incentive stock
options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"); and (b) the grant of options which do not qualify as ISOs
("Non-Qualified Options"). Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options." As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation," respectively, as those terms are defined in Section
424 of the Code.
2. Administration.
(a) Board or Committee Administration. The Plan shall be
administered by the Board of Directors of the Company (the "Board of Directors"
or the "Board") or by a committee appointed by the Board (the "Committee")
provided that the Plan shall be administered: (i) to the extent required by
applicable regulations under Section 162(m) of the Code, by two or more "outside
directors" (as defined in applicable regulations thereunder) and (ii) to the
extent required by Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended, or any successor provision ("Rule 16b-3"), by a disinterested
administrator or administrators within the meaning of Rule 16b-3. All references
in this Plan to the "Committee" shall mean the Board if no Committee has been
appointed. Subject to ratification of the grant or authorization of each Option
by the Board (if so required by applicable state law), and subject to the terms
of the Plan, the Committee shall have the authority to (i) determine to whom
(from among the class of employees eligible under paragraph 4 to receive ISOs)
ISOs shall be granted, and to whom (from among the class of individuals and
entities eligible under paragraph 4 to receive Non-Qualified Options)
Non-Qualified Options may be granted; (ii) determine the time or times at which
Options shall be granted; (iii) determine the purchase price of shares subject
to each Option, which prices shall not be less than the minimum price specified
in paragraph 6; (iv) determine whether each Option granted shall be an ISO or a
Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times
when each Option shall become exercisable and the duration of the exercise
period; (vi) extend the period during which outstanding Options may be
exercised; (vii) determine whether restrictions are to be imposed on shares
subject to Options and the nature of such restrictions, if any, and (viii)
interpret the Plan and prescribe and rescind rules and regulations relating to
it. If the Committee determines to issue a Non-Qualified Option, it shall take
whatever actions it deems necessary, under Section 422 of the Code and the
regulations promulgated thereunder, to ensure that such Option is not treated as
an ISO. The interpretation and construction by the Committee of any provisions
of the Plan or of any Option granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem advisable. No member of
the Board or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under it.
(b) Committee Actions. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and places as it
may determine. A majority of the Committee shall constitute a quorum and acts of
a majority of the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid acts of
the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
A:\PROXY98E.HMG
19
<PAGE>
(c) Grant of Options to Board Members. Subject to the
provisions of the first sentence of paragraph 2(a) above, if applicable, Options
may be granted to members of the Board. All grants of Options to members of the
Board shall in all other respects be made in accordance with the provisions of
this Plan applicable to other eligible persons. Consistent with the provisions
of the first sentence of Paragraph 2(a) above, members of the Board who either
(i) are eligible to receive grants of Options pursuant to the Plan or (ii) have
been granted Options may vote on any matters affecting the administration of the
Plan or the grant of any Options pursuant to the Plan, except that no such
member shall act upon the granting to himself or herself of Options, but any
such member may be counted in determining the existence of a quorum at any
meeting of the Board during which action is taken with respect to the granting
to such member of Options.
(d) Exculpation. No member of the Board shall be personally
liable for monetary damages for any action taken or any failure to take any
action in connection with the administration of the Plan or the granting of
Options under the Plan, provided that this subparagraph 2(d) shall not apply to
(i) any breach of such member's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, (iii) acts or omissions that would
result in liability under Section 174 of the General Corporation Law of the
State of Delaware, as amended, and (iv) any transaction from which the member
derived an improper personal benefit.
(e) Indemnification. Service on the Committee shall constitute
service as a member of the Board. Each member of the Committee shall be entitled
without further act on his or her part to indemnity from the Company to the
fullest extent provided by applicable law and the Company's Certificate of
Incorporation and/or By-laws in connection with or arising out of any action,
suit or proceeding with respect to the administration of the Plan or the
granting of Options thereunder in which he or she may be involved by reason of
his or her being or having been a member of the Committee, whether or not he or
she continues to be a member of the Committee at the time of the action, suit or
proceeding.
3. Shares Subject to the Plan. The stock subject to grant under the
Plan shall be shares of the Company's common stock, $.01 par value (the "Common
Stock"), whether authorized but unissued or held in the Company's treasury or
shares purchased from shareholders expressly for use under the Plan. The maximum
number of shares of Common Stock which may be issued pursuant to Options granted
under the Plan shall not exceed five hundred thousand (500,000) shares, subject
to adjustment in accordance with the provisions of Section 13 hereof. The
Company shall at all times while the Plan is in force reserve such number of
shares of Common Stock as will be sufficient to satisfy the requirements of all
outstanding Options granted under the Plan. In the event any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject thereto shall again be available for
Options under the Plan.
4. Participation. The class of persons which shall be eligible to
receive Options under the Plan shall be (i) with respect to ISOs described in
Section 6 hereof, any employees (including officers) of either the Company or
any related corporation, and (ii) with respect to Non-Qualified Options
described in Section 6 hereof, any key employee (including any officer) of, any
non-employee Director of, or any non-employee consultant to, either the Company
or any Related Corporation. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant an Option.
The granting of any Option to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Options.
5. Granting of Options. Options may be granted under the Plan at any
time on or after June 30, 1998 and prior to June 30, 2008. The date of grant of
an Option under the Plan will be the date specified by the Committee at the time
it grants the Option; provided, however, that such date shall not be prior to
the date on which the Committee acts to approve the grant. Options granted under
the Plan are intended to qualify as performance based compensation to the extent
required under proposed Treasury Regulation Section 1.162-27. Each Option
granted under the Plan shall be authorized by the Board of Directors or the
Committee and shall be evidenced by a Stock Option Agreement which shall be
executed by the Company and by the person to whom such Option is granted. The
Stock Option Agreement
A:\PROXY98E.HMG
20
<PAGE>
shall specify the number of shares of Common Stock as to which any Option is
granted, the period during which the Option is exercisable and the option price
per share thereof.
6. Minimum Option Price; ISO Limitations.
(a) Price for Non-Qualified Options. The exercise price per
share specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less than the minimum legal consideration
required therefor under the laws of any jurisdiction in which the Company or its
successors in interest may be organized. Non-Qualified Options granted under the
Plan, with an exercise price less than the fair market value per share of Common
Stock on the date of grant, are intended to qualify as performance based
compensation under Section 162(m) of the Code and any applicable regulations
thereunder. Any such Non-Qualified Options granted under the Plan shall be
exercisable only upon the attainment of a preestablished, objective performance
goal established by the Committee.
(b) Price for ISOs. The exercise price per share specified in
the agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation, the price per share specified
in the agreement relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common Stock on the date of
grant. For purposes of determining stock ownership under this paragraph, the
rules of Section 424(d) of the Code shall apply.
(c) $100,000 Annual Limitation on ISO Vesting. Each eligible
employee may be granted Options treated as ISOs only to the extent that, in the
aggregate under this Plan and all incentive stock option plans of the Company
and any Related Corporation, ISOs do not become exercisable for the first time
by such employee during any calendar year with respect to stock having a fair
market value (determined at the time the ISOs were granted) in excess of
$100,000. The Company intends to designate any Options granted in excess of such
limitation as Non-Qualified Options.
(d) Determination of Fair Market Value. If, at the time an
Option is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if the
prices or quotes discussed in this sentence are unavailable for such date, the
last business day for which such prices or quotes are available prior to the
date of grant and shall mean (i) the average (on that date) of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market. If the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market value"
shall mean the fair value of the Common Stock as determined by the Committee
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common Stock
in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(b). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 12.
8. Exercise of Option. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
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<PAGE>
(a) Vesting. The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such installments as
the Committee may specify.
(b) Full Vesting of Installments. Once an installment becomes
exercisable, it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
(c) Partial Exercise. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.
(d) Acceleration of Vesting. The Committee shall have the
right to accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent of an
optionee, accelerate the permitted exercise date of any installment of any
Option granted to any employee as an ISO (and not previously converted into a
Non-Qualified Option pursuant to paragraph 12) if such acceleration would
violate the annual vesting limitation contained in Section 422(d) of the Code,
as described in paragraph 6(c).
9. Termination of Employment. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
or as otherwise specified in paragraph 10, no further installments of his or her
ISOs shall become exercisable, and his or her ISOs shall terminate on the
earlier of (a) ninety (90) days after the date of termination of his or her
employment, or (b) their specified expiration dates, except to the extent that
such ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 12. For purposes of this paragraph
9, employment shall be considered as continuing uninterrupted during any bona
fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave does
not exceed 90 days or, if longer, any period during which such optionee's right
to reemployment is guaranteed by statute. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under this paragraph 9, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall be
deemed to give any grantee of any Option the right to be retained in employment
or other service by the Company or any Related Corporation for any period of
time.
10. Death; Disability; Breach.
(a) Death. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his or her death, any ISO
owned by such optionee may be exercised, to the extent otherwise exercisable on
the date of death, by the estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution, until the
earlier of (i) the specified expiration date of the ISO or (ii) one (1) year
from the date of the optionee's death.
(b) Disability. If an ISO optionee ceases to be employed by
the Company and all Related Corporations by reason of his or her disability,
such optionee shall have the right to exercise any ISO held by him or her on the
date of termination of employment, for the number of shares for which he or she
could have exercised it on that date, until the earlier of (i) the specified
expiration date of the ISO or (ii) one (1) year from the date of the termination
of the optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in Section
22(e)(3) of the Code or any successor statute.
(c) Breach. If an ISO optionee ceases to be employed by the
Company and all Related Corporation by reason of a finding by the Committee,
after full consideration of the facts presented on behalf of both the Company
and the Optionee, that the ISO optionee has breached his or her employment or
service contract with the Company or any Related Corporation, or has been
engaged in disloyalty to the Company or any Related Corporation, then, in such
event, in addition to immediate termination of the Option, the ISO optionee
shall automatically forfeit all shares for which the Company has not yet
delivered share certificates upon refund by the Company of the exercise price
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of such Option. Notwithstanding anything herein to the contrary, the Company may
withhold delivery of share certificates pending the resolution of any inquiry
that could lead to a finding resulting in a forfeiture.
11. Assignability. No Option shall be assignable or transferable by the
grantee except by will, by the laws of descent and distribution or, in the case
of Non-Qualified Options only, pursuant to a valid domestic relations order.
Except as set forth in the previous sentence, during the lifetime of a grantee
each Option shall be exercisable only by such grantee.
12. Terms and Conditions of Options. Each Option granted under the Plan
shall be a Non-qualified Stock Option unless the Option shall be specifically
designated at the time of grant to be an ISO for federal income tax purposes. If
any Option designated as an ISO is determined for any reason not to qualify as
an incentive stock option within the meaning of Section 422 of the Code, such
Option shall be treated as a Non-qualified Stock Option for all purposes under
the provisions of the Plan. Options shall be evidenced by instruments (which
need not be identical) in such forms as the Committee may from time to time
approve. Such instruments shall conform to the terms and conditions set forth in
paragraphs 6 through 11 hereof and may contain such other provisions as the
Committee deems advisable which are not inconsistent with the Plan, including
restrictions applicable to shares of Common Stock issuable upon exercise of
Options. The Committee may specify that any Non-Qualified Option shall be
subject to the restrictions set forth herein with respect to ISOs, or to such
other termination and cancellation provisions as the Committee may determine.
The Committee may from time to time confer authority and responsibility on one
or more of its own members and/or one or more officers of the Company to execute
and deliver such instruments. The proper officers of the Company are authorized
and directed to take any and all action necessary or advisable from time to time
to carry out the terms of such instruments. Such instruments shall comply with
and be subject to the following terms and conditions and such other terms and
conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a) Number of Option Shares. Each Option shall state the
number of Shares to which it pertains. As Optionee may receive more than one
Option, which may include Options which are intended to be ISO's and Options
which are not to be ISO's, but only on the terms and subject to the conditions
and restrictions of the Plan.
(b) Option Price. Each Option Document shall state the Option
Price which, for a Nonqualified Stock Option, may be less than, equal to, or
greater than the Fair Market Value of the Shares on the date the Option is
granted and, for an ISO, shall be at least 100% of the Fair Market Value of the
Shares on the date the Option is granted as determined by the Committee in
accordance with this Subsection 8(b); provided, however, that if an ISO is
granted to an Optionee who then owns, directly or by attribution under Section
424(d) of the Code, shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or an Affiliate,
then the Option Price shall be at least 110% of the Fair Market Value of the
Shares on the date the Option is granted. If the Common Stock is traded in a
public market, then the Fair Market Value per share shall be, if the Common
Stock is listed on a national securities exchange or included in the NASDAQ
National Market System, the last reported sale price thereof on the relevant
date, or, if the Common Stock is not solisted or included, the mean between the
last reported "bid" and "asked" prices thereof on the relevant date, as reported
on NASDAQ or, if not so reported, as reported by the National Daily Quotation
Bureau, Inc. or as reported in a customary financial reporting service, as
applicable and as the Committee determines.
(c) Exercise. No Option shall be deemed to have been exercised
prior to the receipt by the Company of written notice of such exercise and of
payment in full of the Option Price for the Shares to be purchased. Each such
notice shall specify the number of Shares to be purchased and shall (unless the
Shares are covered by a then current and effective registration statement or
qualified Offering Statement under Regulation A under the Securities Act of
1933, as amended (the "Act"), contain the Optionee's acknowledgement in form and
substance satisfactory to the Company that (10) such Shares are being purchased
for investment and not for distribution or resale (other than a distribution or
resale which, in the opinion of counsel satisfactory to the Company, may be made
without violating the registration provisions of the Act), (11) the Optionee has
been advised and understands that (A) the Shares have not been registered under
the Act and are "restricted securities" within the meaning of Rule 144 under the
Act and are subject to restrictions on transfer and (B) the Company is under no
obligation to register the Shares under the Act or to take any action which
would make available to the Optionee any exemption from such registration, (iii)
such Shares may not be
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transferred without compliance with all applicable federal and state securities
law, and (iv) an appropriate legend referring to the foregoing restrictions on
transfer and any other restrictions imposed under the Option Documents may be
endorsed on the certificates.
13. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Consolidations or Mergers. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board"), shall, as to outstanding Options,
either (i) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such Options
either (A) the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition, (B) shares of stock of the
surviving corporation or (C) such other securities as the Successor Board deems
appropriate, the fair market value of which shall approximate the fair market
value of the shares of Common Stock subject to such Options immediately
preceding the Acquisition; or (ii) upon written notice to the optionees, provide
that all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the Options shall terminate; or (iii) terminate all Options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to such Options (to the extent then exercisable) over the exercise price
thereof.
(c) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he or she would
have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
(d) Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code) or would cause
any adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs or would cause adverse tax consequences to the
holders, it may refrain from making such adjustments.
(e) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
(f) Issuances of Securities. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to Options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
(g) Fractional Shares. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
(h) Adjustments. Upon the happening of any of the events
described in subparagraphs (a), (b) or (c) above, the class and aggregate number
of shares set forth in paragraph 3 hereof that are subject to Options which
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previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 5, its determination
shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
June __, 1998, subject, with respect to the validation of ISOs granted under the
Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained on or prior to June 30, 1999, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on June 30, 2008 (except as to Options outstanding on that
date). Subject to the provisions of paragraph 5 above, Options may be granted
under the Plan prior to the date of stockholder approval of the Plan. The Board
may terminate or amend the Plan in any respect at any time, except that, without
the approval of the stockholders obtained within 12 months before or after the
Board adopts a resolution authorizing any of the following actions: (a) the
total number of shares that may be issued under the Plan may not be increased
(except by adjustment pursuant to paragraph 13); (b) the benefits accruing to
participants under the Plan may not be materially increased; (c) the
requirements as to eligibility for participation in the Plan may not be
materially modified; (d) the provisions of paragraph 4 regarding eligibility for
grants of ISOs may not be modified; (e) the provisions of paragraph 6(b)
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment pursuant to paragraph 13); (f) the
expiration date of the Plan may not be extended; and (g) the Board may not take
any action which would cause the Plan to fail to comply with Rule 16b-3. Except
as otherwise provided in this paragraph 15, in no event may action of the Board
or stockholders alter or impair the rights of a grantee, without such grantee's
consent, under any Option previously granted to such grantee.
16. Application Of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted under the Plan shall be used for
general corporate purposes.
17. Notice to Company of Disqualifying Disposition. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
18. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option for less than its fair market value, the making of a
Disqualifying Disposition (as defined in paragraph 17), the vesting or transfer
of restricted stock or securities acquired on the exercise of an Option
hereunder, or the making of a distribution or other payment with respect to such
stock or securities, the Company may withhold taxes in respect of amounts that
constitute
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compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, or (ii) the vesting or transferability
of restricted stock or securities acquired by exercising an Option, on the
grantee's making satisfactory arrangement for such withholding. Such arrangement
may include payment by the grantee in cash or by check of the amount of the
withholding taxes or, at the discretion of the Committee, by the grantee's
delivery of previously held shares of Common Stock or the withholding from the
shares of Common Stock otherwise deliverable upon exercise of a Option shares
having an aggregate fair market value equal to the amount of such withholding
taxes.
19. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares. Government regulations may impose reporting or
other obligations on the Company with respect to the Plan. For example, the
Company may be required to send tax information statements to employees and
former employees that exercise ISOs under the Plan, and the Company may be
required to file tax information returns reporting the income received by
grantees of Options in connection with the Plan.
20. Governing Law. The validity and construction of the Plan and the
instruments evidencing Options shall be governed by the laws of Delaware.
26
