August 8, 1996
United States Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Galaxy Foods Company Preliminary Proxy Statement Pursuant
to Section 14(a) of the Securities Exchange Act of 1934
Gentlemen:
Attached for filing is Galaxy Foods Company Preliminary Proxy for the Annual
Meeting of Shareholders to be held at the Company's corporate offices on
Wednesday, September 30, 1996.
In connection with this Proxy, the shareholders will be voting to approve the
1996 Stock Plan of the Company. Should the shareholders approve the Plan, the
Company intends to file a Registration Statement to register the new shares
under the Plan. Although Galaxy has not yet determined when such Registration
Statement will be filed, it is the Company's intention to file prior to the
end of calendar 1996.
Sincerely,
/s/ LeAnn H. Davis
LeAnn H. Davis, CPA
Chief Financial Officer
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
(Amendment No. _______)
__X__ Filed by the Registrant
_____ Filed by a Party other than the Registrant
Check the appropriate box:
__X__ Preliminary Proxy Statement
_____ Confidential, for Use of the Comission Only (as permitted
by Rule 14a-6(e)(2))
_____ Definitive Proxy Statement
_____ Definitive Additional Materials
_____ Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
GALAXY FOODS COMPANY, a Delaware corporation
___________________________________________________________
(Name of Registrant as Specified In Its Charter)
___________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the approximate box)
__X__ $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
_____ $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
_____ Fee computed on table below per Exchange Act Rules 14a-6(i)
(4) and O-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 O-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):
<PAGE>
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 O-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No:
3. Filing Party:
4. Date Filed:
<PAGE>
GALAXY FOODS COMPANY
2441 Viscount Row
Orlando, Florida 32809
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MONDAY, SEPTEMBER 30, 1996
To the Shareholders:
The Annual Meeting of Shareholders of Galaxy Foods Company
(the "Company"), will be held Monday, September 30, 1996 at 10:00 a.m.
at the offices of the Company in Orlando, Florida for the following
purposes:
1. To fix the number of directors at four and to elect a
Board of Directors for the ensuing year.
2. To consider and act upon a proposal to to approve the
1996 Stock Plan of the Company.
3. To consider and act upon a proposal to approve the 1996
Amendment and Restatement of the 1991 Non-Employee
Director Stock Option Plan of the Company.
4. To ratify the retention of BDO Seidman as the
Company's independent certified public accountants.
5. To transact such other business as may properly come
before the meeting and any adjournment thereof.
Shareholders of record at the close of business on August 23, 1996
will be entitled to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
Julie Peterson
Corporate Secretary
Orlando, Florida
August 16, 1996
SHAREHOLDERS ARE REQUESTED TO SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED STAMPED ENVELOPE BY RETURN MAIL. IF YOU ATTEND THE MEETING,
YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
<PAGE>
GALAXY FOODS COMPANY
2441 Viscount Row
Orlando, Florida 32809
August 16, 1996
PROXY STATEMENT
FOR
THE ANNUAL MEETING OF SHAREHOLDERS
to be held Monday, September 30, 1996
Proxies in the form enclosed with this proxy statement are
solicited by the Board of Directors of Galaxy Foods Company (the
"Company"), a Delaware corporation, for the use at the Annual Meeting of
Shareholders to be held Monday, September 30th at 10:00 a.m. at the
offices of the Company in Orlando, Florida.
Only shareholders of record as of August 23, 1996 will be entitled
to vote at the meeting and any adjournment thereof. As of August 1, 1996,
54,774,372 shares of Common Stock, par value $.01 per share, of the
Company were issued and outstanding. Each share of Common Stock
outstanding as of the record date will be entitled to one vote, and
shareholders may vote in person or by proxy. Execution of a proxy will not,
in any way, affect a shareholders' right to revoke it by written notice to the
Secretary of the Company at any time before it is exercised or by delivering
a later executed proxy to the Secretary of the Company at any time before
the original proxy is exercised.
All properly executed proxies returned in time to be cast at the
meeting will be voted and, with respect to the election of a Board of
Directors, will be voted as stated below under "Election of Directors". Any
shareholder giving a proxy has the right to withhold authority to vote for
any individual nominee to the Board of Directors by writing that nominee's
name in the space provided on the proxy.
The Board of Directors knows of no other matter to be presented
at the meeting. If any other matter should be presented at the meeting upon
which a vote might be taken, shares represented by all proxies received by
the Board of Directors will be voted with respect thereto in accordance
with the judgment of the persons named as attorneys in the proxies. This
proxy statement and the form of proxy were first mailed to shareholders on
or about August 19, 1996.
In addition to the election of directors, the shareholders will
consider and vote upon proposals to (i) approve the 1996 Stock Plan of the
Company, (ii) approve the 1996 Amendment and Restatement of the 1991
Non-Employee Director Stock Option Plan, (iii) ratify the retention of
BDO Seidman as the Company's independent certified public accountants.
Where a choice has been specified on the proxy with respect to the
foregoing matters, the shares represented by the proxy will be voted in
accordance with the specification, and will be voted FOR if no
specification is indicated.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth to the knowledge of Management,
each person of entry who is the beneficial owner of more than 5% of the
54,774,372 shares of the Company's Common Stock, $.01 par value
("Common Stock") outstanding as of August 1, 1996, the number of shares
owned by each such person and the percentage of the outstanding shares
represented thereby.
Amount and
Name and Address Nature of Percent of
of Beneficial Owner Beneficial Ownership (1) Class (2)
Angelo S. Morini
2441 Viscount Row
Orlando, Florida 32809 24,429,874 (3) 44.4%
Cede & Co.
Box #20
Bowling Green Station
New York, New York 26,355,230 (4) 47.9%
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) The total number of shares outstanding assuming the exercise of all
currently exercisable and vested options and warrants held by all executive
officers, current directors, and holders of 5% or more of the Company's
issued and outstanding Common Stock is 55,025,039 shares. Does not
assume the exercise of any other options or warrants.
(3) Includes options to acquire 141,500 shares of the Company's Common
Stock. All of Mr. Morini's options currently are exercisable at $.50 per
share. The original exercise prices of the options ranged from $2.50 per
share to $3.575 per share. The exercise prices of all Mr. Morini's options
were reduced by the Board of Directors to $.50 per share on August 31,
1993. Options expire as to 50,000 shares on December 4, 1997, and as to
91,500 shares on October 1, 2001. Also includes 5,000 shares owned by
Mr. Morini that are held in a nominee name and 2,000 shares held in joint
tenancy.
(4) Cede & Co. is a share depository used by shareholders to hold stock in
street name. Does not include 5,000 shares beneficially owned by Angelo
S. Morini and held by Cede & Co. in street name.
SHARE OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth, as of August 1, 1996, the number of
shares owned directly, indirectly and beneficially by each executive officer
and each director and director-nominee of the Company, and by all
executive officers and directors as a group:
<PAGE>
Amount and
Name and Address Nature of Percent of
of Beneficial Owner Beneficial Ownership (1) Class (2)
Angelo S. Morini
Galaxy Foods Company
2441 Viscount Row
Orlando, Florida 32809 24,429,874 (3) 44.4%
Earl G. Tyree
240 North Line Drive
Apopka, Florida 32703 18,000 (4) *
Douglas A. Walsh
607 Tamiami Trail
Ruskin, Florida 33570 18,667 (5) *
Marshall K. Luther
Galaxy Foods Company
2441 Viscount Row
Orlando, Florida 32809 124 ,000 (6) *
LeAnn H. Davis
Galaxy Foods Company
2441 Viscount Row
Orlando, Florida 32809 25,100 (7) *
All executive officers and directors
as a group 24,615,641 44.7%
* Less than 1%.
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) The total number of shares outstanding assuming the exercise of all
currently exercisable and vested options and warrants held by all executive
officers, directors, and holders of 5% or more of the Company's issued and
outstanding Common Stock is 55,025,039 shares. Does not assume the
exercise of any other options or warrants.
(3) Includes options to acquire 141,500 shares of the Company's Common
Stock. All of Mr. Morini's options currently are exercisable at $.50 per
share. The original exercise prices of the options ranged from $2.50 per
share to $3.575 per share. The exercise prices of all Mr. Morini's options
were reduced by the Board of Directors to $.50 per share on August 31,
1993. Options expire as to 50,000 shares on December 14, 1997, and as to
91,500 shares on October 1, 2001. Also includes 5,000 shares owned by
Mr. Morini that are held in a nominee name and 2,000 shares held in joint
tenancy.
(4) Mr. Tyree, a current member of the Board of Directors, was granted an
option to acquire 15,000 shares of Common Stock on September 11, 1992
for an exercise price of $2.88 per share. This option expires on September
11, 2002. The closing bid price of the Company's Common Stock as
reported on the electronic inter dealer quotation system operated by
Nasdaq, Inc. ("the NASDAQ System") on September 10, 1992 was $2.875
<PAGE>
per share. Mr. Tyree was granted an additional option on October 1, 1993
to acquire 1,000 shares of Common Stock at an exercise price of $2.125
per share. This option expires on October 1, 2003. The closing bid price
of the Company's Common Stock as quoted on the NASDAQ System on
September 30, 1993 was $2.00 per share. The exercise price of all of Mr.
Tyree's then existing options was reduced to $2.00 per share on January
31, 1994. The closing bid price of the Company's Common Stock as
quoted on the NASDAQ System on January 28, 1994 was $4.625 per
share. On October 1, 1994, Mr. Tyree was granted an option to acquire
1,000 shares at an exercise price of $2.75 per share. The closing bid price
of the Company's Common Stock as quoted on the NASDAQ System on
September 30, 1994, was $2.875 per share. This option expires on October
1, 2004. On October 1, 1995, Mr. Tyree was granted an option to acquire
1,000 shares at an exercise price of $0.59 per share. The closing bid price
of the Company's Common Stock as quoted on the NASDAQ System on
September 29, 1995, was $0.59375 per share. This option expires on
October 1, 2005. All of Mr. Tyree's options currently are exercisable.
(5) Dr. Walsh, a current member of the Board of Directors, was granted an
option to acquire 15,000 shares of Common Stock on January 31, 1992 for
an exercise price of $3.00 per share. This option expires on January 31,
2002. The closing bid price of the Company's Common Stock as quoted on
the NASDAQ System on January 30, 1992 was $2.50 per share. Dr.
Walsh was granted an additional option on October 1, 1992 to acquire 667
shares of Common Stock at an exercise price of $2.875 per share. This
option expires on October 1, 2002. The closing bid price of the Company's
Common Stock as quoted on the NASDAQ System on September 30, 1992
was $2.625 per share. The exercise price of all of Dr. Walsh's then
existing options was reduced to $2.00 per share on January 31, 1994. The
closing bid price of the Company's Common Stock as quoted on the
NASDAQ System on January 28, 1994 was $4.625 per share. On October
1, 1994, Dr. Walsh was granted an option to acquire 1,000 shares at an
exercise price of $2.75 per share. The closing bid price of the Company's
Common Stock as quoted on the NASDAQ System on September 30, 1994,
was $2.875 per share. This option expires on October 1, 2004. On
October 1, 1995, Dr. Walsh was granted an option to acquire 1,000 shares
at an exercise price of $.59 per share. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on
September 29, 1995, was $.59375 per share. This option expires on
October 1, 2005. All of Dr. Walsh's options currently are exercisable.
(6) Mr. Luther, a current member of the Company's Board of Directors,
holds warrants to acquire 50,000 shares of Common Stock at a price of
$0.6407 per share. These warrants were granted as compensation for work
per the terms of Mr. Luther's agreement with the Company to serve as
Senior Vice President of Marketing for a term of one year. In addition,
Mr. Luther was granted options to acquire 15,000 shares of the Company's
Common Stock on January 31, 1996, for an exercise price of $.8125 per
share, which option expires on January 31, 2006. The closing bid price of
the Company's Common Stock as listed on the NASDAQ System on
January 30, 1996 was $.7188. All of Mr. Luther's options currently are
exercisable.
(7) Includes options to acquire 15,000 shares of the Company's Common
Stock which were granted to Ms. Davis on December 18, 1995 pursuant to
the Company's 1987 Stock Plan. Such options are exercisable at $0.5156
<PAGE>
per share and expire on December 19, 2005. The closing bid price of the
Company's Common Stock as listed on the NASDAQ System on
December 15, 1995 was $0.50. In addition, on May 16, 1996, Ms. Davis
was granted options pursuant to the Company's 1987 Stock Plan to acquire
7,500 shares of the Company's Common Stock for an exercise price of
$1.21 per share. The closing bid price of the Company's Common Stock
as listed on the NASDAQ Quotation System on May 16, 1996 was $1.21.
Ms. Davis has 7,500 options currently exercisable.
PROPOSAL ONE: ELECTION OF DIRECTORS
The directors of the Company are elected annually and hold office until the
next annual meeting of shareholders and until their successors shall have
been elected and qualified. Shares represented by all proxies received by
the Board of Directors and not so marked as to withhold authority to vote
for any individual director or for all directors will be voted (unless one or
more nominees are unable or unwilling to serve) for fixing the number of
directors for the ensuing year at four and for the election of the nominees
named in the following table. The Board of Directors knows of no reason
why any such nominee should be unable or unwilling to serve, but if such
be the case, proxies will be voted for the election of some other person or
for fixing the number of directors at a lesser number.
Officers and Directors
The following table sets forth the current and proposed directors and
executive officers of the Company as of August 1, 1996, and the ages of
and positions with the Company held by each of such persons:
Name Age Positions
Angelo S. Morini (1) 53 Chairman of the Board of
Directors, President, and
Chief Executive Officer
LeAnn H. Davis 26 Chief Financial Officer and
Assistant Secretary
Earl G. Tyree (1) 75 Director
Douglas A. Walsh (1) 51 Director
Marshall K. Luther (1) 43 Director
(1) Nominee for Director. The current directors of the Company are the
sole nominees for election to the Board of Directors for the ensuing year.
Each director is elected to hold office until the next annual meeting of
shareholders and until his successor is chosen and qualified. The officers
of the Company are elected annually at the first Board of Directors meeting
following the annual meeting of shareholders, and hold office until their
respective successors are duly elected and qualified, unless sooner
displaced.
Angelo S. Morini has been President of the Company since its inception
and is the inventor of formagg. He was elected Chairman of the Board of
Directors, President, and Chief Executive Officer in 1987. Between 1974
and 1980, Mr. Morini was the general manager of Galaxy Cheese
Company, which operated as a sole proprietorship until its incorporation in
<PAGE>
May 1980. Prior to 1974, he was associated with the Food Service
Division of Pillsbury Company and the Post Division of General Foods
Company. In addition, he worked in Morini Markets, his family-owned
and operated chain of retail grocery stores in the New Castle,
Pennsylvania, area. Mr. Morini received a B.S. degree in Business
Administration from Youngstown State University in 1968.
LeAnn H. Davis, CPA was employed by the Company as the Controller on
December 18, 1995 and on January 18, 1996 was elected Chief Financial
Officer and Assistant Secretary. Prior to joining the Company, Ms. Davis
worked as an senior auditor for Coopers and Lybrand LLP in Orlando,
Florida from 1994 to 1995. From 1992 to 1994, she worked for the public
accounting firm of Pricher and Company in Orlando, Florida as a senior
auditor and tax accountant. Prior to 1992, Ms. Davis worked for Arthur
Andersen LLP as a staff auditor. During her years in public accounting,
Ms. Davis was responsible for coordinating and overseeing audits on a
variety of clients including manufacturing, insurance and pharmaceutical
companies, time-share developers and homeowners associations, as well as
not-for-profit organizations. Ms. Davis earned a B.S. in Business
Administration and a BS in Accounting from Palm Beach Atlantic College
in West Palm Beach, Florida in May 1990 and a Masters in Accounting
from Florida State University, Tallahassee, Florida in August 1991.
Earl G. Tyree has been a director of the Company since September 1992.
From 1980 to 1994, Mr. Tyree served as President of Bruce Novograd
Advertising, Incorporated, a company he co-founded. From 1975 to 1979,
Mr. Tyree was President of the John F. Murray advertising division of
American Home Products Corporation and from 1972 to 1975, Mr. Tyree
served as President of Sterling Drug, Incorporated, whose subsidiaries
included the Bayer Company (Bayer Aspirin), the Charles H. Phillips
Company (Milk of Magnesia), and Glenbrook Laboratories. Mr. Tyree
attended the University of Richmond where he majored in accounting.
Douglas A. Walsh, D.O., has been a director of the Company since January
1992. Dr. Walsh has been a practicing physician since 1970, specializing
in Family Practice and Sports Medicine. From 1984 to present, he has
been affiliated with Family Doctors, a four-physician group located in
Tampa, Florida. From 1971 to 1984, he was the Health Commissioner for
Mahoning County, Ohio, and from 1983 to 1985, he was the Clinic
Commander for the U.S. Air Force 911 Tac Clinic in Pittsburgh,
Pennsylvania. From 1985 to 1988, he was a flight surgeon at Patrick Air
Force Base, Cocoa Beach, Florida. Dr. Walsh's teaching appointments
include Associate Professor of Family Practice (Clinical) at Ohio
University and Clinical Preceptor at the University of Health Sciences,
Kansas City, Missouri. Dr. Walsh received a B.S. degree in Microbiology
from the University of Houston, Houston, Texas, in 1965, and a D.O.
degree from the University of Health Sciences, Kansas City, Missouri, in
1970. Dr. Walsh also serves as a team physician for the Pittsburgh Pirates
and as a consultant for the Atlanta Braves.
Marshall K. Luther was elected to the Board of Directors on January 31,
1996. From 1993 to 1995, Mr. Luther served as Senior Vice President,
Marketing of Tropicana Products, Inc. and from 1975 to 1992, he served in
various marketing positions for General Mills International Restaurants.
Mr. Luther received his B.S. in Engineering from Brown University in
1974 and his M.B.A. in Marketing from the Wharton Graduate School of
Business in 1976.
<PAGE>
To the knowledge of the Company, no executive officer or director of the
Company is a party adverse to the Company or has material interest
adverse to the Company in any legal proceeding.
Certain Relationships and Related Party Transactions
On August 11, 1993, the Board of Directors approved the issuance to
Angelo S. Morini of an option to purchase 2,400,000 shares of the
Company's Common Stock for a purchase price of $.50 per share in
consideration for Mr. Morini's past services to the Company, the pledge by
Mr. Morini of all then-current shares owned by Mr. Morini to the
Company's principal lender, J&C, to secure loans made to the Company,
and the subordination of all loans made by Mr. Morini to the Company to
payment of sums due J&C. The Board approved Mr. Morini's payment for
the shares issued upon exercise of the option by way of a promissory note
in favor of the Company, payable in full, without interest, five years from
the date of execution. The promissory note used to pay for the shares would
be secured by a pledge of the shares of Common Stock issued to Mr.
Morini upon exercise of this option. On November 4, 1994, Mr. Morini
exercised this option to purchase the shares and executed in favor of and
delivered to the Company the promissory note in the principal amount of
$1,200,000 evidencing the purchase price of the shares and a stock pledge
and security agreement encumbering such shares to secure such note.
On December 6, 1994, Albert Morini, a former employee of the Company
and the brother of Mr. Angelo Morini, the Company's President and Chief
Executive Officer, acquired 21,121 shares of Common Stock for a price of
$1.625. The purchase price for the shares was offset against certain
obligations of the Company with respect to the payment of severance pay to
Mr. Morini on December 6, 1994. The closing bid price of the Company's
Common Stock as quoted on the NASDAQ System on December 5, 1994
was $1.625 per share. The Company has registered all of such shares.
On August 28, 1995, the Company entered into a one year agreement with
Marshall K. Luther for Mr. Luther to serve in the capacity of Senior Vice
President of Marketing. Mr. Luther will be overseeing marketing of the
Company's product as well as identifying new markets and products. He is
a former senior marketing executive with companies such as Tropicana
Products Inc. and General Mills, Inc. Under the terms of this contract, Mr.
Luther received the right to purchase 50,000 shares of the Company's
Common Stock at a price of $0.6407 per share. The Company has also
agreed to pay a standard broker commission to Mr. Luther for any sales
generated by him. Mr. Luther became a member of the Board of Directors
of the Company on January 31, 1996.
On October 10, 1995, the Company entered into an employment agreement
with Angelo S. Morini. The agreement increases Mr. Morini's base salary
to $250,000 per year from $200,000. Additionally, the agreement details
additional noncash compensation based on the performance of the
Company. The agreement also grants the rights to purchase up to
18,000,000 shares of the Company's Common Stock by Mr. Morini. As of
October 11, 1995, Mr. Morini exercised the option with respect to all
18,000,000 shares of Common Stock. Pursuant to the terms of the
Employment Agreement, Mr. Morini executed in favor of the Company a
balloon promissory note in the principal amount of $11,572,200 to
evidence the purchase price for the shares of Common Stock. The note
bears interest at the rate of seven percent per annum and is due and
<PAGE>
payable in full on October 11, 2000, subject to Mr. Morini's option to
extend the note for up to five additional years provided that he pays at least
one-third of the then accrued but unpaid interest, with any remaining
unpaid interest to be added to principal. In order to secure the note, Mr.
Morini executed in favor of the Company a stock pledge and security
agreement pursuant to which Mr. Morini granted the Company a first
priority security interest in all of the shares obtained upon the exercise of
his option. See "Executive Compensation - Employment Agreement with
Chief Executive Officer".
Mr. Morini's brother works for the Company as Vice President of
Marketing.
Compliance with Section 16 (a)
of the Securities Exchange Act of 1934, as amended
Based upon the Company's review of Forms 5 furnished to the Company
with respect to its fiscal year ended March 31, 1996, each of the following
directors, officers or beneficial owners of more than ten percent of the
Company's Common Stock filed a Form 5 reporting previously unreported
transactions which were reportable, or previously unreported holdings
which became reportable, during such fiscal year: Earl G. Tyree, Douglas
A. Walsh and Richard D. Gentile. Each of these directors reported
holdings which became reportable on or before November 10, 1995. All of
the Forms 5 were filed on a timely basis.
Meetings of the Board of Directors and Committees
The Board of Directors met one time during the fiscal year ended
March 31, 1996 and all the Directors were present.
The Board of Directors previously appointed a Compensation and
Benefits Committee to administer the Company's stock plans and make
such recommendations to the Board regarding other compensation and
benefits for employees, consultants and directors of the Company as the
Committee deems advisable. The Committee administers the Company's
1987 Stock Plan, 1991 Non-Employee Director Stock Option Plan and
1991 Employee Stock Purchase Plan. This Committee did not meet during
the fiscal year ended March 31, 1996. As of August 1, 1996, the
Committee was comprised of Messrs. Morini, Tyree and Walsh. On
August 5, 1996, the Board of Directors elected to terminate the
Compensation and Benefits Committee and shall undertake the duties
thereof.
The Board of Directors previously appointed an Audit Committee
to oversee the accounting and financial functions of the Company,
including matters relating to the appointment and activities of the
Company's auditors. The Committee did not meet during fiscal year ended
March 31, 1996. As of August 1, 1996, the Committee was comprised of
Messrs. Morini, Luther and Walsh. On August 5, 1996, the Board of
Directors elected to terminate the Audit Committee and shall undertake the
duties thereof.
The Company does not currently have a standing Nominating
Committee.
<PAGE>
Executive Compensation
The following table sets forth the compensation of the Company's Chief
Executive Officer for the fiscal years ended March 31, 1996, 1995, and
1994 (no other executive officer of the Company was compensated in an
amount in excess of $100,000 for any such fiscal years):
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Restricted Under- Other
Name and Compen- Stock lying LTI Compen-
Principal Fiscal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Angelo S. Morini (1) 1996 227,917 -- 14,704(2) 11,572,200 18,000,000 -- --
Chairman of the 1995 196,999 -- 14,496(3) 1,200,000 2,400,000 -- --
Board of Directors, 1994 192,824 -- 8,257(4) -- -- -- --
President, and Chief
Executive Officer
</TABLE>
(1) For the fiscal years ended March 31, 1996, 1995, and 1994, Mr.
Morini was also paid $8,208, $33,577 and $24,535, respectively, for
interest on three loans, aggregating $1,035,652, made to the Company by
Mr. Morini. The interest rates on these loans ranged from 12% to 14% per
annum. These loans were paid in full by June 7, 1995. On October 10,
1995, the Company entered into an employment agreement with Mr.
Morini upon terms and conditions approved by the Board of Directors. In
accordance with the terms of such employment agreement, Mr. Morini was
granted the right to purchase up to 18,000,000 shares of the Company's
Common Stock at a per share price of 110% of the average closing bid
price as reported on the NASDAQ System for the ten trading days
preceding the receipt by the Company of written notice of Mr. Morini's
election to purchase shares. Mr. Morini exercised this option on October
11, 1995, for a price per share of $0.6429 and currently owes $11,572,200
for a note payable to the Company. On August 11, 1993, the Board of
Directors approved the issuance to Angelo S. Morini of an option to
purchase 2,400,000 shares of the Company's Common Stock for a purchase
price of $.50 per share in consideration for Mr. Morini's past services to
the Company, the pledge by Mr. Morini of all of then-current shares owned
by Mr. Morini to the Company's principal lender, J&C Resources, Inc.
("J&C"), to secure loans made to the Company, and the subordination of
all loans made by Mr. Morini to the Company to payment of the sums due
J&C. Mr. Morini exercised this option on November 4, 1994 and currently
owes $1,200,000 for a note payable to the Company. See "Certain
Relationships and Related Party Transactions."
(2) For the fiscal year ended March 31, 1996, the Company paid $9,107 in
lease payments for Mr. Morini's automobile and $5,597 in club dues for
Mr. Morini.
<PAGE>
(3) For the fiscal year ended March 31, 1995, the Company paid $9,107 in
lease payments for Mr. Morini's automobile and $5,389 in club dues for
Mr. Morini.
(4) For the fiscal year ended March 31, 1994, the Company paid $8,257 in
lease payments for Mr. Morini's automobile.
The following table sets forth information concerning individual grants of
stock options and freestanding stock appreciation rights ("SARs") made
during the fiscal year ended March 31, 1996, to each of the executive
officers named in the Summary Compensation Table above:
OPTION/SAR GRANTS
For the Fiscal Year Ended March 31, 1996
Individual Grants
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
Angelo S. Morini(1) 18,000,000 99% $0.6429 8/10/2000
(1) On October 10, 1995, the Company entered into an employment
agreement with Mr. Morini upon terms and conditions approved by the
Board of Directors. In accordance with the terms of such employment
agreement, Mr. Morini was granted the right to purchase up to 18,000,000
shares of the Company's Common Stock at a per share price of 110% of the
average closing bid price as reported on the NASDAQ System for the ten
trading days preceding the receipt by the Company of written notice of Mr.
Morini's election to purchase shares. Mr. Morini exercised this option on
October 11, 1995, for a price per share of $0.6429 and currently owes
$11,572,200 for a note payable to the Company. See "Certain
Relationships and Related Transactions."
The following table sets forth information concerning each exercise of
stock options and freestanding stock appreciation rights during the fiscal
year ended March 31, 1996, by each of the executive officers named in the
Summary of Compensation Table above, and the fiscal year-end value of
unexercised options and SARs:
OPTIONS/SAR EXERCISES
For the Fiscal Year Ended March 31, 1996
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Value
Acquired Realized
Name on Exercise(#) ($) Exercisable/Unexer Exercisable/Unexer
Angelo S. Morini (1) 18,000,000 11,572,200 141,500 0 221,094 (2) 0
<PAGE>
(1) On October 10, 1995, the Company entered into an employment
agreement with Mr. Morini upon terms and conditions approved by the
Board of Directors. In accordance with the terms of such employment
agreement, Mr. Morini was granted the right to purchase up to 18,000,000
shares of the Company's Common Stock at a per share price of 110% of the
average closing bid price as reported on the NASDAQ System for the ten
trading days preceding the receipt by the Company of written notice of Mr.
Morini's election to purchase shares. Mr. Morini exercised this option on
October 11, 1995, for a price per share of $0.6429 and currently owes
$11,572,200 for a note payable to the Company. See "Certain
Relationships and Related Transactions."
(2) The value of the unexercised shares at March 31, 1996 is based on the
difference between the closing sales price of the Company's Common
Stock of $2.0625 on March 29, 1996 and an exercise price of $0.50.
Compensation of Directors
Each non-employee director who served on the Board of Directors during
the last fiscal year received a fee plus expenses for his services. The fee
was $500 per meeting for fiscal years after March 31, 1993.
Additionally, each non-employee director of the Company is entitled to
receive on October 1 of each year, options to purchase a number of shares
of Common Stock equal to (i) 1,000 shares, if such director served for a
full year prior to the October 1 anniversary date, or (ii) a pro rated amount
equal to 83.33 shares for each full month served during the year prior to
such anniversary date, if such director did not serve for a full year prior to
the anniversary date. Such options are granted pursuant to the Company's
1991 Non-Employee Director Stock Option Plan (the "1991 Plan") which
was adopted by the Board of Directors on October 1, 1991, and approved
by the shareholders of the Company on January 31, 1992. As originally
adopted, 33,500 shares of Common Stock were reserved for issuance under
the 1991 Plan. Of these 33,500 shares, Dr. Richard Gentile, a former
director, and Mr. Earl Tyree and Dr. Douglas Walsh, current directors,
each received options on each of October 1, 1994, and October 1, 1995, to
purchase 1,000 shares of Common Stock. The remaining 27,500 shares
are available for issuance pursuant to options granted under the 1991 Plan.
Employment Agreement of Chief Executive Officer
As of October 10, 1995, the Company entered into an
Employment Agreement (the "Agreement") with Angelo S. Morini, the
Company's President and Chief Executive Officer. The Agreement has a
term of five years and provides for an annual base salary of $250,000.
Additionally, Mr. Morini will receive an annual bonus in an amount equal
to five percent of the Company's pre-tax net income for book purposes, as
determined by the Company's independent certified public accounting firm.
Other material provisions of the Agreement are as follows:
1. Mr. Morini shall have the right to purchase (the "Purchase Rights") up
to 18,000,000 shares of the Company's Common Stock, at a per share price
of 110% of the average closing bid price as reported on the NASDAQ System for
the ten trading days preceding the receipt by the Company of written notice
of Mr. Morini's election to purchase shares. The purchase price for such
shares may be evidenced by a promissory note executed by Mr. Morini in favor
of the Company, which note shall bear interest at a
<PAGE>
rate at least equal to the applicable federal rate established by the United
States Internal Revenue Service. The promissory note shall have a term of
five years. Mr. Morini shall have the option to extend the note for up to
five additional years provided that he pays at least one-third of the then
accrued but unpaid interest, with any remaining unpaid interest to be
added to principal. Any such promissory note shall be secured by a first
priority security interest in all shares purchased by Mr. Morini in
conjunction with the exercise of the Purchase Rights as evidenced by a
stock pledge and security agreement executed by Mr. Morini in favor of the
Company.
2. Mr. Morini shall be granted certain options to purchase Common Stock
upon the Company's achievement of each of the following milestone
events:
Milestone Event Number of Options Granted
Reaching break-even for a 1,000,000
calendar quarter
Annual net operating income 1,000,000
of $1,000,000 or more
Each increment of $1,000,000 1,000,000
of annual net operating income
in excess of $1,000,000
Each of the options granted as aforesaid shall have a term of five years
from the date granted and shall be exercisable in whole or in part upon the
delivery by Mr. Morini to the Company of written notice of exercise. The
exercise price for each of the options shall be the closing bid price of the
Company's Common Stock on the trading day immediately preceding the
Company's achievement of the related milestone event as established by the
NASDAQ System. The exercise price for any such option shares may be
evidenced by a promissory note executed by Mr. Morini in favor of the
Company and bearing interest at a rate at least equal to the applicable
federal rate established by the United States Internal Revenue Service. The
promissory note shall have a term of five years. Mr. Morini shall have the
option to extend the note for up to five additional years provided that he
pays at least one-third of the then accrued but unpaid interest, with any
remaining unpaid interest to be added to principal. Any such promissory
note shall be secured by a first priority security interest in all shares
purchased by Mr. Morini in conjunction with the exercise of the options as
evidenced by a stock pledge and security agreement executed by Mr.
Morini in favor of the Company.
3. The Agreement is terminable by Mr. Morini upon the delivery of
written notice of termination in the event that a majority of the Company's
Board of Directors is at any time comprised of persons for whom Mr.
Morini did not vote in his capacity as a director or a shareholder of the
Company (a "Change of Control"). If Mr. Morini abstains from voting for
any person as a director, such abstention shall be deemed to be an
affirmative vote by Mr. Morini for such person as a director.
4. If the Agreement is terminated, regardless of the reason for such
termination, Mr. Morini shall be entitled to retain all unexercised Purchase
Rights and options granted under the Agreement and all shares of
Common Stock issued in connection with the exercise of such Purchase
<PAGE>
Rights and options, and shall receive all earned but unpaid base salary
through the effective date of termination and all accrued but unpaid bonuses
for the fiscal year(s) ending prior to the effective date of
termination. Additionally, in the event that Mr. Morini's employment is
terminated without cause or due to his death, total disability or legal
incompetence, or if Mr. Morini terminates his employment upon a change
of control, the Company shall pay to Mr. Morini or his estate severance
pay equal to three times the amount of Mr. Morini's annual base salary
(before deductions for withholding, employment and unemployment taxes),
and a bonus for the year of termination and the following two years equal
to the average of the two bonuses paid to Mr. Morini under the Agreement.
5. In the event of a change of control, Mr. Morini may, at any time
thereafter, require that the Company purchase up to 1,638,564 shares of his
Common Stock at a purchase price of $.50 per share, subject to adjustment
for any increase or decrease in the number of outstanding shares of the
Company's Common Stock or in the event that the Common Stock is
changed into or exchanged for a different number or class or kind of shares
or securities of the Company, by reason of merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock
split, combination of shares, exchange of shares, change in corporate
structure or the like.
6. The Company extended the maturity date of that certain Promissory
Note dated as of November 4, 1994, executed by Mr. Morini in favor of the
Company in the principal amount of $1,200,000 in conjunction with his
exercise of options previously granted by the Company for two additional
years until November 4, 2001.
7. Mr. Morini has agreed that in the event he voluntarily terminates his
employment with the Company or if he is terminated for "cause" (as
defined in the Agreement), he will not compete with the Company for a
period of one year following the date of termination of his employment
with the Company, whether as an employee, officer, director, partner,
shareholder, consultant or independent contractor in any business
substantially similar to that conducted by the Company within those areas
in the United States in which the Company is doing business as of the date
of termination.
As of October 11, 1995, Mr. Morini exercised the Purchase Rights with
respect to all 18,000,000 shares of Common Stock subject thereto (the
"Purchase Right Shares"). In connection with the exercise of such
Purchase Rights, Mr. Morini executed in favor of the Company a balloon
promissory note (the "Note") in the principal amount of $11,572,200.
The Note bears interest at the rate of seven percent per annum and is due
and payable in full on October 11, 2000, subject to Mr. Morini's option to
extend the Note for up to five additional years provided that he pays at
least one-third of the then accrued but unpaid interest, with any remaining
unpaid interest to be added to principal. In order to secure the Note, Mr.
Morini executed in favor of the Company a stock pledge and security
agreement pursuant to which Mr. Morini granted the Company a first
priority security interest in all of the Purchase Right Shares.
<PAGE>
PROPOSAL TWO: TO CONSIDER AND ACT UPON A
PROPOSAL TO APPROVE THE 1996
STOCK PLAN OF THE COMPANY
On August 6, 1996, the Board of Directors of the Company adopted,
effective September 30, 1996, the 1996 Stock Plan (the "1996 Plan"), and
authorized the reservation of 250,000 shares of Common Stock for
issuance thereunder, all subject to shareholder approval. The 1996 Plan
was adopted to provide incentives to employees, officers, certain directors,
and consultants of the Company by granting certain rights to acquire
shares of Common Stock.
Description of the 1996 Stock Plan
The 1996 Plan provides that options, awards and rights to purchase Common
Stock may be granted to employees, officers, certain directors, and
consultants of the Company. As of August 6, 1996, had the 1996 Plan been
effective, approximately seventy six employees including officers and
employee-directors), two non-employee directors, and no consultants would
have been eligible to participate in the 1996 Plan.
Options granted under the 1996 Plan may be either (i) options
intended to constitute incentive stock options ("ISOs") under the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock
options ("NQSOs"). ISOs may be granted under the Plan to employees and
officers of the Company. NQSOs may be granted to consultants, directors
(whether or not they are employees), employees or officers of the
Company. Awards of stock may be made to consultants, directors,
employees or officers of the Company and direct purchases of stock may be
made by such persons.
The 1996 Plan is administered by the Board of Directors or a
committee appointed by the Board of Directors of at least two of its
members (the "Committee"), which is authorized to determine the
individuals who receive options and awards and who may make direct
purchases of Common Stock, the number of shares subject to each option,
award and purchase, whether the options shall be exercisable in full at the
time of grant or in installments, and other pertinent terms and provisions,
including the exercise price (which, in the case of ISOs may not be less
than 110% of the fair market value of the shares of Common Stock on the
day of grant, and, in the case of NQSOs, may not be less than the
minimum legal consideration required therefor under the laws of Delaware).
The Committee specifies at the time of the grant of an option
under the 1996 Plan whether or not such option is intended to be an ISO
under the Code. The Committee members are ineligible to receive options
or awards under the 1996 Plan. There is no limitation on the number of
shares which may be optioned to any one person. The term of each option
will be for a period not exceeding ten years from the date of grant (or five
years in the case of ISOs granted to an employee owning stock possessing
more than ten percent of the total combined voting power of all classes of
stock of the Company). Options may not be assigned or transferred except
by will or by operation of the laws of descent and distribution. The 1996
Plan contains terms providing for the exercise of options by or on behalf of
former and deceased employees, respectively.
<PAGE>
The Committee has the right to accelerate the date of exercise of
any installment of any option granted under the 1996 Plan. The 1996 Plan
contains, in addition to the provisions discussed above, the provisions
necessary to comply with the requirements of Section 422 of the Code that
the aggregate fair market value (determined at the time an ISO is granted)
of Common Stock for which ISOs granted to any employee are exercisable
for the first time by such employee during any calendar year (under all
stock option plans of the Company) exceed $100,000.
The Board of Directors, may from time to time adopt amendments
to the 1996 Plan, certain of which are subject to shareholder approval, and
may terminate the 1996 Plan, at any time (although such action shall not
affect options previously granted).
The number of option shares granted is subject to adjustment in
the event of a stock dividend, recapitalization, stock split, merger or
similar transaction. Any shares subject to an option which for any reason
expires, terminates or is surrendered unexercised may again be available
for option grant under the 1996 Plan. Unless terminated sooner, the 1996
Plan will terminate on September 29, 2006.
Benefits to eligible participants in the 1996 Plan are not determinable as
of the date hereof. The 1996 Plan does not require, nor
does the Company contemplate, any specific allocation of benefits or
amounts to any individual or discrete group (i.e., executive officers, non-
executive directors, or non-executive officer employees).
As of August 6, 1996, the market value of the shares which were
reserved for issuance under the 1996 Plan, subject to shareholder approval,
was $351,575, based on the closing bid quotation on such date of the
Common Stock as reported on the NASDAQ System. Upon request, the
Company will provide a copy of the 1996 Plan to any shareholder.
Federal Income Tax Consequences
A. Incentive Stock Options. The following general rules are
applicable to holders of ISOs and to the Company for Federal income tax
purposes under existing law:
1. In general, no taxable income results to the
optionee upon the grant of an ISO or upon the issuance of shares to him
upon the exercise of the ISO, and no tax deduction is allowed to the
Company upon either grant or exercise of an ISO.
2. If shares acquired upon exercise of an ISO are
not disposed of within (i) two years following the date the option was
granted or (ii) one year following the date the shares are transferred to the
optionee pursuant to the ISO exercise, the difference between the amount
realized on any subsequent disposition of the shares and the exercise price
will generally be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are
disposed of before the expiration of one or both of the requisite holding
periods (a "Disqualifying Disposition"), then in most cases the lesser of (i)
any excess of the fair market value of the shares at the time of exercise of
<PAGE>
the ISO over the exercise price or (ii) the actual gain on disposition will be
treated as compensation to the optionee and will be taxed as ordinary
income in the year of such disposition.
4. In any year that an optionee recognizes
compensation income on a Disqualifying Disposition of stock acquired by
exercising an ISO, the Company generally will be entitled to a
corresponding deduction for income tax purposes in an amount equal to the
amount of ordinary income recognized, if any, by the optionee.
5. Any excess of the amount realized by the
optionee as the result of a Disqualifying Disposition over the sum of (i) the
exercise price and (ii) the amount of ordinary income recognized under the
above rules will be treated as capital gain.
6. Capital Gain or loss recognized on a disposition
of shares will be long-term capital gain or loss if the optionee's holding
period for the shares exceeds one year.
7. In addition to the tax consequences described
above, the exercise of ISOs may result in a further "minimum tax" under
the Code. The Code provides that an "alternative minimum tax" (ranging from
26% to 28%) will be applied against a taxable base which is equal to
"alternative minimum taxable income," reduced by a statutory exemption.
In general, the amount by which the value of the Common Stock received
upon exercise of the ISO exceeds the exercise price is included in the
optionee's alternative minimum taxable income. A taxpayer is required to
pay the higher of his regular tax liability or the alternative minimum tax.
A taxpayer who pays alternative minimum tax attributable to the exercise
of an ISO may be entitled to a tax credit against his regular tax liability in
later years.
B. Non-Qualified Stock Options. The following general
rules are applicable to holders of NQSOs and to the Company for Federal
income tax purposes under existing law:
1. The optionee generally does not realize any
taxable income upon the grant of an option, and the Company is not
allowed a business expense deduction by reason of such grant.
2. The optionee generally will recognize ordinary
compensation income at the time of exercise of the option in an amount
equal to the excess, if any, of the fair market value of the shares on the date
of exercise over the exercise price. In accordance with the regulations
under the Code and applicable state law, the Company will require
employees to pay to the Company an amount sufficient to satisfy
withholding taxes in respect of such compensation income at the time of
the exercise of the option. If the Company withholds stock to satisfy this
withholding tax obligation, instead of cash, the optionee nonetheless will
be required to include in income the compensation income attributable to
the stock withheld.
3. When the optionee sells the shares, he generally
will recognize a capital gain or loss in an amount equal to the difference
between the amount realized upon the sale of the shares and his basis in
the shares (generally, the exercise price plus the amount taxed to the
optionee as compensation income). If the optionee's holding period for the
<PAGE>
shares exceeds one year, such gain or loss will be a long-term capital gain
or loss.
4. The Company will generally be entitled to a tax
deduction in the year in which, and in an amount equal to, ordinary
compensation income is recognized by the optionee.
C. Special Rules for Restricted Stock. Officers, directors
and 10% shareholders of the Company may in some instances acquire
Common Stock subject to special rules under Section 83 of the Code
because of certain securities laws restrictions on resale ("Restricted
Stock"). If an optionee acquires Restricted Stock, the amount included in
compensation income (in the case of a NQSO, or of an ISO if a
Disqualifying Disposition of such stock is made) or in alternative
minimum taxable income (in the case of an ISO) generally will be
determined as of some later date, not more than six months after exercise,
and will equal the difference between the amount paid for the Restricted
Stock and its fair market value at that time, unless the optionee files a
timely election under Section 83(b) of the Code electing to determine the
amount of income at the time of exercise.
D. Awards and Purchases. Persons receiving Common
Stock pursuant to an Award or Purchase generally will recognize ordinary
compensation income equal to the fair market value of the shares received,
in the case of an Award, or the excess of the fair market value of the shares
over the purchase price, in the case of a Purchase. The Company will
generally be entitled to a corresponding deduction. When Common Stock
acquired pursuant to an Award or Purchase is sold, the seller generally will
recognize capital gain or loss equal to the difference between the amount
realized upon the sale of shares and his or her basis in the shares
(generally, the fair market value of the shares when acquired) which will
be short- or long-term capital gain or loss depending upon the seller's
holding period. Special rules apply if the purchase price (in the case of a
Purchase) is paid be delivering shares of Common Stock, or if the stock
acquired pursuant to an Award or Purchase is Restricted Stock (as
described above).
E. Capital Gains and Losses. Although capital gain is
generally subject to Federal income tax at the same rates as ordinary
income, the maximum rate of tax on "net capital gain" (i.e., the excess of
net long-term capital gain over net short-term capital loss) is 28%, whereas
the maximum rate of tax on ordinary, income and net short-term capital
gain is currently 39.6%. In addition, capital losses may be used to offset an
equal amount of capital gains, whereas at most, $3,000 of net capital loss
may be deducted against ordinary income each year.
F. ERISA. The 1996 Plan is not an employee benefit plan
which is subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, and the provisions of Section 401(a) of
the Code are not applicable to the 1996 Plan.
VOTING
ASSUMING THE PRESENCE OF A QUORUM, APPROVAL OF THE 1996 PLAN WILL REQUIRE
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK
OF THE COMPANY REPRESENTED IN PERSON OR BY PROXY AND ENTITLED TO VOTE AT THE
ANNUAL MEETING. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE 1996 PLAN.
<PAGE>
PROPOSAL THREE: TO CONSIDER AND ACT UPON A
PROPOSAL TO APPROVE THE 1996
AMENDMENT AND RESTATEMENT
OF THE 1991 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN OF
THE COMPANY.
On October 1, 1991, the Board of Directors adopted the
Company's 1991 Non-Employee Director Stock Option Plan (the "Original
Plan"). The shareholders approved the Original Plan on January 31, 1992.
On August 6, 1996, effective September 30, 1996, the Board of Directors
adopted The 1996 Amendment and Restatement of The 1991 Non-
Employee Director Plan (the "1996 Restated Director Plan"), subject to
shareholder approval, in order to amend certain terms of the Original Plan.
The Original Plan was adopted to provide incentives to outside directors of
the Company through initial and periodic grants of stock options in
consideration of services rendered to the Company.
Description of the 1996 Amendment and Restatement
of The 1991 Non-Employee Director Stock Option Plan
The 1996 Restated Director Plan provides that options to purchase
Common Stock of the Company be granted to non-employee directors of
the Company, and authorizes the issuance of a maximum of 33,500 shares
of Common Stock, subject to adjustment for capital changes.
The 1996 Restated Director Plan shall be administered by the
Board of Directors (for Plan purposes, the "Committee"). Under the 1996
Restated Director Plan, subject to shareholder approval, each eligible non-
employee director shall receive on October 1, 1996 (the "Approval Date"),
in consideration for his service as a director of the Company during the
prior year, an option to purchase the number of shares of the Company's
Common Stock equal to the number of full months he has served on the
Board of Directors as of the Approval Date, divided by 12 and multiplied
by 2,000 and, if the product is a fraction, rounded to the next highest whole
number (the "Initial Grant"). On each anniversary of the Approval Date,
until the expiration of the 1996 Restated Director Plan on September 29,
2001, each eligible director who has served for an entire year prior to such
anniversary is automatically granted an option to purchase an additional
2,000 shares of the Company's Common Stock (each, a "Periodic Grant").
For each person who is elected to the Board of Directors after the Approval
Date and on an anniversary of the Approval Date following his election has
served for less than an entire year, the number of option shares granted to
him on such anniversary is prorated depending on how long he has served
on the Board during the last year.
The exercise price for options granted under the 1996 Restated
Director Plan shall be equal to the fair market value per share of Common
Stock on the date of grant. Options granted under the 1996 Restated
Director Plan shall be exercisable in full at the time of grant. There is no
limitation on the cumulative number of option shares which may be
granted to any one person, however, in no event shall the number of
<PAGE>
options granted to any one person in a calendar year under the Plan exceed
2,000. The term of each option will be for a period not exceeding ten years
from the date of grant, unless a lesser period is specified by the Committee
at the time of the grant. If an optionee ceases to be a director of the
Company other than by reason of death, he may exercise his option as to all
or any of the shares covered thereby within the original term of such
option. In the event an optionee dies, the 1996 Restated Director Plan
provides for the exercise of an option on behalf of the deceased director.
Options may not be assigned or transferred except by will or by operation
of the laws of descent and distribution.
Option holders are protected against dilution in the event of a
stock dividend, recapitalization, stock split, merger or similar transaction.
The Board of Directors may from time to time adopt amendments, certain
of which are subject to shareholder approval, and may terminate the 1996
Restated Director Plan at any time (although such action shall not affect
options previously granted). Any shares subject to an option which for any
reason expires or terminates unexercised may again be available for option
grants under the 1996 Restated Director Plan. Unless terminated sooner,
the 1996 Restated Director Plan will terminate on September 29, 2001.
At the time the options are exercised, the Common Stock account
of the Corporation will be increased by the par value ($.01 per share) of the
shares sold and the remaining portion of the proceeds will be credited to
additional paid-in capital.
Pursuant to the Original Plan, during the fiscal year ended March
31, 1996, options to purchase 1,000 shares of Common Stock were granted
to each then current, eligible non-employee director of the Company,
namely, Dr. Richard Gentile (a former director), Mr. Earl Tyree and Dr.
Douglas Walsh, all at an exercise price of $0.59 per share. Provided that
the 1996 Restated Director Plan is approved by the shareholders at the
Annual Meeting, options under the 1996 Restated Director Plan to
purchase 2,000 shares of Common Stock will be granted on October 1,
1996, to each of Mr. Earl Tyree and Dr. Douglas Walsh. Mr. Marshall
Luther, a current director and Senior Vice President of Marketing of the
Company, was ineligible to participate in the Original Plan until after
August 15, 1996, the date on which he will cease serving as Senior Vice
President of Marketing. As of October 1, 1996, Mr. Luther will have
served one full month as a non-employee director and, based on the Initial
Grant calculation set forth above, will receive options to purchase 167
shares of Common Stock calculated at the rate of equal to the number of
full months he served on the Board of Directors as of the Approval Date,
one, divided by 12 and multiplied by 2,000 and, if the product is a fraction,
rounded to the next highest whole number. See "Certain Relationships and
Related Party Transaction."
As of August 6, 1996, the market value of all of the shares of
Common Stock underlying the options under the 1996 Restated Director
Plan was $47,111.05, based on the closing bid quotation of the Common
Stock on such date as reported on the NASDAQ System. Additionally, as
of August 6, 1996, a total of 6,000 options having an aggregate market
value on such date of $8,437.80 had been issued and are outstanding under
the 1996 Restated Director Plan. Upon request, the Company will provide
a copy of the 1996 Plan to any shareholder.
<PAGE>
Amendment of Material Terms
of 1991 Non-Employee Director Stock Option Plan
The 1996 Restated Director Plan materially amends, among other
items, the following terms and conditions of the Original Plan:
The expiration date of the Original Plan as amended and
restated was extended from September 30, 1996, to September 30,
2001.
Generally, the Board of Directors, rather than a committee
comprised of certain members of the Board of Directors, will administer
the 1996 Restated Director Plan.
Various defined terms (i.e., "Non-Employee Director") and minor
modifications and clarifications were incorporated into the 1996 Restated
Director Plan in order to reflect revisions to applicable regulations [Rule
16(b)] promulgated under the Securities Exchange Act of 1934, as
amended.
The share basis for making Initial Grants and Periodic Grants
under the 1996 Restated Director Plan was increased from 1,000 shares to
2,000 shares.
Federal Income Tax Consequences
An option granted under the 1996 Restated Director Plan is taxed
in the same manner as a NQSO issued under the 1996 Plan as described
above. In general, the optionee recognizes ordinary compensation income
at the time of exercise of the option in an amount equal to the excess, if
any, of the fair market value of the shares on the date of exercise over the
exercise price, and the Company will be entitled to a tax deduction in the
year in which compensation income is recognized by the optionee. Under
certain circumstances, however, compensation income may be measured
and recognized at some later date, not to exceed six months after the date
of exercise.
VOTING
ASSUMING THE PRESENCE OF A QUORUM, APPROVAL OF THE 1996 RESTATED DIRECTOR
PLAN WILL REQUIRE THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING
SHARES OF COMMON STOCK OF THE COMPANY REPRESENTED IN PERSON OR BY PROXY AND
ENTITLED TO VOTE AT THE ANNUAL MEETING. THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" THE APPROVAL OF THE 1996 RESTATED DIRECTOR PLAN.
PROPOSAL FOUR: TO RATIFY THE RETENTION OF BDO
SEIDMAN AS THE COMPANY'S INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
The Board of Directors has selected the firm of BDO Seidman as
the Company's independent certified public accountants for the current
fiscal year. BDO Seidman has served as the Company's independent
public accountants for each of the last three years. It is expected that a
representative of BDO Seidman will be present during the Annual
Meeting. The representative will have an opportunity to make a statement
if he or she so desires and is expected to be available to respond to
appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE RETENTION OF BDO SEIDMAN
AS THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS FOR THE CURRENT FISCAL YEAR.
SHAREHOLDER PROPOSALS
It is anticipated that the Company's next annual meeting of
shareholders will be held in September 1997, and proposals of
shareholders intended for inclusion in the proxy statement will be
furnished to all shareholdres entitled to vote at the next annual meeting of
the Company, and must be received at the Company's principal executive
offices no later than June 30, 1997, or a reasonable time before the
solicitation is made. It is suggested that proponents submit their proposals
by Certified Mail-Return Receipt Requested.
OTHER BUSINESS
The Board of Directors knows of no business which will be
presented for consideration at the meeting other than stated above. If any
other business should come before the meeting, votes may be cast pursuant
to proxies in respect to any such business in the best judgment of the
person or persons acting under the proxies.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company.
In addition to soliciting shareholders by mail of by its regular employees,
the Company may request banks and brokers to solicit their customers who
have stock of the Company registered in the name of a nominee and, if so,
will reimburse such banks and brokers for their reasonable out-of-pocket
costs. Solicitation by officers and employees of the Company, none of
whom will receive additional compensation therefor, may also be made of
some shareholders in person or by mail, telephone or telegraph, following
the original solicitation.
<PAGE>
APPENDIX A
GALAXY FOODS COMPANY
1996 STOCK PLAN
Purpose. This 1996 Stock Plan (the "Plan") is intended to provide incentives:
(a) to the officers and other employees of Galaxy Foods Company (the "Company"),
its parent (if any), and any present or future subsidiaries of the Company
(collectively, the "Related Corporations"), by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422A(b) of
the Internal Revenue Code of 1986 (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the company and Related Corporations by
providing them with awards of stock in the Company ("Awards"); and (d)
to directors, officers, employees and consultants of the Company and
Related Corporations by providing them with opportunities to make direct
purchases of stock in the Company ("Purchases"). Both ISOs and Non-
Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options". Options, Awards and authorizations to make
Purchases are referred to hereafter collectively as "Stock Rights". As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation", respectively, as those terms are defined in Section
425 of the Code.
Administration of the Plan.
The Plan shall be administered by the Board of Directors of the
Company (the "Board") or by a committee of two or more of its members
appointed by the Board (the "Committee"); provided, that, to the extent
required by Rule 16b-3, or any successor provision ("Rule 16b-3"), of the
Securities Exchange Act of 1934, with respect to specific grants of Stock
Rights, the Plan shall be administered by Non-Employee Directors within
the meaning of 17 CFR Section 240.16b-3(b)(3)(i). No member of the Committee,
while a member, shall be eligible to participate in the Plan.
Subject to ratification of the grant or authorization of each Stock Right by
the Board (if so required by applicable state law), and subject to the terms
of the Plan, the Committee, if so appointed, shall have the authority to (i)
determine the employees of the Company and Related Corporations (from
among the class of employees eligible under paragraph 3 to receive ISOs)
to whom ISOs may be granted, and to determine (from among the class of
individuals and entities eligible under paragraph 3 to receive Non-
Qualified Options and Awards and to make individuals and entities eligible
under paragraph 3 to receive Non-Qualified options and Awards and to
make Purchases) to whom Non-Qualified Options, Awards and
authorizations to make Purchases may be granted; (ii) determine the time
or times at which options or Awards may be granted or Purchases made;
(iii) determine the option price of shares subject to each Option, which
price shall not be less than the minimum price specified in paragraph 6,
and the purchase price of shares subject to each Purchase; (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
<PAGE>
shall become exercisable and the duration of the exercise period; (vi)
determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options, Awards and Purchases and the
nature of such restrictions, if any, and (vii) 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 Stock Right 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 best. 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 Stock Right granted under it.
The Committee may select one of its members as its chairman,
and shall hold meetings at such times and places as it may determine. Acts
by a majority of the Committee, or acts reduced to or approved in writing
by a majority of 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.
Stock Rights may be granted to members of the Board consistent
with the provisions of the first sentence of paragraph 2(A) above, if
applicable. All grants of Stock Rights 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. Members of the Board who are either
(i) eligible for Stock Rights pursuant to the Plan or (ii) have been granted
Stock Rights may vote on any matters affecting the administration of the
Plan or the grant of any Stock Rights pursuant to the Plan, except that no
such member shall act upon the granting to himself of Stock Rights, 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 him at Stock Rights.
Eligible Employees and Others. ISOs may be granted to any
employee of the Company or any Related Corporation. Those officers and
directors of the Company who are not employees may not be granted ISOs
under the Plan. Non-Qualified Options, Awards and authorizations to
make Purchases may be granted to any director (whether or not also an
employee), officer, employee or consultant of the Company or any related
Corporation. Subject to the foregoing conditions and limitations, the
Committee may take into consideration a recipient's individual
circumstances in determining whether to grant an ISO, a Non-Qualified
Option or an authorization to make a Purchase. Granting of any Stock
Right to any individual or entity shall neither entitle that individual or
entity to, nor disqualify him from, participate in any other grant of Stock
Rights.
Stock. The stock subject to Options, Awards and Purchases shall
be authorized but unissued shares of Common Stock of the Company, par
value $.01 per share (the "Common Stock"), or shares of Common Stock
<PAGE>
reacquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan is 250,000, subject
to adjustment as provided in paragraph 13. Any such shares may be issued
as ISOs, Non-Qualified Options or Awards, or to persons or entities
making Purchases, so long as the number of shares so issued does not
exceed such number, as adjusted. If 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, or if
the Company shall reacquire any unvested shares issued pursuant to
Awards or Purchases, the unpurchased shares subject to such Options and
any unvested shares so reacquired by the Company shall again be available
for grants of Stock Rights under the Plan.
Granting of Stock Rights. Stock Rights may be granted
under the Plan at any time after September 30, 1996 and prior to
September 29, 2006. The date of grant of a Stock Right under the Plan
will be the date specified by the Committee at the time it grants the Stock
Right; provided, however, that such date shall not be prior to the date an
which the Committee acts to approve the grant. The Committee shall have
the right, with the consent of the optionee, to convert an ISO granted under
the Plan to a Non-Qualified Option pursuant to paragraph 16.
Minimum Option Price; ISO Limitations.
The 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 Delaware
or the laws of any jurisdiction in which the Company or its successors in
interest may be organized.
The 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
of the total combined voting power of all classes of stock of the Company
or any Related Corporation (determined as of the date of grant), the price
per share specified in the agreement relating to such ISO shall not be less
than 110% of the fair market value per share of Common Stock on the date
of grant.
In no event shall the aggregate fair market value (determined at
the time an ISO is granted) of Common Stock for which ISOs granted to
any employee are exercisable for the first time by such employee during
any calendar year (under all stock option plans of the Company and any Related
Corporation) exceed $100,000. To the extent any such grant of
Options in excess of $100,000 (in the aggregate) is made, those Options in
excess of $100,000 (in the aggregate) shall be treated as Non-Qualified
Options.
If, at the time an Option granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined
as of the last business day for which the prices or quotes discussed in this
sentence are available prior to the date such Option is granted 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
<PAGE>
Common Stock on the NASDAQ National Market List, 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 List.
However, if the Common Stock is not publicly traded at the time an Option
is granted under the Plan, "fair market value" shall be deemed to be 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.
Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of
grant in the case of Non-Qualified Options, (ii) ten years from the date of
grant in the case of ISOs generally, and (iii) five years from the date of
grant in the case of ISOs granted to an employee owning stock possessing
more than ten percent of the total combined voting power of all classes of
stock of the Company or any Related Corporation (determined as of the
date of grant). 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 16.
Exercise of Option. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as
follows:
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.
Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee.
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.
The Committee shall have the right to accelerate the date of
exercise of any installment of any Option.
Termination of Employment. If an ISO optionee ceases to be
employed by the Company and all Related Corporations other than by
reason of death or disability as defined in paragraph 10, no further
installments of ISOs granted to such optionee shall become exercisable,
and all then exercisable ISOs shall terminate after the passage of 60 days
from the date of termination of employment, but in no event later than on
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 16. 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
<PAGE>
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 the Plan, 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 Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
Death; Disability.
If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of death, any ISO of such optionee may be
exercised, to the extent of the number of shares with respect to which such
optionee could have exercised the ISO on the date of death, by such optionee's
estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, at any time prior
to the earlier of the ISO's specified expiration date or 180 days from the
date of the optionee's death.
If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of disability, such optionee shall have the
right to exercise any ISO held by the optionee on the date of termination of
employment, to the extent of the number of shares with respect to which
such optionee could have exercised the ISO on that date, at any time prior
to the earlier of the ISO's specified expiration date or 180 days 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 successor statute.
Assignability. No Stock Right shall be assignable or transferable
by the grantee except by will or by the laws of descent and distribution, and
during the lifetime of the grantee each Stock Right shall be exercisable
only by such grantee.
Terms and Conditions of Options. 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. In granting any Non-
Qualified option, the Committee may specify that such 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.
<PAGE>
Adjustments. Upon the occurrence of any of the following events,
an optionee's rights with respect to Options granted 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:
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.
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 the
consideration payable with respect to the outstanding shares of Common
Stock in connection with 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.
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 the optionee would
have received had such optionee exercised the Option prior to such
recapitalization or reorganization.
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, it may refrain from making such
adjustments.
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.
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
<PAGE>
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.
No fractional shares shall be issued under the Plan and the
optionee shall receive from the Company cash in lieu of such fractional
shares.
Upon the happening of any of the foregoing events described in
subparagraphs A, B or C above, the class and aggregate number of shares
set forth in paragraph 4 hereof that are subject to Stock Rights which
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 2, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by
exercise of a Stock Right made hereunder receives shares or securities or
cash in connection with a corporate transaction described in subparagraphs
A, B or C above as a result of owning such restricted Common Stock, such
shares or securities or cash shall be subject to all of the conditions and
restrictions applicable to the restricted Common Stock with respect to
which such shores or securities or cash were issued, unless otherwise
determined by the Committee or the Successor Board.
Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the
Company at its principal office address. Such notice shall identify the Stock
Right being exercised and specify the number of shares as to which such Stock
Right is being exercised, accompanied by full payment of the purchase price
therefor (including any amounts required in accordance with paragraph 19
hereof), in United States dollars, in cash, by certified check, by bank draft
or by personal check. The holder of a Stock Right shall not have the rights
of a shareholder with respect to the shares covered by his Stock Right until
the date of issuance of a stock certificate to him 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.
Term and Amendment of Plan. This Plan was adopted
by the Board effective as of September 30, 1996, 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 unanimous written consent. If the approval of stockholders is not
obtained by September 30, 1997, any grants of ISOs under the Plan made prior
to that date will be rescinded. The Plan shall expire on September 29, 2006
(except as to Options outstanding an that date). Subject to the provisions of
paragraph 5 above, Stock Rights 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 provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the
<PAGE>
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); and (d) the expiration date of the Plan may not be extended.
Except as provided in the fourth sentence of this paragraph 15, in no event may
action of the Board or stockholders alter or impair the rights of a grantee,
without his consent, under any Stock Right previously granted to him.
Conversion of ISOs Into Non-Qualified Options; Termination of ISOs. The
Committee, at the written request of any optionee, may in its discretion take
such written actions as may be necessary to convert such optionee's ISOs (or
any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time
prior to the expiration of such ISOs, regardless of whether the optionee is
an employee of the Company or a Related Corporation at the time of such
conversion. Such written actions may include, but not be limited
to, extending the exercise period or reducing the exercise price of the
appropriate installments of such Options. At the time of such conversion, the
Committee (with the consent of the Optionee) may impose such conditions on
the exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Except as provided in Paragraph 6.C hereof,
nothing in the Plan shall be deemed to give any optionee the right to have such
optionee's ISOs converted into Non-Qualified Options, and no such conversion
shall occur until and unless the Committee takes appropriate action. The
Committee, with the consent of the optionee, may also terminate any portion of
any ISO that has not been exercised at the time of such termination.
Application of Funds. The proceeds received by the
Company from the sale of shares pursuant to Options granted and Purchases
authorized under the Plan shall be used for general corporate purposes.
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.
Withholding of Additional Income Taxes. Upon the
exercise of a Non-Qualified Option, the grant of an Award, the making of a
Purchase of Common Stock for less than its fair market value, the making of a
Disqualifying Disposition (as defined in Paragraph 20, or in connection with
the exercise of an ISO involving the premature surrender of Common Stock
acquired under a previously-exercised ISO) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code (and any other state or federal
withholding law(s) determined by the Committee to be applicable to such
exercise or Purchase), may require the optionee, Award recipient or purchaser
to pay withholding taxes in respect of the amount that it considered
compensation includable in such person's taxable income. The Committee in
its discretion may condition (i) the exercise of an Option; (ii) the grant of
an Award; (iii) the making of a Purchase of Common Stock for less than its fair
market value; or (iv) the vesting of restricted Common Stock acquired by
exercising a Stock Right, on the grantee's payment of such withholding taxes.
Notice to Company of Disqualifying Disposition. Each
employee who receives an ISO must agree to notify the Company in writing
immediately after the employee makes a Disqualifying Disposition of any
common stock acquired pursuant to the exercise of an ISO. A Disqualifying
<PAGE>
Disposition is any disposition (including any sale) of such Common Stock
before the later of (a) two years after the date the employee was granted the
ISO or (b) one year after the date the employ e acquired Common Stock by
exercising the ISO. If the employee has died before such stock is sold, these
holding period requirements do not apply and no Disqualifying Disposition can
occur thereafter.
Governing Law; Construction. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of the State of Delaware. In construing this Plan, the singular shall include
the plural and the masculine gender shall include the feminine and neuter,
unless the context otherwise requires.
<PAGE>
APPENDIX B
GALAXY FOODS COMPANY
THE 1996 AMENDMENT AND RESTATEMENT OF THE
1991 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Purpose. This 1996 Amendment and Restatement of the 1991
Non-Employee Director Stock Option Plan (the "Plan") is intended to provide
incentives to certain directors of Galaxy Foods Company (the "Company") by
providing them with opportunities to purchase stock in the Company pursuant
to options.
Board Will Administer the Plan. The Plan shall be
administered by the Board of Directors of the Company (for Plan purposes, the
"Committee"). The Committee shall consist of the Board of Directors, when
authorized and acting as a board otherwise in accordance with the Company's
by-laws and regulations and relevant state corporate law. The Chairman of the
said Board shall preside over all meetings and actions by the Committee.
Subject to the terms of the Plan, the Committee shall have authority to
determine the terms and provisions of the instruments by which options shall be
evidenced.
Eligible Directors. Options shall be granted to each Non-
Employee Director of the Company. For all Plan purposes, a "Non-Employee
Director" shall mean a director of the Company who currently is not an officer
of the Company, or otherwise employed by (or a consultant to) the Company or
any subsidiary thereof, as further defined in 17 CFR Section 240.16b-3(b)(3)
(i).
Stock. The Stock subject to the options shall be authorized but
unissued shares of the common stock of the Company, $.01 par value per share
(the "Common Stock"), or shares of Common Stock reacquired by the
Company including shares purchased in the open market. The aggregate
number of shares which may be issued pursuant to the Plan is 33,500 subject to
adjustment as provided in paragraph 14. In the event any option granted under
the Plan shall expire or terminate on 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 under the Plan.
Automatic Grant of Options. Subject to shareholder approval
(as provided in Section 16 hereof), effective October 1, 1996, and each
successive October 1st so long as this Plan remains effective, each Non-
Employee Director who has continuously served for the one-year period ending
on such effective date (or anniversary date thereof) is automatically granted
an option to purchase 2,000 shares of the Company's Common Stock. Each
otherwise-eligible Non-Employee Director who has served continuously as a
Non-Employee Director for less than the one-year period ending on any such
date is automatically granted an option to purchase a pro-rated number of
shares of the Company's Common Stock, equal to 166.66 shares for each
complete calendar month such Non-Employee Director has so served but
rounding the total number of shares upward to the nearest whole share.
Maximum Option Shares. The number of options granted to a
director under the Plan shall not exceed 2,000 shares in any calendar year.
Option Price. The price per share specified in each option
granted under the Plan shall be equal to the fair market value per share of
common stock on the date of such grant.
<PAGE>
Option Duration. Each option shall expire ten years from the
date of grant, unless a lesser period is specified by the Committee. The
Committee may extend the term of any previously granted option provided that
such option, as extended, expires within ten years of its original date of
grant.
Vesting of Options. Subject to the provisions of paragraphs 12,
13 and 16, each option granted under the Plan shall be fully exercisable
immediately upon grant thereof.
Termination of Non-Employee Director Status. In the event an
optionee ceases to be a Non-Employee Director, other than by reason of death,
at a time when he holds an option, he may exercise such option, within the
original term of the option, as to all or any of the shares covered thereby,
at the time or times such exercise is permitted under the terms of the option.
Nothing in the Plan shall be deemed to give any optionee the right to be
nominated as a director by the Company for any period of time.
Death. If an optionee dies, any option of his may be exercised,
to the extent of the number of shares with respect to which he could have
exercised it on the date of his death, by his estate, personal representative
or beneficiary who acquires the option by will or by the laws of descent and
distribution, at any time prior to the option's specified expiration date.
Assignability. No option shall be assignable or transferable by
the optionee except by will or by the laws of descent and distribution, and
during the lifetime of the optionee each option shall be exercisable only by
him.
Terms and Conditions of Options. 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 7 through 12 hereof and may contain
such other provisions not inconsistent with the Plan, including restrictions
applicable to shares of Common Stock issuable upon exercise of options granted
under the Plan, as the Committee deems advisable.
Adjustments. Upon the occurrence of any of the following
events, an optionee's rights with respect to options granted to him 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:
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.
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
<PAGE>
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 the consideration payable with respect to the outstanding shares
of Common Stock in connection with 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.
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 laid upon such exercise the
securities he would have received if he had exercised his option prior to such
recapitalization or reorganization.
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.
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.
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.
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 4 hereof that are subject to options which
previously hove 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 14 and, subject to
paragraph 2, its determination shall be conclusive.
If any optionee owning restricted Common Stock obtained by exercise of
an option receives shares or securities or cash in connection with a corporate
transaction described in subparagraphs A, B or C above as a result of owning
such restricted Common Stock, such shares of securities or cash shall be
subject to all of the conditions and restrictions applicable to the restricted
Common Stock with respect to which such shares or securities or cash were
issued, unless otherwise determined by the Committee or the Successor Board.
Exercise of Options. An option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, identifying the option being exercised, and
specifying the number of shares as to which such option is being exercised,
<PAGE>
such written notice to constitute a binding commitment of the optionee to
purchase and pay for the shares to which the option relates. Payment of the
purchase price for such shares shall be made in United States dollars, in cash,
by certified check, by bank draft or by personal check. The holder of an
option shall not have the rights of a stockholder with respect to the shares
covered by his option until a stock certificate has been issued to him for
such shares. No adjustment will be made for dividends or similar rights for
which the record date is after the exercise of the option but prior to the date
such stock certificate is issued. In no case may a fraction of a share be
purchased or issued under the Plan.
Shareholder Approval; Plan Amendment and Plan Term. The
Plan shall be effective October 1, 1996, subject to approval by the holders of
a majority of the outstanding shares of Common Stock of the Company at the
annual meeting of Company shareholders next following such date, and shall
expire on September 30, 2001, except as to options them outstanding on such
expiration date. Options subject to shareholder approval shall automatically
be granted under the Plan prior to the date for such shareholder approval, but
shall be conditioned upon receipt of such approval, and shall automatically be
rescinded in the event timely shareholder approval is not obtained. The Board
of Directors may terminate or amend the Plan in any respect at any time;
provided, that without the prior approval of the stockholders (a) the total
number of shares that may be issued under the Plan and the maximum number
of shares available for each grant may not be increased (except by adjustment
pursuant to paragraph 14); (b) the provisions of paragraph 5 relating to the
limits on grants in any calendar year may not be modified; (c) the provisions
of paragraph 7 relating to the option price may not be modified; (d) the
provisions of paragraph 9 relating to the exercise of options may not be
modified; (e) the provisions of paragraph 3, regarding eligibility, may not
be modified; and (f) the expiration date of the Plan may not be extended;
provided, further, that the provisions of the Plan specified in Rule 16b-3(c)
(2)(ii)(A), promulgated under Section 16 of the Securities Exchange Act of
1934, as amended, may not be amended more than once every six months other
than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder. No action of the
Board of Directors or shareholder, however, may, without the consent of an
optionee, alter or impair his rights under any option previously granted to him.
Application of Funds. The proceeds received by the Company
from the sale of stock pursuant to options granted under the Plan will be used
for general corporate purposes.
Governmental Regulation. The Company's obligation to sell
and deliver shares of the Company's 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.
<PAGE>
GALAXY FOODS COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MONDAY, SEPTEMBER 30, 1996
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Angelo S. Morini with full power of
substitution, the proxies of the undersigned to vote all shares of Common
Stock of Galaxy Foods Company (the "Company") which the undersigned
is entitled to vote at the Annual Meeting of Shareholders of the Company
to be held on Monday, September 30, 1996, at 10:00 a.m., local time, at
the offices of the Company located at Orlando Central Park, 2441 Viscount
Row, Orlando, Florida, and at any adjournments or postponements thereof,
with the same force and effect as the undersigned might or could do if
personally present thereof.
1. ELECTION OF DIRECTORS [ ] FOR all nominees below
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
(Instruction: To withhold authority to vote for any nominee, draw a
line through such nominee's name.)
Marshall K. Luther, Angelo S. Morini, Earl G. Tyree, Douglas A. Walsh, MD.
2. TO CONSIDER AND ACT UPON A PROPOSAL TO APPROVE THE 1996 STOCK PLAN OF THE
COMPANY (The Board of Directors recommends a vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued on the other side)
(continued from other side)
3. TO CONSIDER AND ACT UPON A PROPOSAL TO APPROVE THE 1996 AMENDMENT AND
RESTATEMENT OF THE 1991 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN OF THE
COMPANY (The Board of Directors recommends a vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. TO RATIFY THE RETENTION OF BDO SEIDMAN AS THE COMPANY'S INDEPENENT
CERTIFIED PUBLIC ACCOUNTANTS (The Board of Directors recommends a vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
AND ANY ADJOURNMENT THEREOF
Signature:
Signature:
Date:
This Proxy when properly executed will
be voted in the manner directed herein by
the undersigned stockholder. If no
direction is made, this proxy will be voted
FOR proposal 1 and FOR proposal 2. If
signing as an attorney, executor, trustee
or guardian, please give your full title as
such. If stock is held jointly, each owner
should sign.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE