SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE APPLETREE COMPANIES, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration No.:
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3) Filing Party:
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4) Date Filed:
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THE APPLETREE COMPANIES, INC.
5732 Curlew Drive
Norfolk, Virginia 23502
January 24, 1997
To Our Stockholders:
You are cordially invited to attend the Company's Annual Meeting of
Stockholders which will be held on Friday, March 14, 1997 at 10:00 a.m.,
Eastern time, at the DoubleTree Hotel, 880 North Military Highway, Norfolk,
Virginia.
The official Notice of Meeting, Proxy Statement and Proxy are included
with this letter. The matters listed in the Notice of Meeting are more fully
described in the Proxy Statement.
It is important that your shares be represented and voted at the Annual
Meeting, regardless of the size of your holdings. Accordingly, please mark,
sign and date the enclosed Proxy and return it promptly in the enclosed
envelope to ensure that your shares will be represented. If you do attend the
Annual Meeting, you may, of course, withdraw your Proxy should you wish to
vote in person.
Sincerely,
Justin A. DiMacchia,
Corporate Secretary
THE APPLETREE COMPANIES, INC.
5732 Curlew Drive
Norfolk, Virginia 23502
January 24, 1997
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of The AppleTree Companies, Inc. (the
"Company") will be held on Friday, March 14, 1997, at 10:00 a.m., Eastern
time, at the DoubleTree Hotel, 880 North Military Highway, Norfolk, Virginia,
to consider and take action with respect to the following matters:
1. The election of six Directors to serve until the next Annual
Meeting of Stockholders or until their successors are duly elected
and qualified;
2. An Amendment to the Company's Certificate of Incorporation
increasing its authorized Capital Stock from 130 million shares to
- ----- million shares, consisting of ---- million shares of Common
Stock and 10 million shares of Preferred Stock;
3. Proposal to adopt the Company's 1997 Stock Option Plan;
4. The ratification of the appointment of Coopers & Lybrand, L.L.P.
as independent public accountants of the Company for the fiscal
year ending August 31, 1997; and
5. Such other businesses as may properly be brought before the
meeting and any adjournments or postponements thereof.
Holders of record of the Company's Common Stock at the close of business
on January 16, 1997, will be entitled to notice of and to vote on all matters
presented at the meeting and at any adjournments or postponements thereof.
Your Proxy is important to ensure a quorum at the meeting. Thus, whether
or not you expect to be present, you are requested to date, sign and mail the
enclosed Proxy in the postage-paid envelope which has been provided for that
purpose. The Proxy may be revoked by you at any time before it is exercised
and the giving of your Proxy will not affect your right to vote in person if
you attend the meeting.
By Order of the Board of Directors
Justin A. DiMacchia,
Corporate Secretary
THE APPLETREE COMPANIES, INC.
5732 Curlew Drive
Norfolk, Virginia 23502
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PROXY STATEMENT
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Annual Meeting of Stockholders
March 14, 1997
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GENERAL INFORMATION
This Proxy is being furnished to the holders of the Common Stock (the
"Stockholders") of The AppleTree Companies, Inc., a Delaware corporation (the
"Company") in connection with the solicitation of proxies on behalf of the
Board of Directors of the Company (the "Board") for the Annual Meeting of
Stockholders to be held on Friday, March 14, 1997, at 10:00 a.m., Eastern
time, at the DoubleTree Hotel, 880 North Military Highway, Norfolk, Virginia,
and at any adjournments, reschedulings and postponements thereof (the "Annual
Meeting"). These proxy materials are being mailed on or about February __,
1997, to holders of record on January 16, 1997, of the Company's Common Stock,
par value $0.001 per share (the "Common Stock").
Shares of Common Stock cannot be voted at the Annual Meeting unless the
Stockholder is present in person or represented by proxy. All shares of
Common Stock represented by properly executed proxies received by the Board
pursuant to this solicitation will be voted in accordance with the
Stockholder's directions specified on the enclosed proxy. If no directions
have been specified by marking the appropriate squares on the proxy, the
shares of Common Stock will be voted in accordance with the Board's
recommendations. A Stockholder signing and returning a proxy has the power to
revoke it at any time prior to its exercise by delivering to the Company a
later dated proxy or by giving notice to the Company in writing or in open
meeting, but without affecting any vote previously taken. The holders of a
majority of the Company's outstanding shares of Common Stock, present in
person or represented by proxy and entitled to vote, constitute a quorum for
the transactions of all business at the Annual Meeting. Abstentions and
broker non-votes are included in determining if a quorum is present at the
Annual Meeting.
Only Stockholders of record at the close of business on January 16,
1997 are entitled to vote at the Annual Meeting. As of January 16, 1997,
there were issued and outstanding 119,585,122 shares of Common Stock of the
Company. Each share of Common Stock is entitled to one vote and cumulative
voting is not permitted. A list of Stockholders of record entitled to vote at
the Annual Meeting will be available for examination by any Stockholder for
any purpose germane to the Annual Meeting, for a period of ten (10) days prior
to the Annual Meeting, during normal business hours at the offices of the
Company, 5732 Curlew Drive, Norfolk, Virginia. The list will also be
available at the Annual Meeting. An affirmative vote of a majority of the
shares of Common Stock present and voting at the Annual Meeting is required
for approval of Items 1, 3, 4 and 5 of this Proxy Statement. An affirmative
vote of a majority of the issued and outstanding shares of Common Stock
entitled to vote on the proposal is required for approval of Item 2 of this
Proxy Statement. Abstentions from voting will have the same effect as voting
against the election of a director and against Item 2. Broker non-votes will
not be included in the tabulations of shares entitled to elect directors and
will have the same effect as voting against Item 2.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of January 16, 1997, with
respect to each person who is known to the Company to be the beneficial owner
of more than 5% of the Company's Common Stock. The shares of Common Stock set
forth below include shares of Common Stock which are issuable pursuant to
outstanding convertible debentures, convertible preferred stock and warrants,
all of which are currently convertible or exercisable; however, no shares of
Common Stock may currently be issued until such time as the Stockholders
approve an increase to the authorized number of shares of Common Stock of the
Company (see Item 2 below) as the Company does not have sufficient authorized
and unissued shares of Common Stock:
Name and Address Percent
of Beneficial Owner Number of Shares(1) Beneficially Owned(1)(2)
AUER & CO. For the Benefit 50,400,000(3) 29.6%
of Washington University
10829 Olive Boulevard
St. Louis, MO 63141
BBC Foundation, Ltd. 80,000,000(4) 40.1%
c/o Todtman, Young, Tunick,
Nachamie, et al.
425 Park Avenue
New York, NY 10022
Benchmark Partners, L.P. 20,000,000(5) 14.3%
c/o Rich Whitman
750 Lexington Avenue, 24th Floor
New York, NY 10022
Emanon Partners, L.P. 49,800,000(6) 29.4%
c/o Schaenen Fox Capital Management
237 Park Avenue
New York, NY 10017
Europe American Capital Corporation 15,736,111(7) 11.6%
Main Road
Tortola, British Virgin Islands
Lancer Offshore Inc. 26,000,000(8) 18.1%
c/o Citco Fund Services
Kaya Flamboyan 9-P.O. Box 812
Curacao, Netherlands, Antilles
Lancer Partners, L.P. 47,459,530(9) 35.0%
200 Park Avenue, Suite 3900
New York, NY 10166
Alfred Peeper 30,769,231(10) 20.6%
c/o Euram
C. Hamburgo 22
Ed. Las Algas 2-4
03500 Benidorm, Spain
Strategica Capital Corporation 17,949,931(11) 13.1%
d/b/a Strategica Group
1221 Brickell Avenue
Miami, FL 33133
Gerald B. Cramer 12,000,000(12) 9.1%
520 Madison Avenue, 35th Floor
New York, NY 10022
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(1) Ownership includes sole voting and investment power except as otherwise
noted. When applicable, the number of shares of Common Stock
beneficially owned includes the number of unissued shares of Common
Stock which the listed person has a right to acquire within 60 days
after January 16, 1997. In determining the number of shares of Common
Stock outstanding for computing the percent of class owned by a listed
person, the number of shares of Common Stock outstanding of the Company
has been increased by the number of unissued shares of Common Stock
which the listed person has a right to acquire from the Company within
60 days after January 16, 1997.
(2) Applicable percentage ownership is based on 119,585,122 shares of Common
Stock outstanding on January 16, 1997.
(3) Represents Common Stock issuable related to convertible debentures in
the amount of $1,000,000. The Debentures are convertible into Common
Stock at $.0125 per share.
(4) Represents Common Stock issuable related to convertible debentures in
the amount of $1,000,000. The Debentures are convertible into Common
Stock at $.0125 per share.
(5) Represents Common Stock issuable related to convertible debentures in
the amount of $250,000. The Debentures are convertible into Common
Stock at $.0125 per share.
(6) Represents Common Stock issuable related to convertible debentures in
the amount of $622,500. The Debentures are convertible into Common
Stock at $.0125 per share.
(7) Includes shares of Common Stock issuable upon the conversion of 11%
Convertible Preferred Stock, issued on February 15, 1996, totaling
$2,832,500. The number of shares was calculated based on the terms of
the Convertible Preferred Stock, which provides that the holder may
convert at $.18 per share.
(8) Represents: (i) 2,000,000 shares of Common Stock; and (ii) 24,000,000
shares of Common Stock issuable related to convertible debentures in the
amount of $300,000. The Debentures are convertible into Common Stock at
$.0125 per share. The Company believes that Michael Lauer controls both
Lancer Offshore, Inc. and Lancer Partners, L.P.
(9) Represents: (i) 31,459,530 shares of Common Stock; and (ii) 26,000,000
shares of Common Stock issuable related to convertible debentures in
the amount of $325,000. The Debentures are convertible into Common
Stock at $.0125 per share. The Company believes that Michael Lauer
controls both Lancer Partners, L.P. and Lancer Offshore, Inc.
(10) Represents: (i) 2,000,000 shares of Common Stock; and (ii) 35,555,556
shares of Common Stock issuable related to convertible debentures in
the amount of $400,000. The Debentures are convertible into Common
Stock at 50% of the closing bid price on the day before conversion. As
of January 16, 1997, the closing bid price was $.0225 per share. These
convertible debentures were issued to certain non-U.S. corporations
which the Company believes are controlled by Alfred Peeper.
(11) Represents shares of Common Stock which are issuable upon the exercise
of warrants issued on May 22, 1995, that expire on May 22, 2000.
Pursuant to loan documents dated May 22, 1995, and November 22, 1995,
Strategica is entitled to additional warrants, in order to bring the
total number of shares of Common Stock issuable upon the exercise of
warrants to 18.5% of the Company's outstanding Common Stock. Such
issuable warrants are excluded from this table. The exercise price is
$.5625 per share.
(12) Represents Common Stock issuable related to convertible debentures in
the amount of $150,000. The Debentures are convertible into Common
Stock at $.0125 per share.
ITEM 1
ELECTION OF DIRECTORS
The Board currently comprises six individuals. Pursuant to the Company's
By-Laws, the Board has nominated and recommends the election of each of the
nominees set forth below as a director of the Company to serve until the next
Annual Meeting of Stockholders or until their successors are duly elected and
qualified. Each of the nominees is currently a director of the Company. The
shares represented by proxy, unless the giver of the proxy dictates otherwise,
will be voted at the Annual Meeting in favor of the nominees named below. The
Board expects all nominees named below to be available for election. In case
any nominee is not available, the proxy holders may vote for a substitute
unless the Board reduces the number of directors. There are no family
relationships among any nominees or directors or among them and any officer of
the Company or any of its subsidiaries.
The following table sets forth information as of January 16, 1997
regarding the beneficial ownership of Common Stock of each nominee for
election as a director of the Company, each Named Executive Officer and all
directors and executive officers of the Company as a group. The shares of
Common Stock set forth below include shares of Common Stock which are issuable
pursuant to options issued by the Company under existing stock option plans,
all of which are currently exercisable; however, no shares of Common Stock may
currently be issued until such time as the Stockholders approve an increase to
the authorized number of shares of Common Stock of the Company (See Item 2
below) as the Company does not have sufficient authorized and unissued shares
of Common Stock.
Percent
Name Age Number of Shares(1) Beneficially Owned(1)(2)
Justin A. DiMacchia 54 1,549,624(4) 1.3%
John Donlevy(3) 70 58,500(5) *
George Kelly 61 25,000(6) *
David Klarman 31 0 0
Harold Rashbaum 70 0 0
Allan C. Sorensen 58 175,000(6) *
Paul B. Kravitz(3) 65 2,795,160(7) 2.3%
All Executive Officers 4,603,284(8) 3.7%
and Directors as a
Group (7 persons)
- --------------------
* Less than one (1%) percent.
(1) Ownership includes sole voting and investment power except as otherwise
noted. When applicable, the number of shares of Common Stock
beneficially owned includes the number of unissued shares of Common
Stock which the listed person (or group) has a right to acquire within
60 days after January 16, 1997. In determining the number of shares of
Common Stock outstanding for computing the percent of class owned by a
listed person (or group), the number of shares of Common Stock
outstanding of the Company has been increased by the number of unissued
shares of Common Stock which the listed person (or group) has a right to
acquire from the Company within 60 days after January 16, 1997.
(2) Applicable percentage ownership is based on 119,585,122 shares of Common
Stock outstanding on January 16, 1997.
(3) In June 1996, Mr. Donlevy was appointed Chief Executive Officer of the
Company, and upon Mr. Kravitz's retirement in August 1996, Mr. Donlevy
was appointed President of the Company.
(4) Includes 14,544 shares of Common Stock owned directly and options and
warrants that are presently exercisable to purchase 1,535,080 shares of
Common Stock.
(5) Includes 6,000 shares of Common Stock owned directly and 52,500 shares
subject to options that are presently exercisable.
(6) Includes 25,000 shares of Common Stock subject to options that are
presently exercisable.
(7) Includes 187,000 shares of Common Stock owned directly and options and
warrants that are presently exercisable to purchase 2,608,160 shares of
Common Stock.
(8) Includes 357,544 shares of Common Stock and 4,245,740 shares subject to
options and warrants that are presently exercisable.
Nominees for Election of Directors
Set forth below is certain information for each nominee for election as a
director and each executive officer named in the Summary Compensation Table:
Allan C. Sorensen became the Company's Chairman of the Board in August
1996 and has been a director since February 1996. He also serves as Chairman
of the Board of Interim Services, Inc. ("Interim") and has served on the Board
of Interim since 1967. He was President of Interim from 1967 until 1989 and
became Chief Executive Officer in 1978, when H&R Block, Inc. acquired
Interim, until September 1991. He was elected Chairman of Interim in 1989.
He served as a director of H&R Block, Inc. from 1979 until September 1993.
H&R Block, Inc. spun off Interim in an initial public offering in January
1994. Mr. Sorensen holds a Bachelors of Science degree in Pharmacy from Drake
University.
John W. Donlevy has been a Director since October 31, 1994, and was
appointed Chief Executive Officer of the Company in June 1996 and President in
August 1996. He has more than 30 years of experience in the food and beverage
industry. During the 1980's, Mr. Donlevy served as President of several
Florida corporations, including South East Beverage Corp., an Anheuser-Busch
distributor for Dade County; Zephyrhills Water Company, which serviced all of
Florida; and Country Hearth Bakeries. He was Executive Vice President of KMC
Holding Company, Miami, Florida, from 1983 until 1988.
Justin A. DiMacchia has been a Director of the Company since July 1994,
Chief Financial Officer since March 1994 and Vice President of Finance since
July 1993. Mr. DiMacchia joined the Company in July 1993. From 1991 until
joining the Company, Mr. DiMacchia was Vice President of Finance and Chief
Financial Officer for ArtWorks, a retail art store chain located in Ohio.
From 1989 to 1990, Mr. DiMacchia was Vice President of Finance and Chief
Financial Officer for Wentworth Galleries, a retail art store chain located in
Florida. He was Executive Vice President and Chief Financial Officer for
Country Hearth Bakeries from 1987 to 1988, a baking company located in
Florida. In addition to retail experience, he practiced as a Certified Public
Accountant, specializing in mergers and acquisitions, and was also with Arthur
Andersen & Co. Mr. DiMacchia received a Bachelor of Business Administration
from Ohio University in 1969. He is a member of the American Institute of
Certified Public Accountants and the Florida Institute of Certified Public
Accountants.
George Kelly became a Director of the Company in February 1996. Mr.
Kelly is owner and President of E.G.K. Corporation, in Florida, which owns and
operates a restaurant. He was appointed by the Board to fill a vacancy. From
1988 to May 1996, Mr. Kelly served as President and Chief Executive Officer of
D.G.P., Inc., a restaurant company with operations in Texas and Florida. From
1985 to 1987, Mr. Kelly owned and operated Victory Management, a food service
company located in Ohio, which he sold in 1987. From 1968 to 1985, Mr. Kelly
owned and operated Top Services, Inc., a food service company providing food
to cafeterias, corporate private dining rooms, hospitals, schools and vending
service in Ohio. Mr. Kelly sold this company to Stouffer Corporation in 1975
and continued to run it until 1985.
David Klarman became a Director of the Company in August 1996. In August
1996, Mr. Klarman formed Klarman & Associates, a law firm specializing in
corporate and securities law with offices located in New York and San
Francisco. From August 1996 to present, Mr. Klarman has served as General
Counsel of U.S. Wireless Corporation. From July 1994 to August 1996, Mr.
Klarman was an associate of Lampert & Lampert, a New York law firm
specializing in corporate and securities law. From February 1991 to July
1994, Mr. Klarman was an associate of Goldstein Axelrod & DiGioia, a
__________ law firm. Mr. Klarman received his Juris Doctorate from Benjamin
N. Cardozo School of Law, Yeshiva University and is a member of the New York
State Bar. Mr. Klarman received a B.S. degree in Finance from the University
of Maryland in 1986. Pursuant to the terms of the Company's 11% Convertible
Preferred Stock issued to European American Capital Corporation ("EACC") in
February 1996, EACC is entitled to nominate two directors to the Company's
Board; Mr. Klarman is one of two representatives nominated by EACC.
Harold Rashbaum became a Director of the Company in August 1996. Since
May 1996, Mr. Rashbaum has been the Secretary, Treasurer and a Director of
Hollywood Productions, Inc. He also has been the Secretary, Chief Financial
Officer and a director of D.L. Productions, Inc., since its inception in April
1996. Mr. Rashbaum became the Chairman of the Board of Play Co. Toys &
Entertainment Corp. in August 1996. From January 1991 to March 1992, he was
a consultant for National Wholesale Liquidators, Inc., a retailer of household
goods and housewares. From February 1996 to present, Mr. Rashbaum has been
the President and a director of H.B.R. Consultant Sales Corp., of which his
wife is the sole stockholder. From March 1992 to June 1995, Mr. Rashbaum was
a consultant to 47th Street Photo, Inc., a retailer of electronics, which
position was at the request of the bankruptcy court, during the time it was in
Chapter 11. Mr. Rashbaum has been a consultant for Play Co. Toys &
Entertainment Corp. Since June 1995, which company is a wholesaler and
retailer of children's toys. Pursuant to the terms of the Company's 11%
Convertible Preferred Stock issued to EACC in February 1996, EACC is entitled
to nominate two directors to the Company's Board; Mr. Rashbaum is one of two
representatives nominated by EACC.
Board and Committee Meetings
The Board held eleven (11) meetings (exclusive of committee meetings)
during the fiscal year ended September 1, 1996. Messrs. Donlevy and DiMacchia
attended all of the Board meetings and all meetings of committees on which
each of them serve. Messrs. Kelly, Klarman, Rashbaum and Sorensen attended
all Board meetings [and all committee meetings] subsequent to their respective
appointments to the Board. The Board has established the following
committees, the functions and current members of which are noted below.
Audit Committee. The Audit Committee is responsible for reviewing, as it
shall deem appropriate, and recommending to the Board internal accounting and
financial controls for the Company as well as accounting principles, auditing
practices and procedures to be employed in the preparation and review of the
Company's financial statements. The Audit Committee is also responsible for
recommending to the Board independent public accountants to audit the annual
financial statements of the Company, the scope of the audit to be undertaken
by such accountants and for reviewing the results of such audit. Messrs.
Sorensen, Donlevy and DiMacchia were the members of the Audit Committee for
the 1996 fiscal year. The Audit Committee held one meeting during the 1996
fiscal year. Effective September 1, 1996, the members of the Audit Committee
are Messrs. Klarman, Kelly and Rashbaum.
Compensation Committee. The Compensation Committee makes recommendations
to the Board with respect to the compensation of directors, officers and
employees of the Company and its subsidiaries. The Compensation Committee
administers the Company's 1993 Stock Option Plan, 1995 Key Employee Stock
Option Plan, 1995 Executive Stock Option Plan, 1995 Directors Stock Option
Plan and 1997 Stock Option Plan. Messrs. Donlevy, Sorensen and Kelly were
members of the Compensation Committee for the 1996 fiscal year and Paul
Kravitz served on the Committee in an ex-officio capacity. The Compensation
Committee held _____ (__) meetings during the 1996 fiscal year. Effective
September 1, 1996, the members of the Compensation Committee are Messrs.
Kelly, Rashbaum and Sorensen.
The Company does not have a Nominating Committee.
Compensation of Directors
The Company pays each non-employee director $1,000 for each board meeting
attended in person and $750 for each board meeting attended by phone. The
Company also periodically grants stock options to non-employee directors
pursuant to the 1995 Directors Stock Option Plan.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended ("1934 Act"),
requires a company's officers, directors, and persons who beneficially own
more than 10% of a registered class of a company's equity securities to file
reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and greater
than 10% beneficial owners also are required by rules promulgated by the SEC
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Company, the Company believes that during the 1996 fiscal year, the Company's
officers and directors have filed all of their required reports. The Company
is aware of beneficial holders of greater than 10% of the Company's Common
Stock as set forth above. The Company believes that they have filed their
required reports.
Compensation of Executive Officers
Summary Compensation Table
The following table discloses compensation received by the Company's Chief
Executive Officers and the Company's most highly compensated executive
officers with salary and bonus exceeding $100,000 at September 1, 1996
(collectively, the "Named Executive Officers"), for each of the three fiscal
years in the period ended September 1, 1996:
Long-Term
Annual Compensation(1) Compensation
---------------------- ------------
Securities
Name and Principal Position Year Salary ($) Bonus ($) Underlying
Options
Paul B. Kravitz, Chairman of the 1996 $237,131 $22,408 - (4)
Board, CEO and President (2) 1995 172,989 50,000 2,296,160
1994 102,533 13,144 162,000
John W. Donlevy
President and CEO (2)(3) 1996 $100,000 - -
Justin A. DiMacchia, CFO, V.P. 1996 $156,057 $16,587 - (4)
of Finance, Treasurer and Director 1995 104,327 35,000 1,038,080
1994 69,242 12,650 97,000
(1) Non cash benefits for each Named Executive Officer were less than 10%
of their aggregate annual compensation.
(2) Mr. Kravitz retired in August 1996.
(3) Mr. Donlevy became Chief Executive Officer in June 1996, and became
President in August 1996 and the amount contained in the schedule above has
been annualized. For the fiscal year ended September 1, 1996, Mr. Donlevy
received $25,000 as non-accountable expense reimbursement.
(4) During fiscal 1996, options granted in 1994 and 1995 were repriced at
market. See Section below entitled "Stock Option Plans".
Mr. Kravitz's employment agreement, as re-negotiated in March 1995, provided
for an annual salary of $260,000 for the next five years, in addition to use
of a car (or a car allowance), a bonus equal to five (5%) percent of the
Company's pre-tax profits and participation in the Company's benefit plans.
Mr. Kravitz retired in August 1996, and pursuant to the terms of his
retirement agreement, the Company agreed to pay Mr. Kravitz an annual salary
of $65,000 until December 31, 1997, in addition to the use of a car.
Mr. Donlevy was appointed Chief Executive Officer of the Company in June 1996,
and President in August 1996, for which his annual compensation is $150,000.
Prior to his appointment, since 1995, Mr. Donlevy served as a director and a
consultant to the Company and was paid $2,000 monthly as a consultant.
In March, 1995 the Company entered into an employment agreement with Mr.
DiMacchia providing for an annual salary of $150,000 for the next five years,
in addition to the use of a car. In February 1996 and January 1997, Mr.
DiMacchia agreed to a salary reductions to $110,000 and $90,000 per year,
respectively. Mr. DiMacchia's agreement also entitles him to participation in
an executive bonus pool, if any. Under the employment agreement, if the
Company terminates Mr. DiMacchia's employment without cause, or if Mr.
DiMacchia terminates his employment agreement after a change in control, the
Company is required to pay him the remaining salary and benefits under the
terms of his employment contract. In the event of the death of Mr. DiMacchia
during the agreement's term, the Company is required to pay his estate an
amount equal to two years salary.
Stock Option Plans
The Board of Directors believes that stock option plans are an important
component of employee, executive and director compensation because such plans
encourage these individuals to remain in the Company's employ and link their
rewards to stock price appreciation. Stock options encourage and reward
efforts directed toward the enhancement of value in the shares of the
Company's Common Stock. Such recognition is shared by almost every company
with publicly traded shares. Stock options are especially beneficial where
the actual compensation paid is modest, as is the case with the Company's
executives, other employees and directors. The Company has four stock option
plans, as summarized below, to provide incentives to further motivate its
executives, other employees and directors and to balance pressures to manage
for the short term with the Company's future vitality. Granting options
allows the Company to be able to maintain a strong management team, develop
sound business innovations, improve quality, increase efficiency and
aggressively pursue new areas of growth internally and by acquisitions.
Description of the 1995 Key Employees Stock Option Plan
The Company's 1995 Key Employees Stock Option Plan (the "Key Employees
Plan") was adopted by the Board of Directors on January 5, 1995, and by the
Stockholders on February 3, 1995. The Key Employees Plan was amended by the
Stockholders on February 21, 1996. The purpose of the Plan is to enable the
Company to attract and retain officers and other key employees.
Under the Key Employees Plan, options may be granted to purchase up to an
aggregate of 5,000,000 shares of the Common Stock. As of January 16 , 1997,
options to purchase 1,578,333 shares of Common Stock had been granted and
Options to purchase 3,421,667 shares of Common Stock were available for grant.
The Key Employees Plan provides for the granting of incentive stock options
("ISOs") as provided for in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and nonqualified stock options ("NSOs"; which together
with ISOs shall be referred to as "Options") to officers and other key
employees of and consultants and advisors to the Company and its subsidiaries
(collectively, "Eligible Participants"). As of January 16, 1997, there were
ten Eligible Participants in the Key Employees Plan.
The number of available shares of Common Stock and shares of Common Stock
issuable pursuant to Options is subject to adjustment to reflect any stock
split, reverse stock split, stock dividend, recapitalization, combination or
reclassification of the capital of the Company. Shares of Common Stock
originally issuable pursuant to Options, but that are no longer issuable
because the Options have terminated or expired, are not deemed to have been
issued for purposes of computing the number of available shares of Common
Stock under the Key Employees Plan. Optionees are not required to pay the
Company for the issuance of Options, but are required to pay an exercise price
upon exercise of the Options.
The Key Employees Plan is administered by the Compensation Committee.
The Compensation Committee has full power and authority, subject to the terms
of the Key Employees Plan, to select Optionees and to determine the terms and
conditions of the Options.
Except to the extent limited by the Key Employees Plan, the Code, and
rules promulgated under Section 16 of the 1934 Act, the Board has the power,
without the consent of the Stockholders of the Company, to amend, suspend, or
discontinue, the Key Employees Plan. The Key Employees Plan will remain in
effect until it is terminated by the Board, except that no Options may be
granted after the tenth anniversary of the date of the Key Employees Plan's
adoption by the Board.
NSOs may be granted at an exercise price per share determined by the
Compensation Committee, which cannot be less than the par value of the
Company's Common Stock ($.001 per share). Options generally are not
exercisable earlier than six months from the date of grant unless the
Compensation Committee specifies an earlier date.
ISOs are subject to the same terms and conditions as described above for
NSOs, except that such Options may only be issued to employees of the Company
and have additional terms, conditions, and limitations necessary for an
optionee to receive ISO treatment under the Code. Under the Key Employees
Plan (i) the term of an ISO cannot be for more than five years if the optionee
owns more than 10% of the voting stock of the Company; (ii) the exercise price
of an ISO cannot be less than 100% of the fair market value of the shares of
Common Stock on the date of grant (110% if the optionee owns more than 10% of
the voting stock of the Company); and (iii) the aggregate fair market value
(determined at the time the Option is granted) of the shares with respect to
which ISOs are exercisable for the first time by an Eligible Participant
during any calendar year will not exceed $100,000.
Description of the 1995 Executive Stock Option Plan
The Company's 1995 Executive Stock Option Plan (the "Executive
Plan") was adopted by the Board of Directors on January 5, 1995, and by the
Stockholders on February 3, 1995. The Executive Plan was amended by the
Stockholders on February 21, 1996. The purpose of the Executive Plan is to
assist the Company to obtain and retain the services of the Company's
executive officers, and to provide those persons with further incentives to
advance the interests of the Company.
Under the Executive Plan, Options may be granted to purchase up to an
aggregate of 5,200,000 Shares. As of January 16, 1997, Options to purchase
2,950,000 shares of Common Stock had been granted, Options to purchase
2,633,333 shares of Common Stock were outstanding and Options to purchase
2,566,667 shares of Common Stock were available for grant. The Executive Plan
provides for the granting of ISOs and NSOs to the Company's executive officers
("Eligible Executives"). As of January 16, 1997, there were five Eligible
Executives in the Executive Plan.
The number of available Shares of Common Stock and Shares of Common Stock
issued pursuant to Options are subject to adjustment to reflect any stock
split, stock dividend, recapitalization, combination or reclassification of
the capital of the Company. Shares originally issuable pursuant to Options,
but that are no longer issuable because the Options have terminated or
expired, will be deemed not to have been issued for purposes of computing the
number of available Shares. Optionees are not required to pay the Company for
the issuance of options, but are required to pay an exercise price upon
exercise of the options.
The Executive Plan is administered by the Compensation Committee. The
Compensation Committee has full authority, subject to the terms of the
Executive Plan, to select optionees and to determine the terms and conditions
of the options.
Except to the extent limited by the Executive Plan, the Code, and rules
promulgated under Section 16 of the 1934 Act, the Board has the power,
without the consent of the Stockholders of the Company, to amend, suspend or
discontinue the Executive Plan. The Executive Plan will remain in effect
until it is terminated by the Board, except that no ISO may be granted after
the tenth anniversary of the date of the Executive Plan's adoption by the
Board.
NSOs and ISOs under the Executive Plan are required and/or permitted to
have the same terms and conditions as NSOs and ISOs under the Key Employees
Plan.
Description of the 1993 Stock Option Plan
The following description of certain of the terms of the 1993 Stock Option
Plan (the "1993 Plan") is qualified in its entirety by reference to the 1993
Plan, a copy of which has been filed with the Securities and exchange
Commission and is available from the Company upon written request of the
Company's Secretary.
Under the Plan, options may be granted to purchase up to an aggregate of
2,500,000 shares of the Company's Common Stock, par value $.001 per share
("Shares"). The number of available Shares and Shares issuable pursuant to
options are subject to adjustment to reflect any stock split, reverse stock
split, stock dividend, recapitalization, combination or reclassification of
the capital of the Company. Shares originally issuable pursuant to options,
but that are no longer issuable because the options have terminated or
expired, will be deemed not to have been issued for purposes of computing the
number of available Shares. Optionees are not required to pay the Company for
the issuance of options, but are required to pay an exercise price upon
exercise of the options.
The 1993 Plan is administered by the Compensation Committee (the "Committee")
consisting of not less than two members of the Company's Board of Directors
(the "Board"). The Board will appoint the Committee members. The Committee
will have full authority, subject to the terms of the 1993 Plan, to select
optionees, to determine the terms and conditions of the options, and to
administer the 1993 Plan.
The Committee is authorized in its sole discretion to specify other terms,
provisions and conditions with respect to options, including such vesting
conditions, special forfeiture conditions, rights of repurchase, rights of
first refusal and other restrictions on transfers of Shares issued upon
exercise of options, not inconsistent with the 1993 Plan. The Committee may
modify, extend or renew outstanding options, or accept the surrender of
outstanding options and authorize the granting of new options in substitution
therefor.
Description of the 1995 Directors Stock Option Plan
The following description of certain of the terms of the 1995 Directors Stock
Option Plan (the "Directors Plan") is qualified in its entirety be reference
to the Directors Plan, a copy of which has been filed with the Securities and
Exchange Commission and is available from the Company upon written request of
the Company's Secretary.
Under the Directors Plan, options may be granted to purchase up to an
aggregate of 350,000 Shares. Shares originally issuable pursuant to options,
but that are no longer issuable because the options have terminated or
expired, will be deemed not to have been issued for purposes of computing the
number of available Shares. Optionees are not required to pay the Company for
the issuance of options, but are required to pay an exercise price upon
exercise of the options.
The Directors Plan is be administered by the committee, however, the Committee
has no authority to select optionees or determine the terms and conditions of
the options, because the optionees and the terms and conditions of the options
are determined strictly in accordance with the formula set forth in the
Directors Plan, as described below. No member of the Committee may, during
the period of one year prior to his/her service as an administrator of the
Directors Plan, or during the period of such service, be granted or awarded
Shares, options to acquire Shares, or similar equity securities of the Company
under the Directors Plan or any similar plan of the Company.
The Directors Plan provides for automatic grants to each non-employee director
of the Company of an NSO to acquire 25,000 Shares of the Common Stock on the
date that such non-employee director initially becomes a director of the
Company. Thereafter, on each January 1 beginning January 1, 1996, each non-
employee director shall be granted an additional NSO to purchase the sum of
25,000 Shares of Common Stock plus ten percent (10%) of the number of Shares
of Common Stock subject to Options granted to the director under the Directors
Plan in the prior calendar year; provided that such director has served as a
director for at least six months prior to such January 1. The exercise price
for each Share of Common Stock shall be the fair market value of a Share of
Common Stock as of the date of the option's grant. Each option shall have a
term of ten year and will not be exercisable earlier than six months from the
date of grant. To the extent not previously exercised, each option will
terminate one year after the Optionee ceases to be a director of the Company
for any reason.
Except to the extent limited by the Directors Plan, the Board will have the
power, without the consent of the shareholders of the Company, to suspend or
discontinue the Directors Plan. The Directors Plan will remain in effect
until the fifth anniversary of the date of the Directors Plan's adoption by
the Board.
The Directors Plan requires optionees to enter into stock option agreements
with the Company which incorporate the terms of the options.
The following table presents information concerning options granted or
repriced in fiscal 1996, all of which are vested, to Named Executive Officers
under the Company's employee option plans:
Options Granted in Last Fiscal Year
Options Granted in Last Fiscal Year
-----------------------------------
% of Total
Number of Securities Employees
Underlying Options Options Granted Exercise Expiration
Name Granted in Fiscal 1996 Price Date
Paul B. Kravitz
1993 Stock Option Plan 208,160(1) 61% $0.09375 2004
1995 Executive Stock
Option Plan 1,625,000(2) 62% $0.09375 2000
1995 Key Employee Stock
Option Plan 775,000(3) 49% $0.09375 2005
John W. Donlevy
Directors Stock Option Plan 52,500(4) 41.2% $.19 to $.97 2006
Justin A. DiMacchia
1993 Stock Option Plan 135,080(5) 39% $0.0935 2004
1995 Executive Stock
Option Plan 1,000,000(2) 38% $0.0935 2000
1995 Key Employee Stock
Option Plan 400,000(3) 25% $0.0935 2005
(1) Of the options granted, 206,160 were granted in fiscal 1994 and 1995 at
$3.44 per share and were repriced in November 1994, March 1996 and
September 1996 at market. In fiscal 1996, the Compensation Committee,
in lieu of additional options and in consideration of his early
retirement, reduced the exercise price of existing options.
(2) The options as granted became exercisable according to a schedule based
on the price of the Common Stock reaching various levels, ranging from
$1.25 to $4.25 per share. The options were granted in fiscal 1995 at
$.56 per share, but were repriced in March 1996 and September 1996 at
market and eliminated the pricing plateaus. In 1996, the Compensation
Committee, in lieu of additional options, reduced the exercise price of
existing options.
(3) These options are exercisable immediately. These options were granted
in August 1995, but were repriced in March 1996 and September 1996 at
market. In 1996, the Compensation Committee, in lieu of additional
options, reduced the exercise price of existing options.
(4) These options were granted while Mr. Donlevy was serving as an outside
director. In June 1996, Mr. Donlevy was appointed Chief Executive
Officer of the Company and became an employee. Mr. Donlevy became
President in August 1996 upon Mr. Kravitz's retirement.
(5) Of the options granted, 133,080 were granted in fiscal 1994 and 1995 at
$3.44 per share and were repriced in November 1994, March 1996 and
September 1996 at market. In 1996, the Compensation Committee, in lieu
of additional options, reduced the exercise price of existing options.
The following table presents, as to each Named Executive Officer, the value of
their respective unexercised options as of January 16, 1996. No Named
Executive Officer exercised any options during the fiscal year ended September
1, 1996 or subsequent thereto.
Aggregated Option Exercises and Fiscal Year-End Option Values
Aggregated Option Exercises and Fiscal Year-End Option Values
-------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Year-End Options at Year-End
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
Paul B. Kravitz 2,608,160/0 $0/$0
John W. Donlevy 52,500/0 $0/$0
Justin A. DiMacchia 1,535,080/0 $3,838/$0
(1) Based on the closing bid price on January 16, 1997 ($.0225).
Certain Relationships and Related Transactions
During 1996, the Company issued a new series of its previously authorized
preferred stock. This new series is the subject of a Certificate of
Designation, as amended (the "Certificate") and is the 11% Convertible
Preferred Stock ("COPS"). Each share of COPS is issued for $1,100; has a
dividend or payment in lieu thereof, payable quarterly starting June 30, 1996;
and is convertible into common stock at the option of EACC at the rate of $.18
per share or by the Company as provided in the Certificate. Through January
24, 1997, the Company had not fulfilled the dividend requirements of the COPS
for quarterly dividends subsequent to June 30, 1996. As of December 31, 1996,
the amount in arrears totaled approximately $162,000 of which approximately
$79,000 is more than 30 days in arrears.
In November 1994, to finance the acquisition of Royal, the Company entered
into a convertible debenture agreement with EACC in the amount of $3.5 million
bearing interest at 10%. From November 1994 to February 1996, $1.3 million of
this debenture was converted into approximately 4.2 million shares of the
Company's Common Stock. In February 1996, the balance of $2.2 million,
together with a $500,000 note, accrued interest and a fee, were converted into
2,575 shares of the COPS. Pursuant to the terms of the Certificate, EACC is
entitled to, and did, nominate two directors to the Company's Board.
THE BOARD RECOMMENDS A VOTE "FOR" ALL NOMINEES FOR DIRECTOR.
ITEM 2
PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
Shares issuable pursuant to stock options and warrants and the terms of
convertible debentures and preferred stock, while currently issuable
convertible, may not be issued until such time as the shareholders approve an
increase to the authorized number of shares of common stock of the Company.
The Company is currently authorized to issue 120,000,000 shares of Common
Stock, $0.001 par value per share and 10,000,000 shares of Preferred Stock.
As of January 16, 1997, the Company had: (i) 119,585,122 shares of Common
Stock outstanding and 414,878 shares of Common Stock available for exercise of
stock options and warrants and conversions of convertible debentures and
preferred stock; and (ii) 85,294 shares of Preferred Stock issued and
outstanding.
The Board has unanimously approved and recommends to the Stockholders an
amendment to the Company's Certificate of Incorporation to increase the
authorized Common Stock, $0.001 par value, from 120,000,000 shares to
__________ shares. If this proposed amendment is approved by the
Stockholders, Paragraph "4" of the Certificate of Incorporation would be
stricken and a new Paragraph "4" would be substituted in lieu thereof as
follows:
"4. The total number of shares of stock which the
Corporation is authorized to issue is ____ Million
(________) shares consisting of ____ million
(_____,000,000) shares of common stock, par value
$.001 per share, and 10 million (10,000,000) shares of
Preferred Stock, par value $.001 per share. The Board
of Directors of the Corporation is authorized, subject
to limitations prescribed by law, to provide for the
issuance of the shares of Preferred Stock, in series
and, by filing a certified pursuant to the applicable
law of the State of Delaware, to establish from time
to time the number of shares to be included in each
such series and to fix the designation, powers,
preference and rights of the shares of each series and
the qualifications, limitations or restrictions
thereof."
The principal reason for the proposed increase in authorized shares of
Common Stock is that the Company does not have sufficient shares of Common
Stock authorized and reserved for issuance upon the exercise of outstanding
stock options and warrants and the conversion of outstanding convertible
debentures and preferred stock (collectively, the "Outstanding Convertible
Securities"). As of January 16, 1997, the Company had 414,878 shares of
Common Stock authorized and reserved for issuance upon the exercise of the
Outstanding Convertible Securities. The Outstanding Convertible Securities
are convertible, as of January 16, 1997, into 360,689,091 shares of Common
Stock in the aggregate. Further, shares issuable pursuant to available stock
options and warrants issuable to Strategica aggregate 143,898,442 shares. Set
forth below is a breakdown of the type of Outstanding Convertible Securities,
conversion and/or exercise price and number of shares of Common Stock
receivable by the holder upon such exercise or conversion:
Type of Outstanding Exercise or Aggregate Number of
Securities Conversion Price Shares of Common Stock
- ---------------------- ---------------- ----------------------
Stock Options $.001 to $.09375 4,428,240
Warrants $.0125 to $24.00 34,818,681
Convertible Debentures $.01125 to $.0125 304,955,556
Convertible Preferred Stock $.18 16,486,614
-----------
360,689,091
===========
Accordingly, the Company does not have sufficient authorized shares of
Common Stock to fill its obligations under the Outstanding Convertible
Securities.
The additional shares of Common Stock will be available for issuance from
time to time without first offering such shares to the Stockholders.
Stockholders do not have preemptive rights with respect to the shares of
Common Stock. Although the Company has no present intention of issuing
additional shares of Common Stock (other than in connection with the
conversion and exercise of Outstanding Convertible Securities), their
subsequent issuance may have the effect of diluting the voting power of
existing Stockholders and may adversely affect the market price of the Common
Stock. However, in the event additional shares of Common Stock are issued in
transactions whereby favorable business opportunities are provided or that
provide working capital sufficient to adequately capitalize the Company and
allow it to pursue its business plans, the market price may increase. The
issuance of such additional shares of Common Stock might be disadvantageous to
current Stockholders in that any additional issuance's would reduce per share
dividends, if any.
The Board is recommending the adoption of the amendment to the Company's
Certificate of Incorporation in order to permit the Company to have sufficient
shares of Common Stock to issue upon the conversion or exercise of the
Outstanding Convertible Securities and to enhance the Company's financial
flexibility. The Company currently has all of its shares of Common Stock
issued and outstanding, other than 414,878 shares reserved for issuance. In
order to fulfill its obligations under the Outstanding Convertible Securities,
the Company is required, as of January 16, 1997, to have 360,689.091 shares of
Common Stock authorized and reserved for issuance. Further, shares issuable
pursuant to available stock options and warrants issuable to Strategica
aggregate 141,444,454 shares. The Board believes the proposed increase in the
Company's authorized Common Stock is prudent in view of the Company's
obligations under the Outstanding Convertible Securities and the complexity of
modern business financing. The additional shares of Common Stock to be
authorized by the amendment would be available for issuance from time to time
for any proper corporate purpose; including the conversion or exercise of
outstanding securities, without further action on the part of the
Stockholders. Such purposes might include, without limitation, issuance of
Common Stock in public or private sales for cash as a means of obtaining
capital for use in the Company's business and operations, as part or all of
the consideration required to be paid by the Company for the acquisition of
other business properties or in connection with stock splits or dividends and
under the Company's compensation plans for its officers, directors and
employees. The Board does not intend to issue any Common Stock except on
terms which it deems to be in the best interest of the Company and its
Stockholders.
The Company has no agreement or commitment concerning the issuance of any
additional shares of Common Stock, except as to the Outstanding Convertible
Securities.
While the proposal set forth in this Item 2 does not result from any
knowledge by the Board or management of the Company of any third party effort
to accumulate Common Stock of the Company, additional shares of Common Stock
issued by the Board could be utilized, under certain circumstances, to make a
third party's attempt to gain control of the Company more difficult, time
consuming and/or costly. For example, additional shares of Common Stock could
be issued which might have the effect of diluting the percentage of Common
Stock owned by a significant Stockholder or issued to purchasers who might
support management in opposing a takeover bid which the Board determines is
not in the best interest of the Company and its Stockholders. Accordingly,
this proposal may be viewed as having possible anti-takeover effects. A
takeover transaction frequently affords Stockholders the opportunity to sell
their shares at a premium over current market prices. While the Company is
subject to certain Delaware corporate law statutes which may have anti-
takeover effects and the Board has the authority to issue up to an addition
_____ shares of Preferred Stock, neither the Company's Certificate of
Incorporation nor By-Laws presently contain any provisions which may be viewed
as having an anti-takeover effect. The Company has agreements with certain
executive officers and other personnel which provide for significant payments
to such persons in the event of a takeover of the Company. This proposal is
not a part of a plan by the Board to adopt a series of amendments which may
have an anti-takeover effect and the Board does not presently intend to
propose any amendments in future proxy solicitations which may have an anti-
takeover effect.
Any provision which discourages the acquisition of the Company's Common
Stock by a person seeking control could be beneficial to the Stockholders
generally to the extent that it (i) provides for greater stability and
continuity of management, (ii) protects Stockholders against unfair or
inequitable mergers or tender offers and (iii) helps discourage or prevent a
takeover by an acquiror seeking to obtain control in order to break up and
auction off the Company's component parts or otherwise act in non-beneficial
ways with respect to the Company or its assets. However, such provisions
could also have the effect of discouraging, making costlier or more difficult,
or preventing a merger or a tender offer which would be beneficial to the
Company's Stockholders. Moreover, the adoption of the proposed amendment to
the Certificate of Incorporation may have the effect of assisting the
Company's management in retaining its position, even if removal would be
beneficial to the Stockholders generally. Consequently, management would be
in a better position to resist changes that might benefit Stockholders
generally, but that might be disadvantageous to management.
The affirmative vote of the holders of a majority of all outstanding
shares of Common Stock is required for the adoption of the amendment to the
Certificate of Incorporation. Abstentions and broker non-votes will have the
same effect as voting against Item 2.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" ITEM 2.
ITEM 3
PROPOSAL TO ADOPT 1997 STOCK OPTION PLAN
The Board has adopted, subject to approval by the Stockholders of the
Company, a stock option plan entitled the 1997 Stock Option Plan (the "1997
Option Plan"), the full text of which is set forth as Exhibit "A" hereto. The
1997 Option Plan will become effective upon its approval by the Stockholders.
The 1997 Option Plan contemplates the grant of the right to purchase
shares of Common Stock of the Company (the "Option Stock") under Options that
are either ISOs and NSOs. The number of shares of Option Stock which may be
issued under the 1997 Option Plan may not exceed 44,000,000 shares. The
Option Stock will be made available from the authorized but unissued shares of
Common Stock or from treasury shares of the Company. Concurrently, the
Company does not have any authorized but unissued shares of Common Stock
available in connection with the 1997 Stock Option Plan. However, if the
Stockholders approve the increase in authorized shares of the Company as set
forth in Item 2 above, the Company will have sufficient authorized but
unissued shares reserved for issuance.
The 1997 Option Plan will be administered by the Compensation Committee.
Those employees eligible to participate are officers, directors and other key
employees of the Company and its subsidiaries. The Compensation Committee
will have sole discretion, except as to directors, to determine from among
eligible officers (other than officers who are also directors) and other key
employees those to whom and the time or times at which Options may be granted,
the number of shares of Option Stock to be subject to and the period for the
exercise of Options. At the time of grant of any Option to persons other than
to directors, the Compensation Committee will determine whether such Option is
to be an Incentive Option or Non-Qualified Option.
Of the 44,000,000 shares of Option Stock which may be issued pursuant to
Options granted under the 1997 Option Plan, up to 4,000,000 shares of Stock
are issuable pursuant to Options granted to directors of the Company, other
than directors who are also officers ("Outside Directors"). Set forth below
in a tabular format are the names, positions, dollar value and number of
options granted by the Board of Directors on December 19, 1996 to the Outside
Directors ("Initial OD Formula Options"), subject to the approval of the
Stockholders:
Dollar Value Number of Initial
Name ($) OD Formula Options
George Kelly (a) 800,000
David Klarman (a) 800,000
Harold Rashbaum (a) 800,000
Subject to the Plan limits, upon the election or appointment of an
additional or replacement Outside Director of the Company, such new Outside
Director shall be granted Options (hereinafter "Additional OD Formula
Options"; Initial OD Formula Options and Additional OD Formula Options being
hereinafter collectively referred to as "OD Formula Options"), on the date of
election or appointment, to purchase 800,000 shares of Option Stock. No
Outside Director shall be granted any Option under the Plan other than Formula
Options.
Initial OD Formula Options vest as to the Option Stock 50% upon grant and
50% one year from the date of grant. Subject to the foregoing, the Initial OD
Formula Options are exercisable for five years after the date of grant and the
exercise price for each Initial OD Formula Option is $.0125 per share. The
Additional OD Formula Options will vest as to the Option Stock 50% upon the
person becoming an Outside Director and 50% in one year. The exercise price
for each Additional OD Formula Option shall be determined by the Committee on
the date of grant. Subject to the foregoing, the Additional OD Formula
Operations shall be exercisable for five years from the date of grant.
24,000,000 shares of Common Stock are issuable under the 1997 Option Plan
to officers of the Company. Set forth below in a tabular format are the
names, positions, dollar value and number of options granted on December 19,
1996 to certain officers of the Company ("Initial Other Formula Options",
which together with OD Formula Options shall be referred to as "Formula
Options"), subject to the approval of Stockholders:
Name and Dollar Value Number of Initial Other
Position $ Formula Options
John Donlevy, (a) 10,000,000
President and Chief
Executive Officer
Justin A. DiMacchia, (a) 6,000,000
Chief Financial Officer -
Vice President of Finance
Paul Mitchell, (a) 4,000,000
Vice President of Sales
Allan C. Sorensen, (a) 4,000,000
Chairman
- -----------------------
(a) The respective dollar value of each Formula Option granted under the
1997 Option Plan depends upon the fair market value of Option Stock at the
time of the exercise of such Formula Option and is thus not determinable at
this time.
Subject to the Corporation achieving Performance Targets (as defined
below) for the fiscal years August 31, 1997 ("1997 Fiscal Year") and August
30, 1998 ("1998 Fiscal Year"), the Other Formula Options shall vest as to
shares of Stock 60% for the 1997 Fiscal Year and 40% for the 1988 Fiscal Year.
Subject to the foregoing, the Other Formula Options are exercisable for five
years after the date of grant and the exercise price for each Other Formula
Option shall be $.0125. Notwithstanding anything to the contrary, no Other
Formula Option shall be exercisable until the Committee determines whether and
to what extent the Performance Targets for the respective fiscal year for
which the respective Other Formula Options vest have been met. All Other
Formula Options shall be Non-Qualified Stock Options.
The Compensation Committee is required by the terms of the 1997 Option
Plan to adopt a budget for the 1997 Fiscal Year and a budget for the 1998
Fiscal Year (collectively, the "Budgets"). The Budgets shall provide that the
Company will realize earnings before interest, taxes, depreciation and
amortization for the 1998 Fiscal Year. No assurance can be given that the
Company will in fact realize earnings as set forth on the Budgets. Set forth
below are the performance targets ("Performance Targets") and the percentage
of Other Formula Options that shall actually vest for each of the two fiscal
years:
Actual
Performance Less 80% to 90% to 100% to 110% to 120% or
vs. Budget than 80% 89% 99% 109% 119% more
- -----------------------------------------------------------------------------
Percentage
of Options
Vesting for
a Specific
Fiscal Year 0% 60% 70% 80% 90% 100%
Options to purchase up to 14,000,000 shares of Option Stock (hereinafter
referred to as "Non-Formula Options") may be granted by the Committee to
officers (other than officers who are also directors) and other key employees
of the Company and its subsidiaries. As of January 16, 1997, there were
approximately _____ officers (other than officers who are also directors) and
other key employees of the Company and its subsidiaries eligible to receive
grants of Non-Formula Options.
The per share exercise price of the Option Stock subject to each
Incentive Option may not be less than fair market value of the Option Stock on
the date the Incentive Option is granted. The per share market value of the
Company's Common Stock on January 16, 1997, was $.0225, as listed on the OTC
Bulletin Board. Options must be granted within two years from the effective
day of the 1997 Option Plan and the period for the exercise of each Option
cannot exceed five years from the date of grant.
No Option may be exercised unless and until the optionee has remained in
the employ of the Company or its subsidiaries for one year from the date of
grant, except in the case of death, retirement or disability as described
below. No Option will be transferable by an optionee other than by will or
the laws of descent and distribution, and during the lifetime of an optionee
the Option may be exercisable only by him. In addition, the Formula Options
granted on ______________ may not be exercised at any time prior to six months
after approval of the 1997 Option Plan by the Stockholders of the Company.
In the event of termination of employment, other than by death or
disability, of an optionee whose Option has been in effect one year, the
optionee will have three months after such termination within which to
exercise the Option to the extent that it was exercisable at the date of such
termination. Upon termination of employment of an optionee by reason of death
or permanent total disability, his Option remains exercisable for one year
thereafter to the extent it was exercisable on the date of such termination.
The option exercise price may be satisfied in cash or, in the discretion
of the Committee, by exchanging shares of Common Stock owned by the optionee
or by a combination of cash and shares of Common Stock. The ability to pay
the option exercise price in shares of Common Stock would permit an optionee
to engage in a series of successive stock-for-stock exercises of an Option
(sometimes referred to as "pyramiding") and thereby fully exercise an Option
with little or no cash investment; however, it is expected that the
Committee's policy will be to require any stock tendered in payment of the
exercise price to be in certificate form and to have been held by the
exercising optionee for such time as is sufficient to avoid any adverse
accounting consequence to the Company resulting from the permitting of stock-
for-stock exercises.
The Board of Directors has broad authority to amend the 1997 Option Plan
provided that participants consent to any amendments which diminish their
rights. Stockholder approval or ratification is required for amendments
which: (i) increase the number of shares subject to the 1997 Option Plan;
(ii) materially modify the requirements as to eligibility for participation in
the 1997 Option Plan; (iii) extend the term during which Options may be
granted. Notwithstanding the foregoing, the Board of Directors may adopt such
amendments as the Board shall in good faith deem necessary in order to conform
the 1997 Option Plan to the requirements of Rule 16b-3 promulgated under the
1934 Act.
Federal Income Tax Consequences to Optionee
General
The following summary of Federal income tax consequences does not purport
to be a complete statement of the law in this area. Furthermore, the
discussion below does not cover the tax consequences of the 1997 Option Plan
(or the grant or exercise of Options thereunder) under foreign, state and/or
local tax law, and such tax laws may not correspond to the Federal tax
treatment described herein. Accordingly, individuals eligible to receive
Options under the Option Plan should consult their personal tax advisors prior
to engaging in any transaction under the Option Plan.
Capital gains are taxed at a maximum rate of 28% and accordingly, the
following summary characterizes income from various transactions as either
ordinary income or capital gain.
Incentive Options
In order for a stock option to qualify as an incentive option, the plan
and the option granted thereunder must conform to the statutory requirements
set forth in the Code, including the general rule that the option has been
granted at an exercise price at least equal to the fair market value of the
underlying stock. Section 422(c)(1) of the Code provides that a good faith
effort to estimate the fair market value of the stock at the time the option
is granted will satisfy this general rule, even if at a later time it appears
that the exercise price in fact is less than the actual fair market value as
of the date of grant of the option.
In general, an optionee will not be treated as receiving taxable income
upon either the grant or exercise of an option which qualifies as an incentive
option, and the optionee generally will receive capital gains or loss
treatment, as the case may be, upon sale of the shares acquired pursuant to
such an option, provided each of the following conditions under Section 422 of
the Code is satisfied:
(1) Employment Requirement: In general, the optionee must be
continuously employed by the Company (or certain related companies)
during the period commencing on the date of grant of the incentive
option and ending on the date three months prior to the date of exercise
of such option. As a result of this requirement, an incentive option
generally must be exercised within three months following termination of
employment. The three month period is extended to one year if
employment terminates by reason of disability or death.
(2) Holding Period Requirement. Under most circumstances, the
shares of the common stock of a Company acquired pursuant to the
exercise of an incentive option (a) must not be sold or otherwise
disposed of for two years from the date of the granting of such option
and (b) must be held for at least one year after the transfer of such
stock to the optionee upon exercise of the option. (Neither of such
holding periods apply to the disposition of shares by the employee's
estate or his or her heirs after his or her death).
If shares acquired upon exercise of an incentive option are disposed of
prior to the expiration of such holding periods (a "Disqualifying
Disposition"), the optionee generally will recognize ordinary income in the
year of such Disqualifying Disposition in an amount equal to the difference
between (a) the option exercise price and (b) the lesser of (i) the amount
realized on such disposition or (ii) the fair market value of such shares as
of the date of exercise of the incentive option under which the shares were
acquired. Any gain realized on a Disqualifying Disposition in excess of such
ordinary income amount generally will be treated as capital gain (short-term
or long-term depending upon whether the shares are held for the applicable
long-term holding period following exercise of the option (currently more than
one year)).
Alternative Minimum Tax
In the case of incentive options, the excess of the fair market value of
the stock at the time of exercise of the option, over the option exercise
price (herein the "ISO exercise spread") is included in alternative minimum
taxable income in the year of exercise, and thus may be subject to the
alternative minimum tax (currently imposed at a rate of 26% of alternative
minimum taxable income under $175,000 and 28% of the amount in excess
thereof). In general, the alternative minimum tax is applicable if it exceeds
the taxpayer's regular income tax computed in the normal way for the same
year.
If an optionee is required to pay such alternative minimum tax with
respect to the ISO exercise spread on exercise of an incentive option, for
regular income tax purposes neither the amount of such spread nor the amount
of such alternative minimum tax is added to his or her tax basis for the
shares acquired on exercise of such option. Thus, on a subsequent disposition
of such shares, the same ISO exercise spread will constitute taxable income
for regular tax purposes (assuming the amount realized on such disposition
equals or exceeds the market value of the shares at the time of exercise). As
a result, the optionee could be taxed twice with respect to the same
appreciation in value of such shares up to the date of exercise of an
incentive option, i.e., first under the alternative minimum tax at the time of
exercise, and then again under the regular tax at the time of a disposition.
The adverse consequences of this potential "double taxation" of the same
appreciation in value may be substantially (and possibly entirely) offset by
reason of the application of the "minimum tax credit", which generally may be
claimed against a taxpayer's regular tax liability in an amount equal to
certain portions of the taxpayer's alternative minimum tax liability. In view
of the complexity of the rules regarding the alternative minimum tax and the
minimum tax credit, optionees should consult their personal tax advisors if
they have any questions regarding this matter.
Non-Qualified Options
In general, there are no tax consequences to the optionee upon the grant
of a non-qualified option, but upon exercise the optionee generally will
recognize ordinary income equal to the difference between the purchase price
paid for the shares on exercise of the option and the fair market value of
such shares as of the date of exercise.
An optionee's tax basis in his or her shares acquired on exercise of a
non-qualified option will be equal to the option exercise price paid by the
optionee plus the amount of income recognized by the optionee by reason of his
or her exercise of the option under the rules described above. Upon a
subsequent disposition of the shares received on exercise of a non-qualified
option, the difference between the amount realized on such disposition and the
optionee's tax basis for such shares generally will be treated as a capital
gain or loss, which will be short-term or long-term depending on the
employee's holding period with respect to such shares.
Management Recommendation
The determination as to which officers, directors and key employees were
and will be granted Options under the 1997 Option Plan was and will be made on
the basis of the directors or employee's past, present or potential
contribution to the success of the Company and otherwise in accordance with
the 1997 Option Plan. By affording directors and key management employees of
the Company and its subsidiaries an opportunity to acquire or increase their
proprietary interest in the Company and by thus encouraging such directors and
employees to become owners of the Company's Common Stock, the Company seeks to
motivate, retain and attract those highly competent individuals upon whose
judgment, initiative, leadership and continued efforts the success of the
Company in large measure depends. The affirmative vote of a majority of the
shares represented at the Annual Meeting is required for approval of the 1997
Option Plan.
FOR THIS REASON, THE BOARD RECOMMENDS TO THE COMPANY'S STOCKHOLDERS THAT
THEY VOTE "FOR" APPROVAL OF THE 1997 OPTION PLAN.
ITEM 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board has appointed Coopers & Lybrand, L.L.P. as independent public
accountants, to audit the consolidated financial statements of the Company for
the year ending August 31, 1997 and to perform other appropriate accounting
services.
A proposal will be presented at the Annual Meeting to ratify the
appointment of Coopers & Lybrand, L.L.P. as the Company's independent public
accountants. A representative of Coopers & Lybrand, L.L.P. is expected to be
present at the Annual Meeting. If any such representatives are present, they
will have the opportunity to make a statement, if they desire. If the
Stockholders do not ratify this appointment by the affirmative vote of a
majority of the shares represented in person or by proxy at the meeting, other
independent public accountants will be considered by the Board upon
recommendation of the Audit Committee.
The Board recommends a vote "FOR" ratification of the appointment of
Coopers & Lybrand, L.L.P. as the Company's independent public accountants.
INDEPENDENT AUDITORS
Coopers & Lybrand, L.L.P. have acted as independent auditors for the
Company since 1992 and have been selected by the Audit Committee to serve in
such capacity for the fiscal year ending August 31, 1997. A representative of
Coopers & Lybrand, L.L.P. is expected to be present at the Annual Meeting and
will have the opportunity to make a statement, if he so desires, and to
respond to appropriate questions.
OTHER MATTERS
The Board is not aware of any matter not referred to in the enclosed form
of proxy that will be presented for action at the Annual Meeting. If any such
matter properly comes before the Annual Meeting, the proxies in the
accompanying form will be voted with respect thereto in accordance with the
judgment of the person or persons voting such proxies.
The Company's transfer agent, American Stock Transfer & Trust Company, is
to perform certain services in connection with the solicitation, including
tabulation of proxies and personal or telephone inquiries to Stockholders or
brokers, banks or others acting as custodians. For these services, the
transfer agent will receive a fee at its customary rate and reimbursement of
certain out-of-pocket expenses. Brokers, banks and other persons acting as
custodians may be reimbursed for certain expenses incurred by them in
obtaining instructions from beneficial owners of the Company's Common Stock.
In addition to use of the mails, directors and officers of the Company may,
without compensation other than their regular compensation, solicit proxies
from Stockholders by telephone or in person. All costs of solicitation will
be borne by the Company.
The Company will provide, without charge, to each Stockholder whose proxy
is being solicited hereby, a copy of the Company's Annual Report on Form 10-
KSB for the fiscal year ended September 1, 1996 (including the financial
statements and schedules thereto), as filed with the Securities and Exchange
Commission, and/or the Company's 1996 Annual Report, upon written request
directed to the attention of Justin A. DiMacchia, Secretary, The AppleTree
Companies, Inc., 5732 Curlew Drive, Norfolk, Virginia 23502.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
Proposals of Stockholders intended to be presented at the Annual Meeting
in 1997 must be received by the Secretary of The AppleTree Companies, Inc.,
5732 Curlew Drive, Norfolk, Virginia 23502, not later than __________ __, 1997
to be considered for inclusion in the Company's 1998 proxy materials.
Please complete the enclosed proxy and mail it in the enclosed postage
prepaid envelope as soon as possible.
By the order of the Board of Directors
Justin A. DiMacchia, Corporate Secretary
The AppleTree Companies, Inc.
5732 Curlew Drive
Norfolk, Virginia 23502
EXHIBIT 10.20
THE APPLETREE COMPANIES, INC.
1997 STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS
on December 19, 1996
1. The Purpose of the Plan. This stock option plan (the "Plan") is
intended to provide an opportunity for officers, directors and other key
personnel of The AppleTree Companies, Inc. (the "Corporation") and its
present and future subsidiary corporations, as "subsidiary corporation" is
defined in Section 424 of the United States Internal Revenue Code of 1986, as
amended (the "Code") (individually a "subsidiary" and collectively
"subsidiaries"), to acquire shares of the Corporation's stock. The Plan
provides for the grant of "incentive stock options", as defined in Section 422
of the Code ("Incentive Stock Options"), and stock options not qualifying as
Incentive Stock Options ("Non-Qualified Stock Options"), providing an equity
interest in the Corporation's business, as an incentive to service or
continued service with the Corporation and to aid the Corporation in obtaining
and retaining key personnel of outstanding ability.
2. Stock Subject to the Plan. The maximum number of shares of the
common stock, $.01 par value, of the Corporation (the "Stock") which may be
issued pursuant to Incentive Stock Options and Non-Qualified Stock Options
granted under the Plan (collectively referred to herein as "Option" or
"Options") shall be 44,000,000 shares of Stock, which may be either authorized
and unissued Stock or Stock held in the treasury of the Corporation, as shall
be determined from time to time by the committee of the Board of Directors of
the Corporation described below. If an Option expires or terminates for any
reason without being exercised in full, the unpurchased shares of Stock
subject to such Option shall again be available for purposes of the Plan. The
Corporation, at the time of adoption of this Plan by the Board of Directors,
does not have sufficient authorized and unissued shares of Stock which are not
otherwise reserved for issuance. Therefore, the effectiveness of this Plan
and the grant of any Options hereunder is subject to the shareholders of the
Corporation authorizing sufficient additional shares of Stock so that the
Corporation has, at all times, sufficient authorized and unissued shares of
Stock, which are not otherwise reserved for issuance, reserved for issuance
upon the exercise of Options hereunder.
3. Administration of the Plan. This Plan shall be administered by a
committee of the Board of Directors consisting of not less than two directors
all of whom shall be "Non-Employee Directors" (as such term is used in Rule
16b-3 promulgated by the United States Securities and Exchange Commission
("SEC") under the United States Securities Exchange Act of 1934, as amended
("1934 Act")). As used herein, the term "Committee" refers to such committee.
Except with respect to Formula Options (as defined below), the Committee shall
have full authority in its discretion to determine the officers (other than
officers who are also directors) and other key employees of the Corporation
and its subsidiaries to whom Non-Formula Options (as defined below) shall be
granted, the number of shares of Stock covered thereby and the terms and
provisions thereof, subject to the Plan. In making such determinations, the
Committee may take into account the nature of the services rendered and to be
rendered by the respective officers (other than officers who are also
directors) and key employees, their present and potential contributions to the
Corporation and its subsidiaries and any other factors which the Committee
deems relevant. Formula Options shall be granted in accordance with and
subject to the terms of Paragraphs 4 and 5 below. Except with respect to
Paragraphs 4 and 5 below and subject to the provisions of the Plan, the
Committee shall have full and conclusive authority to interpret the Plan to
determine whether and to what extent Performance Targets (as defined below)
have been met; to prescribe, amend and rescind rules and regulations relating
to the Plan; to determine the terms and provisions of the respective option
agreements; and to make all other determinations necessary or advisable for
the proper administration of the Plan. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons
who receive, or are eligible to receive, Options under the Plan (whether or
not such persons are similarly situated). The Committee's decisions shall be
final and binding on all participants in the Plan.
4. Outside Director Formula Options. Of the 44,000,000 shares of
Stock which may be issued pursuant to Options granted under this Plan, up to
4,000,000 shares of Stock shall be issuable pursuant to Options granted to
directors of the Corporation as set forth in this Paragraph 4. Options to
purchase 800,000 shares of Stock shall be granted to each of George Kelly,
David Klarman and Harold Rashbaum. Said Options are hereinafter collectively
referred to as "Initial OD Formula Options". Subject to the Plan limits, upon
the election or appointment of up to two (2) additional or replacement outside
directors of the Corporation, such new outside directors shall be granted
options (hereinafter "Additional OD Formula Options"; Initial OD Formula
Options and Additional OD Formula Options being hereinafter collectively
referred to as "OD Formula Options") on the date of election or appointment to
purchase 800,000 shares of Stock. The date on which the shareholders of the
Corporation approve this Plan is referred to hereinafter as the "Approval
Date". Outside directors shall not be granted any Options under the Plan
other than OD Formula Options pursuant to this Paragraph 4.
Subject to the penultimate sentence of this Paragraph, Initial OD Formula
Options vest as to the shares of Stock 50% upon grant and 50% one year from
the date of grant. Subject to the foregoing, the Initial OD Formula Options
are exercisable for five years after the date of grant and the exercise price
for each Initial Formula OD Option shall be $.0125 per share. The Additional
OD Formula Options shall vest as to the shares of Stock 50% upon the person
becoming a director and 50% in one year. Subject to the foregoing, the
Additional OD Formula Options shall be exercisable for five years from the
date of grant. The exercise price for each Additional OD Formula Option shall
be determined by the Committee at the date of grant. Notwithstanding anything
to the contrary contained in this Paragraph, no Formula OD Option shall be
exercisable at any time prior to the date which is six months after the
Approval Date. All Formula OD Options shall be Non-Qualified Stock Options.
5. Formula Options for Directors Who Are Also Officers. Of the
44,000,000 shares of Stock which may be issued pursuant to Options granted
under this Plan, up to 26,000,000 shares of Stock shall be issuable pursuant
to Options granted to the officers of the Corporation as set forth in this
Paragraph 5. Options to purchase 10,000,000 shares of Stock shall be granted
to John Donlevy, Options to purchase 6,000,000 shares of Stock shall be
granted to Justin A. DiMacchia, Options to purchase 4,000,000 shares of Stock
shall be granted to each of Allan C. Sorensen and _________ [VP sales] and
Options to purchase 2,000,000 shares of Stock shall be granted to
_________________ [VP Production]. Said Options are hereinafter collectively
referred to as Other Formula Options (Other Formula Options and OD Formula
Options are hereinafter referred to as "Formula Options"). No person other
than as specified in this Paragraph 5 shall be granted Other Formula Options.
Subject to the Corporation achieving Performance Targets for the fiscal
years August 31, 1997 ("1997 Fiscal Year") and August 30, 1998 ("1998 Fiscal
Year"), the Other Formula Options shall vest as to shares of Stock 60% for the
1997 Fiscal Year and 40% for the 1988 Fiscal Year. Subject to the foregoing,
the Other Formula Options are exercisable for five years after the date of
grant and the exercise price for each Other Formula Option shall be $.0125.
Notwithstanding anything to the contrary contained in this Paragraph 5, no
Other Formula Option shall be exercisable until the Committee determines
whether and to what extent the Performance Targets for the respective fiscal
year for which the respective Other Formula Options vest have been met. All
Other Formula Options shall be Non-Qualified Stock Options.
The Committee shall adopt and annex hereto as Exhibit A a budget for the
1997 Fiscal Year and a budget for the 1998 Fiscal Year (collectively, the
"Budgets"). The Budgets shall provide that the Corporation will realize
earnings before interest, taxes, depreciation and amortization for the 1998
Fiscal Year. Set forth below are the performance targets ("Performance
Targets") and the percentage of Other Formula Options that shall actually vest
for each of the two fiscal years:
Actual
Performance Less 80% to 90% to 100% to 110% to 120% or
vs. Budget than 80% 89% 99% 109% 119% more
- -----------------------------------------------------------------------------
Percentage
of Options
Vesting for
a Specific
Fiscal Year 0% 60% 70% 80% 90% 100%
6. Non-Formula Options-Eligibility and Limits. Options to purchase
up to 14,000,000 shares of Stock (hereinafter referred to as "Non-Formula
Options") may be granted by the Committee to officers (other than officers who
are also directors) and other key employees of the Corporation and its
subsidiaries. The Committee, however, shall not grant Non-Formula Options to
any director or officer who is also a director. Any Incentive Stock Option
granted to any person who, at the time such Non-Formula Option is granted,
owns (as defined in Sections 422 and 424 of the Code) Stock possessing more
than 10% of the total combined voting power of all classes of Stock of the
Corporation or one of its parent (if any) or subsidiaries shall comply with
any applicable provisions of Section 422 of the Code. In the case of
Incentive Stock Options, the aggregate fair market value (determined at the
time an Incentive Stock Option is granted) of the Stock with respect to which
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year under the Plan and all other plans of the Corporation
and its parent and subsidiaries (within the meaning of Sections 422 and 424 of
the Code) shall not exceed $100,000.
The Committee shall determine those officers (other than officers who are
also directors) and other key employees of the Corporation and its
subsidiaries to whom Non-Formula Options shall be issued. Subject to the
Corporation achieving Performance Targets for the 1997 Fiscal Year and the
1998 Fiscal Year as set forth in Paragraph 5 above, the Non-Formula Options
shall vest as to shares of Stock 60% for the 1997 Fiscal Year and 40% for the
1998 Fiscal Year. Subject to the foregoing, the Non-Formula Options are
exercisable for five years after the date of grant. The exercise price for
Non-Formula Options shall be determined by the Committee in its sole and
absolute discretion. Notwithstanding anything to the contrary contained in
this Paragraph 6, no Non-Formula Option shall be exercisable until the
Committee determines whether and to what extent the Performance Targets for
the respective fiscal year for which the respective Non-Formula Options vest
have been met.
7. Incentive Stock Options and Non-Qualified Stock Options. At the
time any Non-Formula Option is granted under the Plan, the Committee shall
determine whether the Non-Formula Option is to be an Incentive Stock Option or
a Non-Qualified Stock Option, and the Non-Formula Option shall be clearly
identified as to its status as an Incentive Stock Option or a Non-Qualified
Stock Option. The number of shares of Stock as to which Incentive Stock
Options and Non-Qualified Stock Options shall be granted shall be determined
by the Committee in its sole discretion, subject to the provisions of the Plan
as to the total number of shares of Stock available for Non-Formula Options
under the Plan.
8. Terms and Conditions of Options. Subject to the following
provisions and the other provisions of the Plan, all Options shall be in such
form and upon such terms and conditions as the Committee in its discretion may
from time to time determine.
(a) Option Term. An Option shall in no event be exercisable
after the expiration of five years from the date such Option is granted.
(b) Payment. Payment for all shares of Stock purchased
pursuant to exercise of an Option shall be made by certified check. In
lieu of a check, the holder may, with the approval of the Committee in
its sole discretion, submit certificates for Stock of the Corporation
tendered as full or partial payment of the option exercise price.
Certificates for Stock tendered must be endorsed or accompanied by
signed stock powers with the signature guaranteed by a commercial bank
or trust company or by a brokerage firm acceptable to the Corporation.
Stock tendered in payment will be valued at the average of the closing
bid and asked prices as listed on NASDAQ on the date of exercise of the
Option or, if no trading in the Stock has occurred on such date, on the
next preceding date on which trading occurred. Any deficiency in the
option exercise price shall be paid by certified check. Subject to the
provisions of Paragraph 8(e) below, such payment shall be made at the
time that the Option or any part thereof is exercised, and no shares of
Stock shall be issued or delivered until full payment therefor has been
made.
(c) Nontransferability of Options. An Option shall not be
transferable or assignable except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as
defined by the Code, Title 1 of the United States Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or the rules
thereunder, and shall be exercisable during the holder's lifetime, only
by the holder.
(d) Termination of Employment or Death. Upon any termination
of employment or resignation or removal from the Board of Directors of
the holder for any reason other than death or disability, any Option
held at the date of such termination may, to the extent exercisable, be
exercised within three months after the date of such termination. Upon
any termination of employment or resignation or removal from the Board
of Directors of the holder by reason of disability within the meaning of
Section 22(e)(3) of the Code, any Option held at the date of such
termination may, to the extent exercisable, be exercised within twelve
months after the date of such termination. If the holder of an Option
dies, any Option held at the date of death may, to the extent
exercisable, be exercised by a legatee or legatees of the holder under
the holder's last will, or by the holder's personal representatives or
distributees, within twelve months after the holder's death. This
Paragraph 8(d) shall not extend the term of the Option specified in or
pursuant to Paragraph 8(a) above. For purposes of this Paragraph 8(d),
employment of a holder shall not be deemed terminated so long as the
holder is employed by the Corporation, by a subsidiary of the
Corporation or by another corporation (or a parent or subsidiary
corporation of such other corporation) which has assumed the Option of
the holder in a transaction to which Section 424(a) of the Code is
applicable. For purposes of this Paragraph 8(d), the extent to which an
Option is exercisable shall be determined as of the date of termination
of employment.
(e) Special Procedure for Certain Credit Assisted Transactions.
To the extent not inconsistent with the provisions of Section 422 of the
Code or the provisions of Rule 16b-3 under the 1934 Act, any Option
holder desiring to obtain credit from a broker, dealer or other
"creditor" as defined in Regulation T issued by the Board of Governors
of the United States Federal Reserve System to assist in exercising an
Option may deliver to such creditor a written exercise notice executed
by such holder with respect to such Option, together with written
instructions to the Corporation to deliver the Stock issued upon such
exercise of the Option to the creditor for deposit into an account
designated by the Option holder; upon receipt of such exercise notice
and instructions in a form acceptable to the Corporation, the
Corporation shall confirm to the creditor that it will deliver to the
creditor on behalf of the Option holder the Stock issued upon such
exercise of the Option and covered by such instructions promptly
following receipt of the exercise price from the creditor. To the
extent not inconsistent with the provisions of Section 422 of the Code
or the provisions of Rule 16b-3 under the 1934 Act, upon written
request, the Corporation may in its discretion, but shall not be
obligated to, deliver to the creditor on behalf of the Option holder
shares of Stock resulting from such a credit assisted exercise prior to
receipt of the exercise price for such shares if the creditor has
delivered to the Corporation, in addition to the other documents
contemplated by this Paragraph 8(e), the creditor's written agreement to
pay the Corporation such exercise price in cash within five days after
delivery of such shares. The credit assistance contemplated by this
Paragraph 8(e) may include a margin loan by the creditor secured by the
Stock purchased upon exercise of an Option or an immediate sale of some
or all of such Stock by the creditor to obtain or recover the exercise
price which the creditor has committed to pay to the Corporation on
behalf of the Option holder.
(f) Special Provisions for Certain Substitute Options.
Notwithstanding anything to the contrary in this Paragraph 8, any Option
issued by the Corporation pursuant to the Plan in substitution for an
option previously issued by another entity, which substitution occurs in
connection with a transaction to which Section 424(a) of the Code is
applicable, may provide for an exercise price computed in accordance
with such Code section and the regulations thereunder and may contain
such other terms and conditions as the Committee may prescribe to cause
such substitute Option to contain as nearly as possible the same terms
and conditions (including the applicable vesting and termination
provisions) as those contained in the previously issued option being
replaced thereby.
9. Terms and Conditions of Non-Formula Options. In addition to the
terms and conditions contained in Paragraph 8 above, all Non-Formula Options
shall be in such form and subject to the following additional terms and
conditions which shall be determined by the Committee in its discretion:
(a) Exercise Price. Subject to Paragraph 11 below and the
other provisions of this Paragraph 9(a), the exercise price per share of
Stock purchasable under any Non-Formula Option granted under the Plan
shall be fixed by the Committee and set forth in the applicable option
agreement. With respect to each grant of an Incentive Stock Option, the
exercise price per share shall not be less than the fair market value of
a share of Stock (as determined in good faith by the Committee) on the
date such Non-Formula Option is granted. The date a Non-Formula Option
is granted shall be the date on which the Committee has approved the
terms and conditions of an option agreement evidencing the Non-Formula
Option and has determined the recipient of the Non-Formula Option and
the number of shares of Stock covered by the Non-Formula Option and has
taken all such other action as is necessary to complete the grant of the
Non-Formula Option. In the event that the Stock is listed on NASDAQ or
on another established stock exchange, its fair market value shall equal
the average of the closing bid and asked prices for shares of Stock on
NASDAQ or the closing price of the Stock on such other exchange, on the
date such Non-Formula Option is granted or, if no trading in the Stock
has occurred on such date, its fair market value shall be deemed to be
such price for the next preceding date on which trading occurred.
(b) Conditions to Exercise of a Non-Formula Option. Each Non-
Formula Option granted under the Plan shall be exercisable at such time
or times, or upon the occurrence of such event or events, and in such
amounts as the Committee shall specify in the applicable option
agreement, except that no Non-Formula Option when initially granted
shall provide that it may be exercisable to any extent during the first
six months following the date of grant; provided, however, that
subsequent to the grant of a Non-Formula Option, the Committee, at any
time before complete termination of such Non-Formula Option, may
accelerate the time or times at which such Non-Formula Option may be
exercised in whole or in part.
10. Withholding. Whenever the Corporation is required to issue or
transfer shares of Stock under the Plan, the Corporation shall have the right
to require the recipient to remit to the Corporation an amount sufficient to
satisfy any federal, state and local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares.
11. Changes in Capitalization; Merger; Liquidation. In the event of
any reconstruction (including consolidation, subdivision, reduction or return)
of the issued capital of the Corporation, the number of Options under the Plan
or the exercise price of the Options or both shall be reconstructed (as
appropriate) in a manner which will not result in any benefits being conferred
on the holders of Options which are not conferred on shareholders and (subject
to the provisions with respect to rounding of entitlements as sanctioned by
the meeting of shareholders approving the reconstruction of capital) in all
other respects the terms for the exercise of Options shall remain unchanged.
Subject to the foregoing, the number of shares of Stock as to which Options
may be granted, the number of shares covered by each outstanding Option, and
the price per share of each outstanding Option shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Stock
resulting from a subdivision or combination of shares or the payment of a
stock dividend in shares of Stock to holders of outstanding shares of Stock or
any other increase or decrease in the number of such shares effected without
receipt of consideration by the Corporation. If the Corporation shall be the
surviving corporation in any merger or consolidation, recapitalization,
reclassification of shares or similar reorganization, the holder of each
outstanding Option shall be entitled to purchase, at the same times and upon
the same terms and conditions as are then provided in the Option, the number
and class of shares of stock or other securities to which a holder of the
number of shares of Stock subject to the Option at the time of such
transaction would have been entitled to receive as a result of such
transaction. In the event of any such changes in capitalization of the
Corporation, the Committee may make such additional adjustments in the number
and class of shares of Stock or other securities with respect to which
outstanding Options are exercisable and with respect to which future options
may be granted as the Committee in its sole discretion shall deem equitable or
appropriate, subject to the provisions of Paragraph 16 below, in the
Committee's discretion, for the elimination of any fractional shares that
might otherwise become subject to any Option without payment therefor. In the
event of a dissolution or liquidation of the Corporation or a merger or
consolidation in which the Corporation is not the surviving corporation, each
outstanding Option shall terminate except to the extent that another
corporation assumes such Option or substitutes another option therefor but the
Optionee shall have the right, immediately prior to such dissolution,
liquidation, merger or consolidation, to exercise his Option in full, without
regard to any installment exercise provisions, to the extent that it shall not
have been exercised. In the event of a change of the Corporation's shares of
Stock with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be
deemed to be the Stock within the meaning of the Plan. Except as expressly
provided in this Paragraph 11, the holder of an Option shall have no rights by
reason of any subdivision or combination of shares of Stock of any class or
the payment of any stock dividend or any other increase or decrease in the
number of shares of Stock of any class or by reason of any dissolution,
liquidation, merger or consolidation or distribution to the Corporation's
shareholders of assets or stock of another corporation. Except as expressly
provided herein, any issue by the Corporation of shares of stock of any class,
or securities convertible into shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number
or price of shares of Stock subject to any Option. The existence of the Plan
and Options granted pursuant to the Plan shall not affect in any way the right
or power of the Corporation to make or authorize any adjustment,
reclassification, reorganization or other change in its capital or business
structure, any merger or consolidation of the Corporation, any issue of debt
or equity securities having preferences or priorities as to the Stock or the
rights thereof, the dissolution of the Corporation, any sale or transfer of
all or any part of its business or assets, or any other corporate act or
proceeding.
12. Compliance with Code; Compliance with Rule 16b-3. All Incentive
Stock Options granted hereunder are intended to comply with Section 422 of the
Code and, to the extent applicable, Section 424 of the Code, and all
provisions of this Plan and all Incentive Stock Options granted hereunder
shall be construed in such manner as to effectuate that intent. This Plan and
all Options granted hereunder are intended to satisfy the conditions of Rule
16b-3 under the 1934 Act and all provisions of this Plan and all Options
granted hereunder shall be construed in such manner as to effectuate that
intent.
13. Right to Terminate Employment; No Rights as Stockholder. Nothing
in the Plan or in any Option granted under the Plan shall confer upon any
holder thereof the right to continue as an employee of the Corporation or any
of its subsidiaries or affect the right of the Corporation or any of its
subsidiaries to terminate the holder's employment at any time. The holder of
an Option shall, as such, have none of the rights of a stockholder.
14. Leaves of Absence. Except as otherwise provided by law or
regulation with respect to Incentive Stock Options, the Committee may in its
discretion determine whether any leave or absence constitutes a termination of
employment for purposes of the Plan and the impact, if any, of such leave of
absence on Options previously granted to a holder who takes a leave of
absence.
15. Restrictions on Delivery and Sale of Shares. Each Option granted
under the Plan is subject to the condition that if at any time the Committee,
in its discretion, shall determine that the listing, registration or
qualification of the shares covered by such Option upon any securities
exchange or under any state or federal law is necessary or desirable as a
condition of or in connection with the granting of such Option or the purchase
or delivery of shares thereunder, the delivery of any or all shares pursuant
to such Option may be withheld unless and until such listing, registration or
qualification shall have been effected. If a registration statement is not in
effect under the United States Securities Act of 1933, as amended ("1933
Act"), or any applicable state securities laws with respect to the shares of
Stock purchasable or otherwise deliverable under Options then outstanding, the
Committee may require, as a condition of exercise of any Option, that the
optionee or other recipient of a Option represent, in writing, that the shares
received pursuant to the Option are being acquired for investment and not with
a view to distribution and agree that the shares will not be disposed of
except pursuant to an effective registration statement, unless the Corporation
shall have received an opinion of counsel that such disposition is exempt from
such requirement under the 1933 Act and any applicable state securities laws.
The Corporation may endorse on certificates representing shares delivered
pursuant to an Option such legends referring to the foregoing representations
or restrictions or any other applicable restrictions on resale as the
Corporation, in its discretion, shall deem appropriate.
16. Termination and Amendments of the Plan. The Plan shall terminate
on December 18, 2006, the date ten years after adoption of the Plan by the
Board of Directors, and no Option shall be granted under the Plan after that
date, but Options granted before termination of the Plan shall remain
exercisable thereafter until they expire or lapse according to their terms.
The Plan may be terminated, modified or amended by the Board of Directors of
the Corporation; provided, however, that:
(a) no such termination, modification or amendment without the
consent of the holder of an Option shall adversely affect his rights
under such Option;
(b) any modification or amendment which would (i) increase the
aggregate number of shares of Stock which may be issued under the Plan
(other than an increase merely reflecting a change in capitalization
such as a stock dividend or stock split), or (ii) modify the designation
of the employees eligible to receive Options under the Plan, shall be
effective only if it is approved by the shareholders of the Corporation
at the next annual meeting of shareholders after the date of adoption by
the Board of Directors of such modification or amendment; and
(c) notwithstanding the above, the provisions of the Plan
relating to the timing, amount and exercise price of Formula Options
shall not be amended more than once every six months, except with
respect to amendments to comport with changes in the Code, ERISA, or the
rules thereunder, as the same may be amended from time to time.
17. Effective Date of Plan; Shareholder Approval. The Plan shall
become effective on the date of its adoption by the Board of Directors,
subject, however, to the approval of the Plan by the Corporation shareholders
at their next annual meeting. Options granted hereunder prior to such
approval shall be conditioned upon such approval.
* * *
a The respective dollar value of each Formula Option granted under the 1997
Option Plan depends upon the fair market value of Option Stock at the time of
the exercise of such Formula Option and is thus not determinable at this time.
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