<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
CAPITOL MULTIMEDIA, INC.
Payment of Filing Fee (Check the appropriate box):
/ X / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of this fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
LOGO
CAPITOL MULTIMEDIA, INC.
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of
Capitol Multimedia, Inc.:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders of
Capitol Multimedia, Inc. ("the Company") will be held at the Marriott Residence
Inn, 7335 Wisconsin Avenue, Bethesda, Maryland on Thursday, August 22, 1996 at
10:00 a.m. for the following purposes:
1. To elect six directors to hold office until the next Annual Meeting of
Shareholders and until their successors have been elected and qualified
or their earlier resignation or removal.
2. To ratify and approve an Amendment to the Company's Amended and Restated
1992 Non-Qualified Stock Option Plan for Non-Employee Directors extending
the period during which a director may exercise an option following
resignation or other termination of service.
3. To ratify and approve an Amendment to the Company's Amended and Restated
1991 Non-Qualified Employee Stock Option Plan increasing the number of
authorized shares of Common Stock issuable under the Plan from 616,000 to
1,500,000.
4. To ratify and approve an Amendment to the Company's Certificate of
Incorporation increasing the authorized number of shares of Common Stock
from 10,000,000 to 25,000,000.
5. To ratify the appointment of Ernst & Young LLP as independent accountants
for the 1997 fiscal year.
6. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on July 10, 1996 are
entitled to notice of and to vote at the Meeting and any adjournment thereof.
By Order of the Board of Directors
/s/ CATHERINE K. HOOPES
Catherine K. Hoopes
Secretary
Bethesda, Maryland
July 17, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 3
LOGO
CAPITOL MULTIMEDIA, INC.
PROXY STATEMENT
GENERAL
This statement is furnished in connection with the solicitation of proxies by
the Board of Directors of Capitol Multimedia, Inc. for use at the Annual Meeting
of Shareholders of the Company to be held at 10:00 a.m. on Thursday, August 22,
1996, and any adjournments thereof. Copies of this statement and form of proxy
are expected to be first provided to shareholders on or about July 17, 1996. The
Company's 1996 Annual Report to Shareholders will be mailed concurrently with
the proxy material.
RECORD DATE AND OUTSTANDING SHARES
Only shareholders of record at the close of business on July 10, 1996 ("the
Record Date") will be entitled to notice of and to vote at the Meeting. On the
Record Date there were 4,832,065 shares of the Company's Common Stock, $.10 par
value per share, outstanding. Each share of Common Stock outstanding is entitled
to one vote on all matters. There is no other class of voting securities
outstanding.
QUORUM AND VOTING OF SHARES
The presence at the Meeting, in person or by proxy, of holders of at least a
majority of the shares entitled to vote at the Meeting shall constitute a quorum
for the purpose of conducting business. In the election of directors,
shareholders entitled to vote do not have cumulative voting rights. Abstentions
and broker non-votes are counted for the purpose of determining the presence or
absence of a quorum. The effect of abstentions and broker non-votes, except for
the election of directors, is a vote against items acted upon.
If the enclosed proxy is properly executed and returned prior to voting at the
Meeting, the shares represented thereby will be voted in accordance with the
instructions given. In the absence of instructions, the shares will be voted in
accordance with the recommendations of the Board of Directors set forth herein.
The Board of Directors is not aware, as of the date hereof, of any matters to be
voted upon at the Meeting other than those stated in this Proxy Statement and
the accompanying Notice of Annual Meeting of Shareholders. If, however, any
other matters are properly presented at the Meeting or any adjournments thereof,
it is the intention of the persons named in the accompanying proxy to vote the
shares of Common Stock represented thereby in accordance with their best
judgment pursuant to discretionary authority granted in the proxy.
Any proxy submitted by a shareholder may be revoked at any time before it is
voted by giving written notice of revocation or delivering a duly executed proxy
bearing a later date to the Secretary at the corporate offices, or by attending
the Meeting and voting in person.
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. The Company may
also reimburse brokerage firms, and other persons representing beneficial owners
of shares, for their expenses in forwarding solicitation materials to such
beneficial owners. In addition, the Company's directors, officers and regular
employees, without receiving any additional compensation, may solicit proxies
personally or by telephone or facsimile.
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<PAGE> 4
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the holdings
of the parties who were known to be the beneficial owners of more than 5% of the
outstanding Common Stock of the Company, based on filings with the Securities
and Exchange Commission and the records of the Company's transfer agent, as of
June 14, 1996. The parties named below have sole voting power and sole
investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
- ------------------------------------------------------------------ -------------------- ------------
<S> <C> <C>
Igor R. Razboff................................................... 337,500(1) 6.98%
7315 Wisconsin Avenue, Suite 800E, Bethesda, MD 20814
Dale R. DeSharone................................................. 337,500(1) 6.98%
7315 Wisconsin Avenue, Suite 800E, Bethesda, MD 20814
</TABLE>
(1) Acquired in connection with the Company's acquisition of Animation Magic,
Inc. on February 13, 1995. (See "Transactions with Beneficial Owners,
Directors, and Executive Officers").
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the holdings
of the Company beneficially owned by each director, nominee for director, and
executive officer, and by all directors and executive officers as a group as of
June 14, 1996. Each of the persons named has sole voting power and sole
investment power with respect to the shares beneficially owned, unless otherwise
indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
- ------------------------------------------------------------------ -------------------- ------------
<S> <C> <C>
Igor R. Razboff -- Director & VP, Consumer Production............. 337,500(1) 6.98%
7315 Wisconsin Avenue, Suite 800E, Bethesda, MD 20814
Dale R. DeSharone -- Executive Producer........................... 337,500(1) 6.98%
7315 Wisconsin Avenue, Suite 800E, Bethesda, MD 20814
Nico B.M. Letschert -- Director................................... 227,976(2) 4.54%
1801 Clint Moore Road -- Suite 100, Boca Raton, FL 33487
Robert I. Bogin -- Director, President, & CEO..................... 211,163(3) 4.24%
7315 Wisconsin Avenue, Suite 800E, Bethesda, MD 20814
Bernard M. Frank -- Director...................................... 191,675(4) 3.90%
666 Fifth Avenue -- 13th Floor, New York, NY 10103
Catherine K. Hoopes -- Chief Financial Officer.................... 64,542(5) 1.32%
7315 Wisconsin Avenue, Suite 800E, Bethesda, MD 20814
Bernard J. Luskin -- Director..................................... 52,500(6) 1.07%
9697 East Mineral Avenue, Englewood, CO 80112
Philip R. Redmond -- Director..................................... 20,000(7) .41%
18 Monument Square, Charlestown, MA 02129
Craig J. Cox -- Nominee........................................... 0 0.00%
11400 West Olympic Blvd., Suite 800, Los Angeles, CA 90064
All Directors and Executive Officers as a Group (10 persons)...... 1,452,856(8) 26.74%
</TABLE>
(1) Acquired in connection with the Company's acquisition of Animation Magic,
Inc. on February 13, 1995. (See "Transactions with Beneficial Owners,
Directors, and Executive Officers").
(2) Includes warrants to purchase 187,976 shares of Common Stock. Also includes
an option, granted pursuant to the Company's Non-Qualified Stock Option Plan
for Non-Employee Directors, to purchase 40,000 shares of Common Stock.
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<PAGE> 5
(3) Includes 61,163 shares held jointly by Mr. Bogin and his wife. Also includes
an option, pursuant to an employment agreement, to purchase 100,000 shares
of Common Stock and an option, granted pursuant to the Company's Non-
Qualified Employee Stock Option Plan, to purchase 50,000 shares of Common
Stock.
(4) Includes options to purchase 25,000 and 52,500 shares of Common Stock
pursuant to a consulting agreement and the Company's Non-Qualified Stock
Option Plan for Non-Employee Directors, respectively.
(5) Includes 2,312 shares held jointly by Ms. Hoopes and her husband. Also
includes an option, pursuant to an employment agreement, to purchase 30,000
shares of Common Stock, an option, granted pursuant to the Company's
Non-Qualified Employee Stock Option Plan, to purchase 32,176 shares of
Common Stock and a warrant to purchase 54 shares of Common Stock.
(6) Represents options, granted pursuant to the Company's Non-Qualified Stock
Option Plan for Non-Employee Directors.
(7) Includes options to purchase 5,000 and 15,000 shares of common stock
pursuant to a consulting agreement and the Company's Non-Qualified Stock
Option Plan for Non-Employee Directors, respectively.
(8) In addition to footnotes (1) through (7), includes an option to purchase
10,000 shares of Common Stock.
PROPOSAL ONE: ELECTION OF DIRECTORS
IDENTIFICATION OF NOMINEES
The Board of Directors has nominated six directors to serve until the 1997
Annual Meeting of Shareholders and until their successors have been elected and
qualified, or until their earlier resignation or removal from office.
Pursuant to underwriting and placement agreements, Noble Investment Co. has the
right to designate one nominee for election to the Board of Directors through
March 30, 1997 and another nominee through April 7, 1998. Noble Investment Co.
has named its past President, Nico B. M. Letschert, as its nominee and has
declined to name a second nominee. Each of the directors and executive officers
of the Company has agreed to vote their respective shares in favor of any Noble
Investment Co. nominee to be elected and continue in office as a director of the
Company.
In addition to the Noble Investment Co. nominee, the Board of Directors has
nominated five directors for election. Under the bylaws of the Company, the
Board of Directors is entitled to fill, until the next Annual Meeting of
Shareholders, any vacancy existing on the Board following the Annual Meeting of
Shareholders.
A plurality of the votes cast at the Annual Meeting in person or by proxy shall
elect said nominees as directors of the Company. The Company is not aware of any
reason why any of the nominees, if elected, would be unable to serve as a
director.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" EACH OF THE BOARD OF
DIRECTORS NOMINEES.
The nominees for election as directors are as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION AGE SINCE
- ----------------------------------------- ---------------------------------------------- --- ---------
<S> <C> <C> <C>
Robert I. Bogin.......................... Director, President & Chief Executive Officer 45 1991
Bernard M. Frank......................... Director 68 1984
Nico B.M. Letschert...................... Director 41 1993
Philip R. Redmond........................ Director 46 1995
Igor R. Razboff.......................... Director & VP, Consumer Production 41 1995
Craig J. Cox............................. Nominee for Director 50 1994-1995
</TABLE>
PRINCIPAL OCCUPATIONS AND DIRECTORSHIPS HELD BY NOMINEES
Robert I. Bogin is Chairman of the Board of Directors, President and Chief
Executive Officer of the Company. From November 1988 to October 1991, Mr. Bogin
served as the Company's Executive Vice President and Chief Financial Officer.
Prior to joining the Company in 1988, he was Co-President and a principal of RMI
Investment Corporation, a privately held company formed primarily to assist real
estate developers and other businesses in identifying and structuring debt and
equity financing. Prior to that, Mr. Bogin was a partner in a Washington, D.C.
law firm specializing in tax and securities matters.
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<PAGE> 6
Bernard R. Frank has been employed as a Vice President/Financial Consultant of
Smith Barney, Inc. since March 1990. Mr. Frank was a Vice President at Thompson
McKinnon Securities Inc. from December 1987 to August 1989. Thompson McKinnon
was purchased by Prudential Bache Securities in August 1989 and Mr. Frank
continued as a Vice President at Prudential Bache Securities. He was an
Executive Vice President of Steinberg & Lyman, an investment banking firm, from
October 1986 to November 1987 and an Executive Vice President of Pace
Securities, Inc. and President of Pace Investment Corporation, a venture capital
and consulting firm, from 1984 to 1986. Mr. Frank was Senior Vice President of
an investment banking firm, Prescott, Ball & Turben, Inc. (a subsidiary of
Kemper Insurance Company), from 1976 to 1984.
Nico B. M. Letschert is Chief Executive Officer of Noesis Capital Corp. which
specializes in corporate finance and money management and past President of
Noble Investment Co. of Palm Beach, an investment banking firm. During the four
years prior to his founding Noble Investment Co. in 1984, Mr. Letschert was a
manager, market maker and registered representative with several local and
national brokerage firms. From the early 1970s until leaving the Netherlands in
1979, Mr. Letschert worked for a specialist firm and a private bank, was a
member of the Amsterdam Stock Exchange, and was employed in the Amsterdam office
of E.F. Hutton. He was educated at the Dutch Institute for Banking and Finance.
His credentials include registration with the NASD as a principal and the
Certified Financial Planner (CFP) designation. Mr. Letschert is currently a
director of WaterMarc Food Management Co., Futuremedia PLC, and FOODQUEST, Inc.
Philip R. Redmond is the Chairman and a Principal of Vannevar Management, Inc.,
a management consulting firm. Prior to co-founding Vannevar, Mr. Redmond was a
principal at two international strategy consulting firms, Boston Consulting
Group and LEK/Alcar. He ran the Information Technology practice and marketing in
North America for LEK. Mr. Redmond was also a director and manager in licensing,
acquisitions/divestitures, and international business at Spinnaker Software,
Inc. Prior to joining Spinnaker, he founded and was CEO of a real estate
investment firm. Mr. Redmond's educational background includes an undergraduate
degree in mathematics from Brown University and an MBA from the Harvard Business
School.
Igor R. Razboff is Vice President, Consumer Production. Before joining the
Company in February 1995, Mr. Razboff was the President and Chief Executive
Officer of Animation Magic, Inc. He served as the President of Business Link
International, Inc. from 1991 to 1992 and a department manager for Prime
Computer, Inc. from 1988 to 1991. Prior to leaving Russia in 1982, Mr. Razboff
taught mathematics at the State Electrotechnical University in St. Petersburg,
Russia. Mr. Razboff holds a master's degree and a Ph.D. in mathematics from the
State University of St. Petersburg, Russia.
Craig J. Cox is an Independent Financial Consultant and former Senior Vice
President -- Operations and Chief Financial Officer of Philips Media, Inc. While
employed by Philips, Mr. Cox was responsible for engineering and production
services, finance, administration, and business and legal affairs. Prior to
joining Philips in 1986, Mr. Cox served as Vice President and Controller of WEA
International, Inc., the international distribution and product development
company for the Recorded Music Division of Warner Communications, Inc., and as a
staff auditor for the accounting firm of Touche Ross and Co. Mr. Cox, a
Certified Public Accountant, earned a degree in Finance and an MBA at the
University of Southern California.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held nine meetings during fiscal year 1996. Each
incumbent director attended at least 75% of the aggregate of all meetings of the
Board of Directors and committees on which served. The standing committees of
the Board of Directors are the Compensation Committee and the Audit Committee.
Compensation Committee. The Compensation Committee determines the compensation
of the President and Chief Executive Officer and administers the Company's
Non-Qualified Employee Stock Option Plan. The Committee's current members are
non-employee directors Bernard M. Frank and Nico B.M. Letschert. The Committee
met four times during fiscal year 1996.
Audit Committee. The Audit Committee recommends the appointment of the
Company's independent accountants and reviews and approves the results,
findings, and recommendations of audits performed by the independent
accountants. The Committee also reviews matters relating to corporate practices,
regulatory and financial reporting, accounting procedures and policies,
financial and accounting internal controls, and transactions involving potential
conflicts of interest. The Committee's current members are Robert I. Bogin,
Bernard J. Luskin, and Nico B.M. Letschert. The Committee met four times during
fiscal year 1996.
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<PAGE> 7
TRANSACTIONS WITH BENEFICIAL OWNERS, DIRECTORS, AND EXECUTIVE OFFICERS
Animation Magic, Inc.
On February 13, 1995, the Company acquired all of the outstanding stock of
Animation Magic, Inc. (AMI) and its wholly-owned subsidiary in St. Petersburg,
Russia through the issuance of 703,750 shares of the Company's common stock.
Igor R. Razboff and Dale R. DeSharone, previously President and Vice President
of AMI, collectively owned approximately 96% of the stock of AMI. In connection
with the acquisition, each of them holds 337,500 shares or 6.98% of the
Company's outstanding stock as of June 14, 1996. Mr. Razboff and Mr. DeSharone
have entered into employment agreements with the Company, serving as Vice
President, Consumer Production and Executive Producer, respectively, through
March 1998. (See "Employment Agreements").
During fiscal year 1995, the Company purchased $338,100 in services from AMI.
The related transactions were entered into in the ordinary course of business
and eliminated as intercompany transactions in the Company's consolidated
financial statements.
Other Transactions
In April 1992, the Company entered into a financial consulting agreement with
Bernard M. Frank, a director of the Company. Mr. Frank was granted an option to
purchase 25,000 shares of Common Stock at $6.375 per share, fair market value on
the date of grant. The option expires in April 1997.
In June 1996 and pursuant to a consulting agreement, Philip R. Redmond, a
director of the Company, was granted an option to purchase 15,000 shares of
Common Stock at $4.66 per share, fair market value on the date of grant. The
option vests in 5,000 increments in June 1996, 1997, and 1998 and expires in
September 1998.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company with the Securities and Exchange Commission (SEC). Directors,
officers, and greater than ten percent shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports
filed.
Based solely on a review of Section 16(a) reports and written representations
that Form 5 reports were not required, all fiscal year 1996 forms were filed on
a timely basis.
COMPENSATION OF DIRECTORS
Under the terms of the Company's Amended and Restated 1992 Non-Qualified Stock
Option Plan for Non-Employee Directors ("the Director Plan"), each non-employee
director is granted an option to purchase 15,000 shares of common stock upon
initial election to the Company's Board of Directors and on the date of each
subsequent annual meeting of shareholders at which the director is elected or
re-elected to serve on the Board of Directors. The purchase price per share of
Common Stock under options pursuant to the Plan is equal to the market price of
the Company's Common Stock on the date of grant. Options granted under the plan
are exercisable for a five year period from the date of grant, may be exercised
only by the individual to whom issued, and only while serving as a non-employee
director of the Company or within the thirty day period following resignation or
other termination of service for any reason other than death.
Upon shareholder approval of the Amendment to the Director Plan, the expiration
of options following a director's resignation or other termination of service
will be extended. (See "Proposal Two: Amendment to the Amended and Restated 1992
Non-Qualified Stock Option Plan for Non-Employee Directors" below.)
PROPOSAL TWO: AMENDMENT TO THE AMENDED AND RESTATED 1992
NON-QUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
General
The Amended and Restated 1992 Non-Qualified Stock Option Plan for Non-employee
Directors ("the Director Plan") was adopted by the Company's Board of Directors
on May 23, 1995 and approved by the Company's shareholders on
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<PAGE> 8
September 7, 1995. The description of the Director Plan set forth below is
qualified in its entirety by the terms and conditions of the Amended and
Restated 1992 Non-Qualified Stock Option Plan for Non-employee Directors.
The purpose of the Director Plan is to attract and retain highly qualified
non-employee directors by encouraging such directors of the Company to acquire a
proprietary stake in the Company and its future growth. There are 300,000 shares
of Common Stock authorized for issuance upon exercise of stock options granted
under the Director Plan. Should any options granted under the Director Plan not
be exercised, in whole or in part, in the time allowed for such exercise, the
shares of Stock relating to such lapsed options shall again be available for
issuance under the Director Plan.
Under the terms of the Director Plan, each non-employee director is granted an
option to purchase 15,000 shares of Common Stock upon initial election to the
Company's Board and on the date of each subsequent annual meeting of
shareholders at which the director is elected or re-elected to serve on the
Board of Directors. The purchase price per share of stock under options pursuant
to the Director Plan is equal to the market price of the stock on the date of
grant. Each option granted under the Director Plan fully vests as of the date of
grant and is exercisable for a five year period from the date of grant. Pursuant
to Rule 16b3(c)(1) however, no option granted under the Director Plan may be
exercised during the six month period immediately following the date of grant.
Options granted under the Director Plan may be exercised only by the individual
to whom issued and only during the period in which serving as a non-employee
director of the Company or within the thirty day period following his or her
resignation or other termination of such service for any reason other than
death. Subject to the terms and conditions, and within the limitations of the
Director Plan, the members of the Board of Directors who are not eligible to
participate in the Director Plan may modify, extend or renew outstanding options
granted under the Director Plan and accept the surrender and cancellation of
outstanding options (to the extent not theretofore exercised) and authorize the
granting of new options in substitution therefor or options as amended.
In the event of any reorganization, merger, consolidation, acquisition,
separation, recapitalization, split-up, combination, exchange of shares or stock
dividend of the stock or shares convertible into the stock or similar corporate
action, the number and class of shares of stock available pursuant to the
Director Plan and any options granted pursuant to the Director Plan, together
with the option prices, shall be adjusted by appropriate modifications to the
Director Plan and in any options outstanding pursuant to the Director Plan.
The Company's Board of Directors may at any time suspend or discontinue the
Director Plan, but no amendment shall be authorized without shareholder approval
which (i) materially increases the benefits accruing to participants under the
Director Plan; (ii) materially increases the number of securities which may be
issued under the Director Plan, except as otherwise provided for in the Director
Plan; or (iii) materially modifies the requirements as to eligibility for
participation in the Director Plan. The Director Plan shall terminate in
September 2005 unless it shall have been sooner terminated by reason of there
having been granted and fully exercised options covering the entire 300,000
shares of stock subject to the Director Plan. Upon such termination, no further
options may be granted under the Director Plan.
Federal Income Tax Consequences
Optionee -- An optionee will not recognize any taxable income at the time a
non-qualified stock option is granted. However, upon exercise of such, the
optionee will include in income an amount equal to the difference between the
fair market value of the shares on the date of exercise and the amount paid for
the stock upon exercise of the option. This amount will be treated as ordinary
income by the optionee and will be subject to income tax withholding by the
Company. Upon resale of the shares by the optionee, any subsequent appreciation
or depreciation in the value of the shares will be treated as a capital gain or
loss.
Company -- The Company will be entitled to a deduction in connection with the
exercise of a non-qualified stock option to the extent that the optionee
recognizes ordinary income and the Company withholds federal income taxes.
Proposed Amendment
In June 1996, the Board of Directors adopted, subject to shareholder approval,
an amendment to the Director Plan which deletes the limitation that options
granted under the Director Plan expire thirty days after resignation or other
termination of service for any reason other than death (the "Amendment").
In addition to other conforming modifications, section six of the Director Plan,
"Duration of Option," would be amended to read: "Each Option granted hereunder
may be exercised only by the individual to whom it is issued. An Option granted
hereunder shall be effective upon the Date of Grant, and shall be exercisable
for a five year period (the "Option Period") from the Date of Grant; provided,
however, that no Option granted hereunder may be exercised during the six month
period immediately following the Date of Grant pursuant to Rule 16b-3(c)(1). If
such holder dies
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before fully exercising any portion of an Option then exercisable, such Option
may be exercised by such holder's legal representative's, heir(s) or devisee(s)
at any time within the six (6) month period following his or her death."
Upon shareholder approval of the Amendment, Bernard J. Luskin, who is not
nominated for reelection to the Board of Directors, will have until September 6,
2000 to exercise options, granted under the Director Plan, to purchase 52,500
shares of Common Stock at $3.92 per share. Directors Bernard M. Frank, Nico B.M.
Letschert and Philip R. Redmond would have until September 6, 2000 to exercise
options, granted under the Director Plan, to purchase 52,500, 40,000, and 15,000
shares of Common Stock, respectively, at $3.92 per share. Further, should
Messrs. Frank, Letschert, and Redmond be reelected to the Board of Directors at
the 1996 Annual Meeting of Shareholders, each will receive an option to purchase
15,000 additional shares of Common Stock which will expire in August 2001.
As of June 14, 1996, the fair market value of the Company's Common Stock
underlying options granted under the Director Plan was $3.75 per share and six
Directors were eligible to participate under the Director Plan.
An affirmative vote by the holders of a majority of shares present or
represented and entitled to vote at the 1996 Annual Meeting of Shareholders in
person or by proxy and voting thereon shall approve the Amendment to the
Director Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1992 NON-QUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS.
EXECUTIVE OFFICERS
INFORMATION CONCERNING EXECUTIVE OFFICERS
Executive officers of the Company are bound by employment agreements through
March 1998 and serve subject to the bylaws of the Company. See "Employment
Agreements".
Executive Officers and Key Employees
Robert I. Bogin, President and Chief Executive Officer -- See information
disclosed under "Principal Occupations and Directorships Held by Nominees."
Catherine K. Hoopes, Chief Financial Officer since October 1991 and
Secretary/Treasurer since December 1991, 32. After graduating with honors and a
B.S. in Accounting, Ms. Hoopes joined KPMG Peat Marwick's Washington, D.C. audit
practice in 1986. She came to Capitol Multimedia, Inc. in December 1989, serving
as Controller, and took the Company public in April 1992. Ms. Hoopes is a
Certified Public Accountant (CPA) and a member of the American Institute of
Certified Public Accountants and the District of Columbia Institute of Certified
Public Accountants.
Igor R. Razboff, Vice President of Consumer Production -- See information
disclosed under "Principal Occupations and Directorships Held by Nominees."
Dale R. DeSharone, Executive Producer and Director, New Products since February
1995, 40. Before joining the Company in February 1995, Mr. DeSharone was
Executive Producer and Vice President of Product Development of Animation Magic,
Inc. He served as Manager and Executive Producer of Spinnaker Software, Inc.'s
CD-i division from 1987 to 1991 and managed his own software production company
from 1981 to 1986. Mr. DeSharone taught in California public schools before
beginning his career as an educational software producer. In addition to having
multiple subjects teaching credentials, Mr. DeSharone holds a degree in video
and film production.
Boris Bigoulaev, President -- AOZT "AMI" since October 1993, 44. Before joining
AOZT "AMI", the Company's subsidiary located in St. Petersburg, Russia, Mr.
Bigoulaev was responsible for overseeing the programming group at the Mining and
Metallurgical Institute in Valdikavkaz, Russia from 1992 until 1993. From 1988
to 1992 Mr. Bigoulaev was a Senior Professor in the Department of Mathematics
and Physics at the Military Commander College in Vladikavkaz and a Senior
Lecturer in the Mathmatics Department of the Military Engineering College in St.
Petersburg from 1980 until 1988. Mr. Bigoulaev holds a master's degree from the
Central Economico-Mathematical Institute in St. Petersburg and a Ph.D. in
Mathmatics from the Vladikavkaz University.
8
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth compensation of the Company's executive officers
who earned greater than $100,000 during fiscal year 1996 ("Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------------------- SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- ------------------------------------------- ------ ---------- --------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert I. Bogin............................ 1996 167,500 32,000 -- 250,000(2) 5,799(3)
President and CEO 1995 167,500 -- -- -- 4,451
1994 141,094 26,875 -- -- 3,460
Igor R. Razboff(1)......................... 1996 125,000 62,500 -- -- 700(4)
V.P., Consumer Products 1995 110,425 -- -- 50,000 --
Dale R. DeSharone(1)....................... 1996 125,000 25,000 -- -- --
Executive Producer & Director, New Products 1995 110,425 -- -- 50,000 --
Catherine K. Hoopes........................ 1996 96,000 19,000 -- 102,176(5) 1,651(6)
Chief Financial Officer & 1995 82,785 8,278 -- -- 1,196
Secretary/Treasurer 1994 75,250 15,050 -- -- 1,630
</TABLE>
(1) Joined the Company on February 13, 1995 in connection with the Company's
acquisition of Animation Magic, Inc. ("AMI"). Compensation from April 1,
1994 to February 13, 1995 was paid by AMI and is included in this table.
(2) Includes options to purchase 100,000 shares of Common Stock which were
previously granted: However, repriced during fiscal year 1996.
(3) Consists of a $3,854 matching contribution under the Company's 401(k)
Retirement Plan and a $1,945 term life insurance premium.
(4) Consists of a term life insurance premium.
(5) Includes options to purchase 32,176 shares of Common Stock which were
previously granted: However, repriced during fiscal year 1996.
(6) Consists of a $1,411 matching contribution under the Company's 401(k)
Retirement Plan and a $240 term life insurance premium.
OPTIONS
The following table sets forth fiscal year 1996 option grants, and repricings,
to Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS
UNDERLYING GRANTED TO EMPLOYEES EXERCISE OR EXPIRATION
NAME OPTIONS GRANTED DURING FISCAL YEAR BASE PRICE DATE
- -------------------------------------- -------------------- ------------------------ ----------- ----------
<S> <C> <C> <C> <C>
Robert I. Bogin....................... 25,000 3.76% $3.96 3/31/00
25,000 3.76% $3.96 3/31/01
100,000 15.04% $3.96 3/30/02
100,000(1) 15.04% $3.96 3/31/03
Catherine K. Hoopes................... 1,172 .18% $3.96 4/01/97
1,004 .15% $3.96 4/01/98
15,000 2.26% $3.96 3/31/00
15,000 2.26% $3.96 3/31/01
15,000 2.26% $3.96 2/02/03
7,500 1.13% $3.96 3/31/03
7,500 1.13% $3.96 3/31/04
40,000(1) 6.02% $3.75 3/31/05
</TABLE>
(1) Option vests in two equal increments on April 1, 1997 and April 1, 1998. To
the extent not vested, options become fully vested and exercisable upon a
change in control of the Company.
9
<PAGE> 11
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table sets forth March 31, 1996 unexercised options and
corresponding option values for Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
AT MARCH 31, 1996 AT MARCH 31, 1996
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert I. Bogin................ 1,902 $3,414 125,000/125,000 $20,250/$20,250
Igor R. Razboff................ -- -- 0/ 50,000 $0/ $0
Dale R. DeSharone.............. -- -- 0/ 50,000 $0/ $0
Catherine K. Hoopes............ 2,162 $2,259 47,176/ 55,000 $7,643/$17,430
</TABLE>
EMPLOYMENT AGREEMENTS
ROBERT I. BOGIN
The Company entered into an employment agreement with Robert I. Bogin, its
President and Chief Executive Officer, effective through March 1998. Under the
agreement, Mr. Bogin currently receives an annual salary of $197,500. He is
eligible for fiscal year raises and annual bonuses of up to 20% of his base
salary as granted by the Board of Directors in its sole discretion. The Company
pays for all of Mr. Bogin's medical benefits, including any deductibles, under
current health plans and receives a $6,000 annual automobile allowance. During
the term of his employment, Mr. Bogin receives a $1,000,000 term life insurance
policy paid for by the Company. In March 1992 and April 1995, Mr. Bogin was
granted non-qualified stock options for the purchase of 100,000 and 50,000
shares of Common Stock at $5.125 and $6.25 per share, respectively. The option
to purchase 100,000 shares is non-transferable and expires in March 2002 or 60
days after termination of employment, whichever occurs earlier. The option to
purchase 50,000 shares is also non-transferable and expires in two equal
increments in March 2000 and March 2001 or 90 days after termination of
employment, whichever occurs earlier. In September 1995, the exercise price
relating to these options to purchase 150,000 shares was adjusted to $3.96. In
adjusting the exercise price per share, the Compensation Committee of the Board
of Directors recognized the Company's strategic turn around and the
demotivational aspect of the decline in the Company's stock price. Mr. Bogin was
also granted a non-qualified stock option to purchase 100,000 shares of Common
Stock in September 1995. This option is non-transferable, vests in two equal
increments in April 1997 and April 1998, and expires in March 2003. Mr. Bogin
can be dismissed for cause without entitlement to severance and without cause
with severance equal to outstanding wages and benefits to the conclusion of the
term of the contract or one year from date of termination (except as to the
stock options as described above), whichever is later. If the Company is taken
over, sold, or involved in a merger or acquisition of any kind under which a new
controlling interest or owner exists, Mr. Bogin shall remain in the same
position with the same job responsibilities, duties, and benefits for a period
of three years subsequent to the sale, merger, acquisition, or takeover. If his
responsibilities, duties, or benefits are modified without his consent by the
new owner or controlling interest, he shall receive a lump sum severance payment
equal to three years base salary in effect at the time of such modification.
IGOR R. RAZBOFF
In February 1995, the Company entered into an employment agreement with Igor R.
Razboff, former President and Chief Executive Officer of Animation Magic, Inc.,
whereby Mr. Razboff will serve as the Company's Vice President, Consumer
Production through March 1998. Under the agreement, Mr. Razboff currently
receives an annual salary of $135,000. He is eligible for fiscal year raises and
annual bonuses of up to 50% of his base salary as granted by the President in
his sole discretion. The Company pays for Mr. Razboff's health insurance
premiums under current medical plans and during the term of his employment, he
receives a $500,000 term life insurance policy paid for by the Company. In
addition, Mr. Razboff was granted a non-transferable, non-qualified stock option
for the purchase of 50,000 shares of common stock at $6.25 per share. The option
vests in March 1998 and expires in March 2003 or 90 days after termination of
employment, whichever occurs earlier. Mr. Razboff can be dismissed for cause
without entitlement to severance and without cause with severance equal to
outstanding wages and benefits to the conclusion of the term of the contract or
one year from date of termination (except as to the stock option as described
above), whichever is later. If the Company is taken over, sold, or involved in a
merger or acquisition of any kind under which a new controlling interest or
owner exists, Mr. Razboff shall remain in the same position with the same job
responsibilities, duties, and benefits for a period of three years subsequent to
the sale, merger, acquisition, or takeover. If
10
<PAGE> 12
his responsibilities, duties, or benefits are modified without his consent by
the new owner or controlling interest, he shall receive a lump sum severance
payment equal to three years base salary in effect at the time of such
modification.
DALE R. DESHARONE
In February 1995, the Company entered into an employment agreement with Dale R.
DeSharone, former Executive Producer and Vice President of Product Development
of Animation Magic, Inc., whereby Mr. DeSharone will serve as the Company's
Executive Producer and Director, New Products through March 1998. Under the
agreement, Mr. DeSharone currently receives an annual salary of $130,000. He is
eligible for fiscal year raises and annual bonuses of up to 20% of his base
salary as granted by the Vice President, Consumer Production in his sole
discretion. The Company pays for Mr. DeSharone's health insurance premiums under
current medical plans. In addition, Mr. DeSharone was granted a
non-transferable, non-qualified stock option for the purchase of 50,000 shares
of common stock at $6.25 per share. The option vests in March 1998 and expires
in March 2003 or 90 days after termination of employment, whichever occurs
earlier. Mr. DeSharone can be dismissed for cause without entitlement to
severance and without cause with severance equal to outstanding wages and
benefits to the conclusion of the term of the contract or one year from date of
termination (except as to the stock option as described above), whichever is
later. If the Company is taken over, sold, or involved in a merger or
acquisition of any kind under which a new controlling interest or owner exists,
Mr. DeSharone shall remain in the same position with the same job
responsibilities, duties, and benefits for a period of three years subsequent to
the sale, merger, acquisition, or takeover. If his responsibilities, duties, or
benefits are modified without his consent by the new owner or controlling
interest, he shall receive a lump sum severance payment equal to three years
base salary in effect at the time of such modification.
CATHERINE K. HOOPES
The Company entered into an employment agreement with Catherine K. Hoopes, its
Chief Financial Officer and Secretary/Treasurer, effective through March 1998.
Under the agreement, Ms. Hoopes currently receives an annual salary of $105,000.
She is eligible for fiscal year raises and annual bonuses of up to 20% of her
base salary as granted by the President in his sole discretion. The Company pays
for Ms. Hoopes' health insurance premiums under current medical plans. In
addition, during the remaining term of the agreement, Ms. Hoopes receives a
$6,000 annual automobile allowance and a $250,000 term life insurance policy
paid for by the Company. In February 1993 Ms. Hoopes was granted a nonqualified
stock option to purchase 30,000 shares of Common Stock at prices ranging from
$5.125 to $7.50 per share. The option expires in various increments during 2003
and 2004. In April 1995, Ms. Hoopes was granted a non-qualified stock option to
purchase 30,000 shares of Common Stock at $6.25 per share. The option expires in
two equal increments in March 2000 and March 2001. In September 1995, the
exercise price relating to these options to purchase 60,000 shares was adjusted
to $3.96. In adjusting the exercise price per share, the Compensation Committee
of the Board of Directors recognized the Company's strategic turn around and the
demotivational aspect of the decline in the Company's stock price. Ms. Hoopes
was also granted a non-qualified stock option to purchase 40,000 shares of
Common Stock in April 1995. This option vests in two equal increments in April
1997 and April 1998 and expires in March 2005. All options are non-transferable
and expire the earlier of 90 days after termination of employment or the option
expiration date. Ms. Hoopes can be dismissed for cause without entitlement to
severance and without cause with severance equal to outstanding wages and
benefits for one year from date of termination (except as to the stock options
as described above). If the Company is taken over, sold, or involved in a merger
or acquisition of any kind under which a new controlling interest or owner
exists, Ms. Hoopes shall remain in the same position with the same job
responsibilities, duties, and benefits for a period of one year subsequent to
the sale, merger, acquisition, or takeover. If her responsibilities, duties, or
benefits are modified without her consent by the new owner or controlling
interest, she shall receive a lump sum severance payment equal to one years base
salary in effect at the time of such modification.
PROPOSAL THREE: AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED 1991 NON-QUALIFIED EMPLOYEE STOCK OPTION PLAN
General
The Amended and Restated 1991 Non-Qualified Employee Stock Option Plan ("the
Employee Plan") was adopted by the Company's Board of Directors on July 20, 1993
and approved by the Company's shareholders on September 28, 1993. The
description of the Employee Plan set forth below is qualified in its entirety by
the terms and conditions of the Amended and Restated 1991 Non-Qualified Employee
Stock Option Plan.
The purpose of the Employee Plan is to further promote the interests of the
Company by enhancing the Company's ability to attract, motivate and retain new
and existing employees and consultants and to encourage the highest level of
11
<PAGE> 13
performance by providing these employees and consultants with a proprietary
interest in the Company's growth and financial success through grants of stock
options and shares of restricted stock. There are 616,000 shares of Common Stock
authorized for issuance upon exercise of stock options granted under the
Employee Plan. At June 14, 1996, options to purchase 431,716 and 54,954 shares
were outstanding and available for grant under the Employee Plan, respectively.
Should any options granted under the Employee Plan not be exercised, in whole or
in part, in the time allowed for such exercise, the shares of Stock relating to
such lapsed options shall again be available for issuance under the Employee
Plan.
The Employee Plan is administered by a committee which consists of at least two
persons, each of whom are members of the Company's Board of Directors and have
not been awarded an option or restricted stock pursuant to the Employee Plan
within one year prior to service on the committee. The committee has complete
authority to adopt, amend or rescind procedures relating to the Employee Plan.
The committee determines when Employee Plan awards are granted, selects
optionees and participants, determines the number of shares subject to each
Employee Plan award, and prescribes the terms of such awards.
The purchase price per share of stock under options pursuant to the Employee
Plan is equal to the fair market value of the stock on the date of grant.
Options shall terminate on the date the optionee ceases to be an employee or
consultant of the company in the event the optionee is terminated for cause (as
determined in the sole discretion of the committee). If terminated other than
for cause, options under the Employee Plan expire 90 days after termination of
the optionee. Options granted under the Employee Plan may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution, and are not assignable by
operation of law or subject to execution, attachment, or similar process.
If the Company is the surviving corporation in a merger, consolidation, or other
reorganization, the holder of an option under the Employee Plan shall be
entitled to receive an option to purchase the same number of shares in the
surviving corporation that a holder of a corresponding number of shares will be
entitled to receive under the terms of the merger, consolidation, or other
reorganization. If the Company dissolves, sells substantially all of its assets,
is acquired in stock for stock or securities exchange, or is party to a merger,
consolidation, or other reorganization in which it is not the surviving
corporation, then each option granted under the Employee Plan shall be
exercisable in full for a period of sixty days commencing upon shareholder
approval (or Board of Directors approval, if shareholder action is not required)
of the transaction.
The Company's Board of Directors may at any time suspend or terminate the
Employee Plan or amend it in any respect provided however, that without the
approval of shareholders no amendment may (i) change the number of shares of
Common Stock subject to the Employee Plan, (ii) change the class of persons
eligible to receive options or restricted stock under the Employee Plan, or
(iii) materially increase the benefits accruing to participants under the
Employee Plan. No amendment, suspension, or termination of the Employee Plan
shall, without the consent of the participant, alter, terminate, impair, or
adversely affect any right or obligation under any option previously granted
under or made part of the Employee Plan. The Employee Plan shall terminate in
September 2003.
Federal Income Tax Consequences
Grant -- An optionee does not recognize any income tax and the Company is not
entitled to a deduction upon the grant of a non-qualified stock option.
Exercise -- Generally, upon the exercise of a stock option the optionee will
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares acquired over the exercise price. The Company is entitled to
a deduction in connection with the exercise of a non-qualified stock option to
the extent that the optionee recognizes ordinary income and the Company
withholds federal income taxes.
Proposed Amendment
In June 1996, the Board of Directors adopted, subject to shareholder approval,
an amendment to the Amended and Restated 1991 Non-Qualified Employee Stock
Option Plan (the "Employee Plan") increasing the number of shares available
under the Employee Plan from 616,000 to 1,500,000 (the "Amendment"). The Board
believes that in order for the Company to continue to attract and retain
qualified employees and consultants, it must continue to provide suitable
incentive compensation, including stock options. It is therefore necessary to
increase the number of shares of Common Stock available for issuance under the
Employee Plan.
12
<PAGE> 14
In addition to other conforming modifications, paragraph (a) of section three of
the Employee Plan, "Shares of Common Stock Subject to the Plan," would be
amended to increase the number of shares available for issuance under the
Employee Plan from 616,000 to 1,500,000.
As of June 14, 1996, the fair market value of the Company's Common Stock
underlying options granted under the Employee Plan was $3.75 per share.
Approximately 30 employees and consultants were eligible to participate under
the Employee Plan at June 14, 1996.
An affirmative vote by the holders of a majority of shares present or
represented and entitled to vote at the 1996 Annual Meeting of Shareholders in
person or by proxy and voting thereon shall approve the Amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1991 NON-QUALIFIED EMPLOYEE STOCK OPTION PLAN.
PROPOSAL FOUR: APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation, as amended ("Certificate") presently
authorizes the issuance of 10,000,000 shares of Common Stock, par value $.10 per
share. In June 1996, the Board of Directors authorized an Amendment to the
Certificate, subject to shareholder approval, to increase the authorized number
of shares of Common Stock to 25,000,000.
As of June 14, 1996, 5,657,153 shares of Common Stock were issued (of which
4,832,065 shares were outstanding and 825,088 shares were held in the Company's
treasury) and 1,694,915 shares were reserved for issuance under the Company's
employee and non-employee director stock option plans and various employment
arrangements, leaving a balance of 2,647,932 authorized, unissued, and
unreserved shares of Common Stock. Should the shareholders approve proposal
three, an amendment to the Company's Amended and Restated 1991 Non-Qualified
Employee Stock Option Plan (the "Employee Plan") which increases the aggregate
number of authorized shares of common stock issuable under the Employee Plan
from 616,000 to 1,500,000, a balance of 1,763,932 authorized, unissued, and
unreserved shares of Common Stock would remain.
The purpose of the proposed amendment is to retain the necessary flexibility for
future issuances of stock for general corporate purposes, including, but not
limited to, issuances under employee and non-employee benefit plans, stock
dividends and splits, offerings to raise capital, and acquisitions of companies
or business properties. Upon receipt of shareholder approval, all 15,000,000
additional authorized shares would be issuable at the discretion of the Board of
Directors under circumstances the Board believes to be in the best interest of
the Company and without further action by the shareholders, unless such action
is required by the Certificate of Incorporation or By-Laws of the Company, or by
applicable law. The Board of Directors has no present agreement or arrangement
to issue any of the shares for which approval is sought.
The increase in authorized Common Stock will not have any immediate effect on
the rights of existing shareholders. To the extent additional authorized shares
are issued in the future, except in the case of stock dividends or stock splits,
such issuances will have a dilutive effect on the voting power of existing
shareholders and may, depending on the particular circumstances, result in
dilution to the Company's earnings per share.
The additional shares of Common Stock would become part of the existing class of
Common Stock, and the additional shares, when issued, would have the same rights
and privileges as the shares of Common Stock now issued. The holders of Common
Stock do not presently have pre-emptive rights to subscribe for any of the
Company's securities and will not have any such rights to subscribe for the
additional Common Stock proposed for authorization.
The issuance of additional shares of Common Stock could be used to make a change
in control of the Company more difficult. The Board of Directors could cause
such shares to be issued to holders who might side with the Board in opposing a
takeover bid the Board determines is not in the best interest of the Company and
its shareholders. In addition, the availability of the additional shares might
discourage an attempt by another person or entity to acquire control of the
Company through acquisition of a substantial number of shares of Common Stock,
since the issuance of such shares could dilute the stock ownership of such
person or entity.
In addition to other conforming modifications, the FOURTH article of the
Company's Certificate would be amended to read "FOURTH: The total number of
shares which the Corporation shall have the authority to issue is 25,000,000.
The par value of each such share is $.10. All such shares are of one class and
are shares of Common Stock."
13
<PAGE> 15
An affirmative vote by holders of a majority of shares present or represented
and entitled to vote at the Annual Meeting in person or by proxy and voting
thereon shall approve the amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of Common Stock from
10,000,000 to 25,000,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION.
PROPOSAL FIVE: RATIFICATION OF INDEPENDENT ACCOUNTANTS
Subject to shareholder ratification, the Board of Directors, upon recommendation
of the Audit Committee, has reappointed the firm of Ernst & Young LLP, Certified
Public Accountants, to audit the Company's financial statements for the 1997
fiscal year. Ernst & Young has audited the Company's fiscal year financial
statements since 1992.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting and will have the opportunity to make a statement if they desire to do
so. They will also be available to respond to appropriate questions presented at
the Meeting.
An affirmative vote by holders of a majority of shares present or represented
and entitled to vote at the Annual Meeting in person or by proxy and voting
thereon shall ratify the reappointment of Ernst & Young LLP as the Company's
independent accountants for the 1997 fiscal year. Ratification of independent
public accountants is not required to be submitted to a vote of the
shareholders. Should the shareholders not ratify this reappointment, the
appointment of other independent accountants will be considered by the Audit
Committee of the Board of Directors.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1997 Annual Meeting of
Shareholders must be received on or before March 31, 1997 to be considered for
inclusion in the Company's Proxy Statement and Form of Proxy relating to that
meeting. Proposals should be sent to Capitol Multimedia, Inc., Attention:
Corporate Secretary, 7315 Wisconsin Avenue, Suite 800E, Bethesda, MD 20814.
By Order of the Board of Directors,
/s/ CATHERINE K. HOOPES
Catherine K. Hoopes
Secretary
Bethesda, Maryland
July 17, 1996
14
<PAGE> 16
[CAPITOL MULTIMEDIA, INC. LOGO]
THE AMENDED AND RESTATED 1991 NON-QUALIFIED
CAPITOL MULTIMEDIA, INC. EMPLOYEE STOCK OPTION PLAN
The following amends and restates the 1991 Non-Qualified Capitol
Multimedia, Inc. Employee Stock Option Plan in its entirety.
1. Purpose of the Plan.
The purpose of the 1991 Non-Qualified Stock Option Plan of Capitol
Multimedia, Inc., a Delaware corporation (the "Company"), is to
further promote the interests of the Company by enhancing the
Company's ability to attract, motivate and retain new and existing
employees and consultants and to encourage the highest level of
performance by providing these employees and consultants with a
proprietary interest in the Company's growth and financial success
through grants of stock options and shares of restricted stock in the
future.
2. Definitions.
(a) "Board" shall mean the board of directors of the Company, as
duly elected from time to time.
(b) "Change in Control" shall be deemed to have occurred at such
time as either (i) the Company is merged or consolidated with
or into another entity (the "Merger Partner") and as a result
of such merger or consolidation less than fifteen percent
(15%) of the outstanding voting securities of the surviving or
resulting entity shall be beneficially owned in the aggregate,
either directly or indirectly, by the stockholders of the
Company immediately prior to the effective date of such merger
or consolidation, or (ii) in the event that any person, other
than the Company, a wholly-owned subsidiary of the Company, an
employee benefit plan of the Company or one of its
subsidiaries, or an officer or director of the Company or an
affiliate of an officer or director, becomes the beneficial
owner of fifty percent (50%) or more of the Company's Common
Stock.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and as interpreted by the regulations thereunder.
(d) "Committee" shall mean the Compensation Committee of the
Company, or such other committee as may be appointed by the
Board from time to time.
(e) "Common Stock" shall mean the common stock of the Company, par
value $.10 per share.
- 1 -
<PAGE> 17
(f) "Company" shall mean Capitol Multimedia, Inc., a Delaware
corporation.
(g) "Consultant" shall mean any individual that is expressly
designated as a consultant of the Company or its Subsidiaries
by the Committee in its sole discretion.
(h) "Date of Grant" shall mean the date as of which the Committee
resolves to grant an Option to an Optionee or grant Restricted
Stock to a Participant, as the case may be.
(i) "Disinterested Director" shall mean a member of the Board who
is not, during the one year prior to service as an
administrator under this Plan (as described in Section 4 of
this Plan), granted or awarded an Option or Restricted Stock
pursuant to the terms of this Plan (or any other plan of the
Company or any of its Subsidiaries) except (i) participation
in a formula plan meeting the conditions of Rule
16b-3(c)(2)(ii) under the Exchange Act, (ii) participation in
an ongoing securities acquisition plan meeting the conditions
in Rule 16b-3(d)(2)(i) under the Exchange Act, (iii) an
election to receive an annual retainer fee in either cash or
an equivalent amount of securities of the Company, or partly
in cash and partly in securities, or (iv) that participation
in this Plan shall not disqualify a director for the purpose
of administering another plan that does not permit
participation by the Board; provided, that the scope of the
exceptions in this paragraph shall automatically be reduced or
expanded to the extent that Rule 16b-3 under the Exchange Act
is amended to reduce or expand the scope of the exceptions
thereunder.
(j) "Employee" shall include every individual performing services
to the Company or its Subsidiaries if the relationship between
such individual and the Company or its Subsidiaries is the
legal relationship of employer and employee. This definition
of "Employee" is qualified in its entirety and is subject to
the definition set forth in Section 3401(c) of the Code and
the regulations thereunder.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and as interpreted by the rules and regulations
promulgated thereunder.
(l) "Exercise Price" shall mean the amount for which one Share may
be purchased upon exercise of an Option, as specified by the
Committee in the applicable Stock Option Agreement, but in no
event less than the par value per Share.
(m) "Fair Market Value" shall mean the average of the last trade
price of the Common Stock on all domestic exchanges on which
the Common Stock may at the time be listed or admitted to
trading, or, if the Common Stock, shall not be so listed or
admitted to trading,
- 2 -
<PAGE> 18
the average of the last trading price in the domestic
over-the-counter market, in each such case averaged over a
period of 20 consecutive business days prior to the day as of
which Fair Market Value is being determined; provided that if
the Common Stock is listed on any domestic exchange, the term
"business days" as used in this sentence shall mean business
days on which such exchange is open for trading. If the
Common Stock is neither listed or admitted to trading on any
domestic exchange nor quoted in the domestic over-the counter
market, the Fair Market Value shall mean the last trade price
as furnished by any dealer in securities dealing in the Common
Stock.
(n) "Option" shall mean the right granted to purchase Common
Stock under the Plan.
(o) "Optionee" shall mean a Participant who holds an Option.
(p) "Participants" shall mean those individuals described in
Section 1 of this Plan selected by the Committee who are
eligible under Section 6 of this Plan for grants of either
Options or Restricted Stock under this Plan.
(q) "Permanent and Total Disability" shall mean that an individual
is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental
impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period
of not less than twelve (12) months. An individual shall not
be considered to suffer from Permanent and Total Disability
unless such individual furnishes proof of the existence
thereof in such form and manner, and at such times, as the
Committee may reasonably require. The scope of this
definition shall automatically be reduced or expanded to the
extent that Section 22(e)(3) of the Code is amended to reduce
or expand the scope of the definition of Permanent and Total
Disability thereunder.
(r) "Plan" shall mean this 1991 Non-Qualified Capitol Multimedia,
Inc. Employee Stock Option Plan, as amended from time to time.
(s) "Plan Award" shall mean the grant of either an Option or
Restricted Stock, as the context requires.
(t) "Restricted Stock" shall have that meaning set forth in
Section 6(a) of this Plan.
(u) "Restricted Stock Account" shall have that meaning set forth
in Section 6(a)(iii) of this Plan.
(v) "Restricted Stock Criteria" shall have that meaning in Section
6(a)(iv) of this Plan.
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<PAGE> 19
(w) "Restriction Period" shall have that meaning in Section
6(a)(v) of this Plan.
(x) "Securities Act" shall mean the Securities Act of 1933, as
amended, and as interpreted by the rules and regulations
promulgated thereunder.
(y) "Services" shall mean services rendered to the Company or any
of its Subsidiaries by an Employee or Consultant, as the
context requires.
(z) "Share" shall mean one share of Common Stock, as adjusted in
accordance with Sections 8 and 9 of this Plan (if applicable).
(aa) "Stock Option Agreement" shall mean the agreement executed
between the Company and an Optionee that contains the terms,
conditions and restrictions pertaining to the granting of an
Option.
(bb) "Subsidiary" shall mean any corporation as to which more than
fifty percent (50%) of the outstanding voting stock or shares
shall now or hereafter be owned or controlled, directly by a
person, any Subsidiary of such person, or any Subsidiary of
such Subsidiary.
(cc) "Vest Date" shall have that meaning in Section 6(a)(v) of this
Plan.
3. Shares of Common Stock Subject to the Plan.
(a) Subject to the provisions of Sections 8 and 9, the aggregate
number of Shares that may be issued or transferred pursuant to
an exercise of Option or a grant of Restricted Stock under the
Plan shall not exceed one million five hundred thousand
(1,500,000) Shares. Such Shares may be either authorized, but
unissued shares, or Shares issued and thereafter acquired by
the Company. The Committee shall not issue more Shares than
are available for issuance under this Plan. The number of
Shares that are subject to unexercised Options at any time
under this Plan shall not exceed the number of Shares that
remain available for issuance under this Plan. The Company,
during the term of this Plan, shall at all times reserve and
keep available sufficient Shares to satisfy the requirements
of this Plan.
(b) In the event that an Option previously granted shall for any
reason expire or be terminated without being exercised in
whole or in part, the unpurchased shares of Common Stock
subject to the Option shall be restored to the total number of
shares of Common Stock with respect to which Options may be
granted under the Plan.
(c) Plan Awards may be granted under the Plan from time to time in
substitution of Options or Restricted Stock held by
Consultants for thirty two thousand five hundred (32,500)
Shares which were issued
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<PAGE> 20
prior to July 20, 1993. Unless expressly stated otherwise,
any provision in the Plan applying to Options or Restricted
Stock granted under the Plan shall also apply to Options or
Restricted Stock granted to Consultants under prior Option
Agreements.
4. Administration of the Plan.
(a) This Plan shall be administered by the Committee, which shall
consist of at least two (2) persons, each of whom shall be
Disinterested Directors. The members of the Committee shall
be appointed by the Board for such terms as the Board may
determine. The Board may from time to time remove members
from, or add members to, the Committee. Vacancies on the
Committee, however caused, may be filled by the Board.
(b) The Board shall designate one of the members of the Committee
as chairman. The Committee may hold meetings at such times
and places as it shall determine. The acts of a majority of
the Committee members present at meetings at which a quorum
exists, or acts reduced to or approved in writing by a
majority of all Committee members, shall be valid acts of the
Committee. A majority of the Committee shall constitute a
quorum.
(c) This Plan shall be administered by, or under the direction of,
the Committee constituted in such a manner as to comply at all
times with Rule 16b-3 (or any successor rule) under the
Exchange Act. The Committee shall administer this Plan so as
to comply at all times with the Exchange Act and, subject to
the Code, shall otherwise have absolute and final authority to
interpret this Plan and to make all determinations specified
in or permitted by this Plan or deemed necessary or desirable
for its administration or for the conduct of the Committee's
business including without limitation the authority to take
the following actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and
forms relating to this Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the
purposes of this Plan;
(iv) To determine when Plan Awards are to be granted under
this Plan;
(v) To select the Optionees and Participants;
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<PAGE> 21
(vi) To determine the number of Shares to be made subject
to each Plan Award;
(vii) To prescribe the terms, conditions and restrictions
of each Plan Award, including without limitation the
Exercise Price of an Option;
(viii) To amend any outstanding Stock Option Agreement or
the terms, conditions and restrictions of a grant of
Restricted Stock, subject to applicable legal
restrictions and the consent of the Optionee or
Participant, as the case may be, who entered into
such agreement;
(ix) To establish procedures so that an Optionee may
obtain a loan through a registered broker-dealer
under the rules and regulations of the Federal
Reserve Board, for the purpose of exercising an
Option;
(x) To establish procedures for an Optionee (1) to have
withheld from the total number of Shares to be
acquired upon the exercise of an Option that number
of Shares having a Fair Market Value, which, together
with such cash as shall be paid in respect of
fractional shares, shall equal the Exercise Price,
and (2) to exercise a portion of an Option by
delivering that number of Shares already owned by an
Optionee having a Fair Market Value which shall equal
the partial Exercise Price and to deliver the Shares
thus acquired by such Optionee in payment of Shares
to be received pursuant to the exercise of additional
portions of the Option, the effect of which shall be
that an Optionee can in sequence utilize such newly
acquired shares in payment of the Exercise Price of
the entire Option, together with such cash as shall
be paid in respect of fractional shares;
(xi) To establish procedures whereby a number of Shares
may be withheld from the total number of Shares to be
issued upon exercise of an Option, to meet the
obligation of withholding for federal and state
income and other taxes, if any, incurred by the
Optionee upon such exercise; and
(xii) To take any other actions deemed necessary or
advisable for the administration of this Plan.
All interpretations and determinations of the
Committee made with respect to the granting of Plan
Awards shall be final, conclusive, and binding on all
interested parties. The Committee may make grants of
Plan Awards on an individual or group basis. No
member of the Committee shall be liable for any
action that is taken or is omitted to be taken if
such action
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<PAGE> 22
or omission is taken in good faith with respect to
this Plan or grant of any Plan Award.
(d) The Committee may in its sole discretion require as a
condition to the granting of any Plan Award, that a
Participant agree not to sell or otherwise dispose of a Plan
Award, any Shares acquired pursuant to a Plan Award or any
other "derivative security" (as defined by Rule 16a-1(c) under
the Exchange Act) for a period of six (6) months following the
later of (i) the date of the grant of such Plan Award, or (ii)
the date when the Exercise Price of an Option is fixed if such
Exercise Price is not fixed on the Date of Grant.
(e) The Committee may in its sole discretion designate officers or
employees of the Company to assist the Committee in the
administration of the Plan and to execute documents on behalf
of the Committee, and the Committee may delegate to such
officers and employees such other ministerial and limited
discretion duties as it sees fit.
5. Eligibility.
(a) Options and/or Restricted Stock may be granted under the Plan
to any Employee or Consultant (including Employees who are
also directors of the Company); provided, however, that no
person shall be eligible for any Plan Awards if the granting
of a Plan Award to such person would prevent the satisfaction
by this Plan of the general exemptive conditions of Rule 16b-3
under the Exchange Act. Determinations by the Committee as to
the identity of the persons to whom Options shall be granted
hereunder shall be conclusive. Directors who are also
Employees shall not be eligible to receive Options under both
employee and director's plans.
(b) [Intentionally omitted.]
6. Restricted Stock.
(a) The Committee shall have the authority to grant to
Participants certain Shares that are subject to certain terms,
conditions and restrictions (the "Restricted Stock"). The
Restricted Stock may be granted by the Committee either
separately or in combination with Options. The terms,
conditions and restrictions of the Restricted Stock shall be
determined from time to time by the Committee without
limitation, except as otherwise provided in this Plan;
provided, however, that each grant of Restricted Stock shall
require the Participant to remain an Employee of (or otherwise
provide Services to) the Company or any of its Subsidiaries
for at least six (6) months
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<PAGE> 23
from the Date of Grant. The granting, vesting and issuing of
the Restricted Stock shall also be subject to the following
provisions:
(i) Restricted Stock shall be granted to Participants for
Services rendered and at no additional cost to
Participant; provided, however, that the value of the
Services performed must, in the opinion of the
Committee, equal or exceed the par value of the
Restricted Stock to be granted to the Participant.
(ii) The Company shall establish a restricted stock
account (the "Restricted Stock Account") for each
Participant to whom Restricted Stock is granted, and
such Restricted Stock shall be credited to such
account. No certificates will be issued to the
Participant with respect to the Restricted Stock
until the Vest Date as provided herein. Every credit
of Restricted Stock under this Plan to a Restricted
Stock Account shall be considered "contingent" and
unfunded until the Vest Date. Such contingent
credits shall be considered bookkeeping entries only,
notwithstanding the "crediting" of "dividends" as
provided herein. Such accounts shall be subject to
the general claims of the Company's creditors. The
Participant's rights to the Restricted Stock Account
shall be no greater than that of a general creditor
of the Company. Nothing contained herein shall be
construed as creating a trust or fiduciary
relationship between the Participants and the
Company, the Board or the Committee.
(iii) The terms, conditions and restrictions of the
Restricted Stock shall be determined by the Committee
on the Date of Grant. The Restricted Stock may not
be sold, assigned, transferred, redeemed, pledged or
otherwise encumbered during the period in which the
terms, conditions and restrictions apply (the
"Restriction Period"). More than one grant of
Restricted Stock may be outstanding at any one time,
and the Restriction Periods may be of different
lengths. Receipt of the Restricted Stock is
conditioned upon satisfactory compliance with the
terms, conditions and restrictions of this Plan and
those imposed by the Committee.
(iv) At the time of each grant of Restricted Stock, the
Committee in its sole discretion may establish
certain criteria to determine the times at which
restrictions placed on Restricted Stock shall lapse
(i.e., the termination of the Restriction Period),
which criteria may include, without limitation,
performance measures, targets and holding period
requirements (the "Restricted Stock Criteria"). The
Committee may establish a corresponding relationship
between the Restricted Stock Criteria and (i) the
number of Shares of Restricted Stock that may be
earned, and (ii) the extent to which the terms,
conditions and restrictions on
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<PAGE> 24
the Restricted Stock shall lapse. Restricted Stock
Criteria may vary among grants of Restricted Stock;
provided, however, that once the Restricted Stock
Criteria are established for a grant of Restricted
Stock, the Restricted Stock Criteria shall not be
modified with respect to such grant.
(v) On the date the Restriction Period terminates, the
Restricted Stock shall vest in the Participant (the
"Vest Date"), who may then require the Company to
issue certificates evidencing the Restricted Stock
credited to the Restricted Stock Account of such
Participant.
(vi) The Committee may provide from time to time that
amounts equivalent to dividends shall be payable with
respect to the Restricted Stock held in the
Restricted Stock Account of a Participant. Such
amounts shall be credited to the Restricted Stock
Account and shall be payable to the Participant on
the Vest Date.
(vii) If a Participant (x) with the consent of the
Committee, ceases to be an Employee or Consultant of,
or otherwise ceases to provide Services to, the
Company or any of its Subsidiaries, or (y) dies or
suffers from Permanent and Total Disability, the
vesting or forfeiture (including without limitation
the terms, conditions and restrictions) of any grant
under this Section 6 shall be determined by the
Committee in its sole discretion, subject to any
limitations or terms of this Plan. If the
Participant ceases to be an Employee or Consultant
of, or otherwise ceases to provide Services to, the
Company or any of its Subsidiaries for any other
reason, all grants of Restricted Stock under this
Plan shall be forfeited (subject to the terms of this
Plan).
(b) The Committee may establish procedures by which a Participant
may elect to defer the transfer of Restricted Stock to the
Participant. The Committee shall determine the terms and
conditions of such deferral in its sole discretion.
7. Terms and Conditions of Options.
(a) The purchase price of Common Stock under each Option granted
under the Plan shall be the Fair Market Value of the Common
Stock on the date the Option is granted.
(b) Subject to the provision of Section 12, an Option granted
under the Plan shall become exercisable at such a time as the
Committee in its sole discretion shall determine and shall
specify in a Stock Option Agreement to be entered into with
the Participant. In servicing its discretion hereunder, the
Committee may determine that all Options
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<PAGE> 25
granted shall become exercisable immediately or that the
Participant's right to exercise such Options shall vest over a
period of time and in such increments as are specified by the
Committee.
(c) The exercise of Options shall be subject to the following
requirements:
(i) An Option shall be deemed to be exercised when
written notice of such exercise has been given to the
Company in accordance with the terms of the Stock
Option Agreement by the Optionee entitled to exercise
the Option and full payment for the Shares with
respect to which the Option is exercised has been
received by the Company. Full payment may, as
authorized by the Committee, consist of any form of
consideration and method of payment allowable under
this Plan. Upon the receipt of notice of exercise
and full payment for the Shares, the Shares shall be
deemed to have been issued and the Optionee shall be
entitled to receive such Shares and shall be a
stockholder with respect to such Shares, and the
Shares shall be considered fully paid and
nonassessable. No adjustment will be made for a
dividend or other right for which the record date is
prior to the date on which the stock certificate is
issued, except as provided in Sections 8 or 9 of this
Plan. An Option may not be exercised for a fraction
of a Share. Each exercise of an Option shall reduce,
by an equal number, the total number of Shares that
may thereafter be purchased under such Option.
(ii) Except as provided in Subsections 7(c)(iii) and
7(c)(iv), an Option held by an Optionee shall
terminate on the date the Optionee ceases to be an
Employee or Consultant of the Company in the event
the Optionee is terminated for cause (as determined
in the sole discretion of the Committee). If the
employment of the Optionee is terminated other than
for cause, then the Optionee may, but only within
ninety (90) days after such termination, exercise the
Option to the extent that the Optionee was entitled
to exercise the Option on such date; provided,
however, the Committee may in its sole discretion
extend such date on which the Optionee may exercise
such Option. To the extent the Optionee is not
entitled to exercise an Option on such date or if the
Optionee does not exercise it within the time
specified in this subclause, the Option shall
terminate.
(iii) Notwithstanding the provisions of Section 7(c)(i) and
(ii) above, in the event an Optionee is unable to
continue to perform Services for the Company or any
of its Subsidiaries as a result of such Optionee's
Permanent and Total Disability, such Optionee may
exercise an Option in whole or in part
notwithstanding that such Option may not be fully
exercisable, but only until the earlier of the date
(i) the Option held by the
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<PAGE> 26
Optionee expires, or (ii) twelve (12) months from the
date of termination of Services due to such Permanent
and Total Disability. To the extent the Optionee is
not entitled to exercise an Option on such date or if
the Optionee does not exercise it within the time
specified herein, such Option shall terminate.
(iv) Upon the death of an Optionee, any Option held by an
Optionee shall terminate and be of no further effect;
provided, however, notwithstanding the provisions of
Section 7(c)(ii) above, in the event an Optionee's
death occurs during the term of an Option held by
such Optionee and, at the time of death, the Optionee
was an Employee or Consultant, the Option may be
exercised in whole or in part notwithstanding that
such Option may not have been fully exercisable on
the date of the Optionee's death, at any time until
the earlier of the date (i) the Option held by the
Optionee expires, or (ii) twelve (12) months from the
date of the Optionee's death, by the Optionee's
estate or by a person who acquired the right to
exercise the Option by bequest or inheritance. To
the extent the Option is not entitled to be exercised
on such date or if the Option is not exercised within
the time specified herein, such Option shall
terminate.
(v) If an Optionee retires at an age at which he would be
eligible to receive old-age benefits under the
Federal Social Security Act or retires with the
consent of the Company, such Optionee's Options shall
expire six (6) months after the retirement date.
(d) Any Option granted under this Plan may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and
distribution, and is not assignable by operation of law or
subject to execution, attachment or similar process. Any
Option granted under this Plan can only be exercised during
the Optionee's lifetime by such Optionee. Any attempted sale,
pledge, assignment, hypothecation or other transfer of the
Option contrary to the provisions hereof and the levy of any
execution, attachment or similar process upon the Option shall
be null and void and without force or effect. No transfer of
the Option by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Company
shall have been furnished written notice thereof and an
authenticated copy of the will and/or such other evidence as
the Committee may deem necessary to establish the validity of
the transfer and the acceptance by the transferee or
transferees of the terms and conditions of the Option. The
terms of any Option transferred by will or by the laws of
descent and distribution shall be binding upon the executors,
administrators, heirs and successors of Optionee.
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<PAGE> 27
(e) Any Option granted hereunder shall be deemed to be granted on
the Date of Grant. Written notice of the Committee's
determination to grant an Option to an Employee or Consultant,
evidenced by a Stock Option Agreement, dated as of the Date of
Grant, shall be given to such Employee or Consultant within a
reasonable time after the Date of Grant.
(f) Within the limitations of this Plan, the Committee may modify,
extend or renew outstanding Options or may accept the
cancellation of outstanding Options (to the extent not
previously exercised) for the granting of new Options in
substitution therefor. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the
Optionee, alter or impair the Optionee's rights or obligations
under such Option.
8. Adjustment Provisions.
If any subdivision or combination of shares of Common Stock or any
stock dividend, capital reorganization or recapitalization occurs
after the adoption of the Plan, the Committee shall make such
proportionate adjustments as are appropriate in the number of shares
of Common Stock that may be issued under Section 3 and in the purchase
price of, and the number of shares underlying, outstanding Options in
order to prevent the dilution or enlargement of the rights of any
Option holder.
9. Effect of Merger or Other Reorganization.
If the Company shall be the surviving corporation in a merger,
consolidation or other reorganization, the holder of an Option shall
be entitled to receive an option to purchase the same number of shares
(or a fraction of a share) in the surviving corporation that a holder
of a corresponding number of shares of Common Stock will be entitled
to receive under the terms of the merger, consolidation or other
reorganization. If the company dissolves, sells substantially all of
its assets, is acquired in a stock for stock or securities exchange,
or is a party to a merger, consolidation or other reorganization in
which it is not the surviving corporation, then each Option shall be
exercisable in full for a period of 60 days commencing upon the date
the action of the stockholders (or of the Board, if stockholder action
is not required) is taken to approve the transaction, and upon the
expiration of that period all Options and all rights thereto shall
automatically terminate.
10. General Provisions.
(a) No provision of this Plan, under any Stock Option Agreement or
under any grant of Restricted Stock shall be construed to give
any
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<PAGE> 28
Participant any right to remain an Employee or Consultant of,
or provide Services to, the Company or any of its Subsidiaries
or to affect the right of the Company to terminate any
Participant's service at any time, with or without cause.
(b) As a condition to the transfer of any Shares issued under this
Plan, the Company may require an opinion of counsel,
satisfactory to the Company, to the effect that such transfer
will not be in violation of the Securities Act or any other
applicable securities laws, rules or regulations, or that such
transfer has been registered under federal and all applicable
state securities laws. The Company may refrain from
delivering or transferring Shares issued under this Plan until
the Committee has determined that the Participant has tendered
to the Company any and all applicable federal, state or local
tax owed by the Participant as the result of the receipt of a
Plan Award, the exercise of an Option or the disposition of
any Shares issued under this Plan, in the event that the
Company reasonably determines that it might have a legal
liability to satisfy such tax. The Company shall not be
liable to any person or entity for damages due to any delay in
the delivery or issuance of any stock certificate evidencing
any Shares for any reason whatsoever.
(c) No participant shall be entitled to the rights and privileges
of stock ownership relation to any shares of Common Stock
underlying an Option until such Option is exercised and the
shares are issued.
(d) Each Option is personal to the grantee, is not transferable by
the Participant other than by will or by the laws of descent
and distribution, and is exercisable, during the Participant's
lifetime, only by the Participant or his legal representative.
(e) This Plan and any and all Stock Option Agreements and
agreements relating to the grant of Restricted Stock executed
in connection with this Plan shall be governed by and
construed in accordance with the laws of the State of
Delaware, without regard to conflicts of laws principles.
11. Amendment and Termination.
(a) The Board shall have the power, in its sole discretion, to
amend, suspend or terminate the Plan at any time. No such
amendment shall, without approval of the stockholders of the
Company, except as provided in Sections 8 and 9 or the Plan:
(i) change the class of person eligible to receive
Options under the Plan;
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<PAGE> 29
(ii) materially increase the benefits accruing to
Participants under the Plan;
(iii) increase the number of shares of Common Stock subject
to the Plan; or
(iv) amend this Section 11.
(b) No amendment, suspension or termination of the Plan shall,
without the consent of the Participant alter, terminate,
impair or adversely affect any right or obligations under any
Option previously granted under or made a party of the Plan.
12. Effective Date and Duration of Plan.
The Plan was originally adopted by the Board of Directors and took
effect on October 23, 1990. This Amended and Restated Plan shall be
effective as of the date of its approval and adoption by the Board of
Directors subject only to the approval of the holders of a majority of
the Company's Common Stock present or represented and entitled to vote
at a meeting of stockholders. All Options outstanding under the Plan
as of the effective date of this Amended and Restated Plan shall
continue in full force and effect in accordance with their terms as
granted pursuant to the Plan. No Option shall be granted under the
Plan after the tenth anniversary of the effective date of the Amended
and Restated Plan.
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<PAGE> 30
[CAPITOL MULTIMEDIA, INC. LOGO]
THE AMENDED AND RESTATED 1992 NON-QUALIFIED STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of this Non-Qualified Stock Option Plan For Non-Employee
Directors (the "Plan") is to improve the ability of CAPITOL
MULTIMEDIA, INC. (the "Company") to attract and retain highly
qualified non-employee directors by encouraging such directors of the
Company to acquire a proprietary stake in the Company and its future
growth. It is the view of the Company that it may achieve this goal
by granting stock options under the Plan.
2. OPTION SHARES
Three hundred thousand (300,000) shares of the Common Stock of the
Company, par value $.10 per share (the "Stock"), are hereby reserved
for issuance upon the exercise of the stock options granted under the
Plan (the "Options"). The Stock may be issued pursuant to such
Options either from the Company's authorized, but unissued, Stock or
from the Company's issued but not outstanding Stock (treasury stock).
Should any Options granted hereunder not be exercised in the time
allowed for such exercise, the shares of Stock relating to such lapsed
Options shall be available for issuance pursuant to Options
subsequently granted under the Plan.
3. ELIGIBILITY
All non-employee directors of the Company shall be eligible to receive
Options under the Plan.
4. TERMS AND CONDITIONS
(a) Grant of Options: Subject to the provisions of the Plan, each
non-employee director of the Company shall be granted an
Option for the purchase of shares of Stock on each Date of
Grant (as such term is defined in paragraph (c) below)
occurring during such director's tenure as a director of the
Company.
(b) Option Agreement: Each Option shall be evidenced by a written
agreement between the Company and the non-employee director
specifying the number of shares of Stock that may be purchased
by its exercise.
(c) Date of Grant: The date on which an Option is granted to a
non-employee director (the "Date of Grant") shall be: (1) the
date of each annual meeting of shareholders of the Company at
which a director is elected or re-elected to serve on the
Board of Directors commencing with the annual meeting of
shareholders for the fiscal year ended March 31, 1995, and (2)
the date on which a director who is not also an employee is
first elected by the Board of Directors to fill a vacancy on
the Board of Directors.
(d) Number of Shares Granted: Each non-employee director shall
receive an Option to purchase 15,000 shares of Common Stock on
each Date of Grant during such director's service on the Board
of Director's of the Company. In addition, on the date of the
annual meeting of shareholders for the fiscal year ended March
31, 1995, each director who is
1
<PAGE> 31
not also an employee of the Company and who has served as a
director of the Company for at least three years as of such
date shall be granted an Option to purchase 37,500 shares of
Common Stock. Non-employee directors who have served between
two and three years as of such date shall be granted an Option
to purchase 25,000 shares of Common Stock.
(e) Exercise of Options: Each Option issued hereunder shall be
fully vested as of the Date of Grant and each Option shall be
exercisable for a five year period commencing on the Date of
Grant; provided, however, that no Option granted hereunder may
be exercised during the six month period immediately following
the Date of Grant pursuant to Rule 16b-3(c) (1).
(f) Modification or Substitution of Options: Subject to the terms
and conditions and within the limitations of the Plan, the
members of the Board of Directors of the Company who are not
eligible to participate in the Plan may modify, extend or
renew outstanding Options granted under the Plan and accept
the surrender and cancellation of outstanding Options (to the
extent not theretofore exercised) and authorize the granting
of new Options in substitution therefor or Options as amended.
(g) Amendment: No amendment to this Section 5 of the Plan may be
made more than once every six (6) months, other than to
comport with changes in the Internal Revenue Code of 1986, as
amended (the "Code"), the Employee Retirement Income Security
Act, or the rules promulgated thereunder.
5. OPTION PRICE
The purchase price per share of Stock placed under an Option pursuant
to this Plan (the "Option Price") shall be equal to the Market Price
of the stock on the Date of Grant. "Market Price" shall mean the
average of the last trade price of the Common Stock on all domestic
exchanges on which the Common Stock may at the time be listed or
admitted to trading, or, if the Common Stock, shall not be so listed
or admitted to trading, the average of the last trading price in the
domestic over-the-counter market, in each such case averaged over a
period of 20 consecutive business days prior to the day as of which
Market Price is being determined; provided that if the Common Stock is
listed on any domestic exchange, the term "business days" as used in
this sentence shall mean business days on which such exchange is open
for trading. If the Common Stock is neither listed or admitted to
trading on any domestic exchange nor quoted in the domestic over-the
counter market, the Market Price shall mean the last trade price as
furnished by any dealer in securities dealing in the Common Stock.
6. DURATION OF OPTION
Each Option granted hereunder may be exercised only by the individual
to whom it is issued. An Option granted hereunder shall be effective
upon the Date of Grant, and shall be exercisable for a five year
period (the "Option Period") from the Date of Grant; provided,
however, that no Option granted hereunder may be exercised during the
six month period immediately following the Date of Grant pursuant to
Rule 16b-3(c)(1). If such holder dies before fully exercising any
portion of an Option then exercisable, such Option may be exercised by
such holder's legal representative's, heir(s) or devisee(s) at any
time within the six (6) month period following his or her death.
7. NON TRANSFERABILITY OF OPTIONS
No Option granted pursuant to this Plan may be transferred by any
Optionee otherwise than by will or by the laws of descent and
distribution; further, during the lifetime of any Optionee, Options
granted hereunder may be exercised only by such Optionee.
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<PAGE> 32
8. TERMINATION OF THE PLAN
This Plan shall terminate upon the close of business ten (10) years
from the Adoption Date unless it shall have been sooner terminated by
reason of there having been granted and fully exercised Options
covering the entire three hundred thousand (300,000) shares of Stock
subject to this Plan. Upon such termination, no further Options may be
granted hereunder. If, after termination of this Plan as provided
above, there are outstanding Options which have not been fully
exercised, such Options shall remain in effect in accordance with
their terms and shall remain subject to the terms of this Plan.
9. EXERCISE OF OPTIONS
An Option granted pursuant to this Plan shall be exercisable at any
time within the Option Period, subject to the terms and conditions of
such Option. Exercise of any Option shall be made by the delivery,
during the period that such Option is exercisable, to the Company, in
person or by mail, of (i) written notice from the Optionee stating
that the Optionee is exercising such Option and (ii) the payment of
the aggregate purchase price of all shares as to which such Option is
then exercised and the payment of any required federal income tax
withholding. Such aggregate purchase price shall be paid to the
Company in cash, Stock or any other class of equity securities of the
Company (such Stock and other class of equity securities of the
company are hereinafter collectively referred to as the "Company
Stock"), or in a combination of cash or Company Stock at the time of
exercise.
There may not, however, be any payment by an Optionee of the exercise
price in whole or in part with shares of Company Stock at a time when
the Company is Insolvent (as hereafter defined) or when such payment
would make the Company Insolvent, or as such payment may otherwise be
prohibited by any applicable state or Federal statute, rule or
regulation, or any rule or regulation of any stock exchange upon which
Company Stock is traded, or if Company Stock is traded on a recognized
stock quotation service, which may be the National Association of
Securities Dealers Automated Quotations System ("NASDAQ"), any rule or
regulation of NASDAQ. For the purposes of this Plan, OInsolventG shall
mean the inability of the company to pay its debts as they become due
in the usual course of its business. Company Stock utilized in full
or partial payment of the exercise price shall be valued at the Market
Price (as defined in paragraph 5 herein) on the date of exercise of
the Option.
Notwithstanding anything to the contrary contained herein, no written
notice shall be effective under this Section 9 unless it requests the
exercise of Options for one hundred (100) shares or an integral
multiple thereof; except to the extent necessary to make full
exercise of the Options in the event that only an odd lot remains.
Upon the exercise of an Option in compliance with the provisions of
the Section, and upon the receipt by the Company of the payment for
the Stock so taken up, the Company shall (i) deliver or cause to be
delivered to the Optionee so exercising his Option a certificate or
certificates for the number of shares of Stock with respect to which
the Option is so exercised and payment is so made, and (ii) register
or cause such shares to be registered in the name of the exercising
Optionee in the corporate books and records.
10. CONTROLLING TERMS
Options granted pursuant hereto may include conditions that are more
(but not less) restrictive to the Optionee than the conditions
contained herein and, in such event, the more restrictive conditions
shall apply.
11. REQUIREMENTS OF LAW
If any law, regulation or order of the United States Securities and
Exchange Commission, or of any other commission or agency having
jurisdiction, shall require the Company or the exercising Optionee to
take any action with respect to the shares of Stock acquired by the
exercise of an Option, then the date upon which the Company shall
deliver or cause to be
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<PAGE> 33
delivered the certificate or certificates for the shares of Stock
shall be postponed until full compliance has been made with all such
requirements of law or regulation. Further, in the event that the
Company shall determine that, in compliance with the Securities Act or
any other applicable statute or regulation, it is necessary to
register any of the shares of Stock with respect to which an exercise
of an Option has been made, or to qualify any such shares for
exemption from any of the requirements of the Securities Act or such
other applicable statute or regulation, it will do so at the Company's
expense. Not until such an action has been completed shall the Option
shares be delivered to the exercising Optionee. Further, in the event
that at the time of exercise of the Option the shares of Stock shall
be listed on any stock exchange, then if required by law or the
exchange to do so, the Company shall register the Option shares of
Stock with respect to which exercise is so made in accordance with the
provisions of the Securities Act, any other applicable law or
regulation or any rules or regulations of any such exchange, and the
Company shall make prompt application for the listing of Option shares
on such exchange at the expense of the Company.
12. NO RIGHTS CONFERRED UPON GRANTING OF OPTIONS
The Optionee shall not have any rights as a shareholder of the Company
with respect to any shares of Stock prior to the date of issuance to
the Optionee of the certificate or certificates for such shares.
Neither the Plan nor the Option confer on the Optionee any right to be
employed by the Company.
13. ADJUSTMENTS
In the event of any reorganization, merger, consolidation,
acquisition, separation, recapitalization, split-up, combination,
exchange of shares or stock dividend of the Stock or shares
convertible into the Stock or similar corporate action, the number and
class of shares of Stock available pursuant to this Plan and any
Options granted pursuant to this Plan, together with the Option
Prices, shall be adjusted by appropriate modifications in this Plan
and in any Options outstanding pursuant to this Plan. Any such
adjustment to the Plan or to Options or Option Prices shall be made by
notice of the CompanyGs Board of Directors, whose determination shall
be conclusive.
14. AMENDMENT OR DISCONTINUANCE OF THE PLAN
The Company's Board of Directors may at any time suspend or
discontinue the Plan, but no amendment shall be authorized without
shareholder approval which (i) materially increases the benefits
accruing to participants under the Plan; (ii) materially increases the
number of securities which may be issued under the Plan, except as
otherwise provided in Section 13; or (iii) materially modifies the
requirements as to eligibility for participation in the Plan.
In addition, notwithstanding any other provision in the Plan, in the
event of a change in federal or state law or regulation which would
make the exercise of all or part of an existing Option unlawful or
subject the Company to a penalty, the Company's Board of Directors may
restrict such exercise without the consent of the Optionee or other
holder thereof in order to comply with such law or regulation or to
avoid such penalty.
15. LIQUIDATION OF THE COMPANY
In the event of the complete liquidation or dissolution of the
Company, other than as an incident to a merger, reorganization or
other adjustment referred to in Section 13 above, any Options granted
pursuant to this Plan and remaining unexercised shall be deemed
canceled without regard to or without being limited by any other
provisions of this Plan.
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<PAGE> 34
16. UNSECURED OBLIGATION
Optionees shall not have any interest in any fund or special asset of
the Company by reason of the Plan. No trust fund shall be created in
connection with the Plan or any award thereunder, and there shall be
no required funding of amounts which may become payable to any
Optionee.
17. GOVERNING LAW
The Plan shall be governed by, construed and enforced in accordance
with the laws of the State of Delaware.
18. COMPLIANCE WITH RULE 16B-3
It is the intent of the Company that all Options granted hereunder
comply with the applicable provisions of Rule 16b-3, as amended,
promulgated pursuant to the Securities Exchange Act of 1934, as
amended. As a result, this Plan may be amended by the Company's Board
of Directors in any manner necessary or desirable to meet any
provision or condition of Rule 16b-3. In addition, all Options shall
be granted in such a manner as to comply with the applicable
requirements of Rule 16b-3.
19. APPROVAL
This Amended and Restated Plan shall take effect upon approval by the
holders of a majority of the Company's Common Stock present or
represented and entitled to vote at a meeting of stockholders, which
approval must occur within twelve (12) months after the date the
Amended and Restated Plan is adopted by the Board of Directors.
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<PAGE> 35
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF CAPITOL MULTIMEDIA, INC.
FOR THE ANNUAL MEETING OF SHAREHOLDERS
MARRIOTT RESIDENCE INN, 7335 WISCONSIN AVENUE, BETHESDA, MARYLAND 20814
AUGUST 22, 1996, 10:00 A.M.
The undersigned hereby appoints Robert I. Bogin and Catherine K. Hoopes,
jointly and severally, proxies, with full power of substitution, to represent
and vote all shares of Common Stock which the undersigned is entitled to vote
at the 1996 Annual Meeting of Shareholders of Capitol Multimedia, Inc., and any
adjournments or postponements thereof, upon any matters which may properly be
brought before such Meeting, provided that said shares shall be voted as
specified in the matters referred to below which are more fully set out in the
Proxy Statement dated July 17, 1996.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ITEM 1:
Item 1: Election of six persons to the Board of Directors to hold office until
the next Annual Meeting of Shareholders. Robert I. Bogin, Bernard M.
Frank, Nico B.M. Letschert, Craig J. Cox, Philip R. Redmond, Igor R.
Razboff
/ / FOR all nominees listed (except as marked below)
/ / WITHHOLD AUTHORITY to vote for all nominees listed
(To withhold authority to vote for any individual
nominee(s), write name(s) below)
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ITEM 2:
Item 2: Ratification and Approval of an Amendment to the Company's Amended and
Restated 1992 Non-Qualified Stock Option Plan for Non-Employee
Directors expanding the duration of options following a director's
resignation or other termination of service.
/ / FOR / / AGAINST / / ABSTAIN FROM VOTING
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ITEM 3:
Item 3: Ratification and Approval of an Amendment to the Company's Amended and
Restated 1991 Non-Qualified Employee Stock Option Plan increasing the
number of authorized shares of Common Stock issuable under the Plan
from 616,000 to 1,500,000.
/ / FOR / / AGAINST / / ABSTAIN FROM VOTING
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ITEM 4:
Item 4: Ratification and Approval of an Amendment to the Company's Certificate
of Incorporation increasing the authorized number of shares of Common
Stock from 10,000,000 to 25,000,000.
/ / FOR / / AGAINST / / ABSTAIN FROM VOTING
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ITEM 5:
Item 5: Ratification of Ernst & Young LLP as Independent Accountants for the
1997 fiscal year.
/ / FOR / / AGAINST / / ABSTAIN FROM VOTING
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
ITEMS 1, 2, 3, 4, AND 5. THE PROXIES MAY VOTE IN THEIR DISCRETION ON ANY OTHER
MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS AND
POSTPONEMENTS THEREOF.
- -------------------------------------------------------------------------------
Signature
- -------------------------------------------------------------------------------
Signature
Dated:
- -------------------------------------------------------------------------------
Please sign exactly as name appears hereon.
Executors, administrators, trustees, etc.
should so indicate when signing. If shares
are held jointly, each holder should sign.
