SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box: [ ] Confidential, for use of the Commission
[ ] Preliminary Proxy Statement Only (as permitted by Rule 14a-6(3)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HUNGARIAN TELEPHONE AND CABLE CORP.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-16(i)(4) and 0-11.
(1) Title of each class of securities which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
HUNGARIAN TELEPHONE 100 First Stamford Place
AND CABLE CORP. Stamford, CT 06902
Dear Stockholder: April 10, 1997
On behalf of the Board of Directors, I cordially invite you to attend
the Annual Meeting of Stockholders of Hungarian Telephone and Cable Corp. (the
"Company") to be held at 12:00 p.m. local time, on May 16, 1997 at the Marriott
Hotel, 85 West Street, New York, New York 10006.
At the Annual Meeting the holders of Common Stock of the Company will
consider and vote upon the election of directors and the ratification of the
appointment of auditors. The Board of Directors unanimously recommends a vote
"FOR" the election of directors and the ratification of the appointment of
auditors.
The attached Proxy Statement more fully describes the matters to be
voted upon at the Annual Meeting and also includes information concerning the
Company. I urge you to read carefully the information contained in the Proxy
Statement.
I hope that you will be able to attend the Annual Meeting. If you
cannot attend, your shares of Common Stock can be represented by completing,
signing and dating the enclosed proxy, and returning it in the envelope provided
(which requires no postage if mailed in the United States). You may, of course,
withdraw your proxy if you attend the Annual Meeting and choose to vote in
person.
Sincerely,
James G. Morrison
President, Chief Executive Officer and
Director
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP.
100 First Stamford Place
Stamford, Connecticut 06902
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 16, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Hungarian Telephone and Cable Corp., a Delaware corporation (the
"Company"), will be held at the Marriott Hotel, 85 West Street, New York, New
York 10006, on May 16, 1997 at 12:00 p.m., local time, for the following
purposes:
1. To elect seven directors of the Company to serve until the
1998 Annual Meeting of Stockholders or until their successors
have been duly elected and qualified;
2. To ratify the appointment of KPMG Peat Marwick LLP as auditors
of the Company for the fiscal year ending December 31, 1997;
and
to transact such other business as may properly come before the Meeting and any
adjournment or postponement thereof. The Board of Director is not aware of any
other business to come before the Meeting.
The Board of Directors has fixed April 1, 1997, as the record date for
the determination of stockholders entitled to notice of, and to vote at, the
Meeting and any adjournment or postponement thereof. A complete list of
stockholders of record entitled to vote at the Meeting will be maintained in the
offices of the Company's stock transfer agent, Continental Stock Transfer &
Trust Company, 2 Broadway, New York, NY 10004, for ten days prior to the
Meeting.
Whether or not you plan to attend the Meeting in person, please mark,
execute, date and return the enclosed proxy promptly in the envelope provided.
Should you attend the Meeting in person you may, if you wish, withdraw your
proxy and vote your shares in person.
By Order of the Board of Directors,
Peter T. Noone
Secretary
Stamford, Connecticut
April 10, 1997
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A PRE-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP.
PROXY STATEMENT
TABLE OF CONTENTS
Page
INTRODUCTION.................................................................1
Voting Rights and Proxy Information.................................1
Vote Required for Approval..........................................2
Voting Securities...................................................2
Stock Ownership of Certain Beneficial Owners........................2
Stock Ownership of Management.......................................3
Potential Change in Control.........................................5
I. ELECTION OF DIRECTORS....................................................6
General.............................................................6
Nominees for Director...............................................7
Executive Officers Who Are Not Directors............................9
Standard Remuneration of Directors and Other Arrangements...........10
Director Stock Option Plan..........................................10
Executive Compensation..............................................11
Employment Agreements...............................................14
Agreements with Certain Former Directors and Executive Officers.....15
Committees and Meetings of the Board of Directors...................16
Compensation Committee Interlocks and Insider Participation.........17
Certain Relationships and Related Party Transactions................17
Indebtedness of Management..........................................19
Section 16(a) Beneficial Ownership Reporting Compliance.............20
Compensation Committee Report on Executive Compensation.............20
Stock Performance Graph.............................................22
II. RATIFICATION OF THE APPOINTMENT OF AUDITORS.............................23
STOCKHOLDER PROPOSALS........................................................23
OTHER BUSINESS...............................................................23
EXPENSES OF SOLICITATION.....................................................24
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP.
100 First Stamford Place
Stamford, Connecticut 06902
April 10, 1997
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 16, 1997
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Hungarian Telephone and Cable
Corp. (the "Company") to be used at the Annual Meeting of Stockholders of the
Company, to be held at 12:00 p.m. local time, on May 16, 1997 at the Marriott
Hotel, 85 West Street, New York, New York 10006, or at any adjournment or
postponement thereof (the "Meeting"). This Proxy Statement and the accompanying
Notice of Annual Meeting of Stockholders and form of proxy are first being sent
or given to stockholders on or about April 10, 1997.
At the Meeting, the stockholders of the Company are being asked to
consider and vote upon: (i) the election of seven directors of the Company to
serve until the 1998 Annual Meeting of Stockholders or until their successors
are duly elected and qualified; and (ii) the ratification of the appointment of
KPMG Peat Marwick LLP as auditors of the Company for the fiscal year ending
December 31, 1997.
Voting Rights and Proxy Information
All shares of common stock, par value $.001 per share, of the Company
(the "Common Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. If no instructions are
indicated, properly executed proxies will be voted for election of all nominees
for director named below and for the ratification of the appointment of
auditors. The Company does not know of any matters, other than as described in
the Notice of Annual Meeting, that are to come before the Meeting. If any other
matters are properly presented at the Meeting for action, the persons named in
the enclosed form of proxy and acting thereunder will have the discretion to
vote on such matters in accordance with their best judgment. Proxies should not
be sent by the stockholder to the Company, but to Continental Stock Transfer &
Trust Company, the Company's Registrar and Transfer Agent, at 2 Broadway, 19th
Floor, New York, New York 10004. A pre-addressed, postage-paid envelope is
provided for this purpose.
A proxy delivered pursuant to this solicitation may be revoked at any
time before it is voted. Proxies may be revoked by (i) filing with the Secretary
of the Company at or before the Meeting a written notice of revocation bearing a
later date than the proxy, (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Secretary of the Company at or before
the Meeting, or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy). Any written notice revoking a proxy should be delivered to Peter T.
Noone, Secretary, Hungarian Telephone and Cable Corp., 100 First Stamford Place,
Stamford, Connecticut 06902.
-1-
<PAGE>
Vote Required for Approval
The presence, in person or by proxy, of a majority of the shares of
Common Stock entitled to vote is required to constitute a quorum for the
transaction of business at the Meeting. The election of directors requires the
affirmative vote of a plurality of the shares of Common Stock voting in person
or by proxy at the Meeting. Thus, abstentions and proxies returned by brokers as
"non-votes" on behalf of shares held in "street name" will have no effect on the
outcome of the election of directors. Proxies submitted which contain
abstentions or broker "non-votes" will be deemed present at the Meeting in
determining the presence of a quorum.
Your Board of Directors has unanimously approved the nomination of the
persons named herein for election of directors and the appointment of KPMG Peat
Marwick LLP. Accordingly, the Board recommends a vote FOR the election of
directors and the ratification of the appointment of auditors.
Voting Securities
April 1, 1997 has been set as the record date (the "Record Date") for
determining stockholders entitled to notice of, and to vote at, the Meeting. As
of the Record Date, there were outstanding 4,189,626 shares of Common Stock.
Each holder thereof is entitled to one vote per share.
Stock Ownership of Certain Beneficial Owners
The following table sets forth, as of March 21, 1997, certain
information as to those persons who were known by management to be beneficial
owners of more than 5% of the Common Stock.
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name and Address of Beneficial Owner Owned Class
<S> <C>
CU CapitalCorp. 5,704,435(1) 62.7%
c/o Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Robert Genova 321,997(2) 7.2
227 Route 206, Unit 11
Flanders, NJ 07836
Alcatel Austria A/G 228,571(3) 5.5
Kommunikationeplatz
A-1210 Wien
Austria
</TABLE>
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<PAGE>
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(1) Includes 299,219 shares subject to purchase pursuant to a warrant and
4,602,308 shares subject to options granted by the Company to CU
CapitalCorp., all of which are presently exercisable. See "- Potential
Change in Control" and "Election of Directors - Certain Relationships and
Related Party Transactions - The Citizens Agreements."
(2) Includes (i) 197,247 shares subject to an option, exercisable at $4.00 per
share, pursuant to Mr. Genova's former employment contract, (ii) 96,500
shares subject to options, exercisable at $7.00 to $12.25 per share,
granted under the 1992 Incentive Stock Option Plan, as amended, and (iii)
4,650 shares subject to a warrant, exercisable at $3.60 per share, received
in connection with the Company's private placement in August 1992, all of
which are presently exercisable. See "Election of Directors - Employment
Agreements - Agreements with Messrs. Genova, Cohen and Roberton" and
"- Agreements with Certain Former Directors and Executive Officers."
(3) Such shares have been issued, to Alcatel Austria A/G ("Alcatel") under the
terms of a Stock Purchase Agreement, as payment for the Company's purchase
of Central Euro TeleKom, Inc.'s ("CET") 65% interest in Hungarotel
Tavkozlesi Rt. ("Hungarotel"), with the right to increase such interest to
85%, and 45.12% interest (plus a 6% voting interest only) in Papa es
Tersege Telefon Koncesszios Rt. ("Papatel"). CET pledged its interests in
Hungarotel and Papatel to Alcatel and another creditor to secure certain
obligations.
Stock Ownership of Management
The following table sets forth, as of March 21, 1997, certain
information as to the shares of Common Stock beneficially owned by the executive
officers and certain former executive officers of the Company, and as to the
shares of Common Stock beneficially owned by all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name of Beneficial Owner Owned Class
<S> <C>
Current Executive Officers
James G. Morrison 67,500(1) 1.6%
Richard P. Halka 5,000(2) *
Andrew E. Nicholson 46,250(3) 1.1
Peter T. Noone 100 *
Daniel R. Vaughn 40,170(4) 1.0
Directors and Executive Officers as a 170,320(5) 4.0
Group (11 persons)
Former Executive Officers
Robert Genova 321,997(6) 7.2
Frank R. Cohen 112,750(7) 2.6
Donald K. Roberton 200,000(8) 4.6
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</TABLE>
* Less than one percent
-3-
<PAGE>
(1) Consists of 37,500 shares of restricted stock issued and to be delivered,
subject to certain conditions, to Morrison pursuant to an annual vesting
schedule which contemplates the delivery in installments of 12,500 shares
on each October 10th of 1997, 1998 and 1999 pursuant to Mr. Morrison's
employment agreement. It also includes 30,000 shares subject to options
presently exercisable at $8.75 per share granted pursuant to Mr. Morrison's
employment agreement but does not include options to purchase Common Stock
which may be awarded to Mr. Morrison under certain circumstances as
provided in his employment agreement. See "Election of Directors -
Employment Agreements - Agreements with Messrs. Morrison, Nicholson,
Vaughn and Halka."
(2) Consists of 5,000 shares of restricted stock issued and to be delivered,
subject to certain conditions, to Mr. Halka on October 10, 1997 pursuant
to his employment agreement. Does not include options to purchase
Common Stock which may be awarded to Mr. Halka under certain circumstances
as provided in his employment agreement. See "Election of Directors -
Employment Agreements - Agreements with Messrs. Morrison, Nicholson, Vaughn
and Halka."
(3) Consists of 26,250 shares of restricted stock issued and to be delivered,
subject to certain conditions, to Mr. Nicholson pursuant to an annual
vesting schedule which contemplates the delivery in installments of 8,750
shares on each October 10th of 1997, 1998 and 1999 pursuant to Mr.
Nicholson's employment agreement. It also includes 20,000 shares subject to
options presently exercisable at $8.75 per share granted pursuant to Mr.
Nicholson's employment agreement but does not include options to purchase
Common Stock which may be awarded to Mr. Nicholson under certain
circumstances as provided in his employment agreement. See "Election of
Directors - Employment Agreements - Agreements with Messrs. Morrison,
Nicholson, Vaughn and Halka."
(4) Includes 19,000 shares of Common Stock issued to Mr. Vaughn pursuant to his
employment agreement, 10,250 shares of which have been delivered to Mr.
Vaughn and 8,750 of such shares are restricted shares of stock to be
delivered, subject to certain conditions, to Mr. Vaughn on October 10,
1997. It also includes 20,000 shares subject to options presently
exercisable at $8.75 per share granted pursuant to Mr. Vaughn's employment
agreement but does not include options to purchase Common Stock which may
be awarded to Mr. Vaughn under certain circumstances as provided in his
employment agreement. See "Election of Directors - Employment Agreements
- Agreements with Messrs. Morrison, Nicholson, Vaughn and Halka."
(5) Includes shares held directly, as well as shares which such persons have
the right to acquire within 60 days of March 21, 1997 and shares held by
certain members of such persons' families, over which such persons may be
deemed to have sole or shared voting or investment power. Does not include
shares reported to be beneficially owned by CU CapitalCorp. Ronald E.
Spears, a director of the Company, serves as an executive officer of both
the parent company and an affiliate of CU CapitalCorp.
(6) Includes (i) 197,247 shares subject to an option, exercisable at $4.00 per
share, pursuant to Mr. Genova's former employment contract, (ii) 96,500
shares subject to options, exercisable at $7.00 to $12.25 per share,
granted under the 1992 Incentive Stock Option Plan, as amended, and (iii)
4,650 shares subject to a warrant, exercisable at $3.60 per share, received
in connection with the Company's private placement in August 1992, all of
which are presently exercisable. See "Election of Directors - Employment
Agreements - Agreements with Messrs. Genova, Cohen and Roberton" and
"- Agreements with Certain Former Directors and Executive Officers."
(7) Includes (i) 51,750 shares subject to an option, exercisable at $4.00 per
share pursuant to Mr. Cohen's former employment contract and (ii) 36,000
shares subject to options, exercisable at $7.00 to $12.25 per share,
granted under the 1992 Incentive Stock Option Plan, as amended, all of
which are presently exercisable. See "Election of Directors - Employment
Agreements - Agreements with Messrs. Genova, Cohen and Roberton" and
"- Agreements with Certain Former Directors and Executive Officers."
(8) Includes 200,000 shares subject to options, exercisable at $14.00 per
share granted under the 1992 Incentive Stock Option Plan, as amended, all
of which are presently exercisable. See "Election of Directors -
Employment Agreements - Agreements with Messrs. Genova, Cohen and
Roberton" and "- Agreements with Certain Former Directors and Executive
Officers."
-4-
<PAGE>
Potential Change in Control
From May 1995 through October 1996, the Company entered into certain
agreements (as amended and restated in certain cases to date, the "Citizens
Agreements") with CU CapitalCorp. ("CUCC") and Citizens International Management
Services Company ("CIMS"), both of which are wholly-owned subsidiaries of
Citizens Utilities Company (together with CUCC and CIMS, "Citizens"). The
Company entered into the Citizens Agreements for financial, operating,
management and other reasons that the Board of Directors believed to be
consistent with the Company's business requirements and growth strategy. As of
December 31, 1996, Citizens, directly or through subsidiaries, provided
telecommunications, electric distribution, natural gas transmission and
distribution, and water and waste-water treatment services to more than 1.6
million customers in areas in 22 states in the United States.
Pursuant to the Citizens Agreements, Citizens was granted options and a
warrant to purchase shares of the Company's Common Stock in consideration for
Citizens' providing or guaranteeing certain financial support to the Company. As
of March 21, 1997, Citizens beneficially owned 5,704,435 shares of Common Stock,
or 62.7% of the shares that would be outstanding if only Citizens were to
exercise in full all of the options and the warrant held by it, and 58.1% of the
shares outstanding if all outstanding options and warrants, including those held
by Citizens, were exercised. If any or all of the options and the warrant held
by Citizens were exercised, Citizens would be in a position to exert significant
influence on the Company. If all of its options and warrant were exercised,
Citizens would be able to elect all the members of the Company's Board of
Directors so that it would be in control of the Company and be able to
effectively direct corporate transactions. The Citizens Agreements also include
certain preemptive rights, anti-dilution provisions and other adjustments which
are designed to ensure that Citizens is able to maintain its right to acquire
control in the event of, among other things, a change in the capitalization or
number of outstanding shares of the Company.
The Citizens Agreements also provide for representation of Citizens on
the Company's Board of Directors (which representative currently is Ronald E.
Spears) and for the number of directors to be set at no less than six, without
classified or staggered terms. These provisions could facilitate the replacement
of the Company's then-existing Board by Citizens in the event it chooses to
exercise its right to acquire control.
For a more detailed description of certain of the Citizens Agreements,
See "Election of Directors - Certain Relationships and Related Party
Transactions - The Citizens Agreements."
-5-
<PAGE>
I. ELECTION OF DIRECTORS
General
Pursuant to the Company's By-laws, directors are elected to serve for a
one-year term or until their respective successors have been elected and
qualified. Three of the nominees are incumbent directors who were elected at the
last annual meeting of stockholders and four of the nominees are incumbent
directors who were elected to the board by the Board of Directors on July 26,
1996. It is intended that the proxies solicited on behalf of the Board of
Directors (other than proxies in which the vote is withheld as to one or more
nominees) will be voted at the Meeting for the election of the nominees
identified below. If any nominee is unable to serve, the shares represented by
all valid proxies will be voted for the election of such substitute as the Board
of Directors may recommend. At this time, the Board of Directors knows of no
reason why any of the nominees might be unable to serve, if elected. Except as
described below, there are no arrangements or understandings between any
director or nominee and any other person pursuant to which such director or
nominee was selected.
-6-
<PAGE>
Nominees for Director
The table below sets forth certain information, as of March 21, 1997,
regarding the Company's Board of Directors and Executive Officers, including
beneficial ownership of Common Stock.
<TABLE>
<CAPTION>
Shares of
Position(s) Held Director/Officer Common Stock Percent
Name Age in the Company Since Beneficially Owned Owned
Directors
<S> <C> <C> <C> <C>
David A. Finley........... 64 Director July 1996 -- --
Warren B. French, Jr...... 73 Director July 1996 800(1) *
James G. Morrison......... 58 Director, President and December1995 67,500(2) 1.6%
Chief Executive Officer
John B. Ryan.............. 66 Director September 1992 10,500(3) *
James H. Season........... 53 Director September 1995 -- --
Ronald E. Spears.......... 48 Director April 1996 --(4) --
William E. Starkey........ 61 Director July 1996 -- --
- -----------------
</TABLE>
* Less than one percent.
(1) Consists of 400 shares held by Mr. French in a Keogh account and 400 shares
held in an IRA account.
(2) Consists of 37,500 shares of restricted stock issued and to be delivered,
subject to certain conditions, to Morrison pursuant to an annual vesting
schedule which contemplates the delivery in installments of 12,500 shares
on each October 10th of 1997, 1998 and 1999 pursuant to Mr. Morrison's
employment agreement. It also includes 30,000 shares subject to options
presently exercisable at $8.75 per share granted pursuant to Mr. Morrison's
employment agreement but does not include options to purchase Common Stock
which may be awarded to Mr. Morrison under certain circumstances as
provided in his employment agreement. See "- Employment Agreements
- Agreements with Messrs. Morrison, Nicholson, Vaughn and Halka."
(3) Includes 10,000 shares subject to options, exercisable at $7.00 to $12.25
per share, granted under the 1992 Incentive Stock Option Plan, as amended,
all of which are presently exercisable.
(4) Does not include shares reported to be beneficially owned by Citizens.
See "Introduction - Stock Ownership of Certain Beneficial Owners."
Mr. Spears is currently an executive officer of Citizens. See "- Certain
Relationships and Related Party Transactions - The Citizens Agreements."
David A. Finley. Since January 1996, Mr. Finley has been an
Executive Vice President, the Chief Financial Officer and a Director of
Broadway & Seymour, Inc., a software and systems integration company,
whose common stock is traded on the Nasdaq National Market. He
currently is a director of Intelligroup, Inc. Mr. Finley was with IBM
from 1959 to 1989 when he retired as Treasurer. While at IBM, he held
various international and domestic posts involving treasury,
controllership, business development, strategic planning and general
management. He was elected a director of the Company by the Board of
Directors in July 1996.
-7-
<PAGE>
Warren B. French, Jr. Mr. French has been a telecommunications
consultant since 1988. He has served as Chairman of the United States
Telephone Association from 1985 to 1986, President of the Virginia
Telephone Association from 1965 to 1966, Director of the National
Exchange Carrier Association from 1983 to 1993 and President of
Shenandoah Telecommunications Company from 1981 to 1988 and Chairman
from 1988 to 1995. He currently is a director of Orion Network Systems,
Inc. and AvData Systems, Inc. He was elected a director of the Company
by the Board of Directors in July 1996.
James G. Morrison. Mr. Morrison was elected as a director,
President and Chief Executive Officer of the Company by the Board of
Directors in July 1996. Prior to that he was Vice President and Chief
Operating Officer of the Company since December 1995. From May 1994
to December 1994, Mr. Morrison served as a consultant to the Board of
Directors of Anchorage Telephone Utility, Anchorage, Alaska. From
December 1990 to May 1994, Mr. Morrison was General Manager and Chief
Executive Officer of Anchorage Telephone Utility.
John B. Ryan. Mr. Ryan has been a financial consultant since
1988. From 1984 through 1987 he was a Senior Vice President and member
of the Executive Committee of Josephthal & Co., Inc., a member of the
New York Stock Exchange. From 1967 to 1984, he was a General Partner,
Director of Compliance and a member of the Executive Committee of
Herzfeld & Stern, a member of the New York Stock Exchange. He is a
member of the Arbitration Panel of the New York Stock Exchange, the
National Association of Securities Dealers and the American
Arbitration Association. Mr. Ryan was also a director of Hungarian
Teleconstruct Corp. until August 1996.
James H. Season. Mr. Season has been the Chief Financial
Officer of Hungarian Broadcasting Corp. since July 1996. He was a
managing director with RHL Management Group, Inc., based in Greenwich,
Connecticut, from 1990 through 1996, where he was involved in
financial consulting, crisis management, investment banking, and merger
and acquisition work. From 1986 to 1990, Mr. Season was a Group Vice
President, Chief Investment Officer, of Golodetz Trading Corporation,
an international trading firm based in New York City. From 1982 to
1986, Mr. Season was a Managing Director-Investment Banking, for Chase
Manhattan Bank, N.A.
Ronald E. Spears. Mr. Spears has been the Vice
President-Telecommunications of Citizens Utilities Company since 1995.
Prior thereto, he was Managing Director of Russell Reynolds Associates,
an executive search firm based in Chicago, from 1994 to 1995, and was
Chairman and Chief Executive Officer of VideOcart, Inc. ("VideOcart"),
a Chicago-based development-stage public company, from 1991 to 1994.
VideOcart filed for bankruptcy in 1993 and was liquidated in 1994.From
1979 to 1990, Mr. Spears was associated with MCI Telecommunications,
serving as President of MCI Midwest from 1984 to 1990. Mr. Spears is
Citizens' current representative to the Company's Board of Directors
pursuant to the Citizens Agreements. He was nominated and elected a
director of the Company by the Board of Directors in April 1996 and
reelected at the 1996 Annual Meeting of Stockholders.
-8-
<PAGE>
William E. Starkey. Mr. Starkey is currently a consultant. He
was with GTE Corporation from 1964 to 1993, when he retired as a Senior
Executive. While at GTE, he held various posts involving operations,
marketing and customer service, regulatory, human resources,
information systems, management and planning. He was the Chairman of
the Tampa Chamber of Commerce in 1990 and the Chairman of Enterprise
Corporation from 1994 to 1996 (a private non-profit organization, with
over 60 employees providing management, technical and financial
assistance to small- and medium-sized companies.) He was elected a
director of the Company by the Board of Directors in July 1996.
Executive Officers Who Are Not Directors
Richard P. Halka. Mr. Halka, age 37, was appointed to the
position of Deputy Controller of the Company in December 1995 and
became Controller in July 1996 and is the Company's principal
accounting officer, responsible for all accounting matters. Mr. Halka,
a chartered accountant, was previously the partner in charge of
management consulting for the Budapest office of KPMG Hungaria. Mr.
Halka was appointed to the partnership of KPMG in January 1989 and has
worked extensively internationally providing financial management and
information systems consulting services.
Andrew E. Nicholson. Mr. Nicholson, age 46, was appointed
to the position of Controller of the Company in December 1995. In
July 1996, Mr. Nicholson was appointed to the position of Senior Vice
President - Finance. Mr. Nicholson, a chartered accountant, is
responsible for all financial matters including the negotiation of
financing transactions and compliance with existing credit
arrangements. From June 1995 to December 1995, Mr. Nicholson was a
part-time consultant to the Company. From March 1995 to November 1995,
Mr. Nicholson served as General Manager of the Budapest office
of Postern Executive Group Ltd., a restructuring and turn-around
management firm. From August 1993 to March 1995, he served as Managing
Director of Vaci Kotottarugyar Rt., a Hungarian textile company, where
he was responsible for financial and operational restructuring. From
March 1990 to March 1995, Mr. Nicholson was a self-employed consultant,
specializing in turn-around management and privatization.
Peter T. Noone. Mr. Noone, age 34, was appointed General
Counsel and Secretary of the Company in November 1996. For six years
prior to such appointment Mr. Noone practiced law with two law firms
in New York City and Washington, D.C.
Daniel R. Vaughn. Mr. Vaughn, age 50, was appointed Director
of Operations of the Company in November 1995 and became Vice President
and Chief Operating Officer in July 1996. Mr. Vaughn, a 31-year
telecommunications professional, gained his executive level experience
as Manager of the Telephone Division of the Ketchikan Public Utility,
Chief Operations Officer of the Anchorage Telephone Utility, and
as President of his own telecommunications consulting company.
-9-
<PAGE>
Standard Remuneration of Directors and Other Arrangements
For meetings of the Board of Directors or committees of the
Board of Directors held prior to July 1996, the Company did not pay its
directors any fees for attendance at such meetings but did reimburse
the directors for out-of-pocket expenses incurred in connection with
attendance at such meetings. Effective July 1996, the Board adopted a
compensation plan pursuant to which directors who are not officers or
employees of the Company or any of its 10% shareholders are to be paid,
in addition to the reimbursement of out-of-pocket expenses, fees of
$1,200 for attendance at meetings in the United States, $2,000 for
attendance at meetings in Hungary and $800 for meetings held via
telephonic conference call. For committee meetings, the directors are
paid $500 ($900 for the Chairman) for attendance at meetings and $300
($500 for the Chairman) for meetings held via telephonic conference
call.
From May 1995 through July 1996, Mr. Season provided financial
consulting services to the Company on a month-to-month basis for which
he was paid $28,000 in 1995 and $32,600 in 1996.
Director Stock Option Plan
In January 1997, the Board adopted the Hungarian Telephone and
Cable Corp. Non-Employee Director Stock Option Plan (the "Director
Stock Option Plan") for the Company's directors who are not officers or
employees of the Company or any of its 10% shareholders. Presently,
Messrs. Finley, French, Ryan, Season and Starkey are eligible for
participation in the Director Stock Option Plan.
The Director Stock Option Plan has 250,000 shares of Common
Stock available for issuance pursuant to options to the eligible
directors. The Compensation-Stock Option Committee administers the
Director Stock Option Plan. The options will have ten-year terms and
may not be transferred other than by will or the laws of descent and
distribution.
Under the Director Stock Option Plan, the Company will
initially grant options to purchase 5,000 shares of Common Stock to
Messrs. Finley, French, Ryan, Season and Starkey on May 16, 1997 with
an exercise price per share equal to the fair market value of a share
of Common Stock on the date of such grant. The options will become
exercisable on the date of such grant as compensation for the
directors' service from 1996 to 1997.
Beginning with the 1997 Annual Meeting of Stockholders, as of
the date each year that any non-employee director is elected or
re-elected to serve as a director by the stockholders of the Company at
the Annual Meeting of Stockholders of the Company, each non-employee
director shall be automatically granted an option to purchase 5,000
shares of Common Stock with an exercise price per share equal to the
fair market value of a share of Common Stock on the date of such grant.
Each automatic grant of any such options shall vest in the Optionee,
and thus become exercisable, at the earlier of (x) the date of the next
Annual Meeting of Stockholders of the Company, or (y) one year from the
date of such annual grant.
-10-
<PAGE>
Executive Compensation
The following table sets forth certain information, for each
of the Company's last three fiscal years, with respect to compensation
awarded to, earned by or paid to the Company's Chief Executive Officer
and each of the executive officers of the Company whose total annual
salary and bonus exceeded or would have exceeded $100,000 during the
fiscal year ended December 31, 1996 (collectively, the "Named
Executives").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards
Other
Annual Restricted Securities All Other
Compensation Stock Underlying Compensation
Name and Principal Year Salary Bonus ($)(3) Award(s) Options ($)(5)
Position ($)(1) ($)(2) ($)(4) (#)
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------- -------- ---------- ---------- ------------- ------------- ---------------- --------------
Robert Genova 1996 98,000 -- -- -- -- 251,736
President and Chief 1995 151,500 -- -- -- 46,500 --
Executive Officer (until 1994 104,000 -- -- -- 197,247 --
July 31, 1996)
- -------------------------- -------- ---------- ---------- ------------- ------------- ---------------- --------------
Frank R. Cohen 1996 70,000 -- -- -- -- 125,868
Chief Financial Officer, 1995 105,000 -- -- -- 31,000 --
Treasurer and Secretary 1994 75,000 -- -- -- 51,750
(until
July 31, 1996)
- -------------------------- -------- ---------- ---------- ------------- ------------- ---------------- --------------
Donald K. Roberton 1996 78,472 -- -- -- 200,000 125,868
Vice-Chairman (until 1995 -- -- -- -- -- --
July 31, 1996) 1994 -- -- -- -- -- --
- -------------------------- -------- ---------- ---------- ------------- ------------- ---------------- --------------
James G. Morrison 1996 140,978 63,125 41,000 -- -- --
President and Chief 1995 29,355 -- 9,000 512,500 -- --
Executive Officer (since 1994 -- -- -- -- -- --
August 1, 1996)
- -------------------------- -------- ---------- ---------- ------------- ------------- ---------------- --------------
Richard P. Halka 1996 126,580 -- 39,000 -- -- --
Controller (since August 1995 2,150 -- -- -- -- --
1, 1996) 1994 -- -- -- -- -- --
- -------------------------- -------- ---------- ---------- ------------- ------------- ---------------- --------------
Andrew E. Nicholson 1996 131,000 18,938 41,000 -- -- --
Senior Vice President, 1995 15,625 -- 4,500 358,750 -- --
Finance (since August 1, 1994 -- -- -- -- -- --
1996)
- -------------------------- -------- ---------- ---------- ------------- ------------- ---------------- --------------
Daniel R. Vaughn 1996 125,069 18,938 39,000 -- -- --
Chief Operating Officer 1995 9,167 -- 3,000 183,750 -- --
(since August 1, 1996) 1994 -- -- -- -- -- --
- -------------------------- -------- ---------- ---------- ------------- ------------- ---------------- --------------
</TABLE>
-11-
<PAGE>
(1) Consists of salaries paid pursuant to employment agreements. See "-
Employment Agreements - Agreements with Messrs. Morrison, Nicholson, Vaughn
and Halka."
(2) Consists of bonus awards of 5,000, 1,500 and 1,500 shares of Common Stock
issued to Messrs. Morrison, Nicholson and Vaughn, respectively, pursuant to
their amended and restatement employment agreements. The valuation is based
on the fair market value of the stock price on the date of award. See "-
Employment Agreements - Agreements with Messrs. Morrison, Nicholson, Vaughn
and Halka."
(3) Consists of housing and vacation allowances pursuant to employment
agreements. See "- Employment Agreements - Agreements with Messrs.
Morrison, Nicholson, Vaughn and Halka."."
(4) Consists of awards of 50,000, 35,000 and 17,500 shares of restricted stock
to Messrs. Morrison, Nicholson and Vaughn, respectively, pursuant to their
amended and restatement employment agreements. Of Mr. Morrison's 50,000
restricted shares, 12,500 shares vested and were transferred to Mr.
Morrison on October 10, 1996 and 12,500 shares are to be vested and
transferred on each October 10th of 1997, 1998 and 1999. Of Mr. Nicholson's
35,000 restricted shares, 8,750 shares vested and were transferred to Mr.
Nicholson on October 10, 1996 and 8,750 shares are to be vested and
transferred on each October 10th of 1997, 1998 and 1999. Of Mr. Vaughn's
17,500 restricted shares, 8,750 shares vested and were transferred to Mr.
Vaughn on October 10, 1996 and the remaining 8,750 shares are to be vested
and transferred on October 10, 1997. The aggregate number of the restricted
shares as of December 31, 1996 for Messrs. Morrison, Nicholson and Vaughn
was 37,500, 26,250 and 8,750, respectively, with a value of $351,563,
$246,094 and $82,031, respectively. The restricted shares are eligible for
dividends if the Company were to declare any dividends. See "- Employment
Agreements - Agreements with Messrs. Morrison, Nicholson, Vaughn and
Halka."
(5) Consist of amounts paid during 1996 to Messrs. Genova, Cohen and Roberton
pursuant to their respective Termination and Release Agreement, Consulting
Agreement and Noncompetition Agreement. See "- Agreements with Certain
Former Directors and Executive Officers."
-12-
<PAGE>
The following table sets forth certain information with respect to
options granted to the Named Executives during the fiscal year ended December
31, 1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term
Number of Percent of Total Exercise
Securities Options Granted Price on
Underlying to Employees in Date of Expiration
Name Options Granted Fiscal Year Grant Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Donald K. Roberton 200,000 100% $14.00 7/26/2001 39,726 783,385
</TABLE>
The following table summarizes the exercise of stock options during
fiscal 1996 by the Named Executives and provides information as to the
unexercised stock options held by them at the end of the fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Acquired Options at Fiscal Year End at Fiscal Year End
Name on Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
<S> <C> <C> <C> <C>
Robert Genova -- -- 293,747/-- $1,178,953/--
Frank R. Cohen -- -- 87,750/-- $ 290,031/--
Donald K. Roberton -- -- 200,000/-- --/--
</TABLE>
(1) Calculated by multiplying the number of shares underlying the options by
the difference between the exercise prices of such in-the-money unexercised
options and the last reported sale price for the Common Stock reported by the
American Stock Exchange on December 31, 1996. See "- Employment Agreements -
Agreements with Messrs. Genova, Cohen and Roberton."
-13-
<PAGE>
Employment Agreements
Agreements with Messrs. Genova, Cohen and Roberton. In 1994 and
1995, the Company entered into employment agreements, as amended, with
Messrs. Genova and Cohen. The contracts were for five-year terms and
provided for annual salaries for Messrs. Genova and Cohen of $168,000,
and $120,000, respectively. The agreements also provided for the grant
of non-qualified options to purchase 197,247 and 51,750 shares of
Common Stock to Messrs. Genova and Cohen, respectively, at an exercise
price of $4.00 per share. The employment agreements provided that if
the employee resigned from the Company due to certain changes in
management or in the event of the termination of that employee's
employment by the Company for any reason other than "cause" as defined
in such contracts, the employee would be entitled to a two-year
continuation of salary.
In April 1996, the Board of Directors approved a four-year
employment contract between the Company and Donald K. Roberton, then a
director, to become Vice-Chairman of the Company for an annual salary
of $250,000.
In addition, in April 1996, the Board of Directors authorized
the advance by the Company of $250,000 to Mr. Roberton for the purpose
of replacing an advance made to Mr. Roberton by Citizens, his former
employer, in connection with the purchase of his principal residence.
Principal and interest payments on the note were to be payable annually
over a five-year period at the short-term federal funds rate published
by the Internal Revenue Service. The Company was granted a security
interest on the residence. On February 13, 1997, Mr. Roberton paid off
the loan in full with interest.
Agreements with Messrs. Morrison, Nicholson, Vaughn and Halka.
In October 1996, James G. Morrison, Andrew E. Nicholson and Daniel R.
Vaughn entered into amended and restated employment agreements with the
Company which were effective as of July 26, 1996 (the date such
executive officers were elected to their current positions). The
agreements provide for a four-year term and for an annual salary of
$165,000, in the case of Mr. Morrison, and $145,000 in the case of
Messrs. Nicholson and Vaughn. The agreements provide for the grant of
50,000, 35,000 and 17,500 restricted shares of Common Stock to Messrs.
Morrison, Nicholson and Vaughn, respectively, with such shares
scheduled to vest in installments over the term of the agreements in
the case of Messrs. Morrison, and Nicholson and over two years in the
case of Mr. Vaughn. In October 1996, 12,500, 8,750 and 8,750 shares
vested and were released to Messrs. Morrison, Nicholson and Vaughn,
respectively. The continued vesting of the shares to such officers is
conditioned on their continued employment with the Company and the
officers may not sell or otherwise transfer the shares until any such
shares are released to such officers. In addition, in October 1996 the
Company awarded Messrs. Morrison, Nicholson and Vaughn 5,000, 1,500 and
1,500 shares of Common Stock, respectively, as consideration for, among
other things, their agreement to amend their prior employment
agreements and to waive rights to certain benefits under such prior
employment agreements.
The agreements for Messrs. Morrison, Nicholson and Vaughn also
provide for the annual award of five-year options to purchase a target
of 30,000, 20,000 and 20,000 shares of Common Stock, respectively,
subject to adjustment, based on the achievement of certain objectives
to be set by the Compensation-Stock Option Committee of the Board of
Directors each year. In March 1997, for their performance in 1996, the
Company granted Messrs. Morrison, Nicholson and Vaughn options to
purchase 30,000, 20,000 and 20,000 shares of Common Stock,
respectively, at an exercise price of $8.75 per share.
-14-
<PAGE>
In January 1997, the Company entered into an amended and
restated employment agreement with Richard P. Halka, the Company's
controller which was effective as of July 26, 1996, the date Mr. Halka
was promoted to Controller.
Mr. Halka's employment agreement provides for a four-year term
with an annual salary of $140,000. The Company awarded Mr. Halka 5,000
restricted shares of Common Stock which will vest in October 1997
conditioned on Mr. Halka's continued employment with the Company. For
performance beginning in 1997, Mr. Halka will be entitled to receive an
annual award of options to purchase a target of 15,000 shares of Common
Stock based on the achievement of certain objectives to be established
by the Compensation-Stock Option Committee.
The employment agreements for Messrs. Morrison, Nicholson,
Vaughn and Halka provide that, if employment is terminated by the
Company other than for cause, or if the employee suffers a demotion
other than for cause or if there is a change in control of the Company,
the employee has the right to terminate the agreement. In the event of
any such termination, the employee will be entitled to receive, (i)
nine months' salary and allowances, (ii) all restricted shares, whether
vested or unvested as of the date of termination, (iii) payment of any
accrued entitlement to salary, expenses and allowances, and (iv) a
pro-rata share of stock options, if any, to be awarded under the
agreement at the end of such year of termination.
The employment agreements for Messrs. Morrison, Nicholson,
Vaughn and Halka also provide for housing allowances of $3,000 per
month, comprehensive health coverage for the executive officers and
their immediate families, paid vacation and leave, and the payment of
certain taxes and other costs assessed by the Hungarian government as a
result of their noncitizen employee status in Hungary.
Agreements with Certain Former Directors and Executive Officers
On July 26, 1996, the Company entered into a Termination and
Release Agreement, a Consulting Agreement and a Noncompetition
Agreement with each of Messrs. Genova, Cohen, and Roberton, and each of
Messrs. Cohen, Genova and Roberton executed irrevocable proxies
appointing the Company his proxy in voting his shares of Common Stock.
Pursuant to the Termination and Release Agreements, Messrs. Genova,
Cohen and Roberton resigned as employees, officers and directors of the
Company and its subsidiaries and affiliates. In full and final
satisfaction of the Company's obligations to Messrs. Genova, Cohen and
Roberton arising out of their respective employment arrangements, the
Company agreed to pay Messrs. Genova, Cohen and Roberton $536,000,
$452,000 and $700,000 in the aggregate, respectively, in 72 equal,
consecutive, monthly, non-interest bearing installments beginning on
August 31, 1996. The Company also granted a five-year option to Mr.
Roberton to purchase 200,000 shares of HTCC common stock at $14.00 per
share. Messrs. Genova, Cohen and Roberton will retain all of their
stock options granted pursuant to their respective employment
arrangements, which were terminated, and certain stock option
agreements.
-15-
<PAGE>
Pursuant to the Consulting Agreements between the Company and
each of Messrs. Genova, Cohen and Roberton, respectively, each of
Messrs. Genova, Cohen and Roberton agreed to provide up to 200 hours
each year of certain consulting services to the Company for a two-year
period, in the case of Messrs. Genova and Cohen, and a five-year
period, in the case of Mr. Roberton. For such services, HTCC agreed to
pay Messrs. Genova, Cohen and Roberton $926,700, $408,150 and $333,750
in the aggregate, respectively, in 72 equal, consecutive, monthly,
non-interest bearing installments beginning on August 31, 1996.
Pursuant to the Noncompetition Agreements between the Company
and each of Messrs. Genova, Cohen and Roberton, respectively, Messrs.
Genova, Cohen and Roberton each agreed that, for a period of six years,
they will not engage in, or have any financial interest in, any
business competing with, or which may compete with, the business of the
Company or any of its affiliates within the Republic of Hungary or any
countries bordering the Republic of Hungary. The agreements provide
that Messrs. Genova, Cohen and Roberton may retain and/or acquire a
financial interest in and serve as a director, officer, employee,
consultant or adviser to Hungarian Teleconstruct Corp. for the purpose
of developing, promoting or managing an Internet access business within
any part of Europe. Messrs. Genova, Cohen and Roberton also agreed not
to solicit for employment any of the current employees of the Company.
In consideration of such agreements not to compete, the Company agreed
to pay Messrs. Genova, Cohen and Roberton $2,162,300, $952,350 and
$778,750 in the aggregate, respectively, in 72 equal, consecutive,
monthly, non-interest bearing installments beginning on August 31,
1996.
Pursuant to the irrevocable proxies executed by Messrs.
Genova, Cohen and Roberton, each of Messrs. Genova, Cohen and Roberton
appointed the Company as his proxy for a six year period to vote his
shares of the Company's stock currently owned or subsequently acquired.
Committees and Meetings of the Board of Directors
During the Company's fiscal year ended December 31, 1996, the
Board of Directors held 13 meetings. Each of the incumbent directors
attended at least 75% of the meetings of the Board of Directors and of
each Committee on which he served that were held during the 1996 fiscal
year while he was serving as a director and a member of such Committee.
The Company has standing Audit and Compensation-Stock Option
Committees. The full Board of Directors acts as a nominating committee
for the annual selection of its nominees for election as directors.
While the Board of Directors will consider nominees recommended by
stockholders, it has not actively solicited such nominations. Such
nominations, together with appropriate biographical information, should
be submitted to the Secretary of the Company at least 60 days prior to
the annual meeting.
From January 1, 1996 through August 27, 1996, the Audit
Committee consisted of James H. Season and John B. Ryan. Since August
27, 1996, the Audit Committee has consisted of David A. Finley, Warren
B. French, Jr. and William E. Starkey. This committee has the duties
of recommending to the Board of Directors the appointment of
independent auditors, reviewing their charges for services, reviewing
the scope and results of the audits performed, reviewing the adequacy
and operation of the Company's internal auditing, and performing such
other duties or functions with respect to the Company's accounting,
financial and operating controls as deemed appropriate by it or the
Board of Directors. During the fiscal year ended December 31, 1996 the
Audit Committee held 1 meeting.
-16-
<PAGE>
From January 1, 1996 through April 12, 1996 the Compensation
Committee consisted of Donald K. Roberton, John B. Ryan and James H.
Season. From April 12, 1996 through May 9, 1996 the Compensation
Committee consisted of John B. Ryan and James H. Season. On May 9,
1996, the Board added Ronald E. Spears to the Compensation Committee
and formed a Stock Option Committee consisting of John B. Ryan, James
H. Season and Ronald E. Spears. On August 27, 1996, the Board of
Directors disbanded the existing Compensation and Stock Option
Committees and formed one Compensation-Stock Option Committee which
consists of Warren B. French, Jr., Ronald E. Spears and William E.
Starkey. The function of this committee is to administer the 1992
Incentive Stock Option Plan, as amended, and the Director Stock
Option Plan, and advise the Board regarding the compensation of
officers. The Compensation-Stock Option Committee held 3 meetings
during the fiscal year ended December 31, 1996.
Compensation Committee Interlocks and Insider Participation
From January 1, 1996 through April 12, 1996 the Compensation
Committee consisted of Donald K. Roberton, John B. Ryan and James H.
Season. From April 12, 1996 through May 9, 1996 the Compensation
Committee consisted of John B. Ryan and James H. Season. On May 9,
1996, the Board added Ronald E. Spears to the Compensation Committee
and formed a Stock Option Committee consisting of John B. Ryan, James
H. Season and Ronald E. Spears. On August 27, 1996, the Board of
Directors disbanded the existing Compensation and Stock Option
Committees and formed one Compensation-Stock Option Committee which
consists of Warren B. French, Jr., Ronald E. Spears and William E.
Starkey. Mr. Roberton was the Vice-Chairman of the Company until
July 31, 1996. Mr. Spears is currently an officer of Citizens which
has entered into certain transactions with the Company. See "-
Certain Relationships and Related Party Transactions - The Citizens
Agreements." James H. Season became Chief Financial Officer of
Hungarian Broadcasting Corp. ("Broadcasting") in July 1996. Frank R.
Cohen, a former executive officer and director of the Company,
was a director and officer of Broadcasting during 1996.
Certain Relationships and Related Party Transactions
The Citizens Agreements
On February 26, 1996, the Company and Citizens entered into,
among other agreements, a Second Loan Agreement pursuant to which
Citizens agreed to lend the Company up to $46.0 million (the
"Additional CUCC Financial Support") in addition to $33.2 million of
financial support previously provided by Citizens, which $46.0 million
included (i) an advance of up to $16.0 million to enable the Company to
satisfy its obligations to Citibank, N.A. if Citibank, N.A.'s payment
obligations to Magyar Tavkozlesi Rt. (Matav) (the formerly
State-controlled monopoly) arose pursuant to its payment guaranty to
secure the Company's subsidiary Hungarotel's asset purchase and (ii)
advances of up to $30.0 million, composed of up to $20.0 million for
certain limited purposes and up to $10.0 million reserved for
anticipated obligations under construction contracts to be approved by
Citizens. Consideration for Citizens' commitment to provide the
Additional CUCC Financial Support included (i) the Company's agreement
to waive certain rights to pay fees in Common Stock to Citizens which
fees are payable under certain agreements with Citizens including the
prior Citizens Loan Agreement and the Management Services Agreement
with Citizens, and (ii) the issuance of an additional 250,000 shares of
Common Stock to Citizens. Citizens' commitment to provide the loan
advances of up to $16.0 million in connection with the Hungarotel asset
purchase would have expired on the earlier of June 28, 1996 or the
termination of Citibank, N.A.'s payment guaranty. Citizens' commitment
to provide loan advances in connection with the remaining $30.0 million
of Additional CUCC Financial Support would have expired on June 28,
1996, with respect to the $10.0 million reserved for obligations under
construction contracts, and on April 30, 1996, with respect to the
$20.0 million reserved for other limited purposes. During 1996, the
Company paid Citizens $5,865,000 pursuant to its management services
agreement with Citizens.
-17-
<PAGE>
The Second Loan Agreement provided for customary events of
default and remedies, and cross-defaults under a Master Agreement and a
Pledge Agreement between the Company and Citizens. Advances made under
the Second Loan Agreement accrued interest at a variable rate equal to
prime (as published in The Wall Street Journal) plus 2% per annum,
payable quarterly in cash. The maturity date of the loans under the
Second Loan Agreement was July 25, 1997.
On March 29, 1996, the Company entered into a $75.0 million
Secured Term Loan Credit Facility (the "CNA Credit Facility") and,
together with HTCC Consulting Rt. (a wholly-owned subsidiary of the
Company), a related Pledge and Security Agreement with Citicorp North
America, Inc. ("CNA"). The Company used the funds from such credit
facility to repay all the funds advanced or guaranteed by Citizens
which resulted in the termination of all the Company's loan agreements
with Citizens.
On October 16, 1996, the Company and its Hungarian
subsidiaries entered into a $170 million 10-year Multi-Currency Credit
Facility (the "Postabank Credit Facility") with Postabank Rt., a
Hungarian commercial bank ("Postabank"). The proceeds from the initial
drawdown on such facility were used, among other things, to repay CNA
all amounts due under the CNA Credit Facility.
In connection with the Postabank Credit Facility, on October
18, 1996, the Company entered into certain agreements with Citizens
pursuant to which, among other things, the Company (x) extended to
September 12, 2000 the exercise periods of a Warrant and certain Stock
Options to purchase shares of the Company's Common Stock held by
Citizens, (y) granted Citizens the option to purchase an additional
875,850 shares of Common Stock at an exercise price of $12.75,
exercisable at any time through September 12, 2000 and (z) paid
Citizens $750,000. Entering into such agreements and paying such fees
by the Company was in consideration of Citizens (i) issuing CNA a
letter of comfort and a letter indemnifying CNA against all events of
political currency exchange and other cross-border risks in connection
with the CNA Credit Facility, (ii) negotiating the effective
cancellation of a $750,000 contingent commitment fee payable by the
Company to CNA in connection with the CNA Credit Facility to a date
beyond the repayment date of the CNA Credit Facility resulting in a
$750,000 savings to the Company, (iii) negotiating a $2,000,000
interest credit payable to Hungarotel by Postabank pursuant to the
Postabank Credit Facility, (iv) issuing a letter of support to
Postabank in connection with the Postabank Credit Facility and (v)
providing assurances to CNA of the repayment by the Company of any and
all amounts owned to CNA by October 15, 1996 in connection with the CNA
Credit Facility. Certain provisions of the agreements between the
Company and Citizens are described below.
The First Amendment to Warrant between the Company and
Citizens entered into as of October 18, 1996 between the Company and
Citizens amended the Warrant to Purchase Shares of Common Stock of
Hungarian Telephone and Cable Corp. dated May 31, 1995, issued by the
Company to Citizens to extend the exercise period of the Warrant to
purchase 299,219 shares of Common Stock from May 31, 1997 to September
12, 2000.
The First Amendment to Stock Option Agreement entered into as
of October 18, 1996 between the Company and Citizens amended the Stock
Option Agreement between the Company and Citizens dated as of May 31,
1995 to extend the exercise period for each of the Two-Year Option,
Three-Year Option and Four-Year Option from September 12, 1997,
September 12, 1998 and September 12, 1999, respectively, to September
12, 2000.
-18-
<PAGE>
The Third Stock Option Agreement entered into as of October
18, 1996 between the Company and Citizens provided for the grant by the
Company to Citizens of an option to purchase 875,850 shares of Common
Stock at an exercise price of $12.75 exercisable at any time through
September 12, 2000.
Other Relationships and Transactions
In April 1996, the Company purchased a residential condominium
unit from Hungarian Teleconstruct Corp. ("Teleconstruct") for $250,000
for the purposes of housing expatriates and other professionals
performing services for the Company. In May 1996, the Company completed
the purchase of the office space it was leasing from Teleconstruct for
$393,000. Management of the Company determined the sales prices for
such transactions following a review of the Budapest, Hungary real
estate market. Management of the Company believes that such
transactions were on terms no less favorable to the Company than could
have been obtained in an arm's-length transaction with an independent
third party. Frank Cohen and Robert Genova, former officers and
directors of the Company, were each an officer and director of
Teleconstruct during 1996. John Ryan, a director of the Company, was a
director of Teleconstruct until August 1996.
During 1996, the Company paid Cohen & Cohen approximately
$146,000 for legal fees. Frank R. Cohen, a former director and officer
of the Company, is a partner at Cohen & Cohen.
For descriptions of certain employment agreements and other
arrangements with current and former directors and executive officers
of the Company. See "- Standard Remuneration of Directors and Other
Arrangements," "- Director Stock Option Plan," "- Agreements with
Certain Former Directors and Executive Officers" and "- Compensation
Committee Interlocks and Insider Participation."
Indebtedness of Management
In April 1996, the Board of Directors authorized the advance
by the Company of $250,000 to Mr. Roberton for the purpose of replacing
an advance made to Mr. Roberton by Citizens, his former employer, in
connection with the purchase of his principal residence. Principal and
interest payments on the note were to be payable annually over a five-
year period at the short-term federal funds rate published by the
Internal Revenue Service. The Company was granted a security interest
on the residence. On February 13, 1997, Mr. Roberton paid off the loan
in full with interest.
-19-
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as
amended, requires the Company's directors, executive officers and
beneficial owners of over 10% of the Common Stock to file reports of
holdings and transactions in the Common Stock. Based upon a review of
the Forms 3, 4 and 5 required to be filed by such directors, executive
officers and beneficial owners pursuant to Section 16(a) for the
Company's fiscal year ended December 31, 1996, the Company has
identified the following number of untimely filed reports or unfiled
reports covering the number of transactions indicated: Mr. Genova
failed to file one report on one transaction; Mr. Roberton filed one
report late covering one transaction; and Messrs. Finley, French,
Spears and Starkey did not timely file reports of initial beneficial
ownership of securities on Form 3.
Compensation Committee Report on Executive Compensation
From January 1, 1996 to April 12, 1996, Donald K. Roberton,
John B. Ryan and James H. Season were members of the Compensation
Committee. From April 12, 1996 through May 9, 1996 the Compensation
Committee consisted of John B. Ryan and James H. Season. On May 9,
1996, the Board added Ronald E. Spears to the Compensation Committee
and formed a Stock Option Committee consisting of John B. Ryan, James
H. Season and Ronald E. Spears. On August 27, 1996 the Board of
Directors disbanded the existing Compensation and Stock Option
Committees and formed one Compensation-Stock Option Committee which
consists of Warren B. French, Jr., Ronald E. Spears and William E.
Starkey.
Executive Officer Compensation Policy
General. The Company's compensation policy is designed to
motivate, reward and retain the managerial and technical talent needed
to achieve the Company's business objectives. This policy provides for
incentives to achieve short- and long-term objectives and reward
exceptional performance and accomplishments that contribute to the
Company's business. Compensation arrangements for the Company's
executive officers have been designed to align such compensation with
the achievement of the Company's business objectives and growth
strategy. The Company has sought to achieve such alignment through
employment contracts providing for fixed base salaries and stock-based
awards, as well as through the grant of stock options.
Employment Contracts. The Company entered into an employment
agreement with each of its executive officers effective with the
individual's appointment to an executive position. Employment
agreements for all executive officers, including the Chief Executive
Officer, have been for terms of four or five years, and provide for
fixed annual salaries over their terms. Base salaries are initially
established through negotiations with the executive officer during the
hiring process.
U.S.- Based Executive Officers
With respect to the Company's former U.S.-based executive
officers, the Company granted stock options, in addition to base
salaries, to each executive officer in order to provide incentive for
each executive officer to increase corporate performance which in turn,
would increase shareholder value. The Company's former Chief Executive
Officer, Robert Genova's compensation in 1996 was based on his 1995
employment contract. Such contract included stock options which, in
addition to providing incentive to Mr. Genova to increase corporate
performance, reflected Mr. Genova's role in (i) the award in 1994 of
rights to provide local telecommunications services in designated areas
-20-
<PAGE>
in Hungary to two of the Company's Hungarian operating subsidiaries and
the purchase from Matav in 1995 of the operating assets for such
subsidiaries, (ii) the Company's receipt of revenues from the
commencement of operations in 1995 of such operating subsidiaries,
(iii) the financial, managerial, operating and other support obtained
in 1995 through the Citizens Agreements, and (iv) the addition of three
additional operating areas within the Republic of Hungary which doubled
the number of access lines operated by the Company.
Hungarian-Based Executive Officers
With respect to the Company's Hungarian-based executive
officers, the Company entered into employment agreements which provided
for the grant of restricted shares of Common Stock subject to a vesting
schedule. The Company granted restricted shares of Common Stock to each
executive officer, including James G. Morrison, the Company's Chief
Executive Officer, in order to induce Mr. Morrison and the other
executive officers to become and remain an officer of the Company. The
effect of the agreements with executive officers is to provide an
incentive for the executives to remain with the Company while aligning
the interests of such executives with those of the shareholders of the
Company generally. Each executive officer now has a direct interest in
remaining with the Company and enhancing corporate performance since
his ownership interest is contingent upon remaining with the Company
and the value of such interest is directly related to the performance
of the Company.
In addition to the restricted stock grants, the employment
agreements for the Hungarian-based executive officers provide for the
annual award of options to purchase shares of Common Stock. In March
1997, the Company awarded Messrs. Morrison, Nicholson and Vaughn
options to purchase 30,000, 20,000 and 20,000 shares of Common Stock,
respectively. The Company awarded such options to reward such executive
officers for the 1996 performance of the Company as measured against
certain financial, operational and accounting objectives set by the
Company.
The salaries of the Hungarian-based executive officers were
increased in August 1996 to reflect the increased responsibilities by
Messrs. Morrison, Halka, Nicholson and Vaughn as a result of their
promotions which resulted from a strategic shift in most executive
functions from the United States to Hungary. The Company felt that the
geographic shift was necessary so that the major day-to-day decisions
of the Company would be made by those officers closest to the Company's
operations.
For a description of certain provisions of the Company's
current employment contracts with its executive officers, See
"- Employment Agreements."
In 1993, Section 162(m) was added to the Internal Revenue Code
of 1986, as amended, the effect of which is to eliminate the
deductibility of compensation of over $1 million, with certain
exceptions, paid to each of certain highly compensated executive
officers of publicly held corporations, such as the Company. Section
162(m) applies to all remuneration (both cash and non-cash) that would
otherwise be deductible for tax years beginning on or after January 1,
1994, unless expressly excluded. Because the compensation of each of
the Company's current executive officers is well below the $1 million
threshold, the Company has not yet considered its policy regarding this
provision.
Warren B. French, Jr.
Ronald E. Spears
William E. Starkey
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<PAGE>
Stock Performance Graph
The line graph below compares the cumulative total stockholder
return of the Company's Common Stock to the cumulative total return of
(i) the American Stock Exchange Market Index and (ii) a
telecommunications industry index, for the period commencing January 1,
1993 through December 31, 1996. The Common Stock was first listed for
quotation on the Nasdaq Small-Cap Market on December 28, 1992 and was
quoted on the Nasdaq National Market from December 8, 1994 through
December 19, 1995. On December 20, 1995, the Common Stock began trading
on the American Stock Exchange. The graph assumes that $100 was
invested on January 1, 1993, with dividends reinvested on the date
paid.
COMPARISON OF FOUR-YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, AMEX MARKET INDEX
AND TELECOMMUNICATIONS INDUSTRY INDEX
[chart]
<TABLE>
<S> <C> <C> <C>
1992 1993 1994 1995 1996
Hungarian Telephone $100.00 101.72 72.41 73.28 64.66
and Cable Corp.
Telecommunications 100.00 127.15 110.69 144.53 142.63
Industry Index
Amex Market Index 100.00 118.81 104.95 135.28 142.74
</TABLE>
-22-
<PAGE>
II. RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors, on the recommendation of the Audit
Committee, has appointed the firm of KPMG Peat Marwick LLP as
independent auditors of the Company for the year ending December 31,
1997, subject to the ratification of the appointment by the Company's
stockholders. A representative of KPMG Peat Marwick LLP is expected to
attend the Meeting to respond to appropriate questions and will have an
opportunity to make a statement if he or she so desires.
Effective July 1, 1995, the Board of Directors of the Company
selected KPMG Peat Marwick LLP as its new independent auditor. BDO
Seidman had served as the Company's independent auditor until that
time. The Company made the change because KPMG Peat Marwick LLP has an
auditing staff in the Republic of Hungary, while BDO Seidman does not.
The Company believes that such a local auditing presence in Hungary
will serve the Company better during its anticipated growth period. The
Board of Directors approved the decision to change public accountants
based on the reasons stated above. The Board of Directors did not
dismiss BDO Seidman, nor did BDO Seidman resign or decline to serve if
reappointed. None of BDO Seidman's reports on the financial statements
for any year contained an adverse opinion or disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope or accounting
principle. There were no disagreements with BDO Seidman on any matter
of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure in connection with the audits of the
Company at any time.
The Board of Directors recommends that stockholders vote "FOR"
the ratification of the appointment of KPMG Peat Marwick LLP as
auditors of the Company for the fiscal year ending December 31, 1997.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1998
Annual Meeting must be received by the Company by December 11, 1997 for
possible inclusion in the proxy materials relating to such meeting.
OTHER BUSINESS
The Board of Directors is not aware of any matter other than
the matters described above to be presented for action at the Meeting.
However, if any other proper items of business should come before the
Meeting, it is the intention of the person or persons acting under the
enclosed form of proxy to vote in accordance with their best judgment
on such matters.
-23-
<PAGE>
EXPENSES OF SOLICITATION
The Company will pay the expenses of this proxy solicitation.
In addition to solicitation by mail, some of the officers and regular
employees of the Company may solicit proxies personally or by
telephone. The Company will request brokers and other fiduciaries to
forward proxy soliciting material to the beneficial owners of shares
which are held of record by them, and the Company may reimburse them
for certain reasonable out-of-pocket expenses incurred by them in
connection therewith.
By Order of the Board of Directors,
James G. Morrison
President, Chief Executive Officer and
Director
April 10, 1997
New York, New York
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<PAGE>
PROXY PROXY
HUNGARIAN TELEPHONE AND CABLE CORP.
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 16, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints JAMES G.
MORRISON and PETER T. NOONE, and each of them, with full power of substitution
in each, as proxies for the undersigned, to represent the undersigned and to
vote all the shares of Common Stock of the Company which the undersigned would
be entitled to vote, as fully as the undersigned could vote and act if
personally present, at the Annual Meeting of Stockholders (the "Meeting") to be
held on May 16, 1997, at 12:00 p.m. local time, at the Marriott Hotel, 85 West
Street, New York, New York, or at any adjournment or postponement thereof.
Should the undersigned be present and elect to vote at the Meeting or
at any adjournment or postponement thereof, and after notification to the
Secretary of the Company at the Meeting of the stockholder's decision to
terminate this proxy, then the power of such attorneys or proxies shall be
deemed terminated and of no further force and effect. This proxy may also be
revoked by filing a written notice of revocation with the Secretary of the
Company or by duly executing a proxy bearing a later date.
The Board of Directors recommends a vote "FOR" all nominees for
director and each of the listed proposals.
1. The election as directors of all nominees listed below to serve until
the 1998 Annual Meeting of Stockholders or until their successors have
been duly elected and qualified (except as marked to the contrary).
INSTRUCTION: To withhold your vote for any individual nominee, strike
a line in that nominee's name in the list below.
DAVID A. FINLEY JOHN B. RYAN WILLIAM E. STARKEY
WARREN B. FRENCH, JR. JAMES H. SEASON
JAMES G. MORRISON RONALD E. SPEARS
VOTE
FOR |_| WITHHELD |_|
2. Ratification of the appointment of KPMG Peat Marwick LLP as auditors of
the Company for the fiscal year ending December 31, 1997.
FOR |_| AGAINST |_| ABSTAIN |_|
<PAGE>
The shares represented by this proxy will be voted as directed by the
stockholder, but if no instructions are specified, this proxy will be voted for
the election of the Board nominees and for the listed proposals. If any other
business is presented at the Meeting, this proxy will be voted by those named in
this proxy in their best judgment. At the present time, the Board of Directors
knows of no other business to be presented at the Meeting.
The undersigned acknowledges receipt
from the Company, prior to the execution
of this proxy, of the Notice of Annual
Meeting and accompanying Proxy Statement
relating to the Meeting and an Annual
Report to Stockholders for the fiscal
year ended December 31, 1996.
DATED: , 1997
Signature
Signature
Please mark, date and sign as your
name(s) appear(s) to the left and return
in the enclosed envelope. If acting as
an executor, administrator, trustee,
guardian, etc., you should so indicate
when signing. If the signer is a
corporation, please sign the full
corporate name, by duly authorized
officer. If shares are held jointly,
each shareholder named should sign.
