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:
- --------------------------------------------------------------------------------
(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 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(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: May 4, 1998
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 10:00 a.m. local time, on June 10, 1998 at the New York
Helmsley Hotel, 212 East 42nd Street, New York, New York 10017.
In addition to the election of directors and the ratification of the
appointment of auditors, at the Annual Meeting the holders of Common Stock of
the Company will consider and vote upon a proposal to amend the Company's 1992
Incentive Stock Option Plan, as amended, to increase the number of shares of
Common Stock available thereunder from 750,000 to 1,000,000 for use as incentive
awards to certain key employees, directors and consultants.
Your Board of Directors has unanimously concluded that each of the
proposals is in the best interests of the Company and its stockholders.
Accordingly, the Board recommends a vote "FOR" the election of directors, the
ratification of the appointment of auditors and the increase in the number of
shares available under the Stock Option Plan.
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,
/s/David A. Finley
David A. Finley
Chairman of the Board
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP.
100 First Stamford Place
Stamford, Connecticut 06902
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 1998
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 New York Helmsley Hotel, 212 East 42nd Street,
New York, New York 10017, on June 10, 1998, at 10:00 a.m., local time, for the
following purposes:
1. To elect nine directors of the Company to serve until the 1999
Annual Meeting of Stockholders or until their successors have
been duly elected and qualified;
2. To vote upon a proposal to amend the Company's 1992 Incentive
Stock Option Plan, as amended, to increase the number of
shares of the Company's common stock available thereunder from
750,000 to 1,000,000 for use as incentive awards to certain
key employees, directors and consultants;
3. To ratify the appointment of KPMG Peat Marwick LLP as auditors
of the Company for the fiscal year ending December 31, 1998;
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 30, 1998 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,
/s/Peter T. Noone
Peter T. Noone
Secretary
Stamford, Connecticut
May 4, 1998
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...........................................4
I. ELECTION OF DIRECTORS......................................................5
General...............................................................5
Nominees for Director.................................................5
Executive Officers Who Are Not Directors..............................8
Standard Remuneration of Directors and Other Arrangements.............9
Director Stock Option Plan............................................9
Executive Compensation...............................................10
Employment Agreements................................................13
Committees and Meetings of the Board of Directors....................15
Compensation Committee Interlocks and Insider Participation..........16
Certain Relationships and Related Party Transactions.................16
Indebtedness of Management...........................................17
Section 16(a) Beneficial Ownership Reporting Compliance..............17
Compensation Committee Report on Executive Compensation..............18
Stock Performance Graph..............................................19
II. PROPOSAL TO AMEND THE COMPANY'S 1992 INCENTIVE
STOCK OPTION PLAN, AS AMENDED, TO INCREASE THE NUMBER
OF SHARES OF COMMON STOCK AVAILABLE THEREUNDER FROM
750,000 TO 1,000,000.....................................................21
Background of Proposed Amendment.....................................21
Description of the Stock Option Plan.................................21
Outstanding Stock Option Awards......................................25
Certain Interests of Directors.......................................27
III. RATIFICATION OF THE APPOINTMENT OF AUDITORS.............................27
STOCKHOLDER PROPOSALS.........................................................27
OTHER BUSINESS................................................................28
EXPENSES OF SOLICITATION......................................................28
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP.
100 First Stamford Place
Stamford, Connecticut 06902 May 4, 1998
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 10, 1998
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 10:00 a.m.
local time, on June 10, 1998 at the New York Helmsley Hotel, 212 East
42nd Street, New York, New York 10017, 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 May 4, 1998.
At the Meeting, the stockholders of the Company are being
asked to consider and vote upon: (i) the election of nine directors of
the Company to serve until the 1999 Annual Meeting of Stockholders or
until their successors are duly elected and qualified; (ii) a proposal
to amend the Company's 1992 Incentive Stock Option Plan, as amended
(the "Stock Option Plan"), to increase the number of shares of Common
Stock available thereunder from 750,000 to 1,000,000 for use as
incentive awards to certain key employees, directors and consultants;
and (iii) the ratification of the appointment of KPMG Peat Marwick LLP
as auditors of the Company for the fiscal year ending December 31,
1998.
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,
for the approval of the proposal regarding the Stock Option Plan 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.
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<PAGE>
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.
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. The affirmative vote of a majority of the shares
present in person or by proxy and voted on such matter at the Meeting
is required for approval of the proposal to amend the Stock Option Plan
to increase the number of shares available thereunder. Accordingly,
abstentions will have the same effect as a vote against such matter and
proxies returned by brokers as "non-votes" will not affect the outcome
of such vote. 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 each of the
proposals set forth herein. Accordingly, the Board recommends a vote
FOR the election of directors, the proposal to amend the Stock Option
Plan and the ratification of the appointment of auditors.
Voting Securities
April 30, 1998 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 close of business on the Record Date, there
were outstanding 5,302,395 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 April 27, 1998, 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 (1) Class (1)
------------------------------------ ------------- ----------
<S> <C> <C>
CU CapitalCorp. 7,514,984(2) 63.1%
c/o Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Tele Danmark A/S 994,158 18.7%
Larslejsstraede 5
0900 Copenhagen C, Denmark
</TABLE>
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<PAGE>
(1) "Shares Beneficially Owned" includes shares held directly as well
as shares which such entity may have the right to acquire within 60
days of April 27, 1998. "Percent of Class" is calculated by
dividing the "Shares Beneficially Owned" by such entity by the
shares of Common Stock outstanding as of April 27, 1998 plus only
those shares which such entity may have the right to acquire within
60 days of April 27, 1998.
(2) Includes 299,219 shares subject to purchase pursuant to a warrant
and 4,212,721 shares subject to options granted by the Company to
CU CapitalCorp., all of which are presently exercisable. It also
includes 2,097,136 shares subject to certain preemptive rights
granted to CU CapitalCorp. which are presently subject to a
disagreement between the Company and CU CapitalCorp. See "Potential
Change in Control" and "Election of Directors - Certain
Relationships and Related Party Transactions - The Citizens
Agreements."
Stock Ownership of Management
The following table sets forth, as of April 27, 1998, certain
information as to the shares of Common Stock beneficially owned by
certain executive officers and 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>
Shares
Beneficially Percent of
Name of Beneficial Owner Owned (1) Class (1)
------------------------ -------------- -----------
<S> <C> <C> <C>
Current Executive Officers
Andrew E. Nicholson 85,625(2) 1.6%
Peter T. Noone 17,600(3) *
Directors and Executive 274,475(4) 5.0%
Officers as a Group (12
persons)
Former Executive Officers
Richard P. Halka 5,000 *
James G. Morrison 113,750(5) 2.1%
James L. Stout -- --
Daniel R. Vaughn 20,000(6) *
-----------
</TABLE>
* Less than one percent
(1) "Shares Beneficially Owned" includes shares held directly, as well
as shares which such persons have the right to acquire within 60
days of April 27, 1998 and shares held by certain members of such
persons' families, over which such persons may be deemed to have
sole or shared voting power or investment power. "Percent of
Class" is calculated by dividing the "Shares Beneficially Owned"
by the individual (or group) by the shares of Common Stock
outstanding as of April 27, 1998 plus only those shares which the
individual (or group) has the right to acquire within 60 days of
April 27, 1998.
-3-
<PAGE>
(2) Includes 17,500 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
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 and 35,000 shares subject to
options presently exercisable at $8.00 per share granted pursuant
to Mr. Nicholson's employment agreement. See "Election of
Directors - Employment Agreements."
(3) Includes 15,000 shares subject to options presently exercisable at
$11.69 per share and 2,500 shares subject to options presently
exercisable at $8.00 per share granted pursuant to Mr. Noone's
employment agreement. See "Election of Directors - Employment
Agreements."
(4) Does not include shares reported to be beneficially owned by CU
CapitalCorp. Daryl A. Ferguson and Leonard Tow, directors of the
Company, serve as executive officers of both the parent company
and an affiliate of CU CapitalCorp. Does not include shares
reported to be beneficially owned by Tele Danmark A/S. Ole Bertram
and Finn Schkolnik, directors of the Company, serve as officers of
Tele Danmark A/S.
(5) Includes 25,000 shares of restricted stock issued to Mr. Morrison
pursuant to his employment agreement. Pursuant to Mr. Morrison's
retirement arrangements, such shares are to be cancelled upon the
execution of Mr. Morrison's termination agreements. Includes
30,000 shares subject to options presently exercisable at $8.75
per share and 52,500 shares subject to options presently
exercisable at $8.00 per share granted pursuant to Mr. Morrison's
employment agreement. See "Election of Directors - Employment
Agreements."
(6) Consists of 20,000 shares subject to options presently exercisable
at $8.75 per share granted pursuant to Mr. Vaughn's employment
agreement. See "Election of Directors - Employment Agreements."
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, 1997,
Citizens, directly or through subsidiaries, provided communications
services, competitive local exchange carrier services and public
services including electric transmission and distribution, natural gas
transmission and distribution, water distribution and wastewater
treatment services to approximately 1.7 million customers in 21 states
throughout the United States.
As of April 27, 1998, Citizens beneficially owned 905,908 of
the outstanding shares of the Company's Common Stock. Pursuant to the
Citizens Agreements, Citizens was granted a warrant and certain options
to acquire an additional 4,511,940 shares of Common Stock at prices
ranging from $12.75 to $18.00 per share. In addition, the Company and
Citizens presently have a disagreement regarding certain issues with
respect to 2.1 million shares of Common Stock subject to Citizens'
preemptive rights to date. The Company is currently in discussions with
Citizens in an attempt to resolve these issues. If the Company and
Citizens were to settle the disagreement with respect to Citizens'
preemptive rights to date and Citizens were to purchase such 2.1
million shares of Common Stock subject to such disputed preemptive
rights and if Citizens were to exercise in full all of its options and
warrant, Citizens would own 58.9% of the shares of Common Stock that
would be outstanding if all the outstanding options and warrants,
including those held by Citizens, were exercised. If the Company and
Citizens were to settle the disagreement with respect to Citizens
preemptive rights to date and Citizens were to purchase such 2.1
-4-
<PAGE>
million shares of Common Stock subject to such disputed preemptive
rights and if only Citizens were to exercise in full all of its options
and warrant, Citizens would own 63.1% of the shares of Common Stock
that would be outstanding. 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 provide for certain preemptive rights which
presently enable Citizens 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 the nomination of one
representative of Citizens for election to the Company's Board of
Directors 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 Citizens chooses to exercise its right to acquire
shares constituting a controlling interest in the Company. Presently,
Daryl A. Ferguson and Leonard Tow who are executive officers of
Citizens Utilities Company serve on the Company's Board of Directors.
For a further description of certain of the Citizens
Agreements, See "Election of Directors - Certain Relationships and
Related Party Transactions - The Citizens Agreements."
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. Five 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 since the last annual meeting of
stockholders. 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.
Nominees for Director
The table below sets forth certain information, as of April
27, 1998, regarding the Company's Board of Directors, including
beneficial ownership of Common Stock.
-5-
<PAGE>
<TABLE>
Shares of
Position(s) Held Director Common Stock Percent
Name Age in the Company Since Beneficially Owned Owned
<S> <C> <C> <C> <C> <C>
Ole Bertram............... 62 Director August 1997 --(1) --
Daryl A. Ferguson......... 59 Director March 1998 --(2) --
David A. Finley........... 65 Director (Chairman) July 1996 10,000(3) *
James G. Morrison......... 59 Director July 1996 113,750(4) 2.1%
John B. Ryan.............. 67 Director September 1992 20,500(5) *
Finn Schkolnik............ 52 Director October 1997 --(1) --
James H. Season........... 54 Director September 1995 15,000(6) *
William E. Starkey........ 62 Director July 1996 10,000(7) *
Leonard Tow............... 69 Director August 1997 --(2) --
-----------------
</TABLE>
* Less than one percent.
(1) Does not include shares reported to be beneficially owned by Tele
Danmark A/S. See "Introduction Stock Ownership of Certain
Beneficial Owners." Messrs. Bertram and Schkolnik are currently
officers of Tele Danmark A/S. See "- Certain Relationships and
Related Party Transactions - The Tele Danmark Agreements."
(2) Does not include shares reported to be beneficially owned by
Citizens. See "Introduction - Stock Ownership of Certain Beneficial
Owners." and "Potential Change in Control." Messrs. Ferguson and
Tow are currently executive officers of Citizens Utilities Company.
See "- Certain Relationships and Related Party Transactions - The
Citizens Agreements."
(3) Consists of 10,000 shares subject to options, all exercisable
within 60 days, at $9.44 per share granted under the Non-Employee
Director Stock Option Plan.
(4) Includes 25,000 shares of restricted stock issued to Mr. Morrison
pursuant to his employment agreement. Pursuant to Mr. Morrison's
retirement arrangements, such shares are to be cancelled upon the
execution of Mr. Morrison's termination agreements. Includes 30,000
shares subject to options presently exercisable at $8.75 per share
and 52,500 shares subject to options presently exercisable at $8.00
per share granted pursuant to Mr. Morrison's employment agreement.
See " - Employment Agreements."
(5) Includes 10,000 shares subject to options, all exercisable within
60 days, at $9.44 per share granted under the Non-Employee Director
Stock Option Plan and 10,000 shares subject to options, presently
exercisable at $9.44 to $12.25 per share, granted under the 1992
Incentive Stock Option Plan, as amended.
(6) Consists of 10,000 shares subject to options, all exercisable
within 60 days, at $9.44 per share granted under the Non-Employee
Director Stock Option Plan and 5,000 shares subject to options,
presently exercisable at $9.44 per share, granted under the 1992
Incentive Stock Option Plan, as amended.
(7) Consists of 10,000 shares subject to options, all exercisable
within 60 days, at $9.44 per share granted under the Non-Employee
Director Stock Option Plan.
-6-
<PAGE>
Ole Bertram. Mr. Bertram has been Senior Vice President of
Tele Danmark International since June 1997. Prior to that, Mr. Bertram
was Technical Director of Tele Danmark International from May 1995
to June 1997, and Technical Director and Vice President of the
Copenhagen Telephone Company from 1988 to May 1995. Mr. Bertram was
elected as a director of the Company by the Board of Directors in
August 1997. See " - Certain Relationships and Related Party
Transactions - The Tele Danmark Agreements."
Daryl A. Ferguson. Mr. Ferguson has been associated with
Citizens Utilities Company since July 1989 where he has been President
and Chief Operating Officer since June 1990. He is currently a
Director of Centennial Cellular Corporation and Chief Executive
Officer and Vice Chairman of the Board of Electric Lightwave, Inc.,
both U.S. public companies. Mr. Ferguson was elected as a director
of the Company by the Board of Directors in March 1998. See "-
Certain Relationships and Related Party Transactions - The
Citizens Agreements."
David A. Finley. Mr. Finley is currently a private
investor and consultant with software, money-management, finance
and telecommunications companies. He currently is a director of
Broadway & Seymour, a software and services company in which he
served as Chief Financial Officer until November 1997. Mr. Finley is
also a director of Intelligroup, Inc., MJR Group, Inc., and Naviant
Technology Solutions. 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.
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. Mr. Morrison
retired as President and Chief Executive Officer of the Company as
of April 8, 1998 and will retire as an employee of the Company on
April 30, 1998 after which he will become a consultant to the
Company for a one year term.
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.
Finn Schkolnik. Mr. Schkolnik has been an Executive Vice
President of Tele Danmark A/S since 1996. From 1994 to 1996, he was
with the Management Board of Copenhagen Telephone Company. From
1992 to 1996, Mr. Schkolnik was Copenhagen Telephone Company's Chief
Financial Officer. He is currently a director of Belgacom S.A. and
Polkomtel SA. Mr. Schkolnik was elected as a director of the Company
by the Board of Directors in October 1997. See "- Certain Relationships
and Related Party Transactions - The Tele Danmark Agreements."
-7-
<PAGE>
James H. Season. Mr. Season has been the Chief Financial
Officer of Hungarian Broadcasting Corp. since July 1996. He had
been 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.
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).
Leonard Tow. Mr. Tow has been the Chairman and Chief
Executive Officer of Citizens Utilities Company since 1990, where
he served as Chief Financial Officer from 1991 to 1997. He has
been Chief Executive Officer and a Director of Century Communications
Corp., a cable television company, since its organization in 1973,
and has served as Chairman of the Board since 1989 and was Chief
Financial Officer from 1973 to 1996. He is Chairman of the Board of
Electric Lightwave, Inc. and a Director of the United States
Telephone Association. Mr. Tow was elected as a director of the
Company by the Board of Directors in August 1997. See "- Certain
Relationships and Related Party Transactions - The Citizens
Agreements."
Executive Officers Who Are Not Directors
Francis J. Busacca, Jr. Mr. Busacca, age 56, was appointed
to the position of Executive Vice President and Chief Financial
Officer effective March 2, 1998. In April 1998, Mr. Busacca was
appointed as the interim President and Chief Executive Officer of the
Company, in addition to his role as Chief Financial Officer. Mr.
Busacca, a CPA, was previously the Executive Vice President and
Chief Financial Officer of Monor Telefon Tarsasag, a Hungarian
local telephone operator, from 1995 to 1997. Mr. Busacca was with IBM
from 1966 to 1995 where he held various financial, management and
strategic positions.
Andrew E. Nicholson. Mr. Nicholson, age 47, 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. In March 1998, Mr. Nicholson was appointed
Sr. Vice President - Business Development. Mr. Nicholson, a
chartered accountant, is responsible for acquisitions and special
projects. 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.
-8-
<PAGE>
Peter T. Noone. Mr. Noone, age 35, 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.
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 September 1997 through December 1997, Mr. Season provided
consulting services to the Company on a month-to-month basis for which
he was paid $1,000 per month.
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, 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 granted
options to purchase 5,000 shares of Common Stock to Messrs. Finley,
Ryan, Season, Starkey and a former director 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 were 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 is 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
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<PAGE>
automatic grant of any such options vests 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. On May 16, 1997, the Company granted each of
Messrs. Finley, Ryan, Season and Starkey options to purchase 5,000
shares of Common Stock, which options vest on May 16, 1998.
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 former Chief Executive
Officer and each of the current or former executive officers of the
Company whose total annual salary and bonus exceeded $100,000 during
the fiscal year ended December 31, 1997 (collectively, the "Named
Executives").
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<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
---------------------------- -------- --------------------------------
Annual Compensation Long-Term Compensation
-------------- ---------- ------------- ------------------------------
Awards
-------------- ---------- ------------- ------------------------------
-------------- ---------- ------------- ------------- ----------------
Other
Annual Restricted Securities
Compen- Stock Underlying
Name and Principal Year Salary Bonus sation Award(s) Options
Position ($)(1) ($)(2) ($)(3) ($)(4) (#)
---------------------------- -------- -------------- ---------- ------------- ------------- ----------------
---------------------------- -------- -------------- ---------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard P. Halka 1997 142,917 -- 202,516 50,000 --
Controller (until January 1996 126,580 -- 39,000 -- --
5, 1998) 1995 2,150 -- -- -- --
---------------------------- -------- -------------- ---------- ------------- ------------- ----------------
James G. Morrison 1997 168,438 -- 321,227 -- 30,000
President and Chief 1996 140,978 63,125 41,000 -- --
Executive Officer (until 1995 29,355 -- 9,000 512,500 --
April 8, 1998)
---------------------------- -------- -------------- ---------- ------------- ------------- ----------------
Andrew E. Nicholson 1997 148,021 -- 196,350 -- 20,000
Senior Vice President, 1996 131,000 18,938 41,000 -- --
Business Development 1995 15,625 -- 4,500 358,750 --
(Executive Officer since
August 1996)
---------------------------- -------- -------------- ---------- ------------- ------------- ----------------
Peter T. Noone 1997 118,479 25,000 -- -- 15,000
General Counsel and 1996 19,583 -- -- -- --
Secretary (since November 1995 -- -- -- -- --
1, 1996)
---------------------------- -------- -------------- ---------- ------------- ------------- ----------------
James L. Stout 1997 113,750 -- 153,917 -- --
Chief Operating Officer 1996 81,666 10,000 24,000 -- --
(until February 27, 1998) 1995 7,905 -- 21,000 -- --
---------------------------- -------- -------------- ---------- ------------- ------------- ----------------
Daniel R. Vaughn 1997 144,500 -- 105,417 -- 20,000
Chief Operating Officer 1996 125,069 18,938 39,000 -- --
(until June 15, 1997) 1995 9,167 -- 3,000 183,750 --
---------------------------- -------- -------------- ---------- ------------- ------------- ----------------
</TABLE>
(1) Consists of salaries paid pursuant to employment agreements. See
"Employment Agreements." (2) Includes bonus awards in 1996 of 5,000,
1,500 and 1,500 shares of Common Stock issued to Messrs. Morrison,
Nicholson and Vaughn, respectively, pursuant to their employment
agreements. The valuation is based on the fair market value of the
stock price on the date of award. See "- Employment Agreements." (3)
The 1995 and 1996 amounts consist of housing and vacation allowances
pursuant to employment agreements. The 1997 amounts include housing and
vacation allowances of $46,000, $36,000, $36,000, $41,000 and $23,000
for Messrs. Halka, Morrison, Nicholson, Stout and Vaughn, respectively,
and the reimbursement by the Company in 1997 of the Hungarian income
taxes for 1996 and nine months of 1997 in the amount of $156,516,
$285,227, $160,350, $112,917 and $82,417 paid by Messrs. Halka,
Morrison, Nicholson, Stout and Vaughn, respectively. See "- Employment
Agreements."
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<PAGE>
(4) Includes 5,000 shares of restricted stock awarded to Mr. Halka on
February 21, 1997 which shares vested and were transferred to Mr. Halka
on October 10, 1997. Includes 50,000 shares of restricted stock awarded
to Mr. Morrison in 1995 pursuant to his employment agreement. Of such
50,000 restricted shares, 12,500 shares vested and were transferred to
Mr. Morrison on each October 10th of 1996 and 1997, and 12,500 shares
were to be vested and transferred to Mr. Morrison on each October 10th
of 1998 and 1999. The aggregate value of Mr. Morrison's 25,000
restricted shares as of December 31, 1997 was $239,063. As part of Mr.
Morrison's retirement arrangements, the unvested 25,000 shares will be
cancelled upon the execution of Mr. Morrison's termination agreements.
Includes 35,000 shares of restricted stock awarded to Mr. Nicholson in
1995 pursuant to his employment agreement. Of such 35,000 restricted
shares, 8,750 shares vested and were transferred to Mr. Nicholson on
each October 10th of 1996 and 1997 and 8,750 shares are to be vested
and transferred to Mr. Nicholson on each October 10th of 1998 and 1999.
The aggregate value of Mr. Nicholson's 17,500 restricted shares as of
December 31, 1997 was $167,344. Includes 17,500 shares of restricted
stock awarded to Mr. Vaughn in 1995 pursuant to his employment
agreement. Of such 17,500 restricted shares, 8,750 shares vested and
were transferred to Mr. Vaughn on each October 10th of 1996 and 1997.
The restricted shares are eligible for dividends if the Company were to
declare any dividends.
See "- Employment Agreements."
The following table sets forth certain information with
respect to options granted to the Named Executives during the fiscal
year ended December 31, 1997.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term
Number of Percent of Total Exercise
Securities Options Granted Price on Market Price
Underlying to Employees in Date of on Date of Expiration
Name Options Granted Fiscal Year Grant Grant Date 0%($) 5%($) 10%($)
- ----------------- --------------- ----------------- ------- ------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James G. Morrison 30,000 35.0% $8.75 $10.13 3/31/02 41,250 125,100 226,800
Andrew E. Nicholson 20,000 23.5% $8.75 $10.13 3/31/02 27,500 83,400 151,200
Peter T. Noone 15,000 18.0% $11.69 $11.69 10/30/02 -- 48,450 107,100
Daniel R. Vaughn 20,000 23.5% $8.75 $10.13 3/31/02 27,500 83,400 151,200
</TABLE>
The following table summarizes the exercise of stock options
during fiscal 1997 by the Named Executives and provides information as
to the unexercised stock options held by them at the end of the fiscal
year.
<TABLE>
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>
James G. Morrison -- -- 30,000/-- $24,375/--
Andrew E. Nicholson -- -- 20,000/-- $16,250/--
Peter T. Noone -- -- 15,000/-- --/--
Daniel R. Vaughn -- -- 20,000/-- $16,250/--
---------------------
</TABLE>
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<PAGE>
(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, 1997. See "- Employment Agreements."
Employment Agreements
Richard P. Halka - In January 1997, the Company entered
into an amended and restated employment agreement with Richard P.
Halka, the Company's former Controller and Treasurer, which was
effective as of July 26, 1996, the date Mr. Halka was appointed as
Controller. Mr. Halka's employment agreement provided for a four-
year term with an annual salary of $140,000, which was increased
to $147,000 in 1997. Mr. Halka's employment agreement also
provided for a $3,000 per month housing allowance and the reimbursement
of any Hungarian income taxes payable by Mr. Halka. The Company
awarded Mr. Halka 5,000 restricted shares which vested and were
delivered to Mr. Halka in October 1997. Mr. Halka's employment
with the Company terminated in January 1998.
James G. Morrison - In October 1996, the Company entered into
an amended and restated employment agreement with James G. Morrison,
the Company's former President and Chief Executive Officer, which was
effective as of July 26, 1996, the date Mr. Morrison was promoted to
President and Chief Executive Officer. Mr. Morrison's employment
agreement provided for a four-year term with an annual salary of
$165,000, which was increased to $173,250 in 1997. Mr. Morrison's
employment agreement also provided for a $3,000 per month housing
allowance and the reimbursement of any Hungarian income taxes payable
by Mr. Morrison. Pursuant to Mr. Morrison's employment agreement, the
Company granted Mr. Morrison 50,000 restricted shares of Common Stock.
12,500 of such restricted shares vested and were released to Mr.
Morrison on each October 10th of 1996 and 1997. In addition, the
Company awarded Mr. Morrison 5,000 shares of Common Stock as
consideration for, among other things, his agreement to amend his prior
employment agreement and to waive rights to certain benefits under such
prior employment agreement. The employment agreement also provided for
the annual award of five-year options to purchase a target of 30,000
shares of Common Stock based on certain objectives to be set by the
Compensation - Stock Option Committee of the Board of Directors. In
March 1997, the Company granted Mr. Morrison options to purchase 30,000
shares of Common Stock at an exercise price of $8.75 per share for his
services in 1996. In March 1998, the Company awarded Mr. Morrison
options to purchase 52,500 shares of Common Stock at an exercise price
of $8.00 per share, a cash bonus of $37,500 and 6,250 shares of Common
Stock for his services in 1997. Mr. Morrison retired as President and
Chief Executive Officer on April 8, 1998 and will retire as an employee
of the Company on April 30, 1998. As a result, Mr. Morrison will
forfeit his 25,000 restricted shares. As part of Mr. Morrison's
retirement arrangements, the Company will retain the services of Mr.
Morrison as a consultant for a one-year term at a fee of $173,250.
Andrew E. Nicholson - In October 1996, the Company entered
into an amended and restated employment agreement with Andrew E.
Nicholson, the Company's former Senior Vice President - Finance (and
currently Senior Vice President - Business Development), which was
effective as of July 26, 1996, the date Mr. Nicholson was promoted to
Senior Vice President - Finance. Mr. Nicholson's employment agreement
provided for a four-year term with an annual salary of $145,000, which
was increased to $152,500 in 1997. Mr. Nicholson's employment agreement
also provided for a $3,000 per month housing allowance and the
reimbursement of any Hungarian income taxes payable by Mr. Nicholson.
Pursuant to Mr. Nicholson's employment agreement, the Company granted
Mr. Nicholson 35,000 restricted shares of Common Stock. 8,750 of such
restricted shares vested and were released to Mr. Nicholson on each
October 10th of 1996 and 1997. In addition, the Company awarded Mr.
Nicholson 1,500 shares of Common Stock as consideration for, among
other things, his agreement to amend his prior employment agreement and
to waive rights to certain benefits under such prior employment
agreement. The employment agreement also provided for the annual award
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<PAGE>
of five-year options to purchase a target of 20,000 shares of Common
Stock based on certain objectives to be set by the Compensation - Stock
Option Committee of the Board of Directors. In March 1997, the Company
granted Mr. Nicholson options to purchase 20,000 shares of Common Stock
at an exercise price of $8.75 per share for his services in 1996. In
March 1998, the Company awarded Mr. Nicholson options to purchase
35,000 shares of Common Stock at an exercise price of $8.00 per share
and 4,375 shares of Common Stock for his services in 1997.
Peter T. Noone - Mr. Noone's employment agreement provides for
a three-year term with a current annual salary of $123,375. The
agreement also provides for a potential cash bonus equal to 20% of Mr.
Noone's base salary and an annual award of five-year options to
purchase a target of 15,000 shares of Common Stock. The Company granted
Mr. Noone options to purchase 15,000 shares of Common Stock at an
exercise price of $11.69 per share and options to purchase 2,500 shares
of Common Stock at an exercise price of $8.00 per share for his
services from 1996 to 1997.
James L. Stout - Mr. Stout was employed as Chief Operating
Officer through February 1998 pursuant to an employment agreement
which provided for an annual salary of $125,000. Mr. Stout's
employment agreement also provided for a $3,000 per month housing
allowance and the reimbursement of any Hungarian income taxes
payable by Mr. Stout. The Company provided Mr. Stout with a
$62,500 payment upon the termination of his employment in February
1998.
Daniel R. Vaughn - In October 1996, the Company entered into
an amended and restated employment agreement with Daniel R. Vaughn, the
Company's former Chief Operating Officer, which was effective as of
July 26, 1996, the date Mr. Vaughn was promoted to Chief Operating
Officer. Mr. Vaughn's employment agreement provided for a four-year
term with an annual salary of $145,000. Mr. Vaughn's employment
agreement also provided for a $3,000 per month housing allowance and
the reimbursement of any Hungarian income taxes payable by Mr. Vaughn.
Pursuant to Mr. Vaughn's employment agreement, the Company granted Mr.
Vaughn 17,500 restricted shares of Common Stock. 8,750 of such
restricted shares vested and were released to Mr. Vaughn on each
October 10th of 1996 and 1997. In addition, the Company awarded Mr.
Vaughn 1,500 shares of Common Stock as consideration for, among other
things, his agreement to amend his prior employment agreement and to
waive rights to certain benefits under such prior employment agreement.
The employment agreement also provided for the annual award of
five-year options to purchase a target of 20,000 shares of Common Stock
based on certain objectives to be set by the Compensation - Stock
Option Committee of the Board of Directors. In March 1997, the Company
granted Mr. Vaughn options to purchase 20,000 shares of Common Stock at
an exercise price of $8.75 per share for his services in 1996. Mr.
Vaughn's employment with the Company terminated in December 1997.
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<PAGE>
The employment agreements for Messrs. Halka, Morrison,
Nicholson, Noone and Vaughn provide, or provided 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.
Committees and Meetings of the Board of Directors
During the Company's fiscal year ended December 31, 1997, the
Board of Directors held nine meetings. Each of the incumbent directors
except for Messrs. Schkolnik and Tow attended at least 75% of the
meetings of the Board of Directors that were held during the 1997
fiscal year while he was serving as a director. Each of the incumbent
directors attended at least 75% of the meetings of each committee on
which he served that were held during the 1997 fiscal year while he was
serving as 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 August 27, 1996 to June 16, 1997, the Audit Committee
consisted of David A. Finley, Warren B. French, Jr. and William E.
Starkey. Following the resignation of Mr. French from the Board on
June 16, 1997, the Audit Committee had one vacancy. Upon Mr.
Finley's appointment as Chairman of the Board on January 29, 1998,
he took a leave of absence from the Audit Committee. On April 8,
1998, the Board of Directors reconstituted the Audit Committee,
which now consists of Daryl A. Ferguson, John B. Ryan and James H.
Season. 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, 1997 the
Audit Committee held one meeting.
From August 27, 1996 through June 16, 1997, the Compensation
Stock Option Committee consisted of Warren B. French, Jr., Ronald E.
Spears and William E. Starkey. Following the resignation of Mr. French
from the Board on June 16, 1997, the Compensation - Stock Option
Committee had one vacancy. Mr. Spears resigned from the Board of
Directors on March 26, 1998 which created two vacancies on the
Compensation Stock Option Committee. On April 8, 1998, the Board of
Directors reconstituted the Compensation - Stock Option Committee,
which now consists of Ole Bertram, John B. Ryan 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 four meetings during the
fiscal year ended December 31, 1997.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
From August 27, 1996 through June 16, 1997, the Compensation -
Stock Option Committee consisted of Warren B. French, Jr., Ronald E.
Spears and William E. Starkey. Following the resignation of Mr.
French from the Board on June 16, 1997, the Compensation - Stock
Option Committee had one vacancy. Mr. Spears resigned from the
Board of Directors on March 26, 1998 which created two vacancies
on the Compensation - Stock Option Committee. On April 8, 1998, the
Board of Directors reconstituted the Compensation - Stock Option
Committee which now consists of Ole Bertram, John B. Ryan and
William E. Starkey. No current or former members of the committee
during such period were officers of the Company. Mr. Bertram is an
officer of Tele Danmark A/S. Mr. Spears was an officer of Citizens.
See "Certain Relationships and Related Party Transactions - The
Tele Danmark Agreements" and "- The Citizens Agreements."
Certain Relationships and Related Party Transactions
The Tele Danmark Agreements
On July 1, 1997, Tele Danmark A/S ("TD") transferred to the
Company its 20% interest in the outstanding capital stock of each of
Kelet-Nograd Com Rt. ("KNC") and Raba Com Rt. ("Raba-Com"), both
Hungarian subsidiaries of the Company, in exchange for 420,908 shares
of Common Stock. The agreement provided for, among other things, (x)
the Company to nominate a representative of TD for election to the
Company's, KNC's and Raba-Com's Board of Directors as long as TD owns
at least 300,000 shares of the Company's outstanding Common Stock, (y)
certain preemptive rights of TD, upon issuance by the Company of shares
of its Common Stock, to maintain its then current percentage ownership
in the Company's outstanding Common Stock as long as TD continues to
own at least 300,000 shares of the Company's outstanding Common Stock,
and (z) the obligation of the Company to purchase, and the obligation
of TD to sell, the shares of capital stock of KNC and Raba-Com then
held by the Danish Investment Fund for Central and Eastern Europe (the
"Fund") if TD acquired such shares within twelve (12) months. As a
result of such agreement, the Board of Directors elected Ole Bertram,
an officer of TD, to its Board in August 1997 and the Board of
Directors is nominating Mr. Bertram for election for the 1998 to 1999
term.
On September 30, 1997, TD transferred to the Company its 4.8%
interest in the outstanding capital stock of each of KNC and Raba-Com
(acquired by TD from the Fund) in exchange for 101,018 shares of Common
Stock. In addition, TD transferred to the Company its interest in an
aggregate of $5.5 million in loans owed by KNC and Raba-Com to TD in
exchange for 447,232 shares of Common Stock.
In addition to Mr. Bertram, the Board of Directors elected
Finn Schkolnik, an officer of TD, to the Board of Directors of the
Company in October 1997. The Board is also nominating Mr. Schkolnik for
election for the 1998 to 1999 term.
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<PAGE>
The Citizens Agreements
In May 1995, Citizens purchased 300,000 shares of Common Stock
from a former executive of the Company and has since acquired an
additional 502,908 shares pursuant to certain agreements entered into
with the Company (as amended and restated in certain cases to date, the
"Citizens Agreements") and 103,000 shares pursuant to certain open
market purchases bringing its ownership of the outstanding Common Stock
as of April 27, 1998, to approximately 17.1%. In addition, as a result
of the Citizens Agreements, Citizens has received options and a
warrant, with per share exercise prices ranging from $12.75 to $18.00
(together, the "Citizens Options"). The Citizens Agreements also
provide for one representative of Citizens to be nominated for election
to the Company's Board of Directors for as long as Citizens holds at
least 300,000 shares of Common Stock and for the number of directors on
the Company's Board of Directors to be set at no less than six, without
classified or staggered terms. Daryl A. Ferguson and Leonard Tow, both
executive officers of Citizens Utilities Company, are directors of the
Company and nominees for election to the Board of Directors for the
1998 to 1999 term. The Citizens Agreements also provide Citizens with
certain preemptive rights to purchase, upon the issuance of Common
Stock in certain circumstances to third parties, shares of Common Stock
at $13.00 per share with respect to third party issuances prior to
September 12, 1997 and at the same price per share as any such third
party would pay per share for issuances to any such third party after
September 12, 1997. The Company and Citizens presently have a
disagreement regarding certain issues with respect to 2.1 million
shares of Common Stock subject to Citizens' preemptive rights to date.
The Company is currently in discussions with Citizens in an attempt to
resolve these issues.
Concurrently with its initial investment in the Company,
Citizens entered into an agreement with the Company pursuant to which
Citizens was to provide the Company and its subsidiaries with certain
administrative, financial, technical, construction, marketing and
operational services (the "Management Services Agreement") for a fee.
As of December 31, 1997, the Company has accrued, but not paid, $7.2
million pursuant to the Management Services Agreement. The Company and
Citizens presently have a disagreement regarding certain issues with
respect to the Management Services Agreement. The Company is currently
in discussions with Citizens in an attempt to resolve these issues.
Until such time as these issues are resolved, the Company currently
intends to withhold any payments to Citizens with respect to the
Management Services Agreement.
Indebtedness of Management
No director, executive officer or nominee for election as a
director of the Company has been indebted to the Company or any of its
subsidiaries at any time during the last fiscal year in an amount in
excess of $60,000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities 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, 1997, the Company has
identified the following number of untimely filed reports covering the
number of transactions indicated: Tele Danmark A/S failed to timely
file a Form 3 with respect to one transaction that brought its
ownership to 994,158 shares of Common Stock; CU CapitalCorp. failed to
timely file four Forms 4 with respect to at least 59 transactions; and
Mr. Schkolnik did not timely file his report of his initial beneficial
ownership of securities on Form 3. All such Forms were subsequently
filed.
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<PAGE>
Compensation Committee Report on Executive Compensation
From August 27, 1996 through June 16, 1997, the Compensation
- Stock Option Committee consisted of Warren B. French, Jr.,
Ronald E. Spears and William E. Starkey. Following the resignation
of Mr. French from the Board on June 16, 1997, the Compensation -
Stock Option Committee had one vacancy. Mr. Spears resigned from
the Board of Directors on March 26, 1998 which created two vacancies
on the Compensation - Stock Option Committee. On April 8, 1998, the
Board of Directors reconstituted the Compensation - Stock Option
Committee which now consists of Ole Bertram, John B. Ryan 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 rewards
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 up to four 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.
With respect to some of 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 such executive officers, including James G. Morrison,
the Company's former Chief Executive Officer, in order to induce Mr.
Morrison and the other executive officers to become and remain an
officer of the Company and to align the interests of such executives
with those of the shareholders of the Company generally.
In addition to the restricted stock grants, the employment
agreements for the Hungarian-based executive officers provided for the
annual award of options to purchase shares of Common Stock. In March
1998, the Company awarded Mr. Morrison as a bonus for his services in
1997 options to purchase 52,500 shares of Common Stock, $37,500 and
6,250 shares of Common Stock. The Company awarded such bonus to Mr.
Morrison as a reward for planning and overseeing the completion of the
Company's network modernization and construction program in all of its
concession areas. In addition, the Company rewarded Mr. Morrison for
the connection of 175,000 telephone access lines by December 31, 1997.
These accomplishments have led to an acceleration of revenues from the
Company's provisions of telecommunications services.
For a description of certain provisions of the Company's
current employment contracts with its executive officers, See
"Employment Agreements."
-18-
<PAGE>
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.
Ronald E. Spears (former Director and Committee Member)
William E. Starkey (Committee Member)
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, 1997. 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.
-19-
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, AMEX MARKET INDEX
AND TELECOMMUNICATIONS INDUSTRY INDEX
[DIAGRAM]
<TABLE>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Hungarian Telephone $100.00 101.72 72.41 73.28 64.66 65.95
and Cable Corp.
Telecommunications 100.00 127.15 110.69 144.53 142.63 184.88
Industry Index
Amex Market Index 100.00 118.81 104.95 135.28 142.74 171.76
</TABLE>
-20-
<PAGE>
II. PROPOSAL TO AMEND THE COMPANY'S 1992 INCENTIVE STOCK OPTION PLAN,
AS AMENDED, TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE
THEREUNDER FROM 750,000 TO 1,000,000
Background of Proposed Amendment
The Stock Option Plan presently provides that the aggregate
number of shares of Common Stock subject to options granted thereunder
shall not exceed 750,000. Following a review of the options granted to
date under the Stock Option Plan and the number of options which the
Board of Directors believes should be available for awards in the
future, the Board of Directors has determined that the number of shares
presently available for awards under the Stock Option Plan is
insufficient to achieve the purposes of the Stock Option Plan. Based
upon that determination, the Board of Directors has determined that an
increase in the number of shares of Common Stock subject to Options
under the Stock Option Plan would be in the best interests of the
Company and its stockholders. Accordingly, on April 8, 1998, the Board
of Directors unanimously determined that the number of shares of Common
Stock subject to stock options available for grants under the Stock
Option Plan be increased from 750,000 shares to 1,000,000 shares in
order to provide incentive for certain key employees, directors and
consultants. The Board of Directors also unanimously recommended that
the Company's stockholders approve such increase. No other changes to
the Stock Option Plan are proposed at this time.
Description of the Stock Option Plan
The following description of the Stock Option Plan does not
purport to be complete and is qualified in its entirety by reference to
the full text of the Stock Option Plan, which may be obtained by any
stockholder of the Company by contacting Hungarian Telephone and Cable
Corp., Attn: Peter T. Noone, Secretary, 100 First Stamford Place, Suite
204, Stamford, CT 06902.
Purpose. The purpose of the Stock Option Plan is to provide an
incentive to employees of the Company (including directors and officers
of the Company), to encourage proprietary interest in the Company, to
encourage employees to remain in the employ of the Company and to
attract to the Company individuals of experience and ability to serve
as employees, directors and consultants.
Shares Subject to the Stock Option Plan. The maximum number of
shares of Common Stock as to which options may be granted under the
Stock Option Plan (subject to adjustment as described below) presently
is 750,000 shares. Any shares subject to an option which for any reason
expires or terminates unexercised may again be the subjected of another
option granted under the Stock Option Plan. As of the Record Date,
options with respect to 665,000 shares of Common Stock have been
granted and are either outstanding or have been exercised under the
Stock Option Plan.
Administration. The Stock Option Plan presently is
administered by the Compensation - Stock Option Committee (the
"Committee") appointed by the Board of Directors. The Committee shall
from time to time, at its discretion, make determinations with respect
to individuals who shall be granted options (Incentive Stock Options or
Non-Qualified Stock Options, which may be referred to collectively as
"Options"), the number of shares subject to Options and the
designations of such Options as Incentive Stock Options (an option
described in Section 422(b) of the Internal Revenue Code of 1986, as
amended, and also known as a "Qualified Option") or Non-Statutory Stock
Options (an option not described in Section 422(b) or 423(b) of the
Internal Revenue Code of 1986, as amended, and also known as a
"Non-Qualified Option"). Notwithstanding such designations, to the
extent that the aggregate fair market value of the shares with respect
to which Options designated as Incentive Stock Options are exercisable
for the first time by any optionee during any calendar year exceeds
$100,000, such Options shall be treated as Non-Qualified Options. The
Committee determines vesting requirements and other conditions of such
awards, interprets the Stock Option Plan, and makes all other decisions
relating to the operation of the Stock Option Plan.
-21-
<PAGE>
Eligibility. All key employees (including directors who are
employees), or directors who are not employees, and consultants (who
are neither employees nor directors) (individually, an "Optionee", and
together, the "Optionees") of the Company or any of its subsidiaries
who perform services of special importance to the management, operation
and development of the business of the Company as the Committee may
select presently are eligible to receive Options under the Stock Option
Plan. As of the April 27, 1998, there were approximately 25 persons
eligible to participate in the Stock Option Plan as directors,
employees or consultants.
Option Contracts. Each grant of an Option is evidenced by a
written contract between the Company and the Optionee receiving the
grant, containing terms and conditions not inconsistent with the Stock
Option Plan. Each Optionee shall agree to remain in the employ of, and
to render to, the Company his or her services for a period of one (1)
year from the date of the granting of any Option, but such agreement
shall not impose upon the Company any obligation to retain the Optionee
for any period of time.
Terms and Conditions of Options. Options may be granted for
terms determined by the Committee; provided, however, that no Option
shall be exercisable after the expiration of 10 years from the date of
grant; and provided further that the exercise period for an Incentive
Stock Option may not exceed 5 years if the option holder owns (or is
deemed to own) stock possessing more than 10% of the voting power of
the Company. In the case of an Incentive Stock Option, the per share
exercise price shall be no less than 100% of the fair market value per
share on the date of grant, except that, if granted to an employee who,
at the time of the grant of such Incentive Stock Option, owns (or is
deemed to own) stock representing more than 10% of the voting power of
all classes of stock of the Company or any parent or subsidiary, the
per share exercise price shall be no less than 110% of the fair market
value per share on the date of grant. In the case of a Non-Qualified
Option, the per share exercise price may be less than, equal to, or
greater than the fair market value per share on the date of grant, as
determined by the Committee.
The consideration to be paid for shares to be issued upon
exercise of an Option shall be United States dollars; provided,
however, that, with the consent of the Committee, the purchase price
may be paid by the surrender of shares of Common Stock in good form for
transfer owned by the person exercising the Option and having a fair
market value on the date of exercise equal to the purchase price or in
any combination of cash and shares, so long as the total of the cash so
paid and the fair market value of the shares surrendered equals the
purchase price. No shares shall be issued pursuant to the exercise of
an option until full payment therefor has been made.
Options may not be transferred other than by will or by the
laws of descent and distribution, and may be exercised during the
Optionee's lifetime only by him or his legal representatives. With
respect to an Option granted to an employee, if the employment of such
employee is terminated for any reason other than death or a permanent
and total disability, the Option may be exercised, to the extent
exercisable by the holder at the time of termination of employment,
within three months thereafter (twelve months if termination was due to
disability or, in the case of Non-Qualified Options, if termination was
due to retirement). In the case of death of the Optionee while employed
(or within three months after termination of employment), his executor
or administrator of his estate may exercise the Option, to the extent
exercisable on the date of death.
-22-
<PAGE>
Adjustment in Event of Capital Changes. Subject to any
required action by the Company's stockholders, the number of shares
covered by the Stock Option Plan, the number of shares covered by each
outstanding Option, and the exercise price thereof shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a subdivision or
consolidation of the Common Stock, stock split, or the payment of a
stock dividend.
Subject to any required action by the Company's stockholders,
if the Company shall be the surviving corporation in any merger or
consolidation, each outstanding Option shall pertain and apply to the
securities to which a holder of the number of shares subject to the
Option would have been entitled. A dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the
surviving corporation shall cause each outstanding Option to terminate,
unless the agreement of merger or consolidation shall otherwise
provide; provided that, each Optionee shall in such event, if a period
of one year from the date of the grant of the Option shall have
elapsed, have the right immediately prior to such dissolution or
liquidation, or merger or consolidation in which the Company is not the
surviving corporation, to exercise the Option in whole or in part,
subject to limitations on exercise under the Stock Option Plan.
In the event of a change in the Common Stock as presently
constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different
par value or without par value, the shares resulting from any such
change shall be deemed to be the Common Stock within the meaning of the
Stock Option Plan.
To the event that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding
and conclusive.
Duration and Amendments of the Stock Option Plan. Options may
be granted pursuant to the Stock Option Plan until the termination of
the Stock Option Plan on April 30, 2002. The Board of Directors may at
any time, subject to applicable law, suspend, terminate or amend the
Stock Option Plan in any respect; provided, however, that, without the
approval of the Company's stockholders, no amendment may be made which
would (a) increase the number of shares available for the grant of
Options (except the anti-dilution adjustments described above), (b)
materially increase benefits accruing to participants under the Stock
Option Plan or (c) change the eligibility requirements for
participating in the Stock Option Plan.
Federal Income Tax Treatment. The following is a general
summary of the federal income tax consequences under current tax law of
Incentive Stock Options and Non-Qualified Options. It does not purport
to cover all of the special rules, including the exercise of an option
with previously acquired shares, or the state or local income or other
tax consequences inherent in the ownership and exercise of stock
options and the ownership and disposition of the underlying shares.
-23-
<PAGE>
An Optionee will not recognize taxable income for federal
income tax purposes upon the grant of an Incentive Stock Option or a
Non-Qualified Option and the Company obtains no deduction from the
grant of such Options.
In the case of an Incentive Stock Option, no taxable income is
recognized upon exercise of the Incentive Stock Option and the Company
will not be entitled to a tax deduction by reason of such exercise;
provided that, the holder is still employed by the Company (or
terminated employment no longer than three months before the exercise
date). Additional exceptions to this exercise timing requirement apply
upon the death or disability of the Optionee. If the Optionee disposes
of the shares acquired pursuant to the exercise of an Incentive Stock
Option more than two years after the date of grant and more than one
year after the exercise, the Optionee will recognize long-term capital
gain or loss in the amount of the difference between the amount
realized on the sale and the exercise price for such shares and the
Company will not be entitled to a deduction. Generally, upon a sale or
disposition of the shares prior to the foregoing holding requirements
(referred to as a "disqualifying disposition"), the Optionee will
recognize ordinary compensation income, and the Company will receive a
corresponding deduction, equal to the lesser of (i) the excess of the
fair market value of the shares on the date of transfer to the Optionee
over the exercise price, or (ii) the excess of the amount realized on
the disposition over the exercise price.
Upon the exercise of a Non-Qualified Option, the amount by
which the fair market value of the shares on the date of exercise
exceeds the exercise price will be taxed to the Optionee as ordinary
compensation income. The Company will generally be entitled to a
deduction in the same amount provided that it satisfies certain
requirements relating to the terms of the Option and makes all required
wage withholdings on the compensation element attributable to the
exercise. In general, the Optionee's tax basis in the shares acquired
by exercising a Non-Qualified Option is equal to the fair market value
of such shares on the date of exercise. Upon a subsequent sale of any
such shares in a taxable transaction, the Optionee will realize capital
gain or loss in an amount equal to the difference between his or her
basis in the shares and the sale price.
In addition to the federal income tax consequences described
above, an Optionee may be subject to the alternative minimum tax, which
is payable to the extent it exceeds the Optionee's regular tax. For
this purpose, upon the exercise of an Incentive Stock Option, the
excess of the fair market value of the shares over the exercise price
therefor is an adjustment which increases alternative minimum taxable
income. In addition, the Optionee's basis in such shares is increased
by such amount for purposes of computing the gain or loss on the
disposition of the shares for alternative minimum purposes. If an
Optionee is required to pay an alternative minimum tax, the amount of
such tax which is attributable to deferral preferences (including the
incentive stock option adjustment) is allowed as a credit against the
Optionee's regular tax liability in subsequent years. To the extent the
credit is not used, it is carried forward.
-24-
<PAGE>
To the extent required by applicable federal, state, local or
foreign law, the recipient of any payment or distribution under the
Stock Option Plan will make arrangements satisfactory to the Company
for the satisfaction of any withholding tax obligations that arise by
reason of such payment or distribution. The Company will not be
required to make such payment or distribution until such obligations
are satisfied.
Outstanding Stock Option Awards
The benefits to be awarded to and received by the employees,
directors and consultants of the Company under the Stock Option Plan,
as proposed to be amended, in the future are not presently
determinable. There would have been no additional benefits received by
the employees, directors and consultants of the Company for the last
completed fiscal year if the Stock Option Plan, as proposed to be
amended, had been in effect. All shares currently subject to Options,
as well as any additional shares that may become subject to future
Options (including the proposed increase in shares subject to
stockholder approval), under the Stock Option Plan are comprised of
authorized but unissued shares of Common Stock. Accordingly, the
exercise of any such Options and the issuance of shares pursuant
thereto will have the effect of diluting the interests of existing
stockholders to the extent of such issuance.
The table below sets forth the number of shares subject to
current Options granted under the Stock Option Plan as of April 27,
1998 to: (i) the Named Executives; (ii) each nominee for election as a
director; (iii) all current executive officers as a group; (iv) all
current directors who are not executive officers as a group; (v) all
employees and consultants who are not executive officers, as a group;
and (vi) each person who received 5% of such options.
-25-
<PAGE>
<TABLE>
Number of Shares
Name Title Subject to Options
<S> <C> <C>
Frank R. Cohen Former Director, Secretary, Treasurer 36,000(1)
and Chief Financial Officer
Robert Genova Former Chairman of the Board, President 96,500(2)
and Chief Executive Officer
Peter E. Klenner Former Director and Former 97,500(3)
President, Chief Executive Officer
and Chief Financial Officer
James G. Morrison Director, Former President and Chief 82,500
Executive Officer
Andrew E. Nicholson Senior Vice President - Business
Development 55,000
Peter T. Noone General Counsel 17,500
Donald K. Roberton Former Vice Chairman and Director 200,000
John B. Ryan Director 15,000(4)
James H. Season Director 5,000
Daniel R. Vaughn Former Chief Operating Officer 20,000
Current executive 102,500
officers as a group
(3 persons)
Current directors who 102,500
are not executive
officers as a group
(9 persons)
Employees and consultants 82,500
who are not executive
officers, as a group
(1 person)
</TABLE>
(1)In 1997, Mr. Cohen exercised options to purchase 5,000 shares of
Common Stock.
(2)In 1997, Mr. Genova exercised options to purchase 50,000 shares
of Common Stock.
(3)In 1995, Mr. Klenner exercised all of his options.
(4)In 1997, Mr. Ryan exercised options to purchase 5,000 shares of
Common Stock.
On April 27, 1998, the closing price for the Common Stock as reported
by the American Stock Exchange was $7-7/8.
-26-
<PAGE>
Certain Interests of Directors
In considering the recommendation of the Board of Directors
with respect to the increase in the number of shares available under
the Stock Option Plan, stockholders should be aware that the members of
the Board of Directors have certain interests which may present them
with conflicts of interest in connection with such proposal. As
discussed above, all current directors of the Company are eligible to
participate in the Stock Option Plan.
The Board of Directors recognizes that approval of the
proposal to increase the number of shares available under the Stock
Option Plan may benefit such individual directors of the Company and
their successors, but it believes that approval of the additional
shares available under the Stock Option Plan will strengthen the
Company's ability to continue to attract, motivate and retain certain
qualified employees, directors and consultants. Furthermore, the Board
of Directors believes that such approval will advance the interests of
the Company and its stockholders by encouraging key employees,
directors and consultants to make significant contributions to the
long-term success of the Company. The Board of Directors believes that
the increase in the number of shares available under the Stock Option
Plan is in the best interests of the Company and its stockholders, and
therefore, unanimously recommends a vote FOR the approval of the
proposal to increase the number of shares of Common Stock available
under the Stock Option Plan from the current 750,000 shares to
1,000,000 shares for use as incentive awards for key employees,
directors and consultants. In considering the foregoing recommendation
of the Board of Directors, stockholders should be aware that the
current members of the Board of Directors own as of April 27, 1998, in
the aggregate, approximately 3.1% of the shares of the Company's issued
and outstanding Common Stock, assuming full exercise of options and
warrants exercisable by them within 60 days of the Record Date.
The Board of Directors recommends that stockholders vote "FOR"
approval of the proposal to amend the Stock Option Plan to increase the
number of shares of Common Stock available thereunder from 750,000 to
1,000,000 for use as incentive awards to certain key employees,
directors and consultants.
III. 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,
1998, 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.
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, 1998.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1999
Annual Meeting must be received by the Company by January 4, 1999 for
possible inclusion in the proxy materials relating to such meeting.
-27-
<PAGE>
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.
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,
/s/David A. Finley
David A. Finley
Chairman of the Board
May 4, 1998
New York, New York
-28-
<PAGE>
PROXY PROXY
HUNGARIAN TELEPHONE AND CABLE CORP.
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 10, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints DAVID A.
FINLEY 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
June 10, 1998, at 10:00 a.m. local time, at the New York Helmsley Hotel, 212
East 42nd Street, New York, New York 10017, or at any adjournment or
postponement thereof.
Should the undersigned be present and elect to vote at the Meeting or
at any adjournments or postponements 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 1999 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.
OLE BERTRAM JAMES G. MORRISON JAMES H. SEASON
DARYL A. FERGUSON JOHN B. RYAN WILLIAM E. STARKEY
DAVID A. FINLEY FINN SCHKOLNIK LEONARD TOW
VOTE
FOR |_| WITHHELD |_|
2. Proposal to amend the Company's 1992 Incentive Stock Option Plan, as
amended, to increase the number of shares of the Company's common stock
available thereunder from 750,000 to 1,000,000 for use as incentive
awards to certain key employees, directors and consultants.
FOR |_| AGAINST |_| ABSTAIN |_|
3. Ratification of the appointment of KPMG Peat Marwick LLP as auditors of
the Company for the fiscal year ending December 31, 1998.
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,
1997.
DATED:________________________, 1998
____________________________________
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.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP.
Index to Exhibits
Exhibit No. Description
4.3 Hungarian Telephone and Cable Corp. 1992 Incentive Stock Option
Plan, as amended
Exhibit 4.3
HUNGARIAN TELEPHONE AND CABLE CORP.
1992 INCENTIVE STOCK OPTION PLAN, AS AMENDED
1. Purpose. The purpose of the 1992 Incentive Stock Option Plan of
Hungarian Telephone and Cable Corp. (the "Corporation") is to provide incentive
to employees of the Corporation, to encourage employee proprietary interest in
the Corporation, to encourage employees to remain in the employ of the
Corporation, and to attract to the Corporation individuals of experience and
ability to serve as employees, directors and consultants.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the
Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986 as
amended from time to time.
(c) "Common Stock" shall mean the $.001 par value Common stock
of the Corporation.
(d) "Committee" shall mean the Committee appointed by the
Board in accordance with Section 4 of the Plan.
(e) "Corporation" shall mean Hungarian Telephone and Cable
Corp., a Delaware corporation, its parent or any of its subsidiaries.
(f) "Disability" shall mean the condition of an Employee who
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.
(g) "Employee" shall mean an individual (who may be an officer
or a director) employed by the Corporation (within the meaning of the
Code section 3401 and the regulations thereunder).
(h) "Exercise Price" shall mean the price per Share of Common
Stock, determined by the Committee, at which an Option may be
exercised.
(i) "Fair Market Value" of a Share as of a specified date
shall mean the closing price of a Share on the principal securities
exchange on which such Shares are traded on the day immediately
preceding the date as of which Fair Market Value is being determined,
or on the next preceding date on which such Shares are traded if no
Shares were traded on such immediately preceding day, or if the Shares
are not traded on a securities exchange, Fair Market Value shall be
deemed to be the average of the high bid and low asked prices of the
<PAGE>
Shares in the over-the-counter market on the day immediately preceding
the date as of which Fair Market Value is being determined or on the
next preceding date on which such high bid and low asked prices were
recorded. If the Shares are not publicly traded, Fair Market Value
shall be determined by the Committee or the Board. In no case shall
Fair Market Value be less than the par value of a share of Common
Stock.
(j) "Incentive Stock Option" shall mean an Option described in
Code section 422(b).
(k) "Nonstatutory Stock Option" shall mean an Option not
described in Code sections 422(b) or 423(b).
(l) "Option" shall mean a stock option granted pursuant to the
Plan.
(m) "Purchase Price" shall mean the Exercise Price times the
number of whole Shares with respect to which an Option is exercised.
(n) "Optionee" shall mean an Employee to whom an option has
been granted.
(o) "Plan" shall mean this Hungarian Telephone and Cable Corp.
1992 Incentive Stock Option Plan.
(p) "Share" shall mean one Share of Common Stock, adjusted in
accordance with Section 10 of the Plan (if applicable).
(q) "Subsidiary" shall mean those subsidiaries of the
Corporation as defined in section 424(f) of the code.
3. Effective Date. This Plan was approved by the Board and Shareholders
effective April 30, 1992.
4. Administration. The Plan shall be administered by the Board of
Directors or by the Stock Option Committee (the "Committee") appointed by the
Board, consisting of not less than two members thereof. The Board may from time
to time remove members from, or add members to, the Committee. Vacancies on the
Committee, however caused, shall be filled by the Board.
The Committee shall hold meetings at such times and places as it
may determine. Acts of a majority of the Committee at which a quorum is present,
or acts reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. The Committee shall from
time to time at its discretion make determinations with respect to Employees who
shall be granted Options, the number of Shares to be optioned to each and the
designation of such Options as Incentive Stock Options or Nonstatutory Stock
Options.
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The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted thereunder shall be final. No
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted thereunder.
5. Eligibility. Optionees shall be such key Employees (who may be
officers, whether or not they are directors), or directors or consultants of the
Corporation who perform services of special importance to the management,
operation and development of the business of the Corporation as the Committee
shall select, but subject to the terms and conditions set forth below.
(a) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonqualified Stock
Option. However, notwithstanding such designations, to the extent that
the aggregate fair market value of the Shares with respect to which
Options designated as Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under all plans of
the Company) exceeds $100,000, such Options shall be treated as
Nonqualified Stock Options.
(b) For purposes of Section 5(a), Options shall be taken into
account in the order in which they were granted, and the fair market
value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(c) Nothing in the Plan or any Option granted hereunder shall
confer upon any Optionee any right with respect to continuation of
employment with the Company, nor shall it interfere in any way with the
Optionee's right or the Company's right to terminate the employment
relationship at any time, with or without cause.
6. Stock. The stock subject to Options granted under the Plan shall be
Shares of the Corporation's authorized but unissued or reacquired Common Stock.
The aggregate number of Shares which may be issued under Options exercised under
this Plan shall not exceed 750,000. The number of Shares subject to Options
outstanding under the Plan at any time may not exceed the number of Shares
remaining available for issuance under the Plan. In the event that any Option
outstanding under the Plan expires for any reason or is terminated, the Shares
allocable to the unexercised portion of such Option may again be subjected to an
Option under the Plan.
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The limitations established by this Section 6 shall be subject to
adjustment upon the occurrence of the events specified and in the manner
provided in Section 10 hereof.
7. Terms and Conditions of Options. Options granted pursuant to the
Plan shall be evidenced by written agreements in such form as the Committee
shall from time to time determine, which agreements shall comply with and be
subject to the following terms and conditions:
(a) Date of Grant. Each option shall specify its effective
date (the "date of grant"), which shall be the date specified by the
Board or the Committee, as the case may be, in its action relating to
the grant of the Option.
(b) Optionee's Agreement. Each Optionee shall agree to remain
in the employ of and to render to the Corporation his or her services
for a period of one (1) year from the date of the granting of the
Option, but such agreement shall not impose upon the Corporation any
obligation to retain the Optionee in their employ for any period.
(c) Number of Shares. Each Option shall state the number of
Shares to which it pertains and shall provide for the adjustment
thereof in accordance with the provisions of Section 10 hereof.
(d) Exercise Price and Consideration.
(i) The per Share exercise price under each Option
shall be such price as is determined by the Board, subject to
the following:
a) In the case of an Incentive Stock Option
i) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock
representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than
110% of the fair market value per share on the date of grant.
ii) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the fair
market value per Share on the date of grant.
b) In the case of a Nonqualified Stock Option the per
Share exercise price may be less than, equal to, or greater than the
fair market value per Share on the date of grant.
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i) The fair market value per Share shall be
the closing price per share of the Common Stock on the
National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System on the date of grant. If the
Common Stock ceases to be listed on the NASDAQ National Market
System, the Board shall designate an alternative method of
determining the fair market value of the Common Stock.
(e) Medium and Time Payment. The Purchase Price shall be
payable in full in United States dollars upon the exercise of the
Option; provided, however, that, with the consent of the Committee, the
Purchase Price may be paid by the surrender of Shares in good form for
transfer, owned by the person exercising the option and having a Fair
Market Value on the date of exercise equal to the Purchase Price or in
any combination of cash and Shares, so long as the total of the cash so
paid and the Fair Market Value of the Shares surrendered equals the
Purchase Price. No Share shall be issued until full payment therefore
has been made.
(f) Term and Exercise of Options; Nontransferability of
Options. Each Option shall state the time or times when it becomes
exercisable. No option shall be exercisable after the expiration of ten
(10) years from the date it is granted. During the lifetime of the
Optionee, the Option shall be exercisable only by the Optionee and
shall not be assignable or transferable. In the event of the Optionee's
death, no Option shall be transferable by the Optionee otherwise than
by will or the laws of descent and distribution.
(g) Termination of Employment Except Death. In the event that
an Optionee shall cease to be employed by the Corporation for any
reason other than his or her death, such Optionee shall have the right,
subject to the restrictions of Subsection (f) hereof, to exercise the
Option at any time within three (3) months after such termination of
employment (twelve (12) months if termination was due to Disability or,
in the case of Nonstatutory Stock Option, twelve (12) months if
termination was due to retirement), to the extent that, on the day
preceding the date of termination of employment, the Optionee's right
to exercise such Option had accrued pursuant to the terms of the option
agreement pursuant to which such Option was granted, and had not
previously been exercised.
For this purpose, the employment relationship will be treated
as continuing intact while the Optionee is on military leave, sick
leave or other bona fide leave of absence (to be determined in the sole
discretion of the Committee, in accordance with rules and regulations
construing Code section 422(a)(2)). Notwithstanding the foregoing, in
the case of an Incentive Stock Option, employment shall not be deemed
to continue beyond the ninetieth (90th) day after the Optionee ceased
active employment, unless the Optionee's reemployment rights are
guaranteed by statute or by contract.
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(h) Death if Optionee. If the Optionee shall die while in the
employ of the Corporation and shall not have fully exercised the
Option, an Option may be exercised in full, subject to the restrictions
of Subsection (f) hereof, to the extent it had not previously been
exercised, at any time within twelve (12) months after the Optionee's
death, by the executors or administrators of his or her estate or by
any person or persons who shall have acquired the Option directly from
the Optionee by bequest or inheritance.
If the Optionee shall die within three (3) months after his or
her employment with the Corporation terminated and shall not have fully
exercised the Option, an Option may be exercised (subject to the
limitations on exercisability set forth in Subsection (f) hereof) to
the extent that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued pursuant to the
terms of the applicable option agreement and had not previously been
exercised, at any time within twelve (12) months after the Optionee's
death, by the executors or administrators of the Optionee's estate or
by any person or persons who shall have acquired the Option directly
from the Optionee by bequest or inheritance.
(i) Rights as a Stockholder. An Optionee or a transferee of an
Optionee shall have no rights as a stockholder with respect to any
Shares covered by his or her Option until the date of the issuance of a
stock certificate for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record
date is prior to the date such stock certificate is issued, except as
provided in Section 10.
(j) Modification, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of the Plan, the
Committee may modify, extend or renew outstanding Options granted under
the Plan, or accept the exchange of outstanding Options (to the extent
not theretofore exercised and subject to the provisions of paragraph
7(d) above) for the granting of new Options in substitution therefor.
Notwithstanding the foregoing, however, no modification of an Option
shall, without the consent of the optionee, alter or impair any rights
or obligations under any Option theretofore granted under the Plan.
(k) Other Provisions. The option agreements authorized under
the Plan shall contain such other provisions not inconsistent with the
terms of the Plan, including, without limitation, restrictions upon the
exercise of the Option, as the Committee shall deem advisable.
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8. Limitation on Annual Awards.
General Rule. Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonqualified Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
fair market value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company) exceeds $100,000, such
Options shall be treated as Nonqualified Stock Options.
9. Term of Plan. Options may be granted pursuant to the Plan until the
termination of the Plan on April 30, 2002.
10. Recapitalization. Subject to any required action by the
stockholders, the number of Shares covered by this Plan as provided in Section
6, the number of Shares covered by each outstanding Option, and the Exercise
Price thereof shall be proportionately adjusted for any increase or decrease in
the number of issued Shares resulting from a subdivision or consolidation of
Shares, stock split, or the payment of a stock dividend.
Subject to any required action by the stockholders, if the
Corporation shall be the surviving corporation in any merger or consolidation,
each outstanding Option shall pertain and apply to the securities to which a
holder of the number of Shares subject to the Option would have been entitled. A
dissolution or liquidation of the Corporation or a merger or consolidation in
which the Corporation is not the surviving corporation shall cause each
outstanding Option to terminate, unless the agreement of merger or consolidation
shall otherwise provide, provided that each Optionee shall in such event, if a
period of one (1) year from the date of the grant of the Option shall have
elapsed, have the right immediately prior to such dissolution or liquidation, or
merger or consolidation in which the Corporation is not the surviving
corporation, to exercise the Option in whole or in part, subject to limitations
on exercisability under Section 7(k) hereof.
In the event of a change in the Common Stock as presently
constituted, which is limited to a change of all of its authorized shares with
par value into the same number of shares with a different par value or without
par value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments related to stock or
securities of the Corporation, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
Except as hereinbefore expressly provided in this Section 10, the
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, stock split, or the payment of any stock dividend
or any other increase or decrease in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or consolidation or
spin-off of assets or stock of another corporation, and any issue by the
Corporation of shares of stock of any class or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares subject to
the Option.
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The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
11. Securities Law Requirements. No Shares shall be issued upon the
exercise of any Option unless and until the Corporation has determined that: (i)
it and the Optionee have taken all actions required to register the Shares under
the Securities Act of 1933 or perfect an exemption from the registration
requirements thereof; (ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and (iii) any
other applicable provision of state or Federal Law has been satisfied.
12. Amendment of the Plan. The Board may, insofar as permitted by law,
from time to time, with respect to any Shares at the time not subject to
Options, suspend or discontinue the Plan or revise or amend it in any respect
whatsoever except that, without approval of the stockholders, no such revision
or amendment shall:
(a) Increase the number of Shares issuable pursuant to the
Plan; or
(b) Change the requirements as to eligibility for
participation in the Plan.
(c) Materially increase benefits accruing to participants
under the Plan.
13. Application of Funds. The proceeds received by the Corporation from
the sale of Common Stock pursuant to the exercise of an Option will be used for
general corporate purposes.
14. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Optionee to exercise such Option.
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