SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as perrmitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Baltic International USA, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):
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4) Proposed maximum aggregate value of transaction:
_________________________________________________________________
5) Total fee paid:
_________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 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.
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4) Date Filed:
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<PAGE>
BALTIC INTERNATIONAL USA, INC.
1990 Post Oak Boulevard, Suite 1630
Houston, Texas 77056-3813
Notice of Annual Meeting of Stockholders
To Be Held on June 6, 1996
Notice is hereby given that the 1996 Annual Meeting of
Stockholders of Baltic International USA, Inc. ("Company") will
be held at the University Club, Library Room, 5051 Westheimer,
Post Oak Tower, Suite 355, Houston, Texas at 9:00 a.m. on June 6,
1996 for the following purposes:
1. To elect seven directors;
2. To ratify the selection of BDO Seidman, LLP as independent auditors
of the Company for the fiscal year ending December 31, 1996;
3. To approve and ratify an amendment to the 1992 Equity
Incentive Plan; and
4. To transact such other business as may properly come before the
meeting.
Common stockholders of record at the close of business on
May 14, 1996 will be entitled to notice of and to vote at the
meeting.
By Order of the Board of Directors
/s/ Jo Ann Johnson
Jo Ann Johnson, Secretary
May 24, 1996
BALTIC INTERNATIONAL USA, INC.
1990 Post Oak Boulevard, Suite 1630
Houston, Texas 77056-3813
(Principal Executive Office)
PROXY STATEMENT
Annual Meeting of Stockholders
INTRODUCTION
This Proxy Statement is being furnished to stockholders in
connection with the solicitation of proxies by the Board of
Directors of Baltic International USA, Inc. ("Company") for use
at the 1996 Annual Meeting of Stockholders of the Company
("Meeting") to be held at the University Club, Library Room, 5051
Westheimer, Post Oak Tower, Suite 355, Houston, Texas at 9:00
a.m. on June 6, 1996, and at any adjournments thereof, for the
purpose of considering and voting upon the matters set forth in
the accompanying Notice of Annual Meeting of Stockholders. This
Proxy Statement and the accompanying form of proxy are first
being mailed to stockholders on or about May 17, 1996.
The close of business on May 14, 1996, has been fixed as the
record date for the determination of stockholders entitled to
notice of and to vote at the Meeting and any adjournment thereof.
As of the record date, there were 5,937,068 shares of the
Company's common stock, par value $.01 per share ("Common
Stock"), issued and outstanding.
The presence, in person or by proxy, of a majority of the
outstanding shares of Common Stock entitled to vote on the record
date is necessary to constitute a quorum at the Meeting.
Abstentions and broker non-votes will be counted towards a
quorum. If a quorum is not present or represented at the
Meeting, the shareholders present at the meeting or represented
by proxy, have the power to adjourn the Meeting from time to
time, without notice other than an announcement at the Meeting,
until a quorum is present or represented. At any such adjourned
Meeting at which a quorum is present or represented, any business
may be transacted that might have been transacted at the original
Meeting.
With respect to the election of directors, votes may be cast
in favor or withheld. Directors are elected by a plurality of
the votes cast at the Meeting, and votes that are withheld will
be excluded entirely from the vote and will have no effect.
Stockholders may not cumulate their votes in the election of
directors. The affirmative vote of a majority of the shares of
Common Stock present in person or by proxy at the Meeting and
entitled to vote is required for approval of Items 2 and 3.
Abstentions will have the same effect as a vote against a
proposal.
Brokers who hold shares in street name for customers are
required to vote those shares in accordance with instructions
received from the beneficial owners. In addition, brokers are
entitled to vote on certain items, such as the election of
directors, the ratification of auditors and other "discretionary
items," even when they have not received instructions from
beneficial owners. Brokers are not permitted to vote for other
"non-discretionary" items without specific instructions from the
beneficial owners. Under applicable Texas law, broker non-votes
will have no effect on any of the proposals.
All shares represented by properly executed proxies, unless
such proxies previously have been revoked, will be voted at the
Meeting in accordance with the directions on the proxies. IF NO
DIRECTION IS INDICATED, THE SHARES WILL BE VOTED (i) TO ELECT
SEVEN DIRECTORS (ii) TO RATIFY THE SELECTION OF BDO SEIDMAN, LLP
AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1996; (iii) TO APPROVE AND RATIFY THE AMENDMENT TO
THE 1992 EQUITY INCENTIVE PLAN; AND (iv) TO TRANSACT SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. The enclosed
proxy, even though executed and returned, may be revoked at any
time prior to the voting of the proxy by one of the following
methods: (a) execution and submission of a revised proxy, (b)
written notice to the Secretary of the Company, or (c) voting in
person at the Meeting.
1
ANNUAL REPORT
The Annual Report on Form 10-KSB covering the Company's
fiscal year ended December 31, 1995, including audited financial
statements, is enclosed herewith. The Annual Report does not
form any part of the material for solicitation of proxies.
The Company will provide exhibits to its Annual Report on
Form 10-KSB, upon payment of the reasonable expenses incurred by
the Company in furnishing such exhibits, upon written request to
the Secretary of the Company, at 1990 Post Oak Boulevard, Suite
1630, Houston, Texas 77056-3813.
ITEM I
TO ELECT SEVEN DIRECTORS
Directors and Nominees
The directors are elected annually by the stockholders of
the Company and hold office until the next annual meeting of the
stockholders of the Company and until their successors are
elected and qualified. The Bylaws of the Company provide that
the number of directors will be determined by the Board of
Directors. The stockholders will elect seven directors for the
coming year. All of the director nominees, except for James W.
Goodchild, presently serve as directors of the Company. Mr.
Goodchild serves as chief operating and financial officer of the
Company. There is no family relationship between or among any of
the directors, director nominees and executive officers of the
Company.
Unless otherwise instructed or unless authority to vote is
withheld, the enclosed proxy will be voted for the election of
the director nominees listed herein. Although the Board of
Directors of the Company does not contemplate that any of the
director nominees will be unable to serve, if such a situation
arises prior to the Meeting, the persons named in the enclosed
proxy will vote for the election of such other person(s) as may
be nominated by the Board of Directors.
Robert L. Knauss (age 64). Mr. Knauss has served as chief
executive officer since January 1994. Mr. Knauss also serves as
a member of the board of Baltic International Airlines ("BIA").
Mr. Knauss served as Dean of the University of Houston Law Center
from 1981 through December 1993. Mr. Knauss was involved in
establishing the relationship between the University of Houston
Law Foundation and the former Soviet Union in 1991 whereby the
University of Houston Law Foundation assisted the former Soviet
Union in creating the Petroleum Legislation Project, and was
involved with the government of Russia in the development of
privatization legislation. Mr. Knauss has served as a director
of Equus Investments, Inc. since 1984, as one of the two United
States directors for the Mexico Fund since 1985, and as a
director of Allwaste, Inc. since 1986. Securities of the Mexico
Fund, Allwaste, Inc. and Equus Investments, Inc. are registered
under the Exchange Act. Mr. Knauss is a graduate of Harvard
University and the University of Michigan Law School. Mr. Knauss
has traveled extensively to the former Soviet Union.
Mr. Knauss has served as chairman of the board of the
Company since its inception in March 1991. Mr. Knauss is also a
member of the Executive Committee.
Homi M. Davier (age 47). Mr. Davier served as president of
the Company since its inception in March 1991 until August 1995.
Mr. Davier has served as a director and as the Company's managing
director to BIA since June 1991. Mr. Davier served as senior
traffic assistant of Air India from April 1971 to May 1975, and
assisted in the start-up of Gulf Air in Oman and in the start-up
of the Middle Eastern operations of Air Bangladesh and Sabena
Belgian Airlines. Mr. Davier has served as chairman of the board
and president of Capricorn Travel and Tours, Inc. since April
1983. Mr. Davier is the founder and president of Capricorn
Computers, established in 1985, which developed and markets the
Capri 2020, a revenue accounting and management report system for
travel agencies. Mr. Davier has been chief executive officer of
Travel Stop, a Houston-based retail travel outlet, since 1990.
Mr. Davier graduated from Hislop College in Nagpur, India
Mr. Davier has been a director of the Company since its
inception in March 1991. Mr. Davier is also a member of the
Executive Committee.
2
Paul R. Gregory (age 54). Dr. Gregory served as treasurer,
on a part-time basis, of the Company since its inception in March
1991 until August 1995. Dr. Gregory also serves as a member of
the board of BIA. Dr. Gregory is the Cullen Professor of
Economics and Finance at the University of Houston where he has
been a faculty member since 1972. Dr. Gregory was involved in
creating the Petroleum Legislation Project with Russia and he
served as project coordinator of the Russian Securities Project
in conjunction with the Russian State Committee for Property
Management and the various Russian stock exchanges. Dr. Gregory
serves as advisor to a number of major United States corporations
on their Russian business activities, and has been active in the
former Soviet Union for 25 years. Dr. Gregory has served as
chairman of the board of Amsovco International Consultants, Inc.
since 1988. Dr. Gregory has also served as a consultant to the
World Bank. Dr. Gregory graduated from Harvard University with a
Ph.D. in economics and is fluent in Russian and German. Dr.
Gregory is the author of a text on the Soviet and Russian
economies
Dr. Gregory has served as vice chairman of the board of the
Company since its inception in March 1991. Dr. Gregory is also a
member of the Executive Committee.
Juris Padegs (age 64). Mr. Padegs serves as vice chairman
of the board of BIA. Mr. Padegs has served as a managing
director of Scudder, Stevens & Clark, an international investment
and management firm, since 1985 and has been employed with
Scudder, Stevens & Clark since 1964. Mr. Padegs is the director
of a number of international investment companies, including
Scudder New Europe Fund and Scudder New Asia Fund. Mr. Padegs is
the chairman and director of the Korea Fund, the Brazil Fund, and
the First Iberian Fund. Mr. Padegs was born in Latvia and holds
a Bachelor of Arts and a law degree from Yale University. Mr.
Padegs is fluent in Latvian and German. In July 1994, he was
appointed by President Clinton to the board of the Baltic
American Enterprise Fund, a $50 million fund to promote private
enterprise in the Baltic States.
Mr. Padegs has been a director of the Company since December
1993. Mr. Padegs is also a member of the Audit Committee and
Compensation Committee.
Ted Reynolds (age 65). Mr. Reynolds has been president of
Houston Grain Company since 1983 and vice president of Mid-
America Grain Commodities since 1976. He recently formed and is
owner of Red River Grain Company. He is actively involved in
various international business transactions. Mr. Reynolds is a
graduate of Texas Christian University.
Mr. Reynolds has been a director of the Company since 1993.
Mr. Reynolds is also a member of the Audit Committee and
Compensation Committee.
Morris A. Sandler (age 49). Mr. Sandler has served as
executive vice president-strategic relations and director of
Global TeleSystems Group, Inc., an independent telecommunications
company in Russia, since 1994. From 1990 to 1994, Mr. Sandler
was an employee of Alan B. Slifka and Company. From 1984 to 1994
he was a general partner of Griffis Sandler & Co., an
international private investment banking firm. Mr. Sandler
served as vice president and director of marketing of the
merchant banking firm of J. Aron & Company, Inc. from 1976 until
its acquisition by Goldman, Sachs & Co. ("Goldman Sachs") in
1981, at which time he became a vice president of Goldman Sachs,
which position he held until 1984. He has also served as a
director of Vesta Technology, Ltd. since 1986. Mr. Sandler
received a B.A. degree from Cornell University in 1969, and an
M.B.A. from the University of Chicago Graduate School of Business
in 1976.
Mr. Sandler has been a director of the Company since 1995.
Mr. Sandler is also a member of the Audit Committee and
Compensation Committee.
James W. Goodchild (age 40). Mr. Goodchild has served as
chief operating officer since October 1994 and as chief financial
officer of the Company since September 1993. Mr. Goodchild
served as the Company's vice president of finance and development
from July 1992 to August 1993. From August 1989 through June
1992, Mr. Goodchild attended the University of Houston where he
acquired a B.A. degree in Russian and Soviet Studies, and a B.A.
degree in International Relations. Mr. Goodchild is fluent in
Russian. Mr. Goodchild was project administrator of the Russian
Petroleum Legislation Project from July 1992 to December 1992.
From 1984 to March 1989, Mr. Goodchild was employed with MCorp,
formerly a Dallas-based bank holding company, where he served as
senior vice president and manager of credit administration of
MCorp's Collection Bank. Additionally, Mr. Goodchild acquired a
B.S. degree in finance from the University of Houston in 1978.
3
Board of Directors, Committees and Meetings
The Board of Directors held two meetings in 1995, and each
director of the Company was in attendance. The Executive Committee
of the Board reviews and monitors the operating decisions and
strategies of management. The Executive Committee held two meetings
during 1995. The Audit Committee reviews and reports to the Board
on the financial results of the Company's operations and the results
of the audit services provided by the Company's independent
accountants, including the fees and costs for such services. The
Audit Committee held one meeting during 1995. The Compensation
Committee reviews compensation paid to management and recommends to
the Board of Directors appropriate executive compensation. The
Compensation Committee held two meetings during 1995.
Director Compensation
Outside directors are entitled to receive options to purchase
10,000 shares in their first year of service and 5,000 shares of
Common Stock per year thereafter as compensation and reimbursement
of out-of-pocket expenses to attend board meetings. Messrs. Padegs
and Reynolds have each received options to purchase 5,000 shares of
Common Stock pursuant to this arrangement. In addition, Mr. Padegs
received an option to purchase 5,000 shares of Common Stock for
consulting services rendered. Such options are exercisable for
$1.125 per share and expire in October 1999. In December 1995,
Messrs. Padegs, Reynolds and Sandler each received options to
purchase 15,000 shares of Common Stock at a price of $1.375 per
share pursuant to this arrangement. Also in December 1995, Messrs.
Davier and Gregory each received options to purchase 50,000 shares
at a price of $1.375 per share for services rendered. Such options
expire in December 2000. In addition, consulting fees in the amount
of $10,000, $20,000 and $0 respectively, were paid to Capricorn
Travel, a Company controlled by Mr. Davier, during 1993, 1994 and
1995.
Reports
In April 1994, the Company's Common Stock was registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and Messrs. Knauss, Gregory, Davier,
Padegs, Reynolds and Goodchild, and Ms. Johnson became subject to
the filing and reporting requirements of Section 16(a) of the
Exchange Act. In October 1994, Mr. Glenister became subject to such
requirements. In August 1995, Mr. Sandler became subject to such
requirements.
THE BOARD OF DIRECTORS HAS NOMINATED THE ABOVE-REFERENCED
DIRECTORS FOR ELECTION BY THE STOCKHOLDERS AND RECOMMENDS A VOTE FOR
SUCH ELECTION. THE ELECTION OF THESE DIRECTORS REQUIRES A PLURALITY
OF THE VOTES CAST BY THE HOLDERS OF SHARES OF COMMON STOCK
REPRESENTED IN PERSON OR BY PROXY AT THE ANNUAL MEETING AND ENTITLED
TO VOTE IN THE ELECTION OF DIRECTORS.
ITEM 2
TO RATIFY THE SELECTION OF BDO SEIDMAN, LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1996
The Board of Directors has approved the engagement of BDO
Seidman, LLP as independent auditors for the fiscal year ending
December 31, 1996 consolidated financial statements. The Board of
Directors wishes to obtain from the stockholders a ratification of
the Board's action in appointing BDO Seidman, LLP as independent
auditors of the Company for the fiscal year ending December 31,
1996. The engagement of BDO Seidman, LLP for audit services has
been approved by the Board itself.
BDO Seidman LLP's report on the Company's consolidated
financial statements for 1995 contained a modified opinion to
reflect that incurred losses from operations have raised substantial
doubt about the ability of the Company to continue as a going
concern. There have been no disagreements with the independent
auditors on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope procedure. The
independent auditors' report did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
In the event the appointment of BDO Seidman, LLP as independent
accountants for fiscal 1996 is not ratified by the stockholders, the
adverse vote will be considered as a direction to the Board of
Directors to select other accountants for the following year.
However, because of the difficulty in making any substitution of
accountants so long after the beginning of the current fiscal year,
it is contemplated that the appointment for fiscal 1996 will be
permitted to stand unless the Board of Directors finds other good
reason for making a change.
4
Representatives of BDO Seidman, LLP are expected to be present
at the Meeting, with the opportunity to make a statement if desired
to do so. Such representatives are also expected to be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS HAS RECOMMENDED THE RATIFICATION OF THE
APPOINTMENT OF BDO SEIDMAN, LLP AS INDEPENDENT ACCOUNTANTS OF THE
COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996. SUCH
RATIFICATION REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF SHARES OF COMMON STOCK ENTITLED TO VOTE AND REPRESENTED
IN PERSON OR BY PROXY AT THE MEETING.
ITEM 3
TO APPROVE AND RATIFY AN AMENDMENT TO THE 1992 EQUITY STOCK
INCENTIVE PLAN
In September 1992, the Board of Directors of the Company
adopted the 1992 Equity Incentive Plan ("Plan"), which Plan was
approved and ratified by the stockholders of the Company in February
1994. The Plan, as amended in August 1995, authorized the grant
thereunder of options to purchase up to 800,000 shares of Common
Stock of the Company. In December 1995, the Board of Directors
determined it to be in the best interest of the Company that the
Plan be amended to increase the number of shares subject to the Plan
to 1,500,000 and to add evergreen provisions to the Plan. The
effect of this increase will be to allow the Company to grant
additional options to current and future executives and other
employees, and for general business purposes. As of the record
date, options to purchase 602,800 shares were outstanding under the
Plan. The granting of any additional options under the Plan could
have the effect of diluting earnings per share of Common Stock and
reducing book value per share of Common Stock.
In December 1995, the Board of Directors approved these
amendments to the Plan, and registered the shares subject to the
Plan under the Securities Act of 1933 pursuant to a registration
statement on Form S-8. See "Compensation - Stock Options." The
Board of Directors is seeking approval and ratification of these
amendments from the Company's stockholders. All of the directors of
the Company nominated for election at the Meeting hold options
granted pursuant to the Plan.
Description of Plan
Below is a summary of the principal provisions of the Plan, as
amended. Copies of the Plan are available upon written request to
the Company.
General Information
The Plan was adopted by the Board of Directors of the Company
in September 1992 and was approved and ratified by the stockholders
of the Company in February 1994. The Plan was amended by the Board
of Directors in March 1995 and such amendment was approved and
ratified by the stockholders of the Company in August 1995. The
Plan was amended again by the Board of Directors in December 1995.
The Plan provides for the issuance of up to 1,500,000 shares of the
Company's Common Stock, par value $.01 per share, pursuant to awards
granted under the Plan. Effective December 1, 1995 and continuing
through September 1997, upon exercise of any outstanding Option,
whether partial or in full, the shares of Common Stock allocable to
the exercised portion of such Option may again be available for
option grants under the Plan and the sum of the number of shares
subject to issued and outstanding Options plus the number of shares
available for Option grants shall remain constant at 1,500,000. In
the event that any outstanding Option shall for any reason expire or
terminate without having been exercised in full, the shares of
Common Stock allocable to the unexercised portion of such Option may
again be subject to an Option under the Plan. The purpose of the
Plan is to advance the interests of the Company by enhancing its
ability to attract and retain employees and other persons or
entities who are in a position to make significant contributions to
the success of the Company through ownership of shares of the
Company's Common Stock. The Plan is not subject to the provisions
of the Employee Retirement Income Security Act of 1974.
Administration
The Plan is administered by the Compensation Committee of the
Board of Directors consisting of not less than two members. The
Committee has authority to: (a) grant Awards at such time or times
as it may choose; (b) determine the size of each Award; (d)
determine the terms and conditions of each Award; (e) waive
compliance by a Participant with any obligations to be performed by
the Participant under an Award and waive any term or condition of an
Award; (f) amend or cancel an existing Award in whole or in part
(and if an award is canceled, grant another Award in its place on
such terms as the Board shall specify), except that the Board may
not, without the consent of the holder of an Award, take any action
under this clause with respect to such Award if such action would
adversely affect the rights of such holder; (g) prescribe the form
or forms of instruments that are required or deemed appropriate
under the Plan, including any written notices and elections required
of Participants, and change such forms from
5
time to time; (h) adopt, amend and rescind rules and regulations for
the administration of the Plan; and (i) interpret the Plan and
decide any questions and settle all controversies and disputes that
may arise in connection with the Plan. A majority of the members of
the Committee shall constitute a quorum, and all determinations of
the Committee shall be made by a majority of its members. Any
determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority
of the Committee members.
The Committee currently consists of three members, one of which
is also an employee of the Company. All members of the Committee
have received awards under the Plan. The members of the Committee
are appointed by and serve at the pleasure of the Board of
Directors, which may from time to time change the Committee's
membership.
Securities Subject to the Plan
The aggregate number of shares of Common Stock that may be
delivered under the Plan is 1,500,000, subject to adjustment in the
event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or
other distribution to common stockholders other than normal cash
dividends. Effective December 1, 1995 and continuing through
September 1997, upon exercise of any outstanding Option, whether
partial or in full, the shares of Common Stock allocable to the
exercised portion of such Option may again be available for option
grants under the Plan and the sum of the number of shares subject to
issued and outstanding Options plus the number of shares available
for Option grants shall remain constant at 1,500,000. In the event
that any outstanding Option shall for any reason expire or terminate
without having been exercised in full, the shares of Common Stock
allocable to the unexercised portion of such Option may again be
subject to an Option under the Plan. If any Award requiring
exercise by the Participant for delivery of Stock terminates
without having been exercised in full, or if any Award payable in
Stock or cash is satisfied in cash rather than Stock, the number of
shares of Stock as to which such Award was not exercised or for
which cash was substituted will be available for future grants.
Stock delivered under the Plan may be either authorized but unissued
Stock or previously issued Stock acquired by the Company and held in
treasury. No fractional shares of Stock will be delivered under the
Plan.
Employees Who May Participate in the Plan
Participants under the Plan include persons who are employees
of the Company and other persons or entities who, in the opinion of
the Board, are in a position to make a significant contribution to
the success of the Company.
Purchase of Securities Pursuant to the Plan and Payment for
Securities Offered
Both "incentive stock options," as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") (any
Option intended to qualify as an incentive stock option being
hereinafter referred to as an "ISO"), and Options that are not
incentive stock options, may be granted under the Plan. ISOs shall
be awarded to Employees.
Exercise Price. The exercise price of an Option will be
determined by the Board subject to the following:
(1) The exercise price of an ISO shall not be less than 100%
(110% in the case of an ISO granted to a ten-percent shareholder) of
the fair market value of the Stock subject to the Option, determined
as of the time the Option is granted. A "ten-percent shareholder"
is any person who at the time of grant owns, directly or indirectly,
or is deemed to own by reason of the attribution rules of section
424(d) of the Code, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of
any of its subsidiaries.
(2) In no case may the exercise price paid for Stock which is
part of an original issue of authorized Stock be less than the par
value per share of the stock issued.
(3) The Board may reduce the exercise price of an Option at
any time after the time of grant, but in the case of an Option
originally awarded as an ISO, only with the consent of the
Participant.
Duration of Options. The latest date on which an Option may be
exercised will be the seventh anniversary (third anniversary, in the
case of an ISO granted to a ten-percent shareholder) of the day
immediately preceding the date the Option was granted, or such
earlier dates as may have been specified by the Board at the time
the Option was granted.
Exercise of Options. An Option will become exercisable at such
time or times, and on such conditions as the Board may specify. The
Board may at any time accelerate the time at which all or any part
of the Option may be exercised.
Any exercise of an Option must be in writing, signed by the
proper person and delivered or mailed to the Company, accompanied by
(1) any documents required by the Board and (2) payment in full for
the number of shares for which the Option is exercised.
Payment for Stock. Stock purchased on exercise of an Option
must be paid for as follows: (1) in cash or by check (acceptable to
the Company in accordance with guidelines established for this
purpose), bank draft or money order payable to an order of the
Company or (2) if so permitted by the instrument evidencing the
Option (or in the case of an Option which is not an
6
ISO, by the
Board at or after grant of the Option), (i) through the delivery of
shares of Stock which have been outstanding for at least six months
(unless the Board expressly approves a shorter period) and which
have a fair market value on the last business day preceding the date
of exercise equal to the exercise price, or (ii) by delivery of a
promissory note of the Option holder to the Company, payable on such
terms as are specified by the Board, and (iii) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay the exercise price,
(iv) by any combination of the permissible forms of payment;
provided that if the Stock delivered upon exercise of the Option is
an original issue of authorized Stock, at least so much of the
exercise price as represents the par value of such Stock must be
paid other than by the Option holder's personal check or promissory
note.
Discretionary Payments. If the market price of shares of Stock
subject to an Option exceeds the exercise price of the Option at the
time of its exercise, the Board may cancel the Option and cause the
Company to pay in cash or in shares of Common Stock (at a price per
share equal to the fair market value per share) to the person
exercising the Option an amount equal to the difference between the
fair market value of the Stock which would have been purchased
pursuant to the exercise (determined on the date the Option is
canceled) and the aggregate exercise price which would have been
paid. The Board may exercise its discretion to take such action
only if it has received a written request from the person exercising
the Option, but such a request will not be binding on the Board.
Loans. The Company may make a loan to a Participant ("Loan"),
either on the date of or after the grant of any Award to the
Participant. A Loan may be either in connection with the purchase
of Stock under the Award or with the payment of any Federal, state
and local income tax with respect to income recognized as a result
of the Award. The Board will have full authority to decide whether
to make a Loan, including the interest rate (which may be zero),
whether the Loan is to be secured or unsecured or with or without
recourse against the borrower, the terms on which the Loan is to be
repaid and the conditions, if any, under which it may be forgiven.
However, no Loan may have a term (including extensions) exceeding
ten years in duration.
Supplemental Grants. In connection with any Award, the Board
may at the time such Award is made or at a later date, provide for
and grant a cash award to the Participant ("Supplemental Grant") not
to exceed an amount equal to (1) the amount of any federal, state
and local income tax on ordinary income for which the Participant
may be liable with respect to the Award, determined by assuming
taxation at the highest marginal rate, plus (2) an additional amount
on a grossed-up basis intended to make the Participant whole on an
after-tax basis after discharging all the Participant's income tax
liabilities arising from all payments under the Plan. Any payment
of a Supplemental Grant will be made at the time the Participant
incurs Federal income tax liability with respect to the Award.
No Award may be granted under the Plan after September 1997,
but Awards previously granted may extend beyond that date.
Neither adoption of the Plan nor the grant of Awards to a
Participant will affect the Company's right to grant to such
Participant awards that are not subject to the Plan, to issue to
such Participant Stock as a bonus or otherwise, or to adopt other
plans or arrangements under which Stock may be issued to Employees.
The Board may at any time or times amend the Plan or any
outstanding Award for any purpose which may at the time be permitted
by law, or may at any time terminate the Plan as to any further
grants of Awards, provided that (except to the extent expressly
required or permitted by the Plan) no such amendment will, without
the approval of the stockholders of the Company, effectuate a change
for which stockholder approval is required in order for the plan to
continue to qualify for the award of ISOs under section 422 of the
Code and to continue to qualify under Rule 16b-3 promulgated under
Section 16 of the Exchange Act.
Tax Effects of Plan Participation
The discussion below describes certain federal income tax
aspects of Awards which may be made under the Plan, based upon
federal income tax laws in effect on the date hereof. The summary
below does not purport to be an exhaustive discussion of all federal
income tax aspects of the ownership and exercise of the Awards, and
no information is provided with respect to estate, inheritance,
state or local tax laws, although there may be certain tax
consequences under those laws upon the receipt or exercise of an
Award or upon the disposition of property acquired upon exercise or
in connection with an Award.
The exact federal income tax treatment of Awards will depend on
the specific nature of any such Award. Such an Award may, depending
on the conditions applicable to the Award, be taxable as an option,
an Award of restricted or unrestricted stock, an Award which is
payable in cash, or otherwise. Tax consequences will also vary
depending upon whether the recipient of the Award is permitted, as
authorized by the Plan, to pay the exercise or purchase price of
Awards or applicable withholding taxes by delivering previously
owned shares or having shares withheld. Since tax considerations
will also vary with individual circumstances, Participants are
advised to consult their personal tax advisors with regard to all
possible tax consequences arising from the grant or exercise of an
Award and the ownership or disposition of stock or other property
acquired upon exercise of or in connection with an Award.
7
The Plan is not a qualified pension, profit-sharing or stock
bonus plan under Section 401(a) of the Code. The Plan is not
subject to any provisions of the Employee Retirement Income Security
Act of 1974.
Incentive Stock Options. A grantee will generally have no
taxable income upon either the grant or exercise of an incentive
stock option. If the grantee does not dispose of shares acquired
pursuant to the exercise of an incentive stock option within two
years of the grant or one year of the exercise, any gain or loss
realized in their subsequent disposition will be capital gain or
loss. If such holding period requirements are not satisfied, the
grantee will generally realize ordinary income at the time of
disposition in an amount equal to the excess of the fair market
value of the shares on the date of exercise (or if less, the amount
realized upon disposition) over the option price. Any remaining
gain is taxed as long-term or short-term capital gain.
Non-qualified Stock Options. The grant of a non-qualified
stock option generally is not a taxable event for the optionee.
Upon exercise of the option, the optionee generally will recognize
ordinary income in an amount equal to the excess of the fair market
value of the stock acquired upon exercise (determined as of the date
of exercise) over the exercise price of such option. The Company
will be entitled to a deduction equal to the amount of ordinary
income recognized by the employee in the year in which such taxable
income is recognized and the Company is required to withhold federal
income taxes with respect to any amounts included in the employee's
taxable income.
If an optionee pays the exercise price with shares of
previously acquired Common Stock, no gain or loss will be recognized
upon the disposition of those previously acquired shares. Shares
received by the optionee, equal in number to the previously acquired
shares used to pay the exercise price, will have the same basis and
holding period as the previously acquired shares. The remaining
shares received will have a basis equal to their fair market value
as of the date of exercise and the holding period for such
additional shares will commence as of the date of exercise.
Restricted Stock Awards. A grant of restricted stock generally
is not a taxable event for the grantee. However, when the
applicable restrictions lapse, the grantee generally will recognize
ordinary income equal to the excess of the fair market value of such
stock on the date of lapse over the amount, if any, paid for such
stock. Alternatively, the grantee may file an election under
Section 83(b) of the Code, in which case the grantee will recognize
ordinary income on the date of grant equal to the excess of the fair
market value of such stock on the date of grant over the amount, if
any, payable for such stock. An election under Section 83(b) of the
Code must be made within 30 days of grant.
Withholding Taxes. The Company will withhold from any cash
payment made pursuant to an Award an amount sufficient to satisfy
all federal, state and local withholding tax requirements (the
"withholding requirements").
In the case of an Award pursuant to which Stock may be
delivered, the Board will have the right to require that the
Participant or other appropriate person remit to the Company an
amount sufficient to satisfy the withholding requirements, or make
other arrangements satisfactory to the Board with regard to such
requirements, prior to the delivery of any Stock. If and to the
extent that such withholding is required, the Board may permit the
Participant or such other person to elect at such time and in such
manner as the Board provides to have the Company hold back from the
shares to be delivered, or to deliver to the Company, Stock having a
value calculated to satisfy the withholding requirement.
If at the time an ISO is exercised the Board determines that
the Company could be liable for withholding requirements with
respect to a disposition of the Stock received upon exercise, the
Board may require as a condition of exercise that the person
exercising the ISO agree (a) to inform the Company promptly of any
disposition (within the meaning of section 424(c) of the Code) of
Stock received upon exercise, and (b) to give such security as the
Board deems adequate to meet the potential liability of the Company
for the withholding requirements and to augment such security from
time to time in any amount reasonably deemed necessary by the Board
to preserve the adequacy of such security.
If the employee pays applicable withholding taxes by having the
Company withhold shares of Common Stock otherwise issuable upon
exercise of an Award, the employee will recognize ordinary income on
the date of exercise equal to the difference between the exercise
price and the fair market value of all shares with respect to which
the Award is exercised, including those shares withheld by the
Company. If the employee pays such taxes by surrendering shares of
previously acquired Common Stock, the employee wil be treated as
having disposed of those shares in a taxable transaction and will
recognize capital gain or loss equal to the difference between the
tax basis of such shares and the fair market value of such shares on
the date such shares are surrendered to the Company.
Stock Sales. If an employee sells shares of Common Stock
acquired pursuant to the Plan, the employee generally will recognize
capital gain or loss equal to the difference between the sales
prices and the tax basis of such shares. Such gain or loss will be
long-term or short-term, depending upon whether the holding period
for such shares is greater or less than one year.
8
Withdrawal from the Plan; Assignment of Interest
Death. All Options held by the Participant immediately prior
to death, to the extent then exercisable, may be exercised by the
Participant's executor or administrator or the person or persons to
whom the Option is transferred by will or the applicable laws of
descent and distribution, at any time within the one year period
ending the first anniversary of the Participant's death (or such
shorter or longer period as the Board may determine), and shall
thereupon terminate. In no even, however, shall an Option remain
exercisable beyond the latest date on which it could have been
exercised without regard to Participant's death. Except as
otherwise determined by the Board, all Options held by a Participant
immediately prior to death that are not then exercisable shall
terminate at death.
Except as otherwise determined by the Board, all Restricted
Stock held by the Participant must be transferred to the Company
(and, in the event the certificates representing such Restricted
Stock are held by the Company, such Restricted Stock will be so
transferred without any further action by the Participant).
Any payment or benefit under a Supplemental Grant to which the
Participant was not irrevocably entitled prior to death will be
forfeited and the Award canceled as of the time of death, unless
otherwise determined by the Board.
Termination of Service (Other Than By Death). If a Participant
who is an Employee ceases to be an Employee for any reason other
than death, or if there is a termination (other than by reason of
death) of the consulting, service or similar relationship in respect
of which a non-Employee Participant was granted an Award hereunder
(such termination of the employment or other relationship being
hereinafter referred to as a "Status Change"), the following will
apply:
Except as otherwise determined by the Board, all Options held
by the Participant that were not exercisable immediately prior to
the Status Change shall terminate at the time of the Status Change.
Any Options that were exercisable immediately prior to the Status
Change will continue to be exercisable for a period of three months
(or such longer period as the Board may determine), and shall
thereupon terminate, unless the Award provides by its terms for
immediate termination in the event of a Status Change or unless the
Status Change results from a discharge for cause which in the
opinion of the Board casts such discredit on the Participant as to
justify immediate termination of the Award. In no event, however,
shall an Option remain exercisable beyond the latest date on which
it could have been exercised without regard to a Participant's
termination. For purposes of this paragraph, in the case of a
Participant who is an Employee, a Status Change shall not be deemed
to have resulted by reason of (i) a sick leave or other bona fide
leave of absence approved for purposes of the Plan by the Board, so
long as the Employee's right to reemployment is guaranteed either by
statute or by contract, or (ii) a transfer of employment between the
Company and a subsidiary or between subsidiaries, or to the
employment of a corporation (or a parent or subsidiary corporation
of such corporation) issuing or assuming an option in a transaction
to which section 424(a) of the Code applies.
Except as otherwise determined by the Board, all Restricted
Stock held by the Participant at the time of the Status Change must
be transferred to the Company (and, in the event the certificates
representing such Restricted Stock are held by the Company, such
Restricted Stock will be so transferred without any further action
by the Participant).
Any payment or benefit under a Supplemental Grant to which the
Participant was not irrevocably entitled prior to the Status Change
will be forfeited and the Award canceled as of the date of such
Status Change unless otherwise determined by the Board.
Certain Corporation Transactions. In the event of a
consolidation or merger in which the Company is not the surviving
corporation or which results in the acquisition of substantially all
the Company's outstanding Stock by a single person or entity or by a
group of persons and/or entities acting in concert, or in the event
of the sale or transfer of substantially all of the Company's assets
or a dissolution or liquidation of the Company (a "covered
transaction"), all outstanding Awards will terminate as of the
effective date of the covered transaction, and the following rules
shall apply:
The Board may, in its sole discretion, prior to the effective
date of the covered transaction, (1) make each outstanding Option
exercisable in full, (2) remove the restrictions from each
outstanding share of Restricted Stock, (3) cause the Company to make
any payment and provide any benefit each outstanding Supplemental
Grant which would have been made or provided with the passage of
time had the transaction not occurred and the Participant not
suffered a Status Change (or died), and (4) forgive all or any
portion of the principal of or interest on a Loan.
If an outstanding Award is subject to performance or other
conditions (other than conditions relating to the mere passage of
time and continued employment) which will not have been satisfied at
the time of the covered transaction, the Board may in its sole
discretion remove such conditions. If it does not do so, however,
such Award will terminate as of the date of the covered transaction.
9
With respect to an outstanding Award held by a participant who,
following the covered transaction, will be employed by or otherwise
providing services to a corporation which is a surviving or
acquiring corporation in such transaction or an affiliate of such a
corporation, the Board may arrange to have such surviving or
acquiring corporation or affiliate grant to the Participant a
replacement award which, in the judgment of the Board, is
substantially equivalent to the Award.
No Award (other than an Award in the form of an outright
transfer of cash or Unrestricted Stock) may be transferred other
than by will or by the laws of descent and distribution, and during
an employee's lifetime an Award requiring exercise may be exercised
only by the Participant (or in the event of the Participant's
incapacity, the person or persons legally appointed to act on the
Participant's behalf).
THE BOARD OF DIRECTORS HAS APPROVED THE AMENDMENTS TO THE 1992
EQUITY INCENTIVE PLAN AND RECOMMENDS A VOTE FOR THE APPROVAL AND
RATIFICATION OF SUCH AMENDMENTS. SUCH APPROVAL AND RATIFICATION
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF SHARES
OF COMMON STOCK ENTITLED TO VOTE AND REPRESENTED IN PERSON OR BY
PROXY AT THE MEETING.
10
EXECUTIVE OFFICERS
The following table lists the present executive officers of the
Company as of the date hereof and the capacities in which they
serve:
Name of Individual Capacity
------------------ --------
Robert L. Knauss Chief Executive Officer
James W. Goodchild Chief Operating and Financial Officer
Thomas E. Glenister President, Aviation Group
Jo Ann Johnson Secretary
Biographical information with respect to Messrs. Knauss and
Goodchild is provided under Item 1 above. Officers are elected by
and serve at the direction and discretion of the Board of Directors.
There are no family relationships between or among any executive
officers, directors or director nominees.
Thomas E. Glenister (age 46). Mr. Glenister has served as
president of the aviation group for the Company since October 1994
and is the Company's liaison to BIA and serves as the Company's
advisor to BIA. From September 1988 through September 1994, Mr.
Glenister was employed by Northwest Airlines. While at Northwest
Airlines, Mr. Glenister was the director of several major business
development projects including the establishment of a heavy
maintenance facility at Shanghai, China and the construction of a
heavy maintenance facility at Duluth, Minnesota. In addition to
project management responsibility, Mr. Glenister had public
relations and financial planning responsibility for these project.
Mr. Glenister also had considerable experience at Northwest Airlines
in the areas of flight operations and marketing. Mr. Glenister
developed the first all computer based pilot training program and
marketed it worldwide. Prior to joining Northwest Airlines, Mr.
Glenister served for 21 years in the U.S. Air Force. Mr. Glenister
received an MBA from New Hampshire College and a B.S. degree in
business management from the University of New Hampshire.
Jo Ann Johnson (age 38). Ms. Johnson has served as executive
assistant for the Company since January 1993 and as secretary since
October 1993. Prior thereto, Ms. Johnson was employed by the
University of Houston Law Center since 1984 in the capacity of
assistant director of the Russian Petroleum Legislation Project and
as executive assistant to the Dean of the University of Houston Law
Center.
STOCK OWNERSHIP
The following table sets forth, as of May 14, 1996, certain
information with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known to the Company who
beneficially owns more than 5% of the Company's outstanding Common
Stock; (ii) each director and director nominee; (iii) all named
executive officers; and (iv) all directors and officers as a group:
Shares Beneficially Owned
-------------------------
Name of Beneficial Owner(1) Number Percent
------ -------
Citibank (Switzerland) 1,000,000 16.93
Paul R. Gregory 742,000(2) 12.09
Robert L. Knauss 672,000(3) 11.07
Homi M. Davier 615,000(4) 10.21
Richard H. Gibson 378,331(5) 6.02
Juris Padegs 235,333(6) 3.93
James Goodchild 155,334(7) 2.56
Morris Sandler 95,000(8) 1.59
Ted Reynolds 70,000(9) 1.18
Thomas Glenister 66,667(10) 1.12
Jo Ann Johnson 19,000(11) 0.32
All directors, director nominees
and officers as a group
(9 persons) 2,670,334(12) 39.06
11
(1) The business address of each individual is the same as the
address of the Company's principal executive offices except for
Citibank (Switzerland) whose business address is P. O. Box 244,
Zurich, Switzerland CH-8021; Mr. Gibson whose business address
is 2321 A. West Loop 281, Longview, Texas 75604; Mr. Padegs
whose business address is 345 Park Avenue, New York, New York
10154; Mr. Reynolds whose business address is 1300 Post Oak
Boulevard, Suite 770, Houston, Texas 77056; and Mr. Sandler
whose business address is 477 Madison Avenue, 8th Floor, New
York, New York 10022.
(2) Includes an aggregate of 233,000 shares subject to options and
warrants which are currently exercisable.
(3) Includes an aggregate of 142,000 shares subject to options and
warrants which are currently exercisable and 25,000 shares to
be issued for services rendered.
(4) Includes an aggregate of 115,000 shares subject to options and
warrants which are currently exercisable.
(5) Includes an aggregate of 378,331 shares subject to options and
warrants which are currently exercisable.
(6) Includes and aggregate of 85,333 shares subject to options,
warrants and Preferred Stock which are currently exercisable.
(7) Includes 138,667 shares subject to options, warrants and
Preferred Stock which are currently exercisable, and 16,667
shares to be issued for services rendered..
(8) Includes 70,000 shares subject to options and a warrant which
are currently exercisable.
(9) Includes 20,000 shares subject to options which are currently
exercisable.
(10) Includes 40,000 shares subject to options and warrants
which are currently exercisable and 26,667 shares to be issued
for services rendered.
(11) Includes 19,000 shares subject to options which are
currently exercisable.
(12) Includes an aggregate of 863,000 shares subject to
options, warrants and Preferred Stock which are currently
exercisable and 68,334 shares to be issued for services
rendered.
COMPENSATION
The following table sets forth information with respect to the
chief executive officer and the only executive officers of the
Company who received total annual salary and bonus for the fiscal
year ended December 31, 1995, in excess of $100,000:
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term Compensation
--------------------------
Annual Compensation (1) Securities
----------------------------------------- Restricted Underlying
Name and Principal Fiscal All Other Stock Options and
Position Year Salary Bonus Compensation Awards Warrants
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert Knauss, Chief 1995 $120,000 $75,000(2) $0 $0 125,000 (4)
Executive Officer 1994 33,967 0 0 0 35,000
1993 0 0 0 0 0
James Goodchild, Chief 1995 $120,000 $50,000(2) $0 $0 140,000 (4)
Operating and Financial 1994 115,583 30,000 0 0 50,000
Officer 1993 45,250 0 0 0 40,000
Thomas Glenister, 1995 $121,500 $50,000(2) $0 $0 80,000 (4)
President-Aviation 1994 35,000 0 0 60,000 (3) 20,000
Group 1993 -- -- -- -- --
</TABLE>
_______________________
(1) None of the named executive officers received perquisites or
other benefits valued in excess of 10% of the total of
reported annual salary and bonus.
(2) The bonus for 1995 will consist of cash payments of $37,500,
$25,000 and $25,000 and the issuance of 25,000, 16,667 and
16,667 shares of the Company's common stock to Messrs. Knauss,
Goodchild and Glenister, respectively.
(3) The restricted stock award for Mr. Glenister in 1994 consists
of a grant of 20,000 shares of the Company's common stock of
which 10,000 shares vested in October 1995 and 10,000 shares
will vest in October 1996.
(4) Of these options and warrants, 35,000, 50,000, and 20,000
stock options were originally granted in October 1994 to
Messrs. Knauss, Goodchild and Glenister, respectively, at an
exercise price of $2.875 per share. In August 1995, these
options were repriced at $1.125 per share.
12
Employment Agreements
In January 1994, the Company entered into one-year employment
agreements with Messrs. Knauss and Davier which provide for an
annual base salary of $120,000 each. As of December 31, 1994,
Messrs. Knauss and Davier had received only an aggregate of $63,967
pursuant to these agreements due to the Company's lack of liquidity.
Each of Messrs. Knauss and Davier will receive an additional $40,000
under these agreements in 1995, and no additional amounts for 1994
will be paid. These agreements include provisions which prohibit
the employee from competing with or engaging in the same business as
the Company in any geographic area in which the Company is then
doing business for a period of one year following the expiration of
the employment period. The Company extended its agreement with Mr.
Knauss for an additional year on the same terms and expects to
extend the agreement again during 1996.
Stock Options
In September 1992, the Company adopted its 1992 Equity
Incentive Plan ("Plan"), which was amended effective March and
December 1995. The Plan provides for the issuance of incentive
stock options and non-qualified options. An aggregate of 1,500,000
shares of the Company's Common Stock may be issued pursuant to
options granted under the Plan to employees, non-employee directors
and consultants, subject to evergreen provisions included in the
Plan. The Plan is administered by the compensation committee of the
Company's Board of Directors. The compensation committee has the
authority to determine, among other things, the size, exercise
price, and other terms and conditions of awards made under the Plan.
Subject to certain restrictions, the exercise price of incentive
stock options may be no less than 100% of fair market value of a
share of Common Stock on the date of grant. As of the date of this
Prospectus, options to purchase an aggregate of 602,800 shares were
outstanding under the Plan. Such options include: (i) options to
purchase 247,000 shares of Common Stock at an exercise price of
$1.125 per share, which options are currently exercisable and expire
in October 1999, (ii) options to purchase 34,000 shares of Common
Stock at an exercise price of $0.50 per share, which options are
currently exercisable and expire in October 1999; (iii) options to
purchase 98,800 shares of Common Stock at an exercise price of $0.50
per share, which options vest ratably over a three-year period
commencing December 1994 and expire in December 1999; (iv) options
to purchase 213,000 shares of Common Stock at an exercise price of
$1.375 per share, which options are currently exercisable and expire
in December 2000; and (v) options to purchase 10,000 shares of
Common Stock at an exercise price of $1.875 per share, which options
are currently exercisable and expire in April 2001. In August 1995,
the Board of Directors repriced the options that were previously
exercisable for $2.875 per share to $1.125 per share which is a
price more consistent with current market prices. Such repricing
was in consideration of services rendered in lieu of granting
additional options to the holders.
In April 1995, the Company issued 150,421 shares of Common
Stock to a consultant at a price of $1.05 per share upon exercise of
an outstanding option. In July 1995, the Company issued 149,579
shares at $.80 per share and 18,000 shares at $0.50 per share to
consultants upon exercise of outstanding options. In December 1995
and January 1996, the Company issued an aggregate of 381,680 shares
of Common Stock to a consultant at a price of $.735 per share upon
exercise of an outstanding option.
The following table shows, as to the named executive officers,
information concerning individual grants of stock options and
warrants during 1995.
<TABLE>
Option/Warrant Grants in Last Fiscal Year
<CAPTION>
Number of % of Total Options/
Securities Warrants
Underlying Granted to Exercise
Options/Warrants Employees Price Expiration
Name Granted in 1995 Per Share Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert L. Knauss 90,000 20.59 $1.375 December 2000
35,000 8.01 $1.125(1) October 1999
James W. Goodchild 90,000 20.59 $1.375 December 2000
50,000 11.44 $1.125(1) October 1999
Thomas Glenister 60,000 13.73 $1.375 December 2000
20,000 4.58 $1.125(1) October 1999
</TABLE>
_______________________
(1) These options were originally granted in October 1994 at an
exercise price of $2.875 per share. In August 1995, these
options were repriced at $1.125 per share.
13
The following table shows, as to the named executive officers,
information concerning aggregate stock option and warrant exercises
during 1995 and the stock option and warrant values as of December
31, 1995.
<TABLE>
Aggregated Option and Warrant Exercises in Last Fiscal Year
and Year End Option and Warrant Values
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/Warrants at Options/Warrants at
December 31, 1995 December 31, 1995
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Knauss 0 $0 79,500/60,000 $44,000/$22,500
James W. Goodchild 0 0 113,667/73,333 $81,084/$39,166
Thomas Glenister 0 0 40,000/40,000 $20,000/$15,000
</TABLE>
The Company has not established, nor does it provide for, long-
term incentive plans or defined benefit or actuarial plans.
Certain Transactions
In March 1991, Messrs. Knauss, Davier and Gregory were each
issued 500,000 shares of Common Stock for $37,000 each. In March
1991, Mr. Padegs subscribed for, and subsequently purchased, for an
aggregate amount of $88,140, a total of 150,000 shares of Common
Stock. In April 1992, Mr. Reynolds purchased 40,000 shares for
$100,000. In June 1993, Mr. Reynolds purchased an additional 10,000
shares of Common Stock for $25,000.
From March 1991 through December 1994, Mr. Knauss advanced to
the Company a total of $253,220 of which $128,220 was on an interest-
free basis. Of this amount, $40,000 was repaid in 1993, and $88,220
was repaid in May 1994 with proceeds from the Company's initial
public offering. In October and December 1994, Mr. Knauss advanced
an aggregate of $125,000, bearing interest at a rate of 10% per
annum. In connection with these advances, the Company issued Mr.
Knauss warrants to purchase an aggregate of 12,500 shares of Common
Stock at a price of $1.00 per share, which warrants became
exercisable in August 1995 and expire in October 1999. Effective
June 30, 1995, $125,000 in aggregate principal amount of notes
payable to Mr. Knauss was converted to 12,500 shares of Preferred
Stock, convertible into 62,500 shares of Common Stock. In August
1995, the Board of Directors approved a bonus to Mr. Knauss for his
efforts in connection with the Air Baltic transaction. Such bonus
will consist of 25,000 shares to be issued and a $37,500 cash
payment to be paid in 1996. In December 1995, Mr. Knauss advanced
an aggregate of $20,000 bearing interest at a rate of 10% per annum,
which was repaid in March 1996. In connection with this advance, the
Company issued Mr. Knauss warrants to purchase an aggregate of 2,000
shares of Common Stock at a price of $1.00 per share, which warrants
are currently exercisable and expire in December 2000. In December
1995, the Company granted Mr. Knauss warrants to purchase 90,000
shares of Common Stock at a price of $1.375 per share for services
rendered, which one-third of the warrants became exercisable in
December 1995, one-third in December 1996, and one-third in December
1997.
From January 1992 through March 1995, the Gregory Family
Partnership, an affiliate of Dr. Gregory, advanced to the Company a
total of $447,161, of which $212,161 was on an interest-free basis.
Of this amount, $53,614 was repaid in 1993, and $158,547 was repaid
in May 1994 with proceeds from the Company's initial public
offering. In October and December 1994, this affiliate advanced an
aggregate of $135,000, bearing interest at a rate of 10% per annum,
and maturing on March 31, 1996. In connection with these advances,
the Company issued Dr. Gregory's affiliate warrants to purchase an
aggregate of 13,500 shares of Common Stock at a price of $1.00 per
share, which warrants became exercisable in August 1995 and expire
in October 1999. In March 1995, this affiliate loaned an additional
$100,000 to the Company, which loan bears interest at a rate of 10%
per annum. In connection with this loan, Dr. Gregory's affiliate
received a warrant to purchase 10,000 shares at an exercise price of
$1.00 per share, which warrant became exercisable in August 1995 and
expires in October 1999. Effective June 30, 1995, $235,000 in
aggregate principal amount of notes payable to Dr. Gregory or his
affiliates was converted to 23,500 shares of Preferred Stock, which
are convertible into 117,500 shares of Common Stock. In December
1995, an affiliate of Dr. Gregory advanced an aggregate of $20,000
bearing interest at a rate of 10% per annum, which was repaid in
March 1996. In connection with this advance, the Company issued Dr.
Gregory's affiliate warrants to purchase an aggregate of 2,000
shares of Common Stock at a price of $1.00 per share, which warrants
are currently exercisable and expire in December 2000.
14
From January 1992 through October 1994, Mr. Davier advanced to
the Company a total of $150,736, of which $100,736 was on an
interest-free basis. Of this amount, $14,980 was repaid in 1993 and
$85,756 was repaid in May 1994 with proceeds from the Company's
initial public offering. The remaining balance of $50,000 was
advanced in October 1994, bears interest at a rate of 10% per annum.
In connection with the October 1994 advance, the Company issued Mr.
Davier a warrant to purchase 5,000 shares of Common Stock at a price
of $1.00 per share, which warrant became exercisable in August 1995
and expires in October 1999. Effective June 30, 1995, the 50,000
note payable to Mr. Davier was converted to 5,000 shares of
Preferred Stock, which are convertible into 25,000 shares of Common
Stock.
In June 1993, Baltic World Holdings, a company owned by Messrs.
Davier, Knauss and Gregory, on behalf of the Company, advanced
$144,000 to BIA, bearing interest at a rate of 12% per annum,
payable in four quarterly payments of principal and accrued
interest. In September 1993, such affiliate assigned all of its
rights as creditor to the Company and to date BIA has made no
payments to the Company. In addition, this affiliate originally
owned 50% of BCS on behalf of the Company, and, in September 1993,
assigned its 50% interest in BCS to the Company, effective March
1994.
Consulting fees in the amount of $10,000, $20,000 and $0 were
paid to Capricorn Travel, a company controlled by Mr. Davier, during
1993, 1994 and 1995, respectively.
During 1993, Messrs. Knauss, Davier and Gregory pledged 15% of
the then issued and outstanding shares of Company Common Stock to
secure the repayment of an aggregate principal amount of $623,340 of
bridge loan financing. Such bridge loans were repaid in May 1994
with proceeds from the Company's initial public offering and the
pledged shares were released.
In May 1994, Baltic World Holdings, a company owned by Messrs.
Knauss, Davier and Gregory leased two Boeing 727 aircraft from an
unaffiliated third party for an aggregate monthly lease payment of
$61,378. These airplanes are subleased by this affiliate to BIA for
an aggregate monthly lease payment of $80,000. The Company believes
that this arrangement is fair for the following reasons: (i) the
Company guarantees the lease payments and manages the lease of the
aircraft; (ii) as a foreign entity, it is unlikely that BIA would
have had access to the aircraft without the assistance of the
Company; and (iii) the Company was able to negotiate a favorable
lease rate. The affiliate has assigned all of the revenues and
expenses under the leases and subleases to the Company and the
Company guarantees the affiliate's obligations under the leases.
The leases and subleases terminate in July 1996. The Company has
negotiated with the owner of the aircraft to return the aircraft
prior to the end of the leases.
In October 1994, Mr. Padegs advanced to the Company $25,000.
This indebtedness bears interest at a rate of 10% per annum. In
connection with the October 1994 advance, the Company issued Mr.
Padegs a warrant to purchase 2,500 shares of Common Stock at a price
of $1.00 per share, which warrant became exercisable in August 1995
and expires in October 1999. In March 1995, Mr. Padegs advanced
$50,000 to the Company, which loan bears interest at a rate of 10%
per annum. In connection with this loan, Mr. Padegs received a
warrant to purchase 5,000 shares at an exercise price of $1.00 per
share, which warrant became exercisable in August 1995 and expires
in October 1999. Effective June 30, 1995, $75,000 in aggregate
principal amount of notes payable to Mr. Padegs was converted to
7,500 shares of Preferred Stock, which are convertible into 37,500
shares of Common Stock. In December 1995, Mr. Padegs advanced an
aggregate of $20,000, bearing interest at a rate of 10% per annum,
which was repaid in March 1996. In connection with this advance,
the Company issued Mr. Padegs warrants to purchase an aggregate of
2,000 shares of Common Stock at a price of $1.00 per share, which
warrants are currently exercisable in December 1995 and expire in
December 2000.
In December 1994, Mr. Goodchild advanced to the Company
$50,000. This indebtedness bears interest at a rate of 10% per
annum. In connection with this advance, Mr. Goodchild received a
warrant to purchase 5,000 shares at an exercise price of $1.00 per
share, which warrant became exercisable in August 1995 and expires
in October 1999. Effective June 30, 1995, the $50,000 note payable
to Mr. Goodchild was converted to 5,000 shares of Preferred Stock,
which are convertible into 25,000 shares of Common Stock. In August
1995, the Board of Directors approved a bonus to Mr. Goodchild for
his efforts in connection with the Air Baltic transaction. Such
bonus will consist of 16,667 shares to be issued and a $25,000 cash
payment to be paid in 1996. In December 1995, Mr. Goodchild
advanced an aggregate of $20,000, bearing interest at a rate of 10%
per annum, which was repaid in March 1996. In connection with this
advance, the Company issued Mr. Goodchild warrants to purchase an
aggregate of 2,000 shares of Common Stock at a price of $1.00 per
share, which warrants are currently exercisable and expire in
December 2000. In December 1995, the Company granted Mr. Goodchild
warrants to purchase 90,000 shares of Common Stock at a price of
$1.375 per share, which one-third of the warrants became exercisable
in December 1995, one-third in December 1996, and one-third in
December 1997.
15
In December 1994, Mr. Knauss guaranteed a $50,000 bank loan to
the Company. In March 1995, the principal amount of this loan was
increased to $100,000, the interest rate was increased from 10.5% to
11.25% per annum, and Mr. Davier was added as a guarantor. The
balance of the loan is $75,000 at December 31, 1995 which matured in
January 1996. The Company has renegotiated an extension to July
1996 with a $25,000 principal reduction which the Company has made.
In June 1995, Mr. Sandler purchased 25,000 shares of Common
Stock for $25,000. In August 1995, the Company issued a warrant to
purchase 55,000 shares at an exercise price of $1.00 per share to
Mr. Sandler for services rendered prior to his election to the
board. This warrant expires in August 2000.
Management believes that all prior related party transactions
are on terms no less favorable to the Company as could be obtained
from unaffiliated third parties. All ongoing and future
transactions with such persons, including any loans to such persons,
will be approved by a majority of disinterested, independent outside
members of the Company's Board of Directors.
OTHER MATTERS
Management is not aware of any other matters to be presented
for action at the Meeting. However, if any other matter is properly
presented, it is the intention of the persons named in the enclosed
form of proxy to vote in accordance with their best judgment on such
matter.
COST OF SOLICITATION
The Company will bear the costs of the solicitation of proxies
from its stockholders. In addition to the use of mail, proxies may
be solicited by directors, officers and regular employees of the
Company in person or by telephone or other means of communication.
The directors, officers and employees of the Company will not be
compensated additionally for the solicitation but may be reimbursed
for out-of-pocket expenses in connection with the solicitation.
Arrangements are also being made with brokerage houses and any other
custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of the Company, and
the Company will reimburse the brokers, custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses.
STOCKHOLDER PROPOSALS
Proposals by stockholders intended to be presented at the 1997
Annual Meeting of Stockholders must be received by the Company for
inclusion in the Company's proxy statement and form of proxy
relating to that meeting no later than January 18, 1997.
By Order of the Board of Directors
/s/ Jo Ann Johnson
Jo Ann Johnson, Secretary
Houston, Texas
May 24, 1996
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