FOTOBALL USA, INC.
3738 Ruffin Road
San Diego, California 92123
___________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 28, 1998
___________________
TO THE HOLDERS OF COMMON STOCK OF FOTOBALL USA, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Fotoball USA, Inc. (the "Corporation") will be held at 2 o'clock P.M., local
time, on May 28, 1998, at the Corporation's offices located at 3738 Ruffin
Road, San Diego, California, for the following purposes:
1. To elect one (1) director of the Corporation to hold office until
the 2001 Annual Meeting of Stockholders and until the election
and qualification of his successor.
2. To approve the adoption by the Corporation of the Fotoball USA, Inc.
1998 Stock Option Plan.
3. To vote upon the ratification of the appointment of Hollander,
Gilbert & Co. as the Corporation's independent auditors for
fiscal year 1998.
4. To transact such other business as may properly come before
the meeting or any and all adjournments thereof.
Only holders of record of the Corporation's common stock at the close of
business on April 13, 1998 are entitled to receive notice of, and to vote
at, the meeting and any adjournment(s) thereof. Such stockholders may
vote in person or by proxy. The stock transfer books of the Corporation
will not be closed.
Stockholders who find it convenient are cordially invited to attend the
meeting in person. If you are not able to do so and wish that your
shares be voted, you are requested to fill in, sign, date and return the
accompanying proxy in the enclosed envelope. No postage is required if
mailed in the United States.
By Order of the Board of Directors,
KAREN M. BETRO
Secretary
Dated: April 27, 1998<PAGE>
FOTOBALL USA, INC.
3738 Ruffin Road
San Diego, California 92123
____________________
PROXY STATEMENT
____________________
Annual Meeting of Stockholders
May 28, 1998
____________________
This statement is furnished in connection with the solicitation by the
Board of Directors of Fotoball USA, Inc. (the "Corporation") of proxies to be
used at the Annual Meeting of Stockholders of the Corporation to be held at
2:00 P.M., local time, on May 28, 1998, at the Corporation's offices located
at 3738 Ruffin Road, San Diego, California, and at any adjournment(s) thereof.
If proxy cards in the accompanying form are properly executed and returned,
the shares of the Corporation's common stock, par value $.01 per share (the
"Common Stock"), represented thereby will be voted as instructed on the proxy,
but if no instructions are given, such shares will be voted (1) for the
election as director of the nominee of the Board of Directors named below,
(2) in favor of the adoption of the Fotoball USA, Inc. 1998 Stock Option Plan,
(3) in favor of the ratification of the appointment of Hollander, Gilbert &
Co. as the Corporation's independent auditors for fiscal year 1998, and
(4) in the discretion of the proxies named in the proxy card on any other
proposals to properly come before the meeting or any adjournment thereof.
Any proxy may be revoked prior to its exercise, but the attendance at the
meeting by any stockholder who has previously given a proxy will not have the
effect of revoking the proxy unless such stockholder delivers written notice of
revocation to the secretary of the meeting prior to the exercise of the proxy.
The approximate date of mailing of this Proxy Statement and the accompanying
proxy card is April 28, 1998.
VOTING
Holders of record of the Common Stock on April 13, 1998 (the "Record
Date") will be entitled to vote at the Annual Meeting or any adjournment
thereof. As of that date, there were 2,691,742 shares of Common Stock
outstanding and entitled to vote and a majority, or 1,345,872 of these shares,
will constitute a quorum for the transaction of business. Each share of
Common Stock entitles the holder thereof to one vote on all matters to come
before the meeting, including the election of a director.
The favorable vote of a plurality of the votes cast at the meeting is
necessary to elect the director nominated for election at the meeting. The
favorable vote of a majority of the shares represented in person or by proxy
and entitled to vote at the meeting is necessary to (i) approve the adoption
of the Fotoball USA, Inc. 1998 Stock Option Plan and (ii) ratify the
appointment of Hollander, Gilbert & Co. as the Corporation's independent
auditors for fiscal year 1998. Abstentions will have the same effect as votes
1<PAGE>
against the proposals. Broker non-votes (i.e., instances where brokers are
prohibited from exercising discretionary authority for beneficial owners who
have not returned a proxy) will be disregarded for the proposals set forth
above and will have no effect on the outcome of the votes for such proposals.
The Board of Directors recommends a vote FOR each of the proposals set forth
above.
ELECTION OF DIRECTORS
The Corporation's Certificate of Incorporation and By-laws provide for a
Board of Directors divided into three classes of directors serving staggered
three-year terms. The Board of Directors approved a reduction in the size of
the Board from five members to three. At the forthcoming meeting to be held
on May 28, 1998, one director from the first class will be elected for a term
expiring at the 2001 Annual Meeting of Stockholders. The Board of Directors
has recommended Salvatore T. DiMascio as the nominee for election as a
director from such class. The continuing director from the second class,
Joel K. Rubenstein, is serving a term that expires on the date of the 1999
Annual Meeting of Stockholders and the continuing director from the third
class, Michael Favish, is serving a term that expires on the date of the 2000
Annual Meeting of Stockholders. Mr. Sabin Streeter, a director from the
first class, has determined not to stand for re-election.
Unless otherwise specified in the accompanying proxy, the shares
voted pursuant thereto will be cast for Salvatore T. DiMascio as the director
from the first class, to hold office until the 2001 Annual Meeting of
Stockholders and until his successor shall be duly elected and shall have
qualified. If, for any reason, at the time of election, Mr. DiMascio should
be unwilling to accept nomination or election, it is intended that such proxy
will be voted for the election, in his place, of a substitute nominee
recommended by the Board of Directors. However, the Board of Directors has
no reason to believe that Mr. DiMascio will be unable or unwilling to serve
as a director, if elected.
Information with respect to the Corporation's directors is set forth below.
Positions and Offices Has Been
Presently Held With a Director
Name Age the Corporation Since
---- --- --------------- -----
Current Nominee:
Salvatore T. DiMascio 58 Director 1997
Director From First Class:
Sabin C. Streeter (1) 56 Director 1989
Director From Second Class:
Joel K. Rubenstein 61 Director 1994
Director From Third Class:
Michael Favish 49 President, Chief 1988
Executive Officer
and Director
(1) Mr. Streeter has determined not to stand for re-election.
2<PAGE>
Salvatore T. DiMascio has served as a director of the Corporation since
August 1997. Since 1986, Mr. DiMascio has been President of DiMascio
Venture Management, Inc., a management and investment firm. Additionally,
from 1994 to 1997, Mr. DiMascio was Executive Vice President of Anchor
Gaming, Inc., a publicly-held gaming company. From 1978 to 1986, Mr.
DiMascio was Senior Vice President and Chief Financial Officer of Conair
Corporation, a publicly-held manufacturer of health and beauty products. Mr.
DiMascio's previous business experience includes Audit Manager with Arthur
Young & Co., a national CPA firm, and as Controller of Revlon Inc. Mr.
DiMascio is currently serving on the Board of Directors of U.S. Communications
Inc. and H.E.R.C. Products Inc., both of which are publicly-held corporations.
Sabin C. Streeter has served as a director of the Corporation since
January 1989. Since April 1997, Mr. Streeter has been Adjunct Professor and
Executive-in-Residence at Columbia Business School. From November 1976
until his retirement in April 1997, Mr. Streeter was employed as either a
senior vice president or a managing director of Donaldson, Lufkin & Jenrette
Securities Corporation an investment banking firm, or its venture capital
affiliate, the Sprout Group. Mr. Streeter is currently serving on the Board
of Directors of Oakwood Homes Corporation and The Middleby Corporation, both
of which are publicly-held corporations, and Parker-Hunter Incorporated, a
privately-held securities firm.
Joel K. Rubenstein has served as a director of the Corporation since
August 1994. From April 1990 through April 1992 and from March 1994 to
present, Mr. Rubenstein has been a partner of the Contrarian Group, Inc., an
operating management company. In addition, from April 1993 to present, Mr.
Rubenstein has been a principal of Oracle One Partners, Inc., a marketing
management company. From April 1992 through March 1994, Mr. Rubenstein
served as the Senior Project Manager, Business and Economic Development for
Rebuild L.A., the recovery organization created after the Los Angeles riots.
Prior to such time, from January 1985 through April 1990, Mr. Rubenstein
served as the Vice President, Corporate Marketing for Major League Baseball,
Office of the Commissioner.
Michael Favish has served as President and a director of the Corporation
since his founding of the Corporation in December 1988 and as President, Chief
Executive Officer and a director of the Corporation since March 1994. Mr.
Favish has over 25 years of product design, manufacturing and sourcing
experience.
MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1997, the Board of Directors
held four meetings. During such period, each of the then-current directors
of the Corporation attended 75% or more of the aggregate of (1) the total
number of meetings of the Board of Directors and (2) the total number of
meetings held by all committees of the Board of Directors on which such
director served.
The Board of Directors has standing audit and compensation committees.
3<PAGE>
The members of the audit committee are Salvatore T. DiMascio and
Robert N. Weingarten, who resigned as a director in January 1998. Assuming
the re-election of Mr. DiMascio, the audit committee will consist of Salvatore
T. DiMascio and Joel K. Rubenstein. The audit committee's primary
responsibilities are to recommend the appointment of the Corporation's
independent auditors and to review the scope and results of the audits, the
internal accounting controls of the Corporation, audit practices and the
professional services furnished by the independent auditors. The audit
committee held one meeting during the fiscal year ended December 31, 1997.
The members of the compensation committee are Joel K. Rubenstein
and Sabin C. Streeter. Assuming the re-election of Mr. DiMascio, the
compensation committee will consist of Salvatore T. DiMascio and Joel K.
Rubenstein. The compensation committee's primary responsibility is to review
the compensation arrangements relating to senior officers of the Corporation
and to administer the Corporation's 1994 Stock Option Plan and, if approved
by the stockholders of the Corporation, the Corporation's 1998 Stock Option
Plan. See "Adoption of 1998 Stock Option Plan." The compensation committee
held one meeting during the fiscal year ended December 31, 1997.
4<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1998
with respect to the Common Stock of the Corporation beneficially owned by (a)
all persons known to the Corporation to own beneficially more than 5% of any
class of voting security of the Corporation, (b) all directors and nominees,
(c) the Named Executives (as defined under the caption "Executive
Compensation") and (d) all executive officers and directors of the
Corporation as a group.
Amount and
Nature of Percent of
Beneficial Common Stock
Name and Address Ownership (1) Ownership (1)
- ---------------- ------------- -------------
Michael Favish
3738 Ruffin Road
San Diego, CA 92123 .. . . . 530,419 (2) 19.0%
Salvatore T. DiMascio
6930 Paradise Road #1014
Las Vegas, NV 89119 . . . . 2,500 (3) *
Joel K. Rubenstein
c/o 500 Newport Center Drive, Suite 900
Newport Beach, CA 92660 . . . . . . . . 8,500 (4) *
Sabin C. Streeter
2 Woods Witch Lane
Chappaqua, NY 10514 . . . . . . . . . 33,747 (5) 1.2%
Fred Ostern
3121 Hamburg Square
La Jolla, CA 92037 . . . .. . . 0 (6) 0
All executive officers and
directors as a group
(consisting of 10 persons). . . . 712,934 24.5%
_____________
* Less than 1%.
(1) This table identifies persons and entities having sole voting and/or
investment power with respect to the shares set forth opposite their
names as of March 31, 1998 according to information furnished to the
Corporation by each of them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days
from the date of this Proxy Statement upon the conversion of convertible
securities or the exercise of warrants or options. Percent of Common
Stock ownership is based on 2,691,742 shares of Common Stock outstanding,
and assumes that in each case the person or entity only, or the group
only, exercised his or its rights to purchase all shares of Common Stock
underlying stock options and warrants.
5<PAGE>
(2) Includes 100,000 and 6,667 shares of Common Stock issuable upon
exercise of currently exercisable options at per share exercise prices of
$5.78 and $8.00, respectively. If the Corporation's 1998 Stock Option
Plan is approved by the stockholders, these options will be cancelled and
an identical number of options will be granted, at the then current market
price, from the Corporation's 1998 Stock Option Plan. See "Adoption
of 1998 Stock Option Plan."
(3) Includes 2,500 shares of Common Stock issuable upon exercise of
currently exercisable options at a per share exercise price of $1.38.
(4) Includes 7,500 shares of Common Stock issuable upon exercise of
currently exercisable options at per share exercise prices of $5.25 -
$7.75. If the Corporation's 1998 Stock Option Plan is approved by the
stockholders, these options will be cancelled and an identical number of
options will be granted, at the then current market price, from the
Corporation's 1998 Stock Option Plan. See "Adoption of 1998 Option
Plan."
(5) Includes 12,500 shares of Common Stock issuable upon exercise of
currently exercisable options at per share exercise prices of $5.25 -
$7.75. If the Corporation's 1998 Stock Option Plan is approved by the
stockholders, these options will be cancelled and an identical number of
options will be granted, at the then current market price, from the
Corporation's 1998 Stock Option Plan. See "Adoption of 1998 Option
Plan."
(6) The Corporation and Mr. Ostern mutually agreed to terminate Mr.
Ostern's employment with the Corporation effective September 30, 1997.
See "Executive Compensation-Certain Relationships and Related
Transactions."
Section 16(a) Beneficial Ownership Reporting Compliance. Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires the Corporation's directors and executive officers and persons who
beneficially own more than ten percent (10%) of the Common Stock (collectively,
the "Reporting Persons") to file with the Securities and Exchange Commission
(the "Commission") initial reports of beneficial ownership and reports of
changes in beneficial ownership of the Common Stock. Reporting Persons are
required to furnish the Corporation with copies of all such reports. To the
Corporation's knowledge, based solely on a review of copies of such reports
furnished to the Corporation and certain representations of the Reporting
Persons, the Corporation believes that during the 1997 fiscal year all of
the Reporting Persons complied with all applicable Section 16(a) reporting
requirements, except as set forth in the following sentence. Joel K.
Rubenstein filed one late report covering the acquisition of 200 shares of
Common Stock in December 1997.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ended December 31,
1995, 1996 and 1997, the compensation paid by the Corporation, as well as
certain other compensation paid or accrued for those years, to Michael Favish,
6<PAGE>
the Corporation's President and Chief Executive Officer, and Fred S. Ostern,
the Corporation's former Vice President of Marketing (the "Named Executive").
No other person who served as an executive officer of the Corporation received
salary and bonus in excess of $100,000 during the fiscal year ended
December 31, 1997.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Long-Term
Compensation Compensation
--------------------------------- -------------
<S> <C> <C> <C> <C> <C>
<C>
Name and Other Annual
All Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#)
Compensation ($)
Michael Favish 1997 165,000 0 22,070 0
0
President and Chief 1996 153,247 74,250 0 10,000
0
Executive Officer 1995 152,756 0 0 0
0
Fred S. Ostern 1997 112,500 101,314 0 0
350,000
Former Vice President 1996 150,000 355,069 0 0
0
of Marketing 1995 329,965 0 0 0
0
</TABLE>
(1) Includes $9,000 for reimbursement of automobile expenses and $7,700 for
disability insurance coverage.
(2) The Corporation and Mr. Ostern mutually agreed to terminate Mr. Ostern's
employment with the Corporation effective September 30, 1997.
See "- Certain Relationships and Related Transactions."
Certain Relationships and Related Transactions
The Corporation was a defendant in an action brought in San Diego County,
California Superior Court on March 14, 1997 by Fred S. Ostern, the
Corporation's former Vice President-Marketing. On October 1, 1997, the
Corporation entered into a settlement agreement with Mr. Ostern whereby the
Corporation agreed to pay a corporation wholly owned by Mr. Ostern the
aggregate sum of $350,000, consisting of three monthly payments of $50,000
beginning September 30, 1997, and the remaining $200,000 being due and
payable in twelve monthly payments of $16,667 during 1998. In consideration of
the settlement amount, the parties mutually agreed that Mr. Ostern's employment
with the Corporation be terminated effective September 30, 1997. Mr. Ostern
also agreed to certain non-solicitation and non-competition provisions through
December 31, 1998.
Michael Favish, President and Chief Executive Officer of the
Corporation, and Karen Betro, Vice President-Operations of the Corporation,
have a long-term relationship. Derrick Favish, a non-officer employee and
stockholder of the Corporation, is the brother of Michael Favish, the
President and Chief Executive Officer of the Corporation. Greg Favish,
a non-officer employee and stockholder of the Corporation, is the son of
Michael Favish. Any future transaction with directors, executive officers or
their affiliates, including, without limitation, any granting or forgiveness
of loans, will be made only if the transaction has been approved by a majority
of the then independent and disinterested members of the Board of Directors
and is on terms no less favorable to the Corporation than could have been
obtained from unaffiliated parties.
7<PAGE>
Stock Options
The Corporation did not grant any stock options under the Corporation's
1994 Stock Option Plan to the Named Executives during the Corporation's last
fiscal year.
Option Holdings
No stock options were exercised by any of the Named Executives during
the Corporation's last fiscal year. The following table sets forth information
with respect to the unexercised options held by the Named Executives as of
the end of the Corporation's last fiscal year.
Securities Underlying Unexercised Value of Unexercised In-the-
Options at FY-End (#) Money Options at FY-End ($)
--------------------------------- ----------------------------
Exercisable Unexercisable
Name (1) Exercisable Unexercisable
- -------------------------------------------------------------------------------
Michael Favish 106,667 3,333 0 0
Fred S. Ostern 0 0 0 0
______________
(1) This represents the total number of shares subject to stock options held
by the Named Executives as of December 31, 1997. These options were
granted on various dates during the years 1994 through 1996.
Employment Contracts and Termination of Employment and Change-in-
Control Arrangements
The Corporation is party to an employment agreement (the "Favish
Agreement") with Michael Favish, which provides that Mr. Favish will serve as
President and Chief Executive Officer for an initial term of five years
commencing on August 11, 1994. Mr. Favish's annual base salary is $150,000
per year, with annual cost of living increases and additional increases at the
discretion of the compensation committee. For 1997, Mr. Favish's salary was
increased to $165,000 by the compensation committee.
Mr. Favish is also entitled to a bonus at the discretion of the
compensation committee and has been granted options, vesting over a three-year
period, to purchase 110,000 shares of Common Stock at per share exercise prices
of $5.78 - $8.00. The Favish Agreement also provides that Mr. Favish will not
engage in a business which competes with the Corporation for the term of the
Favish Agreement and for two years thereafter. In the event that Mr. Favish's
employment is terminated as a result of a Constructive Termination (as defined
in the Favish Agreement), the Favish Agreement provides that the Corporation
will pay Mr. Favish the base salary and bonus compensation payable to Mr.
Favish through the remainder of the term of the Favish Agreement. In the
event that Mr. Favish's employment is terminated following a Change in Control
(as defined in the Favish Agreement) of the Corporation, the Favish Agreement
provides that the Corporation will pay Mr. Favish a termination and
non-competition payment equal to the greater of (i) the base salary and bonus
compensation payable to Mr. Favish through the remainder of the term of the
Favish Agreement or (ii) 2.99 times Mr. Favish's base salary and bonus
compensation for the calendar year prior to such termination.
8<PAGE>
As previously noted, the employment agreement with Mr. Fred Ostern,
the Corporation's former Vice President-Marketing, was mutually agreed to be
terminated effective September 30, 1997. Additionally, in consideration of the
settlement agreement and the aggregate sum of $350,000, Mr. Ostern agreed to
certain non-solicitation and non-competition provisions through December 31,
1998.
Director Compensation
Directors who are not employees of the Corporation receive cash
compensation of $6,000 per calendar year and options to purchase 2,500 shares
of Common Stock under the Corporation's 1994 Stock Option Plan on July 1 of
each of their first three years of service on the Board of Directors. If the
Corporation's 1998 Stock Option Plan is approved by the stockholders, directors
who are not employees of the Corporation will receive, in addition to their
annual cash compensation, options to purchase 5,000 shares of common Stock
under the Corporation's 1998 Stock Option Plan on July 1 of each year while
serving on the Board of Directors, and the Corporation's 1994 Stock Option
Plan will be terminated. See "Adoption of 1998 Stock Option Plan." All
directors are reimbursed for reasonable expenses incurred in connection with
attendance of meetings.
ADOPTION OF 1998 STOCK OPTION PLAN
General
On March 10, 1998, the Board of Directors of the Corporation adopted
the Fotoball USA, Inc. 1998 Stock Option Plan (the "1998 Plan"), subject to
approval of the 1998 Plan by the stockholders of the Corporation. The purpose
ofthe 1998 Plan is to attract and retain qualified employees and non-employee
directors upon whom, in large measure, the sustained progress, growth and
profitability of the Corporation depend. The Board of Directors believes that
the 1998 Plan will, through the acquisition of a proprietary interest in the
growth and performance of the Corporation, generate an increased incentive to
contribute to the Corporation's future success and prosperity, thus enhancing
the value of the Corporation for the benefit of its stockholders.
Summary of the 1998 Plan
The following description of the principal terms of the 1998 Plan
should be read in conjunction with, and is qualified in its entirety by
reference to, the full text of the 1998 Plan, a copy of which is included
as Appendix A hereto.
General. Pursuant to the 1998 Plan, options to acquire an aggregate of
500,000 shares of Common Stock may be granted to regular, full-time employees
and non-employee directors of the Corporation or any Subsidiary Corporation
(each as defined in the 1998 Plan) of the Corporation. To date, no options
have been granted under the 1998 Plan but, as discussed below, if the
stockholders of the Corporation adopt the 1998 Plan, the Corporation will
terminate the Corporation's 1994 Stock Option Plan (the "1994 Plan"), cancel
each of the then outstanding options granted under the 1994 Plan (245,000 as
of March 31, 1998) and reissue an identical number of options under the 1998
Plan, at the then current market price, to the holders of options under the
1994 Plan.
9<PAGE>
The effective date of the 1998 Plan will be June 1, 1998, subject to
stockholder approval of the 1998 Plan, and the 1998 Plan will terminate on the
earliest to occur of (i) the date on which all options issuable under the 1998
Plan have been issued, (ii) the termination of the Plan by the Board of
Directors or (iii) March 9, 2008. The terms of the 1998 Plan provide for the
grant of options which are designated as incentive stock options ("ISOs")
within the meaning of Internal Revenue Code ("Code") Section 422 or any
successor provision thereto and options which are not designated as ISOs,
also known as non-qualified stock options ("NQSOs").
The Corporation currently has one other outstanding stock option plan,
the 1994 Plan, pursuant to which 130,000 shares of Common Stock remain
available for issuance under the 1994 Plan as of March 31, 1998. If stockholder
approval is obtained for the 1998 Plan, the Corporation will terminate the 1994
Plan, cancel each of the then outstanding options granted under the 1994 Plan
(245,000 as of March 31, 1998) and reissue an identical number of options under
the 1998 Plan, at the then current market price, to the holders of options
under the 1994 Plan. The Board of Directors unanimously recommends a vote
FOR the approval of the adoption of the 1998 Plan. If the stockholders fail
to approve the adoption of the 1998 Plan, stock option grants will continue
to be made under the 1994 Plan and otherwise.
Administration. Under its terms, a committee of the Board of Directors
must administer the 1998 Plan. The compensation committee has been selected
to serve as the committee under the 1998 Plan (the "Committee").
Eligibility and Extent of Participation. Non-employee directors and key
employees (defined as full-time employees) of the Corporation or any future
Subsidiary Corporation of the Corporation are eligible to participate in the
1998 Plan; provided, however, that ISOs may only be granted to employees of the
Corporation or a Subsidiary Corporation. Approximately 35 persons are
initially expected to participate in the 1998 Plan, including all of the
directors of the Corporation.
Stock Subject to 1998 Plan. The Corporation has authorized and
reserved for issuance upon the exercise of options pursuant to the 1998 Plan
500,000 shares of Common Stock (subject to adjustment for stock dividends,
stock splits and similar changes in the Corporation's capitalization). An
option may be designated as an ISO or an NQSO. Any one optionee may not be
granted options to purchase in excess of 125,000 shares of Common Stock during
any fiscal year of the Corporation; provided, however, that the Committee may
adopt procedures for the counting of shares relating to any grant of options
to ensure appropriate counting, avoid double counting and provide for
adjustments in any case in which the number of shares actually distributed
differs from the number of shares previously counted in connection with such
grant; provided further, however, that the options granted under the 1994
Plan shall not be treated as outstanding. On April 15, 1998, the closing
price of the Common Stock was $1.69 per share. The authorized number of
shares of Common Stock under the 1998 Plan represents 18.5% of the
Corporation's outstanding shares of Common Stock as of March 31, 1998.
Grant of Options. Subject to the terms of the 1998 Plan and applicable
law, the Committee shall have full power and authority to: designate
participants; determine the type or types of options to be granted to each
participant under the 1998 Plan; determine the number of shares of Common
Stock to be covered by options; determine the terms and conditions of any
option; determine whether, to what extent, and under what circumstances
10<PAGE>
options may be settled or exercised in cash, shares of Common Stock, other
options or other property, or canceled, forfeited or suspended, and the method
or methods by which options may be settled, exercised, canceled, forfeited or
suspended; interpret and administer the 1998 Plan and any instruments or
agreements relating to, or options granted under, the 1998 Plan; establish,
amend, suspend or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the 1998 Plan; and
make any other determination and take any other action that the Committee
deems necessary or desirable for the administration of the 1998 Plan. Unless
otherwise expressly provided in the 1998 Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the 1998 Plan or any option shall be within the sole discretion of
the Committee and shall be final, conclusive and binding upon all persons.
Adjustment of Options. In the event that the Committee shall determine
that any change in corporate capitalization, such as a dividend or other
distribution of shares of Common Stock, or a corporate transaction, such as a
merger, consolidation, reorganization or partial or complete liquidation of the
Corporation or other similar corporate transaction or event, affects the shares
of Common Stock such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the 1998 Plan, then
the Committee shall, in such manner as it may deem necessary to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made under the 1998 Plan, adjust any or all of (x) the number and type of
shares of Common Stock which thereafter may be made the subject of options,
(y) the number and type of shares of Common Stock subject to outstanding
options, and (z) the grant, purchase, or exercise price with respect to any
option or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding option; provided, however, in each case, that
(i) with respect to ISOs no such adjustment shall be authorized to the
extent that such adjustment would cause the 1998 Plan to violate Code Section
422 or any successor provision thereto; (ii) such adjustment shall be made in
such manner as not to adversely affect the status of any Option as
"performance-based compensation" under Code Section 162(m); and (iii) the
number of shares of Common Stock subject to any option shall always be a
whole number.
Additional Terms and Conditions of ISOs. All ISOs are intended to
comply with Code Section 422. All provisions of the 1998 Plan and all ISOs
granted pursuant to the 1998 Plan will be construed in such manner as to give
effect to that intent. In addition to the terms and conditions described above,
each ISO shall (i) be granted at a per share exercise price of at least the
Fair Market Value (as defined in the 1998 Plan) of a share of Common Stock on
the date of grant and (ii) not be exercisable after the expiration of ten
years (or such lesser period as the agreement specifies) from the date the
option is granted, except that if the optionee owns Common Stock representing
more than ten percent (10%) of the total combined voting power of all shares
of Common Stock outstanding at the time the option is granted (and assuming
its immediate exercise), the per share exercise price must be at least 110% of
the Fair Market Value on the date of grant and the option may not be exercised
after the expiration of five years (or such lesser period as the agreement
specifies) from the date of grant.
11<PAGE>
Grants to Non-Employee Directors. Each non-employee director who is
a member of the Board of Directors on July 1 of a year during the term of the
1998 Plan shall automatically be granted an NQSO to purchase 5,000 shares of
Common Stock on July 1 of each year of service on the Board as a non-employee
director. All "formula" options granted shall be at an exercise price per
share equal to the Fair Market Value of a share of Common Stock on the date of
the grant and have a term of ten years, and the option will generally be
terminated (i) 30 days after the date on which the employment or service of
the employee or non-employee director is terminated for any reason other than
(A) retirement or mental or physical disability, or (B) death; (ii) three
months after the date on which the employment or service of the employee or
non-employee director is terminated by reason of retirement or mental or
physical disability; or (iii)(A) 12 months after the date on which the
employment or service of the employee or non-employee director is terminated
by reason of death, or (B) three months after the date on which the employee
or non-employee director shall die if such death shall occur during the
three-month period following the termination of the employment or service of
the employee or non-employee director by reason of retirement or mental or
physical disability.
Transfer of Options. Subject to Code Section 422, no option and no
right under any such option, shall be assignable, alienable, saleable, or
transferable by a participant otherwise than by will or by the laws of descent
and distribution, and such option, and each right under any such option, shall
be exercisable during the participant's lifetime, only by the participant or, if
permissible under applicable law (including Code Section 422, in the case of an
ISO), by the participant's guardian or legal representative. No option and no
right under any such option may be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment, or encumbrance
thereof shall be void and unenforceable against the Corporation.
Notwithstanding the foregoing, the Committee may, in its discretion, provide
that NQSOs be transferable, without consideration, to immediate family members
(i.e., children, grandchildren or spouse), to trusts for the benefit of such
immediate family members and to partnerships in which such family members
are the only partners. The Committee may attach such terms and conditions as
it deems advisable to any such transferability right. In addition, a
participant may, in the manner established by the Committee, designate a
beneficiary (which may be a person or a trust) to exercise the rights of the
participant, and to receive any distribution, with respect to any option upon
the death of the participant. A beneficiary, guardian, legal representative
or other person claiming any rights under the 1998 Plan from or through any
participant shall be subject to all terms and conditions of the 1998 Plan and
any option agreement applicable to such participant, except as otherwise
determined by the Committee, and to any additional restrictions deemed
necessary or appropriate by the Committee.
No employee shall have any claim to be granted any option under the
1998 Plan, and there is no obligation for uniformity of treatment of employees
or holders or beneficiaries of options under the 1998 Plan. The terms and
conditions of options need not be the same with respect to each recipient.
The grant of an option shall not be construed as giving a participant the
right to be retained in the employ of the Corporation or any Subsidiary
Corporation. Further, the Corporation may at any time dismiss a participant
from employment, free from any liability, or any claim under the 1998 Plan,
unless otherwise expressly provided in the 1998 Plan or in any option
agreement.
12<PAGE>
Exercise of Options. The Committee shall determine the time or times
at which the right to exercise an option may vest in whole or in part, and the
method or methods by which, and the form or forms in which, payment of the
option price with respect to exercise of such option may be made or deemed to
have been made (including, without limitation, (i) cash, shares of Common
Stock, outstanding options or other consideration, or any combination thereof,
having a Fair Market Value on the exercise date equal to the relevant option
price and (ii) a broker-assisted cashless exercise program established by the
Committee), provided in each case that such methods avoid "short-swing"
profits to the participant under Section 16(b) of the Exchange Act. The
payment of the exercise price of an option may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. Upon the exercise of
an option, the holder shall pay to the Corporation the exercise price plus
the amount of the required federal and state withholding taxes, if any. The
1998 Plan also allows participants to elect to have shares withheld upon
exercise for the payment of federal and state withholding taxes.
Amendment or Termination of the 1998 Plan. The 1998 Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board of Directors, but no amendment
without the approval of the stockholders of the Corporation shall be made if
such amendment would be required under Code Sections 162(m) or 422, Rule 16b-3
or any other law or rule of any governmental authority, stock exchange or other
self-regulatory organization to which the Corporation may then be subject.
Neither the amendment, suspension nor termination of the 1998 Plan shall,
without the consent of the holder of an option, alter or impair any rights or
obligations under any option theretofore granted. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in the 1998 Plan
or any option in the manner and to the extent it shall deem desirable to carry
the 1998 Plan into effect.
Federal Income Tax Consequences. The following discussion of the
federal income tax consequences of the granting and exercise of options under
the 1998 Plan, and the sale of Common Stock acquired as a result thereof, is
based on an analysis of the Code as in effect on the date hereof, existing laws,
judicial decisions and administrative rulings and regulations, all of which are
subject to change. In addition to being subject to the federal income tax
consequences described below, an optionee may also be subject to state and/or
local income tax consequences in the jurisdiction in which he or she works
and/or resides. Each optionee must consult his or her personal tax advisor
to determine the taxes applicable to the issuance, exercise and sale of options.
NQSOs. No income will be recognized by an optionee at the
time an NQSO is granted. Ordinary income generally will be
recognized by an optionee at the time an NQSO is exercised, in an
amount equal to the excess of the fair market value of the Common
Stock (without regard to any restrictions) on the exercise date of the
shares issued to the optionee over the exercise price. This ordinary
income will also constitute wages subject to the withholding of income
tax, and the Corporation will be required to make whatever
arrangements are necessary to ensure that the proper amount required to
be withheld is available for withholding, in cash. An optionee's holding
period with respect to the shares acquired will begin on the date of
exercise of the NQSO.
13<PAGE>
The tax basis of the stock acquired upon the exercise of an
NQSO will be equal to the sum of (a) the exercise price of such NQSO
and (b) the amount included in income on the exercise of such NQSO.
Gain or loss on a subsequent sale or other disposition of the stock will be
measured by the difference between the amount realized on the disposition
and the tax basis of such shares. Such gain or loss will be capital gain
or loss assuming that the stock is held as a capital asset (i.e.,
generally for investment purposes) and any such capital gain or loss will
be long-term capital gain or loss if the shares are held for more than one
year.
If an optionee is permitted to, and does, make the required payment of
the option price by delivering shares of Common Stock, the optionee
generally will not recognize any gain as a result of such delivery, but
the amount of gain, if any, which is not so recognized will be excluded
from his or her basis in the new shares received. In such a case, an
optionee's holding period in the shares received will be determined by
reference to his or her holding period in the shares of Common Stock
exchanged therefor.
An optionee should be aware that if he or she is permitted to,
and does, transfer an NQSO in a non-arm's length transaction, the
optionee and not the transferee of the option will be subject to tax on
the compensation income attributable upon the exercise of the option
under the rules described above.
The Corporation will generally be entitled to a deduction for
federal income tax purposes in the same amount and at the same time as
the amount included in income by the optionee with respect to his or her
NQSO. The deduction will be allowed for the taxable year of the
Corporation within which the taxable year of the optionee in which such
ordinary income is recognized by the optionee ends.
ISOs. In general, neither the grant nor the exercise of an ISO
will result in taxable income to an optionee or a deduction to the
Corporation. Unless there is a disqualifying disposition of the stock
received pursuant to the exercise of an ISO (see below) and unless such
disqualifying disposition occurs in the same year as the year of exercise
of such ISO, the exercise of an ISO will give rise to income includible
by the optionee for purposes of the alternative minimum tax in an amount
equal to the excess of the fair market value of the stock acquired upon
the exercise of the ISO over the exercise price.
The sale or exchange of Common Stock received pursuant to the
exercise of an ISO after the expiration of the applicable holding period
discussed below will result in the entire gain (based upon the excess
between the amount realized upon sale or exchange over the exercise price)
being treated as long-term capital gain or loss to an optionee and will
not result in a tax deduction to the Corporation. To receive ISO treatment
as to the stock acquired upon exercise of an ISO, an optionee must neither
dispose of such stock within two years after such ISO is granted or within
one year after the exercise of such ISO. In addition, an optionee
generally must be an employee of the Corporation (or of a Subsidiary
Corporation) at all times between the date of grant and the date three
months before exercise of such ISO.
14<PAGE>
If an optionee sells or exchanges the shares prior to the expiration
of the holding period set forth above (a "disqualifying disposition"),
such optionee will realize ordinary compensation income in the amount
equal to the difference between the exercise price and the fair market
value on the date of exercise. The compensation income will be added to
such optionee's basis for purposes of determining the gain on the sale of
the shares. Such gain will be capital gain if the shares are held as
capital assets (i.e., generally for investment purposes). If the
application of the above-described rule would result in a loss to the
optionee, the compensation income required to be recognized thereby
would be limited to the excess, if any, of the amount realized on the sale
over the basis of the shares sold. If an optionee disposes of shares
obtained upon exercise of an ISO prior to the expiration of the holding
period described above, the Corporation will be entitled to a deduction in
the amount and at the same time as the compensation income is realized
by the optionee as a result of the disqualifying disposition, subject to
the Corporation satisfying its withholding and/or reporting obligations.
If an optionee is permitted to, and does, make the required
payment of the option price by delivering shares of Common Stock, the
optionee generally will not recognize any gain as a result of such
delivery, but the amount of gain, if any, which is not so recognized will
be excluded from his basis in the new shares received. However, the use
by an optionee of shares previously acquired pursuant to the exercise of
an ISO to exercise an ISO will be treated as a taxable disposition if the
transferred shares have not been held by the optionee for the requisite
holding period described above.
Code Section 162(m). Code Section 162(m) generally limits
the annual deduction available to a publicly held corporation for
applicable remuneration paid to its chief executive officer and certain
other highly compensated individuals to $1,000,000. The Corporation
believes that options granted pursuant to the 1998 Plan will satisfy
certain requirements contained in Code Section 162(m) so that the
compensation element of such options will qualify for the exemption
from the deduction limitation of Code Section 162(m) for "performance-based
compensation."
15<PAGE>
New Plan Benefits Table
The following table presents information regarding options anticipated
to be granted under the 1998 Plan (i) upon cancellation of options granted
under the 1994 Plan to the Named Executives and (ii) upon cancellation of
options granted under the 1994 Plan to the (x) executive officers of the
Corporation as a group, (y) non-employee directors of the Corporation as a
group and (z) non-executive officer employees of the Corporation as a group
assuming approval of the 1998 Plan. The following calculations are based on a
May 29, 1998 grant date.
Number of
Shares
Dollar Subject to
Name and Position Value(1) Options
----------------- -------- -------
Michael Favish, President and Chief Executive Officer $-0- 110,000
Fred S. Ostern, Former Vice President $-0- -0-
Executive Officer Group (6 individuals)(2) $-0- 192,000
Non-Executive Director Group (3 individuals)(3) $-0- 15,000
Non-Executive Officer Employee Group $-0- 38,000
_________
(1) Assumes that the exercise price of the stock options is equal to the
closing price of the Common Stock on May 28, 1998.
(2) Consists of Michael Favish, David G. Forster, Carl E. Francis,
Karen M. Betro, Jon D. Schneider and Steve B. Katzke.
(3) Consists of Sabin C. Streeter, Salvatore T. DiMascio and
Joel K. Rubenstein.
Board Recommendation
The Board of Directors recommends that the stockholders vote FOR
approval and adoption of the Fotoball USA, Inc. 1998 Stock Option Plan.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Upon recommendation of the audit committee, the Board of Directors
has appointed Hollander, Gilbert & Co. as the Corporation's independent
auditors for the fiscal year ending December 31, 1998.
In the event stockholders do not ratify the appointment of Hollander,
Gilbert & Co. as the Corporation's independent auditors for the forthcoming
fiscal year, such appointment will be reconsidered by the audit committee and
the Board of Directors.
A representative of Hollander, Gilbert & Co. will be present at the
Annual Meeting to respond to appropriate questions and to make statements as
he may desire.
Board Recommendation
The Board of Directors recommends that the stockholders vote FOR
ratification of the appointment of Hollander, Gilbert & Co. as the
Corporation's independent auditors.
16<PAGE>
OTHER BUSINESS
The Board of Directors of the Corporation knows of no other matters
that may be presented at the Annual Meeting. However, if any other matters
properly come before the meeting, or any adjournment thereof, it is intended
that proxies in the accompanying form will be voted in accordance with the
judgment of the persons named therein.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next annual
meeting of the Corporation's stockholders must be received by the Corporation
for inclusion in the Corporation's 1999 Proxy Statement on or prior to
January 27, 1999.
ANNUAL REPORTS AND FINANCIAL STATEMENTS
The Annual Report to Stockholders of the Corporation for the year
ended December 31, 1997 is being furnished simultaneously herewith. Such
report and the financial statements included therein are not to be considered
a part of this Proxy Statement.
Upon the written request of any stockholder, management will
provide, free of charge, a copy of the Corporation's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997, including the financial
statements and exhibits thereto. Requests should be directed to Chief
Financial Officer, Fotoball USA, Inc., 3738 Ruffin Road, San Diego,
California 92123.
COST OF SOLICITATION
The cost of soliciting proxies in the accompanying form has been or will
be borne by the Corporation. In addition to solicitation by mail,
solicitations may be made personally, by telephone, by telegraph or by mail
by officers, directors and employees of the Corporation, without additional
remuneration therefor, and arrangements may be made with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and proxy material
to their principals, and the Corporation may reimburse them for their
reasonable out-of-pocket expenses.
It is important that your shares be represented at the meeting. If you
are unable to be present in person, you are respectfully requested to sign
the enclosed proxy and return it in the enclosed stamped and addressed
envelope as promptly as possible.
By Order of the Board of Directors,
KAREN M. BETRO
Secretary
Dated: April 27, 1998
San Diego, California
17<PAGE>
APPENDIX A:
FOTOBALL USA, INC.
1998 STOCK OPTION PLAN
Section 1. Purpose
The purposes of this Fotoball USA, Inc. 1998 Stock Option Plan
(the "Plan") are to encourage selected employees and directors of Fotoball
USA, Inc., a Delaware corporation (together with any successor thereto, the
"Corporation"), or any present or future Subsidiary Corporation (as defined
below) of the Corporation to acquire a proprietary interest in the growth and
performance of the Corporation, to generate an increased incentive to
contribute to the Corporation's future success and prosperity, thus enhancing
the value of the Corporation for the benefit of its stockholders, and to
enhance the ability of the Corporation to attract and retain qualified
individuals upon whom, in large measure, the sustained progress, growth and
profitability of the Corporation depend.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings
set forth below:
(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) "Committee" shall mean a committee of the Board designated
by the Board to administer the Plan and composed of not less than two (2)
directors.
(d) "Fair Market Value" shall mean, with respect to Shares or
other securities, the fair market value of the Shares of other securities
determined by such methods or procedures as shall be established from time to
time by the Committee in good faith or in accordance with applicable law.
Unless otherwise determined by the Committee, the Fair Market Value of Shares
shall mean (i) the closing price per Share of the Shares on the principal
exchange on which the Shares are then trading, if any, on such date, or, if
the Shares were not traded on such date, then on the next preceding trading
day during which a sale occurred; or (ii) if the Shares are not traded on an
exchange but are quoted on the Nasdaq Stock Market or a successor quotation
system, (1) the last sales price (if the Shares are then listed as a National
Market Issue on the Nasdaq Stock Market) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Shares on
such date as reported by the Nasdaq Stock Market or such successor quotation
system; or (iii) if the Shares are not publicly traded on an exchange and not
quoted on the Nasdaq Stock Market or a successor quotation system, the mean
between the closing bid and asked prices for the Shares on such date as
determined in good faith by the Committee.
(e) "Incentive Stock Option" shall mean an option granted under
the Plan that is designated as an incentive stock option within the meaning
of Section 422 of the Code or any successor provision thereto.
A-1<PAGE>
(f) "Independent Director" shall mean each member of the Board
who is not an employee of the Corporation or any Subsidiary Corporation of
the Corporation.
(g) "Key Employee" shall mean any officer, director or other
employee who is a regular full-time employee of the Corporation or its
present and future Subsidiary Corporations.
(h) "Non-Qualified Stock Option" shall mean an Option granted
under the Plan that is not designated as an Incentive Stock Option.
(i) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
(j) "Option Agreement" shall mean a written agreement, contract
or other instrument or document evidencing an Option granted under the Plan.
(k) "Participant" shall mean a Key Employee or Independent
Director who has been granted an Option under the Plan.
(l) "Person" shall mean any individual, corporation, partnership,
association, joint-stock Corporation, trust, unincorporated organization or
government or political subdivision thereof.
(m) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended, or any successor rule or regulation thereto.
(n) "Shares" shall mean the common stock of the Corporation,
$.01 par value, and such other securities or property as may become the
subject of Options pursuant to an adjustment made under Section 4(b) of the
Plan.
(o) "Subsidiary Corporation" shall have the meaning ascribed
thereto in Code Section 424(f).
(p) "Ten Percent Stockholder" shall mean a Person, who together
with his or her spouse, children and trusts and custodial accounts for their
benefit, immediately at the time of the grant of an Option and assuming its
immediate exercise, would beneficially own, within the meaning of Section
424(d) of the Code, Shares possessing more than ten percent (10%) of the
total combined voting power of all of the outstanding capital stock of the
Corporation or any Subsidiary Corporation of the Corporation.
Section 3. Administration
(a) Generally. The Plan shall be administered by the Committee.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the Plan or any Option shall be within the sole discretion of the Committee,
may be made at any time, and shall be final, conclusive, and binding upon all
Persons, including the Corporation, any Participant, any holder or beneficiary
of any Option, any stockholder of the Corporation and any employee of the
Corporation.
A-2<PAGE>
(b) Powers. Subject to the terms of the Plan and applicable law
and except as provided in Section 7 hereof, the Committee shall have full
power and authority to: (i) designate Participants; determine the type or
types of Options to be granted to each Participant under the Plan;
(ii) determine the number of Shares to be covered by Options;
(iii) determine the terms and conditions of any Option; (iv) determine
whether, to what extent, and under what circumstances Options may be settled
or exercised in cash, Shares, other Options, or other property, or canceled,
forfeited, or suspended, and the method or methods by which Options may be
settled, exercised, canceled, forfeited, or suspended; (v) interpret and
administer the Plan and any instruments or agreements relating to, or Options
granted under, the Plan; (vi) establish, amend, suspend, or waive such rules
and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (vii) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan.
Section 4. Shares Available for Options
(a) Shares Available. Subject to adjustment as provided in
Section 4(b):
(i) Limitation on Number of Shares. Options issuable
under the Plan are limited such that the maximum aggregate number of
Shares which may be issued pursuant to, or by reason of, Options is
500,000. Further, no Participant shall be granted Options to purchase
more than 125,000 Shares in any one fiscal year; provided, however, that
the Committee may adopt procedures for the counting of Shares relating
to any grant of Options to ensure appropriate counting, avoid double
counting, and provide for adjustments in any case in which the number of
Shares actually distributed differs from the number of Shares previously
counted in connection with such grant; provided further, however, that the
options granted under the Corporation's 1994 Stock Option Plan shall not
be treated as outstanding. To the extent that an Option granted to a (A)
Key Employee or (B) an Independent Director ceases to remain
outstanding by reason of termination of rights granted thereunder,
forfeiture or otherwise, the Shares subject to such Option shall again
become available for award under the Plan to (x) Key Employees and (y)
Independent Directors, respectively.
(ii) Sources of Shares Deliverable Under Options. Any
Shares delivered pursuant to an Option may consist, in whole or in part,
of authorized and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall
determine that any change in corporate capitalization, such as a dividend or
other distribution of Shares, or a corporate transaction, such as a merger,
consolidation, reorganization or partial or complete liquidation of the
Corporation or other similar corporate transaction or event, affects the
Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem necessary to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
under the Plan, adjust any or all of (x) the number and type of Shares
A-3<PAGE>
which thereafter may be made the subject of Options, (y) the number and type
of Shares subject to outstanding Options, and (z) the grant, purchase, or
exercise price with respect to any Option or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Option; provided,
however, in each case, that (i) with respect to Incentive Stock Options no
such adjustment shall be authorized to the extent that such adjustment would
cause the Plan to violate Section 422 of the Code or any successor provision
thereto; (ii) such adjustment shall be made in such manner as not to adversely
affect the status of any Option as "performance-based compensation" under
Section 162(m) of the Code; and (iii) the number of Shares subject to any
Option denominated in Shares shall always be a whole number.
Section 5. Eligibility
In determining the Persons to whom Options shall be granted and
the number of Shares to be covered by each Option, the Committee shall take
into account the nature of the Person's duties, such Person's present and
potential contributions to the success of the Corporation and such other
factors as it shall deem relevant in connection with accomplishing the
purposes of the Plan. A Key Employee who has been granted an Option or
Options under the Plan may be granted an additional Option or Options,
subject to such limitations as may be imposed by the Code on the grant of
Incentive Stock Options. Notwithstanding anything herein to the contrary,
Incentive Stock Options may be granted only to Key Employees of the
Corporation or any Parent Corporation or Subsidiary Corporation.
Section 6. Options.
The Committee is hereby authorized to grant Options to
Participants upon the following terms and the conditions (except to the
extent otherwise provided in Section 7) and with such additional terms and
conditions, in either case not inconsistent with the provisions of the Plan,
as the Committee shall determine:
(a) Exercise Price. The exercise price per Share purchasable
under Options shall be determined by the Committee at the time the Option is
granted but generally shall not be less than the Fair Market Value of the
Shares covered thereby at the time the Option is granted.
(b) Option Term. The term of each Non-Qualified Stock Option
shall be fixed by the Committee but generally shall not exceed ten (10) years
from the date of grant.
(c) Time and Method of Exercise. The Committee shall determine
the time or times at which the right to exercise an Option may vest, and the
method or methods by which, and the form or forms in which, payment of the
option price with respect to exercises of such Option may be made or deemed
to have been made (including, without limitation, (i) cash, Shares,
outstanding Options or other consideration, or any combination thereof,
having a Fair Market Value on the exercise date equal to the relevant option
price and (ii) a broker-assisted cashless exercise program established by the
Committee), provided in each case that such methods avoid "short-swing" profits
to the Participant under Section 16(b) of the Securities Exchange Act of 1934,
as amended. The payment of the exercise price of an Option may be made in a
A-4<PAGE>
single payment or transfer, in installments, or on a deferred basis, in each
case in accordance with rules and procedures established by the Committee.
(d) Incentive Stock Options. All terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the provisions
of Section 422 of the Code, or any successor provision thereto, and any
regulations promulgated thereunder including that, (i)(A) in the case of a
grant to a Person that is not a Ten Percent Stockholder the purchase price
per Share purchasable under Incentive Stock Options shall not be less than
the Fair Market Value of a Share on the date of grant and (B) in the case of
a grant to a Ten Percent Stockholder the purchase price per Share purchasable
under Incentive Stock Options shall not be less than 110% of the Fair Market
Value of a Share on the date of grant and (ii) the term of each Incentive
Stock Option shall be fixed by the Committee but shall in no event be more
than ten (10) years from the date of grant, or in the case of an Incentive
Stock Option granted to a Ten Percent Stockholder, five (5) years from
the date of grant.
(e) Limits on Transfer of Options. Subject to Code Section 422,
no Option and no right under any such Option, shall be assignable, alienable,
saleable or transferable by a Participant otherwise than by will or by the
laws of descent and distribution, and such Option, and each right under any
such Option, shall be exercisable during the Participant's lifetime, only by
the Participant or, if permissible under applicable law (including Code
Section 422, in the case of an Incentive Stock Option), by the Participant's
guardian or legal representative. No Option and no right under any such
Option, may be pledged, alienated, attached, or otherwise encumbered, and any
purported pledge, alienation, attachment, or encumbrance thereof shall be
void and unenforceable against the Corporation. Notwithstanding the
foregoing, the Committee may, in its discretion, provide that Non-Qualified
Stock Options be transferable, without consideration, to immediate family
members (i.e., children, grandchildren or spouse), to trusts for the benefit
of such immediate family members and to partnerships in which such family
members are the only partners. The Committee may attach such terms and
conditions as it deems advisable to any such transferability right. In
addition, a Participant may, in the manner established by the Committee,
designate a beneficiary (which may be a person or a trust) to exercise the
rights of the Participant, and to receive any distribution, with respect to
any Option upon the death of the Participant. A beneficiary, guardian, legal
representative or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the
Plan and any Option Agreement applicable to such Participant, except as
otherwise determined by the Committee, and to any additional restrictions
deemed necessary or appropriate by the Committee.
(f) Tax Withholding. The Corporation or any Subsidiary is
authorized to withhold from any Option granted any payment relating to an
Option under the Plan, including from the exercise of an Option, amounts of
withholding and other taxes due in connection with any transaction involving
an Option, and to take such other action as the Committee may deem advisable
to enable the Corporation and Participants to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Option.
This authority shall include authority to withhold or receive Shares or other
property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations.
A-5<PAGE>
(g) Loan Provisions. With the consent of the Committee, and
subject at all times to laws and regulations and other binding obligations or
provisions applicable to the Corporation, the Corporation may make, guarantee,
or arrange for a loan or loans to a Participant with respect to the exercise
of any Option, including the payment by a Participant of any or all federal,
state, or local income or other taxes due in connection with the exercise of
any Option. Subject to such limitations, the Committee shall have full
authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms, and provisions of any such loan or loans,
including the interest rate to be charged in respect of any such loan or
loans, whether the loan or loans are to be with or without recourse against
the borrower, the terms on which the loan is to be repaid and the conditions,
if any, under which the loan or loans may be forgiven.
Section 7. Options Awarded to Independent Directors.
Each Independent Director who is a member of the Board on July 1
of a year during the term of the Plan shall automatically be granted a
Non-Qualified Stock Option to purchase 5,000 Shares on July 1 of each year of
service on the Board as an Independent Director. All Options granted pursuant
to this Section 7 shall (a) be at an exercise price per Share equal to 100% of
the Fair Market Value of a Share on the date of the grant; (b) have a term of
ten (10) years; (c) terminate (i) upon termination of an Independent Director's
service as a director of the Corporation for any reason other than mental or
physical disability or death, (ii) three (3) months after the date the
Independent Director ceases to serve as a director of the Corporation due to
physical or mental disability or (iii)(A) twelve (12) months after the date
the Independent Director ceases to serve as a director due to the death of
the Independent Director or (B) three (3) months after the death of the
Independent Director if such death shall occur during the three (3) month
period following the date the Independent Director ceased to serve as a
director of the Corporation due to physical or mental disability; and
(d) be otherwise on the same terms and conditions as all other Options
granted pursuant to the Plan.
Section 8. Amendment and Termination
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Option Agreement or in the Plan:
(a) Amendments to the Plan. The Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from
time to time by the Board, but no amendment without the approval of the
stockholders of the Corporation shall be made if such amendment would be
required under Sections 162(m) or 422 of the Code, Rule 16b-3 or any other
law or rule of any governmental authority, stock exchange or other
self-regulatory organization to which the Corporation may then be subject.
Neither the amendment, suspension nor termination of the Plan shall, without
the consent of the holder of such Option, alter or impair any rights or
obligations under any Option theretofore granted.
(b) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
A-6<PAGE>
Section 9. General Provisions
(a) No Rights to Awards. No Key Employee shall have any claim
to be granted any Option under the Plan, and there is no obligation for
uniformity of treatment of Key Employees or holders or beneficiaries of
Options under the Plan. The terms and conditions of Options need not be the
same with respect to each recipient.
(b) No Right to Employment. The grant of an Option shall not be
construed as giving a Participant the right to be retained in the employ of
the Corporation. Further, the Corporation may at any time dismiss a
Participant from employment, free from any liability, or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Option
Agreement.
(c) Governing Law. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan shall be determined
in accordance with the laws of the State of Delaware and applicable Federal
law.
(d) Severability. If any provision of the Plan or any Option is
or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or would disqualify the Plan or any Option under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be construed or deemed
amended without, in the determination of the Committee, materially altering
the intent of the Plan, such provision shall be deemed void, stricken and the
remainder of the Plan and any such Option shall remain in full force and
effect.
(e) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Option, and the Committee shall
determine whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be cancelled, terminated, or otherwise
eliminated.
(f) Headings. Headings are given to the Sections and subsections
of the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision hereof.
Section 10. Effective Date of the Plan
The Plan is effective as of June 1, 1998, subject to stockholder
approval of the Plan prior to such date.
Section 11. Term of the Plan
The Plan shall continue until the earlier of (i) the date on
which all Options issuable hereunder have been issued, (ii) the termination
of the Plan by the Board or (iii) March 9, 2008. However, unless otherwise
expressly provided in the Plan or in an applicable Option Agreement, any
Option theretofore granted may extend beyond such date and the authority of
the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Option or to waive any conditions or rights under any such Option, and
the authority of the Board to amend the Plan, shall extend beyond such date.
A-7 <PAGE>
PROXY FOTOBALL USA, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 28, 1998
The undersigned hereby appoints Michael Favish and David G. Forster, and each
of them, his/her attorneys and proxies with full power of substitution to
vote and act with respect to all shares of common stock of Fotoball USA, Inc.
(the "Corporation") of the undersigned at the Annual Meeting of Stockholders
of the Corporation to be held at 2:00 P.M., local time, on May 28, 1998 or at
any adjournment(s) thereof (the "Meeting"), and instructs them to vote as
indicated on the matters referred to in the Proxy Statement for the Meeting,
receipt of which is hereby acknowledged, with discretionary power to vote
upon such other business as may properly come before the Meeting or any
adjournment(s) thereof.
PLEASE VOTE, SIGN AND DATE THIS PROXY AND RETURN IT
IN THE ENCLOSED POSTAGE PAID ENVELOPE.
This Proxy will be voted as specified. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR ALL PROPOSALS.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE CORPORATION.
The Board of Directors recommends that you vote FOR the following proposals:
1. To elect one director to hold office until the 2001 Annual Meeting of
Stockholders and until the election and qualification of his successor:
( ) FOR the nominee listed below ( )WITHHOLD AUTHORITY to vote
for the nominee listed below
Nominee: Salvatore T. DiMascio
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(Continues on the reverse side)
2. To approve the adoption of the Fotoball USA, Inc. 1998 Stock Option Plan.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. To ratify the appointment of Hollander, Gilbert & Co. as the Corporation's
independent auditors for fiscal year 1998.
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. To transact such other business as may properly come before the Meeting.
Receipt of the Notice of Annual Meeting
and Proxy Statement is hereby
acknowledged.
Dated________________________________
_____________________________________
_____________________________________
Signature(s) of Stockholder(s)
This Proxy shall be signed exactly as
your name(s) appears hereon, if as
attorney, executor, guardian or in some
representative capacity or as an officer
of a corporation, please add title as
such.
