SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[ ] 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):
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.
1) Amount Previously Paid:__________________________________________
2) Form, Schedule or Registration Statement No.:____________________
3) Filing Party:____________________________________________________
4) Date Filed:______________________________________________________
<PAGE>
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------------------------------
May 26, 1998
To the Stockholders of
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Software
Publishing Corporation Holdings, Inc. (the "Company") will be held at the
Radisson Hotel & Suites, located at 690 Route 46 East, Fairfield, New Jersey
07004, on Tuesday, May 26, 1998, at 1:00 p.m., or at any adjournment thereof,
for the following purposes:
1. To elect two directors in Class II to the Board of Directors of the
Company;
2. To consider and act upon a proposal to grant the Board of Directors of the
Company authority to amend the Company's Certificate of Incorporation to
authorize either a one-for-two (1:2), one-for-three (1:3) or one-for-five
(1:5) reverse stock split of the Company's Common Stock; and
3. To consider and act upon such other business as may properly come before
the Meeting or any adjournment thereof.
The above matters are set forth in the Proxy Statement attached to this
Notice to which your attention is directed.
Only stockholders of record on the books of the Company at the close of
business on April 10, 1998 will be entitled to vote at the Annual Meeting of
Stockholders or at any adjournment thereof. You are requested to sign, date and
return the enclosed Proxy at your earliest convenience in order that your shares
may be voted for you as specified.
By Order of the Board of Directors,
Marc E. Jaffe, Secretary
April 27, 1998
Fairfield, New Jersey
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
3A Oak Road
Fairfield, New Jersey 07004
_______________________________
PROXY STATEMENT
_______________________________
ANNUAL MEETING OF STOCKHOLDERS
May 26, 1998
The Annual Meeting of Stockholders (the "Annual Meeting") of Software
Publishing Corporation Holdings, Inc. (the "Company") will be held on Tuesday,
May 26, 1998 at the Radisson Hotel & Suites, located at 690 Route 46 East,
Fairfield, New Jersey 07004, at 1:00 p.m., for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. The enclosed Proxy is
solicited by and on behalf of the Board of Directors of the Company for use at
the Annual Meeting, and at any adjournments of the Annual Meeting. The
approximate date on which this Proxy Statement and the enclosed Proxy are being
first mailed to stockholders of the Company is April 27, 1998.
If a Proxy in the accompanying form is duly executed and returned, the
shares represented by such Proxy will be voted as specified, subject to any
applicable voting or irrevocable proxy agreements. Any person executing an
enclosed Proxy may revoke it prior to its exercise either by letter directed to
the Company or in person at the Annual Meeting.
Voting Rights
Only stockholders of record on April 10, 1998 (the "Record Date") will be
entitled to vote at the Annual Meeting or any adjournment thereof. The Company
has outstanding only a single class of voting capital stock, namely, shares of
Common Stock, $.001 par value per share (the "Common Stock"). Each share of
Common Stock issued and outstanding on the Record Date is entitled to one vote
at the Annual Meeting. As of the Record Date, there were outstanding 9,042,958
shares of Common Stock.
Directors are elected by a plurality of votes actually cast, while the
affirmative vote of a majority of the votes entitled to be cast at the Annual
Meeting is required for adoption of the amendment of the Company's Certificate
of Incorporation. For purposes of determining whether proposals have received a
majority of votes cast, abstentions will not be included in the vote totals and,
in instances where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned a Proxy (so called "broker
non-votes"), those votes will not be included in the vote totals. Therefore, the
effect of abstentions and broker non-votes is the same as that of a vote
"against" Proposal No. 2 to authorize the Board of Directors to amend the
Certificate of Incorporation to authorize either a one-for-two (1:2),
one-for-three (1:3) or one-for-five (1:5) reverse stock split of the Common
Stock, while abstentions and broker non-votes will have no effect on the vote
for the election of directors. Abstentions also will be counted in the
determination of whether a quorum exists for the purposes of transacting
business at the Annual Meeting.
<PAGE>
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of shares of voting
stock of the Company, as of the Record Date, of (i) each person known by the
Company to beneficially own 5% or more of the shares of outstanding Common Stock
based on filings with the Securities and Exchange Commission (the "SEC") and
certain other information, (ii) each of the Company's executive officers and
directors and (iii) all of the Company's executive officers and directors as a
group. Except as otherwise indicated, all shares are beneficially owned, and
investment and voting power is held by, the persons named as owners.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Common Stock Percentage Ownership
Beneficial Owner (1) Beneficial Owned (2) of Common Stock (3)
<S> <C> <C> <C>
Mark E. Leininger . . . . 1,182,817 (4) 12.8
Barry A. Cinnamon (5) . . 1,036,817 (6) 11.2
Lori Kramer Cinnamon (5). 1,036,817 (7) 11.2
Howard Milstein . . . . . 889,000 (8) 9.8
Gwyn Jones. . . . . . . . 469,804 (9) 5.2
M.S. Farrell & Co., Inc.. 343,305 (10) 3.7
Martin F. Schacker. . . . 343,305 (11) 3.7
Norman W. Alexander . . . 121,245 (12) 1.3
Marc E. Jaffe . . . . . . 85,414 (13) 1.0
Neil R. Austrian, Jr. . . 63,582 (14) *
Neil M. Kaufman . . . . . 58,665 (15) *
Robert Gordon . . . . . . 31,073 (16) *
Kevin D. Sullivan . . . . 12,500 (17) *
All officers and directors
as a group (10 persons). 1,898,601 (18) 19.5
<FN>
- ----------
* Less than 1.0%.
(1) Unless otherwise indicated, the address for each beneficial owner listed in
the table is Software Publishing Corporation Holdings, Inc., 3A Oak Road,
Fairfield, New Jersey 07004.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities which may be acquired by such person within
60 days from the date on which beneficial ownership is to be determined
upon the exercise of options, warrants or convertible securities.
(3) Each beneficial owner's percentage ownership is determined by assuming that
stock options and warrants that are held by such person (but not those held
by any other person) and which are exercisable within such 60 day period,
have been exercised.
(4) Represents (a) options to purchase 171,249 shares of Common Stock granted
to Mr. Leininger under the Company Stock Plans which are exercisable within
the next 60 days, (b) the 111,248 shares of Common Stock held by the Serif
(Europe) Limited Share Ownership Trust (the "Serif Trust"), of which Mr.
Leininger acts as trustee and as to which Mr. Leininger disclaims
beneficial ownership and (c) the 900,320 presently outstanding shares of
Common Stock beneficially owned by Barry A. Cinnamon and Lori Kramer
Cinnamon which Mr Leininger, as President of the Company, has the proxy to
vote pursuant to the terms of the Cinnamon Settlement Agreement. Does not
include options to purchase 237,501 shares of Common Stock granted to Mr.
Leininger under the Company Stock Plans which are not exercisable within
the next 60 days.
(5) The address for Mr. Cinnamon and Ms. Kramer Cinnamon is 18480 Hillview
Drive, Los Gatos, California 95030.
(6) Includes (a) an aggregate 52,778 shares of Common stock held by Mr.
Cinnamon as custodian for his minor children under the New Jersey Uniform
Gift to Minors Act, (b) options to purchase 115,333 shares of Common Stock
granted to Mr. Cinnamon under the Company Stock Plans which are exercisable
within the next 60 days and (c) options to purchase 21,164 shares of Common
Stock granted to Lori Kramer Cinnamon, Mr. Cinnamon's wife, under the
Company Stock Plans which are exercisable within the next 60 days. Does not
include (a) 990,558 shares of Common Stock issued in connection with the
Company's acquisition of the Serif subsidiaries and remaining subject to a
Stockholders Agreement, dated as of July 31, 1996 (the "Stockholders
Agreement"), to which Mr. Cinnamon is a party and pursuant to which the
holders of such 990,558 shares (including the Serif Trust, Gwyn Jones and
Norman Alexander) have agreed to vote their respective shares of Common
Stock for the director-nominees of the Company's Board of Directors and Mr.
Cinnamon has agreed to vote all of the securities of the Company owned by
him for Mr. Jones or Mr. Jones' nominee (Norman Alexander) as a director of
the Company, in each case until July 31, 1998 and (b) options to purchase
6,581 shares of Common Stock granted to Ms. Kramer Cinnamon under the
Company Stock Plans which are not exercisable within the next 60 days.
Pursuant to the Cinnamon Settlement Agreement, Mr. Cinnamon and Ms. Kramer
Cinnamon have granted the President of the Company (presently, Mark E.
Leininger) an irrevocable proxy to vote all of the shares of Common Stock
owned beneficially or of record by either of them, in any capacity, in such
manner as may be determined by the President of the Company in his sole
discretion.
(7) Represents (a) 847,542 shares of Common Stock owned of record by Barry A.
Cinnamon, Ms. Kramer Cinnamon's husband, (b) an aggregate of 52,778 shares
of Common Stock held by Mr. Cinnamon as custodian for their minor children
under the New Jersey Uniform Gift to Minors Act, (c) options to purchase
21,164 shares of Common Stock granted to Ms. Kramer Cinnamon under the
Company Stock Plans which are exercisable within the next 60 days and (d)
options to purchase 115,333 shares of Common Stock granted to Mr. Cinnamon
under the Company Stock Plans which are exercisable within the next 60
days. Does not include (a) options to purchase 6,581 shares of Common Stock
granted to Ms. Kramer Cinnamon under the Company Stock Plans which are not
exercisable within the next 60 days and (b) the 990,558 shares remaining
subject to the Stockholders Agreement to which Mr. Cinnamon is a party.
(8) Represents 865,000 shares of Common Stock registered in the name of Howard
Milstein ("H. Milstein") and 24,000 shares registered in the name of Ronald
L. Altman ("Altman"). Does not include an option (the "Altman Option") to
purchase 96,100 shares of Common Stock (the "Altman Option Shares") granted
to Altman which is not exercisable within the next 60 days. According to a
Schedule 13D filed by H. Milstein, Altman, Michael Jesselson ("Jesselson")
and Edward Milstein ("E. Milstein" and, collectively with H. Milstein,
Altman, and Jesselson, the "Milstein Group"), the individuals comprising
the Milstein Group have entered into an agreement, dated as of October 23,
1997 (the "Milstein Group Agreement"), which provides that (a) H. Milstein
and E. Milstein each have a 25% beneficial interest in the aggregate
889,000 shares of Common Stock (the "Milstein Group Shares") registered in
the names of H. Milstein and Altman, and Jesselson has a 50% beneficial
interest in the Milstein Group Shares, (b) Altman has a 15% interest in the
net profits or losses to the others collectively resulting from the sale of
the Milstein Group Shares and (c) H. Milstein has the sole voting power and
dispositive power with regard to all of the Milstein Group Shares. The
Milstein Group Agreement also appears to provide that (a) in the event of
the sale of the Altman Option, Altman shall receive 50% of the net proceeds
thereof (taking into account any sales, commissions or related fees) and
the balance of the net proceeds shall be divided among H. Milstein, E.
Milstein and Jesselson in the proportion of 25%, 25% and 50%, respectively,
(b) if the Altman Option is exercised and the Altman Option Shares are
subsequently sold, Altman shall receive 50% of the net proceeds thereof
(after taking into account the payment of the exercise price and any costs
of disposing of the Altman Option Shares) and the balance of such net
proceeds shall be divided among H. Milstein, E. Milstein and Jesselson in
the proportion of 25%, 25% and 50%, respectively, and (c) H. Milstein has
the sole power to dispose, transfer and vote the Altman Option Shares and
to exercise, dispose or transfer the Altman Option. The address for Howard
Milstein is c/o Douglas Elliman, 575 Madison Avenue, New York, New York
10022.
(9) Does not include any of the shares of Common Stock or other securities of
the Company owned by any other party to the Stockholders Agreement. The
address for Mr. Jones is Barley Green Farm, Laxfield Road, Stradbrooke Eye,
Suffolk, England IP21 5JT.
(10) Includes (a) warrants owned of record by M.S. Farrell Holdings, Inc. ("MSF
Holdings"), the corporate parent of MS Farrell, to purchase 113,500 shares
of Common Stock which are exercisable within the next 60 days, (b) 62,428
shares of Common Stock owned of record by MSF Holdings, (c) the
Underwriters' Purchase Options ("UPOs") owned of record by MS Farrell to
purchase 70,244 shares of Common Stock which are exercisable within the
next 60 days, (d) warrants owned of record by Martin F. Schacker, the
Chairman of the Board of Directors of MS Farrell and controlling person of
both MS Farrell and MSF Holdings (see note (11) below), to purchase 48,500
shares of Common Stock and (e) options to purchase 33,333 shares of Common
<PAGE>
Stock granted to Mr. Schacker under the Company Stock Plans which are
exercisable within the next sixty days. Does not include (a) options to
purchase 66,667 shares of Common Stock granted to Mr. Schacker under the
Company Stock Plans which are not exercisable within the next 60 days or
(b) shares of Common Stock, UPOs and warrants to purchase an additional
195,561 shares of Common Stock originally granted to MS Farrell which
currently are owned by stockholders, directors, managing directors and
executive officers of MS Farrell and MSF Holdings and others. The address
for MS Farrell is 67 Wall Street, New York, New York 10005.
(11) Represents (a) warrants owned by Mr. Schacker to purchase 48,500 shares of
Common Stock which are exercisable within the next 60 days, (b) 77,728
shares of Common Stock owned by MS Farrell and MSF Holdings, each of which
Mr. Schacker is Chairman of the Board and the controlling person, (c)
options to purchase 33,333 shares of Common Stock granted to Mr. Schacker
under the Company Stock Plans which are exercisable within the next sixty
days, (d) warrants exercisable within the next 60 days to purchase 113,500
shares of Common Stock owned of record by MSF Holdings and (e) UPOs owned
by MS Farrell to purchase 70,244 shares of Common Stock. Does not include
(a) options to purchase 66,667 shares of Common Stock granted to Mr.
Schacker under the Company Stock Plans which are not exercisable within the
next 60 days or (b) shares of Common Stock, UPOs and warrants to purchase
an additional 195,561 shares of Common Stock originally granted to MS
Farrell which currently are owned by stockholders, directors, managing
directors and executive officers of MS Farrell and MSF Holdings and others.
The address for Mr. Schacker is MS Farrell, 67 Wall Street, New York, New
York 10005.
(12) Includes options to purchase 53,332 shares of Common Stock granted to Mr.
Alexander under the Company Stock Plans which are exercisable within the
next 60 days. Does not include (a) options to purchase 72,918 shares of
Common Stock granted to Mr. Alexander under the Company Stock Plans which
are not exercisable within the next 60 days or (b) any of the shares of
Common Stock or other securities of the Company owned by any other party to
Stockholders Agreement. The address for Mr. Alexander is Burnside, Church
Walk, Marholm, Peterborough, PE 67H2 England.
(13) Represents options to purchase 85,414 shares of Common Stock granted to Mr.
Jaffe under the Company Stock Plans which are exercisable within the next
60 days. Does not include options to purchase 117,086 shares of Common
Stock granted to Mr. Jaffe under the Company Stock Plans which are not
exercisable within the next 60 days. The address for Mr. Jaffe is
Electronic Licensing Organization, 386 Park Avenue South, Suite 1900, New
York, New York 10016.
(14) Represents (a) 750 shares of Common Stock held in an Individual Retirement
Account ("IRA") for the benefit of Mr. Austrian, (b) 750 shares of Common
Stock held in an IRA for the benefit of Mr. Austrian's spouse and (c)
options to purchase 62,082 shares of Common Stock granted to Mr. Austrian
under the Company Stock Option Plans which are exercisable within the next
60 days. Does not include options to purchase 71,668 shares of Common Stock
granted to Mr. Austrian under the Company Stock Option Plans which are not
exercisable within the next 60 days. The address for Mr. Austrian is c/o
Rust Group, 327 Congress Avenue, Suite 200, Austin, Texas 78701.
(15) Includes options to purchase 36,665 shares of Common Stock granted to Mr.
Kaufman under the Company Stock Plans which are exercisable within the next
60 days. Does not include options to purchase 8,335 shares of Common Stock
granted to Mr. Kaufman under the Company Stock Plans which are not
exercisable within the next 60 days. The address for Mr. Kaufman is Kaufman
& Associates, LLC, 50 Charles Lindbergh Boulevard, Suite 206, Mitchel
Field, New York 11553.
(16) Includes options to purchase 26,073 shares of Common Stock granted to Mr.
Gordon under the Company Stock Option Plans which are exercisable within
the next 60 days. Does not include options to purchase 143,309 shares of
Common Stock granted to Mr. Gordon under the Company Stock Option Plans
which are not exercisable within the next 60 days.
(17) Represents options to purchase 12,500 shares of Common Stock granted to Mr.
Sullivan under the Company Stock Option Plans which are exercisable within
the next 60 days. Does not include options to purchase 37,500 shares of
Common Stock granted to Mr. Sullivan under the Company Stock Option Plans
which are not exercisable within the next 60 days.
(18) Includes (a) an aggregate 712,892 shares of Common Stock issuable upon
exercise of the options and warrants discussed in notes (4) and (10)
through (17) above which are exercisable within the next 60 days, (b) the
111,248 shares of Common Stock registered in the name of the Serif Trust
and (c) the 900,320 shares of Common Stock beneficially owned by Mr.
Cinnamon and Ms. Kramer Cinnamon which are subject to the proxy granted to
</FN>
</TABLE>
<PAGE>
Mr. Leininger, as President of the Company, pursuant to the terms of the
Cinnamon Settlement Agreement.
ELECTION OF DIRECTORS
The Company's By-Laws provides for a Board of Directors consisting of not
less than three nor more than eleven directors, classified into three classes as
nearly equal in number as possible, whose terms of office expire in successive
years. The Company's Board of Directors now consists of seven directors as set
forth below.
Class I Class II Class III
(To Serve Until (To Serve Until (To Serve Until
the Annual Meeting of the Annual Meeting of the Annual Meeting of
Stockholders in 2000) Stockholders in 1998) Stockholders in 1999)
Neil R. Austrian, Jr. Norman W. Alexander Mark E. Leininger
Marc E. Jaffe Neil M. Kaufman Martin F. Schacker
Peter N. Detkin
Norman W. Alexander and Neil M. Kaufman, directors in Class II, are to be
elected to hold office until the Annual Meeting of Stockholders of the Company
to be held in 2001 or until their successors are elected and qualified. Shares
represented by executed Proxies in the form enclosed will be voted, if authority
to do so is not withheld, for the election as Class II directors of the
aforesaid nominees unless any such nominee shall be unavailable, in which case
such shares will be voted for a substitute nominee designated by the Board of
Directors. The Board of Directors has no reason to believe that any of the
nominees will be unavailable or, if elected, will decline to serve.
The Board of Directors of the Company recommends a vote FOR the election of
each of Norman W. Alexander and Neil M. Kaufman as directors in Class II.
Directors receive no cash compensation for their services to the Company as
directors, but are reimbursed for expenses actually incurred in connection with
attending meetings of the Board of Directors of the Company. Members of the
Board of Directors who are not employees of the Company, of which there
currently are five, are eligible to participate in the Company's Outside
Director and Advisor Stock Option Plan. During 1997, the Board of Directors met
eleven times and acted by unanimous written consent on two occasions. All
current directors of the Company attended not less than 75% of such meetings of
the Board and committees thereof on which they serve.
The Audit Committee, which currently consists of Norman W. Alexander, Neil
R. Austrian, Jr. and Marc E. Jaffe, met once during 1997. The Audit Committee
recommends engagement of the Company's independent certified public accountants,
and is primarily responsible for reviewing and approving the scope of the audit
and other services performed by the Company's independent certified public
accountants and for reviewing and evaluating the Company's accounting principles
and practices, systems of internal controls, quality of financial reporting and
accounting and financial staff, as well as any reports or recommendations issued
by the independent accountants.
The Compensation Committee, which currently consists of Norman W. Alexander
and Neil R. Austrian, Jr., acted by unanimous written consent thirty times
during 1997. The Compensation Committee generally reviews and approves of the
Company's executive compensation and currently administers all of the Company
Stock Plans.
Principal Occupations of Directors
Set forth below is a brief description of the background of the directors
of the Company based on information provided by them to the Company.
Mark E. Leininger (47) was Chief Financial Officer of the Company from July
1995 through December 1997, and has been the Chief Operating Officer and a
director of the Company since September 1996 and President of the Company since
January 1998. From February 1994 through April 1995, Mr. Leininger was the
<PAGE>
President of Phoenix Leasing Corporation, a passenger and cargo air carrier and
aircraft leasing company, which filed for bankruptcy protection in 1996. From
February 1986 through February 1994, Mr. Leininger held various positions,
including Chief Financial Officer and Chief Operating Officer, with Mid Pacific
Air Corporation, a transportation and service company whose stock was traded on
NASDAQ. Mr. Leininger received an MBA from National University, San Diego,
California in 1979 and a BA from Miami University, Oxford, Ohio in 1972.
Marc E. Jaffe, Esq. (46) has been a director of the Company since May 1995.
In January 1998, Mr. Jaffe was elected Chairman of the Board of Directors of the
Company, in which capacity he does not serve as the Company's chief executive
officer. From 1992 until the present time, Mr. Jaffe has been President of
Electronic Licensing Organization, Inc., which has acted as the Company's agent
in the acquisition of certain electronic publishing rights. From 1988 to 1991,
Mr. Jaffe was Executive Vice President of database management for Franklin
Electronic Publishers, a New York Stock Exchange company engaged in the business
of publishing electronic books on hand held media. From 1985 through 1987, Mr.
Jaffe was President of the software and video division of Simon & Schuster, a
publishing company. Mr. Jaffe received a JD degree from Columbia University
School of Law in 1976 and a BA from Columbia College in 1973.
Norman W. Alexander (68) has been a director of the Company since October
1996. Mr. Alexander is a retired former director of Imperial Foods Ltd., a food
products company, and formerly was the chairman of several subsidiaries thereof.
Neil R. Austrian, Jr. (33) has been a director of the Company since April
1996. Since March 1998, Mr. Austrian has been a partner with the Rust Group, a
private venture capital and investment marketing services partnership. From July
1997 to February 1998, Mr. Austrian was the Chief Financial Officer of Tescorp.,
Inc., a cable television company, and was Vice President of Operations of
Tescorp., Inc. from October 1994 through February 1998. Prior to joining
Tescorp., Inc., Mr. Austrian was an associate at Rust Capital, Ltd., a venture
capital firm, from 1988 to October 1994. Mr. Austrian holds a BA degree from
Swarthmore College.
Neil M. Kaufman, Esq. (37) has been a director of the Company since
December 1996 and served as the Company's Secretary from December 1996 to
December 1997. Mr. Kaufman is currently has been the principal of Kaufman &
Associates, LLC, counsel to the Company. From January 1997 to December 1997, Mr.
Kaufman was a partner in Moritt, Hock & Hamroff, LLP ("Moritt Hock"). For four
years prior thereto, he was a member of Blau, Kramer, Wactlar & Lieberman, P.C.
("Blau Kramer"). Prior to his affiliation with Blau Kramer, Mr. Kaufman was
associated with Lord Day & Lord, Barrett Smith ("Lord Day"). Moritt Hock, Blau
Kramer and Lord Day served as counsel to the Company during the periods in which
Mr. Kaufman was affiliated or associated with such firms. Mr. Kaufman received a
JD degree from New York University School of Law in 1984 and a BA degree from
SUNY Binghamton in 1981.
Martin F. Schacker (40) has been a director of the Company since December
1997. Mr. Schacker also served as a director of the Company from August 1994 to
December 1995. From 1991 until the current time, Mr. Schacker has been Chairman
of M.S. Farrell & Co., Inc., a Wall Street investment banking and brokerage firm
which serves as the Company's investment banker and acted as the representative
of the underwriters of the Company's initial public offering. From 1987 through
1991, Mr. Schacker served as Senior Vice President of investments and corporate
finance of D.H. Blair & Company, Inc., an investment banking and brokerage firm.
Prior to that, Mr. Schacker served as Senior Vice President of Shearson Lehman
Brothers, a Wall Street investment banking and brokerage firm. Mr. Schacker
received a BA in Business from Hofstra University in 1982. Mr. Schacker is a
director of Innapharma, Inc., a Suffern, New York-based biotechnology and
contract research company.
Peter N. Detkin (37) has been a director of the Company since April 1998.
Mr. Detkin is Vice President and Assistant General Counsel (since February 1998)
of Intel Corporation, the leading manufacturer of microprocessors ("Intel").
From October 1994 to February 1998, Mr. Detkin was Director of Litigation of
Intel. From September 1992 to October 1994, Mr. Detkin was a partner in Wilson,
Sonsini, Goodrich & Rosati, and from October 1987 to September 1992, Mr. Detkin
was associated with such firm. He received his BSEE with honors in 1982 from the
University of Pennsylvania's Moore School of Electrical Engineering and a JD in
1985 from the University of Pennsylvania Law School.
<PAGE>
MANAGEMENT
Officers of the Company
The executive officers of the Company are as follows:
Name Age Office Held
Mark E. Leininger 47 President and Chief Operating Officer
Kevin D. Sullivan 47 Chief Financial Officer, Vice President - Finance
and Treasurer
Robert Gordon 57 Vice President - Marketing and Sales and Assistant
Secretary
Set forth below is a brief description of the background of the executive
officers of the Company who do not also serve as directors, based on information
provided by them to the Company.
Kevin D. Sullivan has served as the Company's Chief Financial Officer, Vice
President - Finance and Treasurer of the Company since December 1997. From
November 1995 to December 1997, Mr. Sullivan was Chief Financial Officer of
Prizm Environmental and Occupational Health, Inc., a multi-clinic health care
company. From December 1993 to September 1994, he was Chief Financial Officer of
Scientific Packaging Corp., a manufacturer of packaging for household laundry
products. Mr. Sullivan served as Controller (from 1987 to 1988), Treasurer (from
1989 to 1990) and Manager of Bankruptcy Claims Resolutions (from 1990 to 1993)
of Prime Hospitality Corp., a New York Stock Exchange company, when it was known
as Prime Motor Inns, Inc. Mr. Sullivan received a BS degree from Pennsylvania
State University in 1976.
Robert Gordon has served as the Company's Vice President - Marketing and
Sales or Vice President Marketing since June 1996. From January 1995 to June
1996, Mr. Gordon was Chairman of the Board of a family-owned chain of four
health and fitness clubs. From 1984 through December 1994, he was President of
Leber Katz Partners Direct Marketing, a New York City-based advertising agency.
From 1980 to 1984, Mr. Gordon was President of RCA Record and Tape Club.
EXECUTIVE COMPENSATION
The following table sets forth, for the three years ended December 31,
1997, the cash and other compensation paid to all individuals serving as the
Company's Chief Executive Officer (or acting in a similar capacity) during 1997
and the two other individuals serving as executive officers of the Company on
December 31, 1997 whose total salary and bonus, for services rendered to the
Company during 1997, was $100,000 or more (each, a "Named Executive Officer").
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Securities All
Other Annual Underlying Other
Name and Principal Position Year Salary Bonus Compensation(1) Options Compensation
<S> <C> <C> <C> <C> <C> <C>
Barry A. Cinnamon 1997 $145,481 $111,617 -- 305,000 (3) --
Chairman of Board 1996 95,000 39,892 -- 60,500 --
Chief Executive Officer 1995 46,811 26,922 -- -0- --
and President (2)
Mark E. Leininger 1997 $145,000 $ 39,737 -- 300,000 (5) --
President, Chief Operating 1996 81,000 35,000 -- 225,000 --
Officer, Chief Financial 1995 29,442 -- -- 20,000 --
Officer, Treasurer and Vice
President - Finance (4)
Robert Gordon (6) 1997 $ 75,100 $ 28,521 -- 147,291 (7) --
Vice President - Marketing 1996 26,809 35,085 -- 75,810 --
and Sales 1995 -- -- -- -- --
<FN>
------------
(1) The value of all perquisites provided did not exceed the lesser of $50,000
or 10% of the officer's salary and bonus.
(2) Mr. Cinnamon resigned as an officer, director and employee of the Company
on December 19, 1997.
(3) Includes options to purchase 5,000 shares of Common Stock granted to Lori
Kramer Cinnamon, Mr. Cinnamon's wife.
(4) Mr. Leininger was appointed President of the Company on January 28, 1998.
Upon the appointment of Kevin D. Sullivan as Chief Financial Officer,
Treasurer and Vice President - Finance on December 19, 1997, Mr. Leininger
no longer served in such positions.
(5) Does not include options to purchase 545,000 shares of Common Stock
repriced and reduced to options to purchase 408,750 shares of Common Stock
under the Repricing Program. See "Repricing of Options" and "Certain
Relationships and Related Transactions."
(6) Mr. Gordon was hired by the Company on August 2, 1996. Mr. Gordon receives
a quarterly bonus based on 2% of the net contribution of the direct mail
sales of the Company. One-third of this bonus is paid to Mr. Gordon in cash
and the remainder is paid in options to purchase Common Stock at an
exercise price equal to the closing price of the Common Stock on the last
day of the quarter in which earned.
(7) Does not include options to purchase 214,873 shares of Common Stock
repriced and reduced to options to purchase 161,154 shares of Common Stock
under the Repricing Program. See "Repricing of Options" and "Certain
Relationships and Related Transactions."
</FN>
</TABLE>
Stock Option Grants in 1997
The following table sets forth (a) the number of shares underlying options
granted to each Named Executive Officer during 1997, (b) the percentage the
grant represents of the total number of options granted to all Company employees
during the 1997, (c) the per share exercise price of each option, (d) the
expiration date of each option.
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percentage of Total
Underlying Options Options Granted to Exercise Expiration
Name Granted During 1997 Employees in 1997 Price Date
<S> <C> <C> <C> <C>
Barry A. Cinnamon....... 300,000 6.7% $3.43 2/4/07
Barry A. Cinnamon....... 4,000 (1) * 3.875 1/14/07
Barry A. Cinnamon....... 1,000 (1) * 3.43 2/4/07
Robert Gordon........... 1,735 * 3.875 12/31/06
Robert Gordon........... 1,000 * 3.43 2/4/07
Robert Gordon........... 1,328 * 2.9375 3/31/07
Robert Gordon........... 135,000 3.0 2.25 5/13/07
Robert Gordon........... 5,512 .1 2.0625 6/29/07
Robert Gordon........... 2,716 * 1.1875 10/8/07
Robert Gordon........... 56,250 (2) 1.3 1.25 7/31/06
Robert Gordon........... 607 (2) * 1.25 10/14/06
Robert Gordon........... 1,301 (2) * 1.25 12/31/06
Robert Gordon........... 750 (2) * 1.25 2/4/07
Robert Gordon........... 996 (2) * 1.25 3/31/07
Robert Gordon........... 101,250 (2) 2.3 1.25 5/13/07
Mark E. Leininger....... 300,000 6.7 3.43 2/4/07
Mark E. Leininger....... 15,000 (2) .3 1.25 7/20/05
Mark E. Leininger....... 7,500 (2) .2 1.25 2/19/06
Mark E. Leininger....... 52,500 (2) .2 1.25 4/24/06
Mark E. Leininger....... 108,750 (2) 2.4 1.25 9/28/06
Mark E. Leininger....... 225,000 (2) 5.0 1.25 2/4/07
<FN>
- ----------
* Less than .1%.
(1) Represents options granted to Lori Kramer Cinnamon, the wife of Mr.
Cinnamon.
(2) Represents repriced options.
</FN>
</TABLE>
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
Set forth in the table below is information, with respect to each of the
Named Executive Officers, as to the (a) number of shares acquired during 1997
upon each exercise of options granted to such individuals, (b) the aggregate
value realized upon each such exercise (i.e., the difference between the market
value of the shares at exercise and their exercise price), (iii) the total
number of unexercised options held on December 31, 1997, separately identified
between those exercisable and those not exercisable, and (iv) the aggregate
value of in-the-money, unexercised options held on December 31, 1997, separately
identified between those exercisable and those not exercisable.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money Options at
at December 31, 1997 December 31, 1997
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C> <C>
Barry A. Cinnamon(1).. -0- -0- 40,080 102,998 -0- -0-
Mark E. Leininger(2).. -0- -0- 147,916 260,834 -0- -0-
Robert Gordon(2)...... -0- -0- -0- 169,382 -0- -0-
<FN>
- ---------
(1) Includes options to purchase 19,914 (exercisable) and 7,831 (unexercisable)
shares of Common Stock granted to Lori Kramer Cinnamon, the wife of Mr.
Cinnamon.
(2) Gives effect to Repricing Program. See "Repricing of Options" below.
</FN>
</TABLE>
<PAGE>
Employment Agreements
The Company entered into employment agreements with each of Barry A.
Cinnamon and Lori Kramer Cinnamon, both of which were terminated in connection
with their resignations as directors, officers and employees of the Company. See
"Item 12. Certain Relationships and Related Transactions."
The employment agreement with Barry A. Cinnamon provided for him to serve
as the President and Chief Executive Officer of the Company for a term expiring
in December 1999, with an annual base salary of $150,000, bonuses of 5% of the
Company's consolidated net income before taxes and extraordinary items, .15% of
the Company's consolidated net sales and .75% of the Company's consolidated
gross profits. In October 1996, the Board of Directors determined to pay to Mr.
Cinnamon a bonus of $25,000 following the first profitable fiscal quarter of the
Company after the Merger.
The employment agreement with Lori Kramer Cinnamon provided for her to
serve as a Vice President of Marketing of the Company for a term expiring in
December 1999, with an annual base salary of not more than $40,000, a bonus of
1% of the Company's net income before taxes and extraordinary items and .75% of
the Company's gross profit. Under the terms of Ms. Cinnamon's agreement, the
Board of Directors may increase Ms. Cinnamon's base salary by not more than 15%
per year.
The Company also has entered into an agreement with Mark E. Leininger (the
"Leininger Agreement"), which contains restrictions on the employee engaging in
competition with the Company for the term thereof and for up to one year
thereafter and provisions protecting the Company's proprietary rights and
information. The Leininger Agreement provides for the payment of three times the
average annual cash compensation paid by the Company to Mr. Leininger over the
previous five years, less $1.00, and the accelerated vesting of all outstanding
stock options granted to Mr. Leininger, upon the termination of his employment
within six months after a change in control or within six months prior thereto
if such termination was without cause. In October 1996, the Board of Directors
determined to pay to Mr. Leininger a bonus of $25,000 following the first
profitable fiscal quarter of the Company after the Merger.
Company Stock Plans
1994 Long Term Incentive Plan
The Company has adopted the Company's 1994 Long Term Incentive Plan (the
"1994 Incentive Plan") in order to motivate qualified employees of the Company,
to assist the Company in attracting employees and to align the interests of such
persons with those of the Company's stockholders. The 1994 Incentive Plan
provides for the grant of "incentive stock options" within the meaning of the
Section 422 of the Internal Revenue Code of 1986, as amended, "non-qualified
stock options," stock appreciation rights, restricted stock, performance grants
and other types of awards to officers, key employees, consultants and
independent contractors of the Company and its affiliates.
The 1994 Incentive Plan, which is administered by the Compensation
Committee of the Board of Directors (currently comprised of Norman W. Alexander
and Neil R. Austrian, Jr.), currently authorizes the issuance of a maximum of
4,000,000 shares of Common Stock, which may be either newly issued shares,
treasury shares, re-acquired shares, shares purchased in the open market or any
combination thereof. Incentive stock options generally may be granted at an
exercise price of not less than the fair market value of shares of Common Stock
on the date of grant, and non-qualified stock options may be granted at an
exercise price of not less than 85% of such fair market value. If any award
under the 1994 Incentive Plan terminates, expires unexercised, or is canceled,
the shares of Common Stock that would otherwise have been issuable pursuant
thereto will be available for issuance pursuant to the grant of new awards. The
Company has issued an aggregate 5,000 shares of Common Stock upon exercise of
options granted under the 1994 Incentive Plan and options to purchase an
aggregate 3,247,439 shares of Common Stock are outstanding under the 1994
Incentive Plan and options to purchase 752,561 shares remain available for grant
under the 1994 Incentive Plan as of March 31, 1998.
<PAGE>
Outside Director and Advisor Stock Option Plan
The Company adopted the Outside Director and Advisor Stock Option Plan (the
"Director and Advisor Plan") for the purpose of attracting and retaining
well-qualified persons for service as directors of and advisors to the Company
and to provide such persons with the opportunity to increase their personal
interest in the Company's continued success and further align their interests
with the interests of the stockholders of the Company through the grant of
options to purchase shares of Common Stock. All directors of the Company who are
not employees of the Company (each, a "Non-Employee Director"), of which there
are presently five, are eligible to participate in the Director and Advisor
Plan. Currently, up to 500,000 shares of Common Stock may be issued under the
Director and Advisor Plan.
Under the Director and Advisor Plan, each Non-Employee Director of the
Company and each member of the Advisory Committee of the Company (each, an
"Outside Director or Advisor"), upon first becoming an Outside Director or
Advisor, receives options to purchase 25,000 shares of Common Stock at a price
equal to the fair market value of the Common Stock on the date of grant and
thereafter receives options to purchase 10,000 shares of Common Stock at a price
equal to the per share fair market value of the Common Stock on August 1st of
each subsequent year. In March 1997, the Advisory Committee was eliminated.
Options awarded to each Outside Director or Advisor become exercisable over a
period of two years, and are subject to forfeiture under certain conditions. The
Company has issued an aggregate 19,666 shares of Common Stock upon exercise of
options granted under the Director and Advisor Plan, options to purchase an
aggregate 355,334 shares of Common Stock are outstanding under the Director and
Advisor Plan and options to purchase 125,000 shares remain available for grant
under the Director and Advisor Plan as of March 31, 1998.
SPC 1989 Stock Plan
In connection with the Merger, pursuant to the Assumption, the Company
assumed all of SPC's obligations under SPC's 1989 Stock Plan (the "SPC 1989
Plan"). The SPC 1989 Plan remains effective and the Company may, until the SPC
1989 Plan terminates in accordance with its terms, at its discretion, grant
additional options under the SPC 1989 Plan.
The SPC 1989 Plan provides for the grant of incentive stock options,
non-qualified stock options, stock appreciation rights, stock purchase rights,
incentive stock rights, performance grants and other types of awards to
officers, key employees, consultants and independent contractors of SPC and the
Company. The SPC 1989 Plan, which is administered by the Compensation Committee
of the Board of Directors, currently authorizes the issuance of a maximum of
268,050 shares of Common Stock, which may be either newly issued shares,
treasury shares, re-acquired shares, shares purchased in the open market or any
combination thereof. Incentive stock options generally may be granted at an
exercise price of not less than the fair market value of shares of Common Stock
on the date of grant; non-qualified stock options may be granted at an exercise
price of not less than 50% of such fair market value; incentive stock rights
permit the rightsholder to receive cash or shares of Common Stock based upon the
Company or the rightsholder obtaining results specified at the time of the
granting of such rights; stock appreciation rights (which may be granted in
connection with an option grant or as a separate grant) entitles the grantee to
receive a cash payment based upon the yield of the Common Stock between grant
and exercise; stock purchase rights entitle the rightsholder to purchase shares
of Common Stock at a price of not less than 50% of the fair market price of such
shares with the Company retaining a diminishing right to repurchase such shares
over a specified period should the rightsholder's relationship with the Company
terminate; and long term performance awards allow the Company to customize
incentive award programs to permit the awarding of cash or Common Stock upon the
Company or grantee researching specified levels of performance. If any award
under the SPC 1989 Plan terminates, expires unexercised, or is canceled, the
shares of Common Stock that would otherwise have been issuable pursuant thereto
will be available for issuance pursuant to the grant of new awards. The
equivalent of 13,849 shares of Common Stock have been issued upon exercise of
options granted under the SPC 1989 Plan, the Company has options to purchase an
aggregate 32,916 shares of Common Stock outstanding under the SPC 1989 Plan and
options to purchase 221,285 shares remain available for grant under the SPC 1989
Plan as of March 31, 1998. The SPC 1989 Plan will terminate in October 1999.
<PAGE>
SPC 1991 Stock Option Plan
In connection with the Merger, pursuant to the Assumption, the Company
assumed all of SPC's obligations under SPC's 1991 Stock Option Plan (the "SPC
1991 Plan"). The SPC 1991 Plan remains effective and the Company may, until the
SPC 1991 Plan terminates in accordance with its terms, at its discretion, grant
additional options under the SPC 1991 Plan.
The SPC 1991 Plan provides for the grant of incentive stock options,
non-qualified stock options and stock purchase rights to officers, key
employees, consultants and independent contractors of SPC and the Company. The
SPC 1991 Plan, which is administered by the Compensation Committee of the Board
of Directors, currently authorizes the issuance of a maximum of 428,880 shares
of Common Stock, which may be either newly issued shares, treasury shares,
re-acquired shares, shares purchased in the open market or any combination
thereof. Incentive stock options generally may be granted at an exercise price
of not less than the fair market value of shares of Common Stock on the date of
grant; non-qualified stock options may be granted at an exercise price of not
less than 85% of such fair market value; and stock purchase rights entitle the
rightsholder to purchase shares of Common Stock at a price of not less than 85%
of the fair market price of such shares with the Company retaining a diminishing
right to repurchase such shares over a specified period should the
rightsholder's relationship with the Company terminate. If any award under the
SPC 1991 Plan terminates, expires unexercised, or is canceled, the shares of
Common Stock that would otherwise have been issuable pursuant thereto will be
available for issuance pursuant to the grant of new awards. The equivalent of
1,065 shares of Common Stock have been issued upon exercise of options granted
under the SPC 1991 Plan, the Company has options to purchase an aggregate 49,244
shares of Common Stock outstanding under the SPC 1989 Plan and options to
purchase 378,571 shares remain available for grant under the SPC 1991 Plan as of
March 31, 1998. The SPC 1991 Plan will terminate in October 2001.
Repricing of Options
On August 29, 1997, the Board of Directors approved the Repricing Program
pursuant to which the Company has offered to all then-current officers,
directors and employees of the Company the opportunity to reduce the exercise
price of their respective options granted under the Company Stock Plans to $1.25
per share of Common Stock (the fair market value of the Common Stock as of the
close of business on such date); provided, that, as a condition to such
repricing, the optionee is required to surrender for cancellation 25% of the
options so repriced, which would in all cases be the latest options to become
exercisable under each repriced option. Except for such cancellation provision,
each repriced option would be identical to the optionee's prior option, except
that, during the six-month period commencing from the date of the acceptance of
the repricing offer, the options would not be exercisable. The creation of the
Repricing Program was approved primarily because of the importance to the
Company of having equity incentives in the hands of key officers, directors and
employees. The Board believed that stock options which are "out of the money"
provide less compensatory incentive to an officer, director and employee who may
be considering alternative opportunities. The six month period during which the
repriced options may not be exercised was viewed as a means of retaining the
services of valued employees for a longer period of time. The Committee decided
to include directors and officers in the Repricing Program because of the
importance of their leadership, administrative and technical skills to the
success of the Company's business. See "Certain Relationships and Related
Transactions."
Indemnification
Section 145 of the Delaware General Corporation Law provides that
indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, may be provided by such
corporation.
The Company's Certificate of Incorporation includes provisions eliminating
the personal liability of its directors for monetary damages resulting from
breaches of their fiduciary duty except, pursuant to the limitations of the
Delaware General Corporation Law, (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or any
amendatory or successor provisions thereto, or (iv) with respect to any
transaction from which the director derived an improper personal benefit. The
<PAGE>
Company's By-laws provide indemnification to directors, officers, employees and
agents, including against claims brought under state or Federal securities laws,
to the full extent allowable under Delaware law. The Company also has entered
into indemnification agreements with its directors and executive officers
providing, among other things, that the Company will provide defense costs
against any such claim, subject to reimbursement in certain events. The Company
also maintains a directors and officers liability insurance policy in a coverage
amount of $3,000,000, subject to a $200,000 deductible.
Report of the Compensation Committee Regarding Exchange of Options
On August 29, 1997, the Board of Directors offered to all then current
officers, directors and employees of the Company the opportunity to reduce the
exercise price of their respective options granted under the Company Stock Plans
to $1.25 per share of Common Stock (the fair market value of the Common Stock as
of the close of business on such date); provided, that, as a condition to such
repricing, the optionee surrender for cancellation 25% of the options so
repriced. Except for such cancellation provision, each repriced option would be
identical to the optionee's prior option, except that, during the six-month
period commencing from the date of the acceptance of the repricing offer, the
options would not be exercisable. This option repricing program (the "Repricing
Program") was approved primarily because of the importance to the Company of
having equity incentives in the hands of key officers, directors and employees.
The Board believed that stock options which are "out of the money" provide less
compensatory incentive to an officer, director or employee who may be
considering alternative opportunities. The six month period during which the
repriced options may not be exercised was viewed as a means of retaining the
services of valued employees for a longer period of time. The Committee decided
to include directors and officers in the Repricing Program because of the
importance of their leadership, administrative and technical skills to the
success of the Company's business.
Compensation Committee of the Board of Directors of the Company
Norman W. Alexander
Neil R. Austrian, Jr.
Certain Relationships and Related Transactions
Martin F. Schacker, a director of the Company, is Chairman of the Board of
Directors of MS Farrell and MSF Holdings, the parent holding company of MS
Farrell. MS Farrell acted as placement agent on behalf of the Company in selling
an aggregate of 1,115,250 shares of Class A Convertible Preferred Stock of the
Company in June 1994 and an additional 75,000 shares of Class A Convertible
Preferred Stock in November 1994 for aggregate gross proceeds of $1,190,250. In
consideration for its services in connection therewith, MS Farrell received a
10% commission and a 3% non-accountable expense allowance on the gross proceeds
of such offering, a warrant which became exercisable for an aggregate of 302,354
shares of Common Stock which MS Farrell has exercised in full for nominal
consideration, and certain other consideration. As a result of such warrant
exercise, MS Farrell became a holder of more than 5% of the outstanding Common
Stock.
In May 1995, MS Farrell loaned $100,000 to the Company (the "MS Farrell
Loan"). The MS Farrell Loan was evidenced by a promissory note in the principal
amount of $100,000, bearing interest at a rate equal to fourteen percent (14%)
per annum, maturing on the earlier of (i) December 25, 1995 or (ii) the
consummation of a subsequent offering of securities other than similar notes.
The MS Farrell Loan was secured by the Company's accounts receivable. In June
through August 1995, MS Farrell acted as placement agent with respect to an
aggregate $459,000 principal amount of additional 14% Promissory Notes issued by
the Company to other persons. MS Farrell did not receive any compensation in
connection with the sale of these additional 14% Promissory Notes. MS Farrell
also acted as placement agent on behalf of the Company in selling an aggregate
of $1,250,000 principal amount of promissory notes and 243,902 shares of Common
Stock in August 1995. In connection with its services therewith, MS Farrell
received a 10% commission and a 3% non-accountable expense allowance on the
gross proceeds of such offering. The MS Farrell Loan was repaid from the
Company's proceeds of such offering.
MS Farrell acted as representative of the underwriters of the Company's
initial public offering (the "IPO"), which was consummated on December 12, 1995,
pursuant to which the Company sold an aggregate 1,142,400 shares of Common Stock
for gross proceeds of $5,854,800. As compensation for its underwriting services
<PAGE>
in connection with the IPO, MS Farrell received a 10% underwriting discount and
a 3% non-accountable expense allowance of the gross proceeds from the IPO and
Underwriters' Purchase Options to purchase 103,300 shares of Common Stock at
$6.15 per share for a four year period terminating on December 5, 2000.
Pursuant to an engagement agreement, dated December 23, 1993, between the
Company and MS Farrell, the Company agreed (a) to use MS Farrell as its
exclusive investment banker for a five-year period, (b) to pay monthly
consulting fees to MS Farrell of $2,500 until December 1998, in connection with
which the Company paid MS Farrell $138,128 through August 20, 1996, and (c) to
pay to MS Farrell a fee of 2% of the greater of the maximum commitment under, or
the maximum amount actually borrowed by the Company pursuant to, a conventional
line of credit extended to the Company by a bank or other short-term lender
introduced to the Company by MS Farrell. The Company had the right to terminate
the above-described obligations under this engagement agreement upon the payment
of $250,000 in cash. In August 1996, in exchange for the right to pay such
termination fee in shares of Common Stock, the suspension of payment of
obligations under this engagement agreement and certain other consideration, the
Company granted to MS Farrell and a designee thereof warrants (the "MSF
Warrants")to purchase 500,000 shares of Common Stock exercisable at $6.875 per
share for a six-year period and extended the expiration date of the
Underwriters' Purchase Options to August 22, 2002. In March 1997, the Company
exercised its right to terminate the Company's investment banking obligations to
MS Farrell and, in connection therewith, issued an aggregate of 71,428 shares of
Common Stock to MSF Holdings, the parent holding company of MS Farrell, and to
one other designee thereof.
In June 1996, the Company loaned $200,000 to a corporation (the "Debtor")
of which MS Farrell is an affiliate and of which Martin F. Schacker, a director
of the Company and Chairman of the Board of MS Farrell, is a director and
stockholder and Neil M. Kaufman, a director of the Company, is a stockholder.
This loan was represented by a promissory note (the "Debtor Note") bearing
interest at 14% per annum which was secured by the assets of Debtor. In
connection with this loan, the Company also received a warrant (the "Innapharma
Warrant") to purchase 100,000 shares of the common stock of Innapharma, Inc., a
pharmaceutical company ("Innapharma"), of which MS Farrell may also be
considered an affiliate and of which Mr. Schacker is a director, at an exercise
price of $5.50 per share. In March 1997, in consideration for a warrant (the
"Debtor Warrant") to purchase 100,000 shares of the common stock of the Debtor
at an exercise price of $1.00 per share, exercisable for a six year period, the
Company agreed to extend the maturity of the Debtor Note and the Company further
agreed to exchange the Debtor Note for a similar note (the "Innapharma Note")
bearing interest at 12% per annum issued by Innapharma maturing on the earlier
of November 27, 1997 or the consummation of an offering of equity securities of
Innapharma. In July, 1997, the Innapharma Note was repaid in full (including all
accrued interest thereon) and contemporaneously therewith, the Company assigned
the Innapharma Warrant to MS Farrell in exchange for a reduction in the number
of shares of Common Stock that may be purchased under the MS Farrell Warrants by
100,000 to 400,000 shares.
Pursuant to a Financial Advisory Agreement, dated as of November 20, 1997
(the "1997 Farrell Agreement"), between the Company and MS Farrell, the Company
retained MS Farrell to perform specified financial advisory services for the
Company on a non-exclusive basis. In consideration for entering into the 1997
Farrell Agreement, the number of shares of Common Stock that may be purchased
upon exercise of the MS Farrell Warrants was reduced by 60,000 to 340,000
shares, the number of shares of Common Stock that may be purchased upon exercise
of the Underwriters' Purchase Options was reduced by 15,495 to 87,805 shares,
the exercise price of both the MS Farrell Warrants and Underwriters' Purchase
Options was reduced to $2.00 per share and MS Farrell waived all anti-dilutive
rights under the Underwriters' Purchase Options and MS Farrell Warrants in
connection with the Company's October 1997 sale of 962,000 shares of Common
Stock in a private placement transaction. Under the 1997 Farrell Agreement, the
Company is obligated to pay MS Farrell between 2% and 7% of the aggregate
consideration paid in any merger, consolidation, recapitalization, business
combination or other stock or asset transaction in which MS Farrell participates
as an identifying or introducing agent or in connection with which the Company
seeks the advice of MS Farrell. Pursuant to an Amendment to the Financial
Advisory Agreement, dated January 10, 1998 (the "1998 Farrell Agreement"),
between the Company and MS Farrell, MS Farrell agreed to perform additional
financial advisory services for the Company. In consideration for entering into
the 1998 Farrell Agreement, the per share exercise price of the MS Farrell
Warrants and Underwriters' Purchase Options was reduced to the lesser of: $1.27
or 120% of the sale price of any shares of Common Stock sold by the Company to a
source introduced by MS Farrell within the twelve-month period terminating on
January 27, 1999; provided, however, that the per share exercise price may not
be less than $1.06; and the expiration date of the MS Farrell Warrants and
Underwriters' Purchase Options was extended to August 20, 2002.
<PAGE>
Prior to the Company's IPO, Barry A. Cinnamon, formerly the President,
Chief Executive Officer and Chairman of the Board of the Company and currently a
principal stockholder of the Company, and Richard Bergman, the Company's former
Vice President of Product Development, placed into escrow an aggregate of
542,500 shares of Common Stock (the "Escrow Shares"), 500,000 of which shares
were placed in escrow by Mr. Cinnamon and 42,500 of which shares were placed in
escrow by Mr. Bergman. In April 1996, upon the execution and delivery by the
Company of a letter of intent to acquire all of the issued and outstanding
capital stock of Serif Inc. and Serif (Europe) Limited, 217,000 shares of Common
Stock then held in escrow were released from escrow and delivered to the
above-named stockholders, 200,000 of which shares were delivered to Mr. Cinnamon
and 17,000 of which shares were delivered to Mr. Bergman (the "April 1996 Escrow
Release"). In September 1996, 314,000 of the remaining shares of the Company
Common Stock then held in escrow were released from escrow and delivered to Mr.
Cinnamon (300,000 shares) and Mr. Bergman (14,000 shares) (the "September 1996
Escrow Release"; and together with the April 1996 Escrow Release, the "Escrow
Releases"). Presently, no shares remain in escrow and all of the arrangements
relating to the Escrow Shares have been terminated. The Company incurred a
compensation expense of approximately $2,773,180 in connection with the Escrow
Releases in 1996.
In April 1996, Barry A. Cinnamon sold 44,000 shares of Common Stock to MS
Farrell for a price equal to $2.00 per share, and, in August 1996, Mr. Cinnamon
sold 42,946 shares of Common Stock to MS Farrell for a price equal to $6.00 per
share.
Pursuant to the Cinnamon Agreements, Barry A. Cinnamon and Lori Kramer
Cinnamon resigned as officers, directors and employees of the Company and the
Company granted Mr. Cinnamon a license to certain aspects of the Company's
Intelligent Formatting technology in connection with an Internet database
reporting software product which had been under preliminary development by the
Company. Mr. Cinnamon and Ms. Kramer Cinnamon are husband and wife. Under the
terms of the Cinnamon Settlement Agreement, (a) the Company paid Mr. Cinnamon
$56,000, and agreed to (i) reimburse Mr. Cinnamon for his verified reasonable
expenses incurred in the normal course of the fulfillment of his duties as an
officer and director of the Company, (ii) pay Mr. Cinnamon $10,000 per month for
a twenty month period, (iii) continue to make all payments with respect to
health insurance for the Cinnamons' benefit comparable to the coverage available
to the Company's executive officers through the earlier of December 31, 1999 or
such time as Mr. Cinnamon is employed or retained on a substantially full-time
basis, (iv) reimburse Mr. Cinnamon for his reasonable moving expenses, up to a
maximum of $15,000, and (v) register for resale by Mr. Cinnamon 865,000 shares
of Common Stock in the Company's proposed Registration Statement on Form S-3,
and (b) (i) Mr. Cinnamon surrendered for cancellation all 60,520 shares of Class
B Voting Preferred Stock, Series A, of the Company, (ii) the Cinnamons
irrevocably appointed the President of the Company as proxy to vote all shares
of Common Stock owned beneficially or of record by either of them, in any
capacity, in such manner as may be determined by the President of the Company in
his sole discretion, and (iii) the Cinnamons agreed to limit the sale of their
shares of Common Stock to a specified schedule under certain circumstances. In
addition, the Company and Mr. Cinnamon and Ms. Kramer Cinnamon exchanged
releases, the release by Mr. Cinnamon and Ms. Kramer Cinnamon extending to the
Company's subsidiaries, officers, directors, stockholders, attorneys and others.
In July 1996, the Company acquired all of the issued and outstanding shares
of capital stock of Serif Inc. and Serif (Europe) Limited. Pursuant to the terms
of the agreements for such acquisitions (the "Serif Acquisition Agreements"),
the Company issued to Norman Alexander an aggregate 67,913 shares of Common
Stock and agreed to nominate Gwyn Jones or his designee to the Board of
Directors of the Company. Mr. Jones, who became a holder of more than 5% of the
outstanding Common Stock as a result of the consummation of the Serif
Acquisition Agreements, designated Mr. Alexander as his nominee and Mr.
Alexander was elected as a director of the Company in October 1996. In addition,
Barry A. Cinnamon, Norman Alexander and the other former stockholders of the
Serif companies entered into the Stockholders Agreement pursuant to which each
party agreed, for a term of two years, to vote their respective shares of Common
Stock in favor of the election as directors of the nominees for directors
designated by the Company's Board of Directors and in favor of the election as a
director of Mr. Jones or Mr. Jones' designee. Pursuant to the terms of the Serif
Acquisition Agreements, the Company entered into a three-year employment
agreement with Gwyn Jones, the founder and largest stockholder of Serif, and the
Company elected Gwyn Jones as a director in Class II. In October 1996, Mr. Jones
resigned as an officer, director and employee of the Company and Serif pursuant
to agreements under which Mr. Jones received or is to receive the base salary
payable under his employment agreement and certain other consideration,
including the elimination of the prohibition on Mr. Jones selling the 469,804
<PAGE>
shares of Common Stock which Mr. Jones received pursuant to the Serif
Acquisition Agreements and the substitution, in lieu thereof, of a restriction
allowing him to sell no more than thirty percent (30%) of the average daily
trading volume of Common Stock in any week and certain other restrictions.
Digital Paper, Inc. ("Digital Paper"), and its stockholders, one of whom is
Daniel Fraisl, formerly Vice President - Research and Development of the
Company, entered into an amendment to the Stock Purchase Agreement by which SPC
acquired Digital Paper, which amendment became effective upon consummation of
the Merger. The amendment provided that a remaining payment of $1,650,000 and
two incentive payments with an aggregate total of $325,000 upon the attainment
of certain product sales and development criteria, which is required by the
terms of the Stock Purchase Agreement to be made by SPC to Digital Paper's
stockholders in cash or in shares of SPC common stock, be paid in cash or in
shares of Common Stock, at the option of each such stockholder. None of the
criteria were met in 1996, but were achieved in 1997. Pursuant to a Settlement
and General Release Agreement, dated as of July 25, 1997 (the "Fraisl Settlement
Agreement"), among Mr. Fraisl, the Company and SPC, Mr. Fraisl resigned as an
officer and employee of the Company and SPC and, in connection therewith,
received a lump sum payment of $85,000, payment with respect to accrued vacation
time and the Company's agreement to make all payments in respect of health
insurance for Fraisl's benefit for a six month period. The Company also agreed
that all stock options previously granted to Fraisl would remain exercisable
through January 24, 1998, to the extent exercisable on July 25, 1997. None of
these options were exercised. In addition, pursuant to a Consulting Agreement,
dated as of July 25, 1997 (the "Fraisl Consulting Agreement"), between SPC and
Fraisl, SPC retained Fraisl for a two year period to provide certain consulting
services relating to the Company's Intelligent Formatting technology.
During 1995, SPC entered into three-year, non-interest-bearing loan
agreements with Irfan Salim, the then President and Chief Executive Officer of
SPC, in the amount of $300,000, and with Robert T. Iguchi, the then Vice
President of North American Sales and Service of SPC, in the amount of $117,000.
Both of these obligations were secured by the right to a second deed of trust on
their respective homes. During the fourth fiscal quarter of 1996, Mr. Iguchi
repaid to the Company the outstanding balance of his loan, in the amount of
$117,000. During the SPC 1996 Fiscal Year, SPC forgave $125,000 of Mr. Salim's
loan, which was treated as compensation to him. The $175,000 balance of Mr.
Salim's loan was due on February 17, 1997. Pursuant to an agreement with Mr.
Salim, the Company received $125,000 in full payment of the Company's loan to
Mr. Salim.
During 1996, the Company incurred approximately $350,000 in legal fees to
Blau Kramer, then its counsel. During 1997, the Company incurred approximately
$480,000 in legal fees to Moritt Hock, then its counsel. Neil M. Kaufman, a
director of the Company, was a member of Blau Kramer during 1996 and a partner
in Moritt Hock during 1997. Mr. Kaufman currently is the principal of Kaufman &
Associates, LLC, counsel to the Company. During 1997, the Company incurred
approximately $55,000 in legal fees to the predecessor of Kaufman & Associates,
LLC. In 1996 and 1997, Blau Kramer and Moritt Hock acted as counsel to MS
Farrell in connection with four private placement transactions, two of such
transactions involving Innapharma, and also acted as counsel to the Debtor.
Martin F. Schacker, a director of the Company, is Chairman of the Board of MS
Farrell and a director of Innapharma; and MS Farrell may also be considered an
affiliate of Innapharma.
Pursuant to a Settlement and General Release Agreement, dated as of
September 26, 1997 (the "Szczepaniak Settlement Agreement"), among Joseph V.
Szczepaniak ("Szczepaniak"), the Company and SPC, Szczepaniak resigned as an
officer and employee of the Company and SPC and, in connection therewith,
received, among other things, a lump sum payment of $50,000, payment with
respect to accrued vacation time and the Company's agreement to make all
payments in respect of health insurance for Szczepaniak's benefit for a three
month period. The Company also agreed that all stock options previously granted
to Szczepaniak would remain exercisable through March 26, 1998, to the extent
exercisable on September 26, 1997.
Pursuant to a Settlement and General Release Agreement, dated as of January
30, 1997 (the "Frazer Settlement Agreement"), among Miriam K. Frazer ("Frazer"),
the Company and SPC, Frazer resigned as an officer and employee of the Company
and SPC and, in connection therewith, received, among other things, payments
aggregating $165,000 and an additional payment with respect to accrued vacation
time. The Company also agreed that all stock options previously granted to
Frazer would remain exercisable through July 30, 1997, to the extent exercisable
on January 30, 1997.
<PAGE>
On January 28, 1998, the Compensation Committee of the Board of Directors
of the Company determined to compensate Marc E. Jaffe for his services as
Chairman of the Board of Directors of the Company at the rate of $5,000 per
month, payable $2,500 in the month of service and $2,500 twelve months after
such initial payment. During 1996, the Company paid $2,000 to Electronic
Licensing Organization, Inc. ("ELO") in respect of electronic content licensing
services. There were no payments made to ELO by the Company in 1997.
With respect to compensation paid to Barry A. Cinnamon and Mark E.
Leininger in their capacities as employees of the Company, see "Executive
Compensation."
In connection with the Repricing Program, options held by directors and
executive officers granted under the Company Stock Plans were repriced as
follows:
<TABLE>
<CAPTION>
Prior Option Repriced Option (1)
Shares Per Share Shares
Optionee Underlying Option Exercise Price Underlying Option Expiration Date
<S> <C> <C> <C> <C>
Norman W. Alexander..... 25,000 $ 5.03 18,750 12/19/06
Norman W. Alexander..... 10,000 2.0125 7,500 7/31/07
Neil R. Austrian, Jr.... 25,000 2.75 18,750 4/25/06
Neil R. Austrian, Jr.... 10,000 5.875 7,500 7/31/06
Neil R. Austrian, Jr.... 10,000 2.0125 7,500 7/31/07
Robert Gordon........... 75,000 5.875 56,250 7/31/06
Robert Gordon........... 810 6.25 607 10/14/06
Robert Gordon........... 1,735 3.875 1,301 12/31/06
Robert Gordon........... 1,000 3.43 750 2/4/07
Robert Gordon........... 1,328 2.9375 996 3/31/07
Robert Gordon........... 135,000 2.25 101,250 5/13/07
Marc E. Jaffe........... 5,000 2.50 3,750 10/31/04
Marc E. Jaffe........... 25,000 2.75 18,750 8/2/05
Marc E. Jaffe........... 10,000 5.875 7,500 7/31/06
Marc E. Jaffe........... 10,000 2.0125 7,500 7/31/07
Neil M. Kaufman......... 25,000 3.75 18,750 4/24/06
Neil M. Kaufman......... 25,000 5.03 18,750 12/19/06
Neil M. Kaufman......... 10,000 2.0125 7,500 7/31/07
Mark E. Leininger....... 20,000 3.75 15,000 7/20/05
Mark E. Leininger....... 10,000 4.25 7,500 2/19/06
Mark E. Leininger....... 70,000 2.75 52,500 4/25/06
Mark E. Leininger....... 145,000 7.56 108,750 9/28/06
Mark E. Leininger....... 300,000 3.43 225,000 2/4/07
<FN>
- ---------
(1) The exercise price of all options were repriced to $1.25 per share.
(2) Under the terms of the Cinnamon Settlement Agreement all of the options
granted to Mr. Cinnamon and Ms. Kramer Cinnamon will expire on December 19,
1998.
</FN>
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company, together with written representations received by the
Company from applicable parties that no Form 5 was required to be filed by such
parties, all parties subject to the reporting requirements of Section 16(a) of
the Exchange Act filed all such required reports, except that Daniel J. Fraisl
failed to timely file two Statements of Changes in Beneficial Ownership of
Securities on Form 4 or an Annual Statement of Beneficial Ownership of
Securities on Form 5 relating to five grants of stock options by the Company;
Lori Kramer Cinnamon failed to timely file a Form 4 relating to two grants of
stock options by the Company and two stock purchase transactions by Barry A.
Cinnamon, the husband of Ms. Kramer Cinnamon; Joseph V. Szczepaniak failed to
timely file two Forms 4 or a Form 5 relating to three grants of stock options by
the Company; George Lauro (who resigned as a director on December 20, 1996)
<PAGE>
failed to timely file a Form 4 or Form 5 relating to one grant of stock options
by the Company; Marc E. Jaffe failed to timely file two Forms 4 or a Form 5
relating to two grants of stock options by the Company; and each of Norman
Alexander and Neil R. Austrian, Jr. failed to timely file a Form 4 or Form 5
relating to a grant of stock options by the Company. Additionally, pursuant to
the Company's stock option repricing program (the "Repricing Program"), pursuant
to which certain option holders are permitted to exchange their stock options
for 25% fewer options with otherwise identical terms, except that the exercise
price thereof is reduced to $1.25 per share, each of Messrs. Alexander,
Austrian, Cinnamon, Jaffe and Kaufman, Ms. Kramer Cinnamon, Mark E. Leininger
and Eng Chye Low (since resigned as a director) failed to timely file a Form 4
or Form 5 relating to the deemed cancellations and grants of repriced stock
options. See "Executive Compensation Repricing of Options."
PROPOSAL NUMBER 2 TO GRANT THE BOARD OF DIRECTORS AUTHORITY
TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION
TO AUTHORIZE EITHER A ONE-FOR-TWO (1:2), ONE-FOR-THREE (1:3)
OR ONE-FOR-FIVE (1:5) REVERSE STOCK SPLIT OF THE COMMON STOCK
The Board of Directors has approved and recommended to the stockholders a
proposal which authorizes the Board of Directors to amend Article FOURTH of the
Certificate of Incorporation in order to effect a reverse stock split of the
Common Stock (the "Reverse Stock Split"). The intent of the Board of Directors
insofar as recommending the Reverse Stock Split is to increase the long-term
marketability and liquidity of the Common Stock.
The Board of Directors believes that the relatively low per share market
price of the Common Stock does not adequately reflect the current value of the
Company, impairs the marketability of the Common Stock to institutional
investors and members of the investing public and creates a negative impression
with respect to the Company when compared with the Company's competitors.
Further, a minimum per share price of $1.00 is one of several continued
maintenance requirements for the Common Stock to remain authorized for trading
on The Nasdaq Stock Market ("Nasdaq"), which the Board of Directors believes
enhances the market for the Common Stock and improves the liquidity of the
Common Stock. Thus, any increase in trading price resulting from a Reverse Stock
Split is intended to be attractive to the Company's stockholders, the financial
community, the investing public and to consumers of the Company's products.
Theoretically, the number of shares of Common Stock outstanding should not
materially affect the marketability of the Common Stock, the type of investor
who acquires it or the Company's reputation in the financial community. In
practice, however, many investors look upon low priced stock as unduly
speculative in nature and, as a matter of policy, avoid investing in these
stocks. The foregoing factors may adversely affect not only the liquidity of the
Common Stock, but also the Company's ability to raise additional capital through
a sale of equity securities or other similar transactions. However, no assurance
can be given that even after the approval and occurrence of the proposed Reverse
Stock Split, that the Company's Common Stock will be traded for prices that will
satisfy Nasdaq continued maintenance requirements or that the Common Stock will
meet the other continued maintenance requirements for such listing or any other
market or exchange listing.
The Company has been advised by Nasdaq that the Company may not be in
compliance with certain of Nasdaq's continued listing maintenance requirements:
(a) NASD Marketplace Rule 4310(c)(4), which requires that the Common Stock
maintain a $1.00 per share minimum bid price, and (b) NASD Marketplace Rule
4310(c)(2), which requires that the Company either maintain net tangible assets
of at least $2,000,000, maintain a market capitalization of at least $35,000,000
or have reported net income in two of the last three fiscal years of at least
$500,000. The Company believes it is in compliance with Rule 4310(c)(2) based
upon its audited financial statements for the year ended December 31, 1997,
which shows that, for NASDAQ purposes, the Company had net tangible assets of
$2,874,847 at December 31, 1997, and has provided Nasdaq with a copy of such
audited financial statements and other information which the Company believes
should overcome the determination of Nasdaq's staff that the Common Stock be
delisted from Nasdaq, which determination has been stayed pending a hearing.
However, in order to comply with Rule 4310(c)(4), the Common Stock must have a
bid price of at least $1.00 per share for at least ten consecutive trading days.
The Company believes that the Reverse Stock Split will result in the Common
Stock having a bid price of at least $1.00 per share. However, no assurance can
be given that a Reverse Stock Split will result in the Common Stock having a bid
price of at least $1.00 per share for at least ten consecutive trading days,
that, in the future, the bid price for the Common Stock will not fall below
$1.00 per share causing a new violation of Rule 4310(c)(4), that the Company
<PAGE>
will maintain net tangible assets of at least $2,000,000 or that the Company
will maintain compliance with all other NASD Marketplace Rules with respect to
Nasdaq continued listing maintenance requirements.
If a Reverse Stock Split is approved by the stockholders of the Company,
the Board of Directors will select, in its discretion, a ratio (the "Ratio"), by
which a certain number of shares of old common stock ("Old Common Stock") shall
be reclassified into one share of new common stock ("New Common Stock"). The
Board's determination of the reverse-split Ratio must be either one-for-two
(1:2), one-for-three (1:3) or one-for-five (1:5). The stockholders are requested
to approve a Reverse Stock Split in each of the following ratios: one-for-two
(1:2); one-for-three (1:3); or one-for-five (1:5). The Board can choose any one
or none of these ratios in its discretion; and the remaining alternative Reverse
Stock Splits would be abandoned by the Board pursuant to Section 242(c) of the
General Corporation Law of Delaware without further action by the stockholders
of the Company. A Reverse Stock Split will be effected only upon a determination
by the Board of Directors that a Reverse Stock Split is in the best interests of
the Company and the stockholders. A Reverse Stock Split would become effective
on any date (the "Effective Date") selected by the Board of Directors after
authorization by stockholders.
The Board of Directors currently expects to effect a Reverse Stock split in
the ratio of one-for-three (1:3), and intends to reexamine this Ratio in light
of all relevant continued maintenance requirements for listing of the New Common
Stock for trading on Nasdaq. In determining which Ratio to select, the Board may
consider the advice of financial advisors and factors deemed relevant by the
Board, which may include, but not be limited to, its belief as to the future
marketability and liquidity of the Common Stock, prevailing market conditions,
the likely effect on the market price of the Common Stock and other relevant
factors. The Board reserves the right, notwithstanding stockholder approval of
this Proposal No. 2 and without further action by the stockholders, to abandon
the Reverse Stock Split, if, at any time prior to filing the Certificate of
Amendment with the Delaware Secretary of State with respect to the Reverse Stock
Split, the Board, in its sole discretion, determines that the Reverse Stock
Split is no longer in the best interests of the Company and its stockholders.
Conversely, the Board reserves the right to effectuate the Reverse Stock Split
under less than favorable conditions based on any factors deemed material by the
Board, in its sole discretion. The Board believes that leaving the discretion to
the Board in these regards will permit flexibility so as to effectuate the
Reverse Stock Split in an appropriate and well-planned manner. For example, one
of the most important factors that the Board will consider will be the effect of
the Reverse Stock Split on the market price of the Common Stock. Specifically,
the Board must attempt to determine whether the Reverse Stock Split will enable
the Common Stock to trade at a price above $1.00 per share so as to meet the
price per share requirements for continued Nasdaq listing. If the Board of
Directors determines that even after giving effect to the Reverse Stock Split,
the Common Stock would not be likely to trade above $1.00 per share over an
extended period of time, the Board may determine not to effect such a Reverse
Stock Split because it would not have the long term effects which the Board
believes would be beneficial to stockholders. Notwithstanding the foregoing, a
determination by the Board that the Reverse Stock Split will not create a per
share trading price of $1.00 will not automatically prompt a decision by the
Board to refrain from effecting the Reverse Stock Split. Other factors may also
cause the Board of Directors to effect a Reverse-Stock-Split whether or not it
would be likely to cause the Common Stock to trade above $1.00 per share. These
factors may include an effort to make the Common Stock more attractive to
members of the financial community and certain types of investors who may have a
tendency to avoid purchasing low-priced stock.
Effects of the Reverse Stock Split
Consummation of a Reverse Stock Split will not alter the number of
authorized shares of Common Stock, which will remain at 30,000,000 shares.
Consummation of the Reverse Stock Split will not alter the par value of Common
Stock, which will remain at $.001 per share.
If the Reverse Stock Split takes place, a number of outstanding shares will
resume the status of authorized and unissued shares, and these shares will again
be available for issuance. Upon the occurrence of the Reverse Stock Split, the
conversion rate of certain outstanding options and warrants will be adjusted
proportionately, so that, for example, if a one-for-five (1:5) Reverse Stock
Split is effected, each outstanding option or warrant would thereafter cover
one-fifth as many shares of Common Stock or, if a one-for-three (1:3) Reverse
Stock Split is effected, each outstanding option or warrant would thereafter
cover one-third as many shares of Common Stock. Shares that are no longer
necessary for issuance upon conversion or exercise will become unreserved and
<PAGE>
available for future issuance or reservation. Proportionate voting rights and
other rights of stockholders will not be altered by any Reverse Stock Split
(other than as a result of payment in cash in lieu of fractional shares.)
Consummation of a Reverse Stock Split should have no material federal tax
consequences to most stockholders; however, tax effects, which are especially
dependent upon a stockholder's individual circumstances, may be material to a
stockholder; and each stockholder must obtain his, her or its own tax advice.
This general description is not tax advice.
The Common Stock is listed for trading on Nasdaq. On the last trading day
preceding the Record Date, the closing sale price of the Common Stock was $5/8
per share, as reported by Nasdaq. No assurance can be made as to the future
price of shares of Common Stock.
The Board of Directors may effect a Reverse Stock Split regardless of
whether such Reverse Stock Split would be likely to result in meeting the Nasdaq
continued listing maintenance requirements in the event the Board determines
that effectuating the Reverse Stock Split is beneficial to the Company for
reasons other than listing the Common Stock on Nasdaq. There can be no assurance
that a Reverse Stock Split will occur. In the event the Reverse Stock Split does
occur, however, the Board of Directors presently intends to choose the maximum
one-for-five (1:5) ratio. However, the Board also may establish a lesser ratio
of one-for-three (1:3) or one-for-two (1:2), depending on what is believed by
the Board to be reasonably likely to continue listing of the Common Stock on
NASDAQ or based on other factors deemed relevant in the Board's discretion.
Possible Advantages
The Board of Directors believes that a decrease in the number of shares of
Common Stock outstanding without any corresponding alteration of the
proportionate economic interest in the Company represented by individual share
holdings may increase the trading price of such shares of Common Stock and such
higher price would be more appropriate for the Common Stock. The Board believes
that if the Common Stock trades at $1.00 per share or more, it will meet one of
the minimum continued maintenance requirements of NASDAQ, which the Board
believes would increase the liquidity of the Common Stock. However, no assurance
can be given that the market price of the Common Stock will rise in proportion
to the reduction in the number of shares outstanding resulting from any Reverse
Stock Split or that even if the Common Stock trades at $1.00 per share or more,
that the Common Stock will continue to be authorized for trading on Nasdaq.
Additionally, the Board believes that a more appropriate price for shares
of Common Stock should promote greater interest by the brokerage community in
marketing shares of Common Stock to their customers. The current per share price
of the Common Stock may limit the effective marketability of the Common Stock
because of the reluctance of many brokerage firms and institutional investors to
recommend lower-priced stocks to their clients or to hold them in their own
portfolios. Certain policies and practices of the securities industry may tend
to discourage individual brokers within those firms from dealing in lower-priced
stocks. Some of those policies and practices involve time-consuming procedures
that make the handling of lower-priced stocks economically unattractive. The
brokerage commission on a sale of lower-priced stock may also represent a higher
percentage of the sale price than the brokerage commission on a higher-priced
issue.
Any reduction in brokerage commissions resulting from a Reverse Stock Split
may be offset, however, in whole or in part, by increased brokerage commissions
which will be required to be paid by stockholders selling "odd lots" created by
such Reverse Stock Split.
The increase in the difference between the authorized number of shares of
Common Stock and the number of shares outstanding or committed could have an
advantage of permitting the Company to issue shares for acquisition, sale of
equity, conversion of convertible debt, and other purposes that could improve
the financial position of the Company.
If the Reverse Stock Split is approved by stockholders, the Board of
Directors will have authority without further stockholder approval to effect a
Reverse Stock Split of one share of New Common Stock for each outstanding two,
three or five shares of Old Common Stock.
<PAGE>
The following table sets forth the number of shares of Common Stock that
would be outstanding (based on the 9,042,958 shares of Common Stock outstanding
as of the Record Date) immediately after the Reverse Stock Split. The reduction
of the number of shares outstanding in the Reverse Stock Split has the inverse
effect on authorized and unissued shares. The table does not attempt to account
for cashing out fractional shares.
<TABLE>
<CAPTION>
Common Stock Outstanding Common Stock Authorized and Unissued
Ratio of Before Reverse After Reverse Before Reverse After Reverse
Reverse Stock Split Stock Split Stock Split Stock Split Stock Split
<S> <C> <C> <C> <C>
None . . . . . . . . . . 9,042,958 N/A 20,957,042 N/A
One-for-two (1:2). . . . 9,042,958 4,521,479 20,957,042 25,478,521
One-for-three (1:3). . . 9,042,958 3,014,319 20,957,042 26,985,681
One-for-five (1:5) . . . 9,042,958 1,808,591 20,957,042 28,191,409
</TABLE>
Upon determination of the exact ratio of the Reverse Stock Split and the
filing of appropriate documents to effect such Reverse Stock Split, the Board
will notify stockholders that the Reverse Stock Split has been effected. In
addition, the Board shall have authority to determine the exact timing of the
Reverse Stock Split.
The Company's reporting obligations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), should not be affected by the changes in
capitalization contemplated pursuant to the Reverse Stock Split. No significant
reduction should be anticipated in the number of record holders of the Common
Stock below its Record Date level of approximately 650, which is and will
continue to be above the Exchange Act's going-private threshold of fewer than
300. The Company has no intention of terminating the registration of the Common
Stock under the Exchange Act.
Possible Disadvantages
The Board of Directors is hopeful that the decrease in the number of shares
of Common Stock outstanding will stimulate interest in the Common Stock and
possibly promote greater liquidity. However, the possibility exists that such
liquidity may be adversely affected by the reduced number of shares which would
be outstanding if the proposed Reverse Stock Split is effected. The Reverse
Stock Split will reduce the number of shares outstanding to between 1,808,591
(if a one-for-five (1:5) Reverse Stock Split is effected) and 4,521,479 (if a
one-for-two (1:2) Reverse Stock Split is effected). Fewer publicly held shares
may result in lower trading volume, which may reduce the financial community's
interest in the Common Stock. A lower trading volume for the Common Stock may
also depress the market price of shares of Common Stock.
The Board of Directors is hopeful that the proposed Reverse Stock Split
will result in a price level for the shares that will mitigate any reluctance of
brokerage firms to recommend the Common Stock to their clients and diminish the
adverse impact of trading commissions on the potential market for the Company's
shares. However, there can be no assurance that the proposed Reverse Stock Split
will achieve these desired results, nor can there be any assurance that the
price per share of the Common Stock immediately after the proposed Reverse Stock
Split will increase proportionately with the Reverse Stock Split or that any
increase can be sustained for a prolonged period of time.
Although the Board of Directors is optimistic that the Reverse Stock Split
will increase the market price of the Common Stock above the minimum $1.00 bid
price required by the Nasdaq continued listing maintenance criteria, no
assurance can be made that the Reverse Stock Split will have this affect or,
even if so affected, that the Company will satisfy the remaining continued
listing maintenance criteria requirements of Nasdaq.
If the Reverse Stock Split takes place, a number of outstanding shares will
resume the status of authorized and unissued shares, which shares will again be
available for issuance. As a result of this increase in authorized and unissued
shares of the Common Stock, additional shares will be available in the event the
Board of Directors determines that it is necessary or appropriate to raise
additional capital through the sale of securities in the public or private
markets, enter into a strategic partnership with another company, grant options
to the Company's employees or acquire another company, business or assets, or in
other events. Common Stock would be authorized to be issued in the discretion of
<PAGE>
the Board of Directors without stockholder approval of each issuance. If
Proposal No. 2 is approved by the stockholders, the Board does not intend to
solicit further stockholder approval prior to the issuance of any additional
shares of Common Stock, unless applicable law or regulation requires otherwise.
In the event the Company issues additional shares of Common Stock, such issuance
may depress the price of currently outstanding shares of Common Stock or impair
the liquidity of such shares. In addition, the issuance may be on terms that are
dilutive to stockholders. Issuance of additional shares may also have the effect
of diluting the earnings per share and book value per share of shares of Common
Stock currently outstanding.
Except for the Company Stock Plans and outstanding warrants and options,
there are no existing agreement or agreements in principle which call for the
issuance of any shares of Common Stock or Preferred Stock. Additionally, the
Company has no existing agreements or agreements in principle which call for the
issuance of any shares of Common Stock or Preferred Stock in connection with any
new financing.
Potential Anti-Takeover Effect of Authorized but Unissued Securities and
Bylaw Provision
The Reverse Stock Split would result in a greater spread between the number
of authorized shares and the number of outstanding shares. The issuance of
shares of Common Stock or Preferred Stock under particular circumstances may
have the effect of discouraging an attempt to change control of the Company,
especially in the event of a hostile takeover bid. The increase in the spread
between authorized and issued (and committed) Common Stock recommended by the
Board of Directors could have the overall effect of rendering more difficult the
accomplishment of an acquisition of the Company, and to make more difficult the
removal of incumbent management of the Company. Common Stock would be authorized
to be issued in the discretion of the Board without stockholder approval of each
issuance. The proportionate increase in the authorized number of shares of
Common Stock could have an advantage of permitting the Company to issue shares
for other purposes that could improve the financial position of the Company.
However, the proportionately larger spread between authorized shares and
outstanding (or committed) shares might be used to increase the stock ownership
or voting rights of persons seeking to obtain control of the Company; and this
anti-takeover effect could benefit incumbent management at the expense of the
stockholders. Issuance of additional shares also could have the effect of
diluting any earnings per share and book value per share of shares outstanding
of Common Stock.
The Company may issue new securities without first offering them to
stockholders. The holders of shares of Common Stock have no preemptive rights.
Preemptive rights would have given stockholders a right to purchase pro rata new
securities issued by the Company. Preemptive rights protect such holders from
dilution to some extent by allowing holders to purchase shares according to
their percentage ownership in each issuance of new securities. Therefore, the
Company may issue its shares in a manner that dilutes current stockholders.
Accounting for Reverse Stock Split
The Reverse Stock Split will cause the number of "odd-lot" holders to go up
and cause the number of "round-lot" holders of the Common Stock to go down. The
number of round-lot holders is a common measure of a stock's distribution, and a
lower number may reflect more negatively on the Common Stock. Higher numbers of
odd-lot holders may become reluctant to trade their shares because of any stigma
or higher commissions associated with odd-lot trading. This may negatively
impact the average trading volume and thereby diminish interest in Common Stock
by some investors and advisors.
If a Reverse Stock Split is effectuated, it will require that an amount
equal to the number of fewer shares issued times such shares' par value be
transferred to additional paid-in capital on the Company's balance sheet from
its paid-in Common Stock capital. The number of shares of Common Stock
outstanding will be reduced. As a consequence, the aggregate par value of the
outstanding Common Stock will be reduced, while the aggregate capital in excess
of par value attributable to the outstanding Common Stock for statutory and
accounting purposes will be increased correspondingly. The resolutions approving
the Reverse Stock Split provide that this increase in capital in excess of par
value will be treated as capital for statutory purposes. However, under Delaware
law, the Board of Directors of the Company will have the authority, subject to
various limitations, to transfer some or all of such increased capital in excess
of par value from capital to surplus, which additional surplus could be
distributed to stockholders as dividends or used by the Company to repurchase
<PAGE>
outstanding stock. The Company currently has no plans to use any surplus so
created to pay any such dividend or to repurchase stock.
The following tables illustrate, by way of example, the principal effects
of the Reverse Stock Split to the Company's capital accounts on a pro forma
basis as at December 31, 1998, the most recent practicable date, in the event of
a one-for-two (1:2), one-for-three (1:3) one-for-five (1:5) Reverse Stock Split:
<TABLE>
<CAPTION>
Prior to After a one-for-two After a one-for-three After one-for-five
Number of Shares Reverse Stock Split Reverse Stock Split Reverse Stock Split Reverse Stock Split
Common Stock:
<S> <C> <C> <C> <C>
Authorized........ 30,000,000 30,000,000 30,000,000 30,000,000
Outstanding....... 9,011,418 4,505,709 3,003,806 1,802,283
Reserved.......... 2,046,322 1,023,161 682,107 409,264
Available for future
Issuance........ 18,942,260 24,741,130 26,314,087 27,788,453
</TABLE>
<TABLE>
<CAPTION>
Prior to After a one-for-two After a one-for-three After one-for-five
Financial Data Reverse Stock Split Reverse Stock Split Reverse Stock Split Reverse Stock Split
Stockholders' Equity:
<S> <C> <C> <C> <C>
Common Stock, par
value $.001 per share $ 9,011 $ 4,506 $ 3,004 $ 1,802
Additional paid-in
capital........ 42,965,813 42,970,318 42,971,820 42,973,022
Accumulated deficit (39,831,418 (39,831,418) (39,831,418 ) (39,831,418)
Total stockholders'
equity......... $ 3,143,406 $ 3,143,406 $ 3,143,406 $ 3,143,406
Book value per common
share.......... $ .3488 $ .6976 $ 1.0465 $ 1.7441
</TABLE>
Liquidation of Fractional Shares
At the effective date of the Reverse Stock Split (the "Effective Date"),
each share of Old Common Stock issued and outstanding immediately prior thereto
will be reclassified as and changed into the appropriate fraction of a share of
the Company's New Common Stock. All fractional share interests that are not
combined into whole shares will be subject to the treatment of fractional share
interests as described below. Shortly after the Effective Date, the Company will
send transmittal forms to the holders of the Old Common Stock to be used in
forwarding their certificates formerly representing shares of Old Common Stock
for (i) surrender and exchange for certificates representing whole shares of New
Common Stock and (ii) cash in lieu of any fraction of a share of New Common
Stock to which such holders would otherwise be entitled.
American Stock Transfer & Trust Company Registrar Co. will act as the
Company's exchange agent (the "Exchange Agent") to act for holders of Old Common
Stock in implementing the exchange of their certificates. Do not send stock
certificates until you receive a notice requesting you to transmit them to the
Exchange Agent.
If this Proposal No. 2 is approved by stockholders and the Company files an
amendment to its Certificate of Incorporation with respect to the Reverse Stock
Split, stockholders will be notified and requested to surrender their
certificates representing shares of Old Common Stock to the Exchange Agent in
exchange for certificates representing New Common Stock. Beginning on the
Effective Date, each certificate representing shares of Old Common Stock will be
deemed for all corporate purposes to evidence ownership of a proportionate
number of shares of New Common Stock and a right to payment in cash for
fractional interests.
The Company will either deposit sufficient cash with the Exchange Agent or
set aside sufficient cash for the purchase of the above-referenced fractional
interests. The cash required to be paid by the Company with regard to fractional
interests is estimated to be under $1,000, and such funds will be provided from
<PAGE>
the Company's existing cash. Stockholders are encouraged to surrender their
certificates to the Exchange Agent for certificates evidencing whole shares of
the New Common Shares and to claim the sums, if any, due them for fractional
interests, as promptly as possible following the Effective Date. No interest
will accrue or be payable to stockholders on account of such deposit. The
Company shall be entitled to earnings, if any, on funds deposited. Do not send
stock certificates until you receive a notice requesting you to transmit them to
the Exchange Agent.
The ownership of a fractional interest will not give the holder thereof any
voting, dividend, or other rights except to receive payment therefor as
described herein. No service charge will be payable by stockholders in
connection with the exchange of certificates or the issuance of cash for
fractional interests, all of which will be borne and paid by the Company.
The number of record holders of the Common Stock on the Record Date was
approximately 650. The Company does not anticipate that the payment in cash in
lieu of fractional shares following any Reverse Stock Split would result in a
significant reduction in the number of such holders. Holders of New Common Stock
will continue to be entitled to receive such dividends as may be declared by the
Board of Directors. To date, no cash dividends on the Common Stock have been
paid by the Company.
No assurance can be given that the New Common Stock will continue to be
authorized for trading on Nasdaq. The Company does not intend to effect a
reclassification that impairs the existing status of Old Common Stock or the
intended authorization for trading of reclassified New Common Stock.
Board Position and Required Vote
The proposal will be adopted only if it receives the affirmative vote of
holders of a majority of the outstanding shares of Common Stock. The Board of
Directors believes that the proposed amendment is in the best interests of the
Company and its stockholders and recommends a vote FOR each of the proposed
alternative ratios.
INDEPENDENT PUBLIC ACCOUNTANTS
Richard A. Eisner & Company, LLP acted as the Company's independent
auditors for the year ended December 31, 1997 and has been selected by the Board
of Directors to continue to act as the Company's independent auditors in the
Company's 1998 fiscal year. The Company anticipates that a representative of
Richard A. Eisner & Company, LLP will be present at the Annual Meeting to
respond to questions from stockholders.
FINANCIAL STATEMENTS
The Company has enclosed its Annual Report to Stockholders for the fiscal
year ended December 31, 1997 with this Proxy Statement. Stockholders are
referred to the report for financial and other information about the Company,
but such Report is not incorporated in this Proxy Statement and is not a part of
the proxy soliciting material.
MISCELLANEOUS INFORMATION
As of the date of this Proxy Statement, the Board of Directors does not
know of any business other than specified above to come before the Annual
Meeting, but, if any other business does lawfully come before the Annual
Meeting, it is the intention of the persons named in the enclosed Proxy to vote
in regard thereto in accordance with their judgment.
The Company will provide without charge to any stockholder as of the Record
Date, copies of the Company's Annual Report on Form 10-KSB, upon written request
delivered to Kevin D. Sullivan, Vice President - Finance, Treasurer and Chief
Financial Officer, at the Company's offices at 3A Oak Road, Fairfield, New
Jersey 07004.
<PAGE>
The Company will pay the cost of soliciting proxies in the accompanying
form. In addition to solicitation by use of the mails, certain officers and
regular employees of the Company may solicit proxies by telephone, telegraph or
personal interview. The Company may also request brokerage houses and other
custodians, and, nominees and fiduciaries, to forward soliciting material to the
beneficial owners of Common Stock held of record by such persons, and may make
reimbursement for payments made for their expense in forwarding soliciting
material to the beneficial owners of the stock held of record by such persons.
Stockholder proposals with respect to the Company's next Annual Meeting of
Stockholders must be received by the Company no later than December 11, 1998 to
be considered for inclusion in the Company's proxy statement for its 1999 Annual
Meeting of Stockholders.
By Order of the Board of Directors,
Marc E. Jaffe, Chairman and Secretary
April 27, 1998
Fairfield, New Jersey
<PAGE>
Appendix A
PROPOSED REVERSE STOCK SPLIT
If Proposal No. 2 is approved, the following will be included in an
amendment to the Certificate of Incorporation of the Company, in Article FOURTH
thereof:
(d) Each issued and outstanding share of Common Stock, par value of $.001
per share, of the Corporation (the "Old Common Stock") as of the date of filing
of this Certificate of Amendment of the Certificate of Incorporation of the
Corporation (the "Effective Date") shall automatically and without any action on
the part of the holder thereof, be reclassified as and changed into one-x (1/x)
[x is to be completed with a whole number which shall be either two, three or
five, inclusive, hereafter approved by the Board of Directors] of one share of
Common Stock, par value of $.001 per share (the "New Common Stock"), of the
Corporation, subject to the treatment of fractional share interests as described
below. Each holder of a certificate or certificates which immediately prior to
the Effective Date represented outstanding shares of Old Common Stock (each, an
"Old Certificate") shall be entitled to receive upon surrender of such Old
Certificate to the Company's Transfer Agent for cancellation, a certificate or
certificates (each, a "New Certificate") representing the number of whole shares
of the New Common Stock into which the Old Common Stock formerly represented by
the Old Certificate so surrendered are reclassified under the terms hereof. From
and after the Effective Date, Old Certificates shall represent only the right to
receive New Certificates (and, where applicable, cash in lieu of fractional
shares, as provided below) pursuant to the provisions hereof. No certificates or
scrip representing fractional share interests in New Common Stock will be
issued, and no such fractional share interest will entitle the holder thereof to
vote, or to any rights of a stockholder, of the Corporation. A holder of Old
Certificates shall receive, in lieu of any fraction of a share of New Common
Stock to which the holder would otherwise be entitled, a cash payment therefor
on the basis of the average of the last sale price of the Old Common Stock on
The Nasdaq Stock Market on the Effective Date (or in the event the Company's
Common Stock is not so traded on the Effective Date, such sale price on the next
preceding day on which such stock was traded on The Nasdaq Stock Market). If
more than one Old Certificate shall be surrendered at one time for the account
of the same stockholder, the number of full shares of New Common Stock for which
New Certificates shall be issued shall be computed on the basis of the aggregate
number of shares represented by the Old Certificates so surrendered. In the
event that the Company's Transfer Agent determines that a holder of Old
Certificates has not tendered all of such holder's Old Certificates for
exchange, the Transfer Agent shall carry forward any fractional share until all
Old Certificates of such holder have been presented for exchange such that
payment for fractional shares to any one person shall not exceed the value of
one share of New Common Stock. If any New Certificate is to be issued in a name
other than that in which the Old Certificates surrendered for exchange are
issued, the Old Certificates so surrendered shall be properly endorsed and
otherwise in proper form for transfer, and the person or persons requesting such
exchange shall affix any requisite stock transfer tax stamps to the Old
Certificates surrendered, or provide funds for their purchase, or establish to
the satisfaction of the Transfer Agent that such taxes are not payable. From and
after the Effective Date, the amount of capital represented by the shares of the
New Common Stock into which and for which the shares of the Old Common Stock are
reclassified under the terms hereof shall be the same as the amount of capital
represented by the shares of Old Common Stock so reclassified, until thereafter
reduced or increased in accordance with applicable law.
