SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Check the appropriate box:
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[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
HAUPPAUGE DIGITAL, INC.
-----------------------------------------------
(Name of Registrant as Specified in Its Charter)
HAUPPAUGE DIGITAL, INC.
-----------------------------------------
(Name of Person(s) Filing Proxy Statement)
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<PAGE>
HAUPPAUGE DIGITAL, INC.
91 Cabot Court
Hauppauge, New York 11788
____________________________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
____________________________________________________
The annual meeting of the stockholders of Hauppauge Digital, Inc.
(the "Company") will be held on March 12, 1998 at 10:00 a.m., local
time, at the offices of the Company at 91 Cabot Court, Hauppauge,
New York 11788. The meeting is called for the following purposes:
ELECTION OF DIRECTORS
The election of four (4) directors to hold office for a term of one
(1) year and until the election and qualification of their
respective successors.
APPROVAL OF 1998 INCENTIVE STOCK OPTION PLAN
To approve the adoption of a 1998 Incentive Stock Option Plan for
the issuance of 350,000 shares to key employees of the Company.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
To ratify the appointment of BDO Seidman, LLP, Certified Public
Accountants, as independent auditors for the fiscal year ending
September 30, 1998.
TRANSACTION OF OTHER BUSINESS
To transact such other business as may properly come before the
meeting or any adjournments thereof.
Stockholders of record at the close of business on January 27, 1998
are entitled to notice of, and to vote at, this meeting. Sending
in your proxy will not prevent your attending and voting at the
meeting in person should you later decide to do so.
The accompanying form of proxy is solicited by the Board of
Directors of the Company. Reference is made to the enclosed proxy
statement for further information with respect to the business to
be transacted at the meeting.
If you do not expect to attend the meeting in person, please sign
and date the enclosed proxy and mail it promptly in the enclosed
envelope.
By order of the Board of Directors.
Dated: January 28, 1998
KENNETH PLOTKIN
Secretary
<PAGE>
HAUPPAUGE DIGITAL, INC.
91 Cabot Court
Hauppauge, New York 11788
__________________________________
PROXY STATEMENT
__________________________________
The proxy statement mailed to stockholders commencing on or about
February 4, 1998 is furnished in connection with the solicitation
of proxies by the Board of Directors of Hauppauge Digital, Inc.
(the "Company") in connection with the annual meeting of
stockholders (the "Annual Meeting") of the Company to be held March
12, 1998 at 10:00 a.m., local time, at the offices of the Company
at 91 Cabot Court, Hauppauge, New York 11788. Proxies will be
voted in accordance with directions specified thereon and otherwise
in accordance with the judgment of the persons designated as
proxies. Any proxy on which no direction is specified will be
voted in favor of the action described in the proxy statement.
A proxy in the enclosed form may be revoked at any time, prior to
it being voted at the Annual Meeting by sending a subsequently
dated proxy or by giving written notice to the Company, in each
case to the attention of Kenneth Plotkin, Secretary, at the address
set forth above. Stockholders who attend the Annual Meeting may
withdraw their proxies at any time before their shares are voted by
voting their shares in person.
The expense of the solicitation of proxies for the Annual Meeting,
including the cost of preparing, assembling and mailing the notice,
proxy and proxy statement, the handling and tabulation of proxies
received and the charges of brokerage houses and other
institutions, nominees or fiduciaries in forwarding such documents
of the proxy material to beneficial owners, will be paid by the
Company. In addition to the mailing of the proxy material, such
solicitation may be made in person or by telephone and telegraph by
directors, officers or regular employees of the Company. It is
estimated that the total cost of proxy solicitations by the Company
will not exceed $5,000.
The matters to be considered at this Annual Meeting will be the
election of directors for the ensuing year, the approval of the
1998 Incentive Stock Option Plan, and the ratification of the
appointment of BDO Seidman, LLP, Certified Public Accountants as
independent auditors. The Company is aware of no other matters to
be presented for action at the Annual Meeting.
<PAGE>
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Company's voting securities consist solely of common stock,
$.01 par value (the "Common Stock"). Holders of Common Stock at
the close of business on January 27, 1998 will be entitled to vote.
Each share of Common Stock entitles the holder to one (1) vote on
each matter to be voted upon. On the record date there were
outstanding 4,398,102 shares of Common Stock, exclusive of treasury
shares.
NOMINATION AND ELECTION OF DIRECTORS
General
Each director to be elected will hold office until the next annual
meeting of stockholders and until his successor is elected and has
qualified, or until his death, resignation, or removal. The bylaws
of the Company provide that the number of the directors of the
Company shall be a minimum of three (3) and a maximum of seven (7)
and that directors shall be elected by a plurality of the votes
cast. The Board of Directors has chosen and designated the four
(4) nominees below. At the Annual Meeting, four (4) directors are
to be elected.
Proxies in the enclosed form will be voted for the nominees named.
Authority may be withheld for any nominee. Under SEC rules, boxes
and a designated blank space are provided on the proxy card for
shareholders to mark if they wish to withhold authority to vote for
one or more nominees for director. In addition, stockholders may
nominate additional nominees as candidates for the position as
director. Although the Board of Directors does not anticipate that
any nominee will be unavailable for election, in the event of such
occurrence, the proxy will be voted for such substitute, if any, as
the Board of Directors may designate. Proxies will not vote for a
greater number of persons than the number of nominees named.
<PAGE>
Nominees
The following table sets forth the nominees for the Board of
Directors to be elected at the Annual Meeting, together with
certain information with respect to each:
Director
Name Age Since
- ----- ----- ----------
Kenneth R. Aupperle 40 1994
Kenneth Plotkin 46 1994
Leonard A. Neuhaus 39 1995
Bernard Herman 70 1996
________________
KENNETH R. AUPPERLE is a co-founder of the Company. He has been
the Company's President and Chief Operations Officer since the
Company's incorporation. Mr. Aupperle holds a BS in Electrical
Engineering and an MS in Computer Science from Polytechnic
University, along with additional work toward a Ph.D.
KENNETH PLOTKIN is a co-founder of the Company. He has been the
Company's Chairman of the Board of Directors and Chief Executive
Officer since the Company's incorporation. Mr. Plotkin is
presently Secretary of the Company and is Vice-President in charge
of marketing. He holds a BS and an MS in Electrical Engineering
from the State University of New York at Stony Brook.
LEONARD A. NEUHAUS has served as a director of the Company since
January 10, 1995, the effective date of the Company's 1995 public
offering, in accordance with the right of Lew Lieberbaum & Co.,
Inc. ("LLC"), the underwriter for the Company, to designate a
nominee to the Company's Board of Directors. Mr. Neuhaus is a co-founder,
chief operating officer and director of LLC, which changed
its name to First Asset Management Corp. in November, 1997. Mr.
Neuhaus only devotes a limited portion of his time to the affairs
of the Company. He is also a certified public accountant, licensed
in the State of New York since 1982. The National Association of
Securities Dealers, Inc. ("NASD") has previously alleged that LLC
and others, including Mr. Neuhaus, in 1991, engaged in market
manipulation, inaccurately maintained books and records and failed
to adequately supervise the activities of LLC's personnel in
connection with the trading for LLC's account of warrants which
were part of a public offering of units of convertible preferred
stock and warrants of a company for which LLC had acted in 1991 as
managing underwriter. In order to expeditiously resolve this
matter and without admitting or denying these allegations, in
January 1995, Mr. Neuhaus and others voluntarily entered into a
<PAGE>
Letter of Acceptance, Waiver and Consent with the NASD pursuant to
which Mr. Neuhaus was censured and fined by the NASD, agreed to pay
with LLC and others restitution to customers and was suspended for
associating with any NASD member for a three month period.
BERNARD HERMAN from 1979 to 1993 was chief executive officer of
Okidata Corp. of Mount Laurel, New Jersey, a distributor of
computer peripheral products. Since then he has served as a
consultant with reference to computer products.
Security Ownership of Management
The following table sets forth the beneficial ownership of the
Company's Common Stock (its only class of equity securities
outstanding) as of January 27, 1998 by each director nominee and
all directors and executive officers as a group:
Shares of Percent
Stock Owned of
Name Beneficially(1) Class
- ----- ------------ -----
Kenneth R. Aupperle(2)(3) 392,610(4) 8.7%
Kenneth Plotkin(2)(3) 398,150(4) 8.8%
Leonard A. Neuhaus(5) 5,000(6) *
Bernard Herman 8,000(6) *
All executive officers
and directors as a
group (6 persons) 864,527 18.7%
_________________
* Less than one (1%) percent.
(1) Beneficial ownership is determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, except as set
forth above.
(2) Laura Aupperle, wife of Kenneth R. Aupperle, beneficially owns
302,550 shares, or 6.8% of the outstanding shares of the
Company. Dorothy Plotkin, wife of Kenneth Plotkin,
beneficially owns 305,950 shares or 6.9% of the outstanding
shares of the Company. Ownership of shares by each individual
does not include ownership by that person's spouse which is
disclaimed by the named individual.
(3) One warrant has been issued for 60,000 shares to Laddok Realty
Co. ("Laddok"), of which Kenneth R. Aupperle and Kenneth
Plotkin, and their wives, Laura Aupperle and Dorothy Plotkin,
are partners. Each individual expressly disclaims any
percentage interest in the warrant other than that which
<PAGE>
represents such partner's percentage interest in the
partnership, which is equal to 15,000 shares.
(4) Includes to each non-qualified stock options to acquire 30,000
shares of Common Stock granted on January 10, 1995 and
exercisable until January 9, 2005, which options were part of
an overall grant of a non-qualified stock option to purchase
150,000 shares of Common Stock at $3.15 per share. Also
includes to each non-qualified options to acquire a total of
45,000 shares of Common Stock and incentive stock options to
acquire a total of 15,000 shares of Common Stock. See "1996
Non-Qualified Stock Option Plan", "1994 Incentive Stock Option
Plan" and "Description of the 1998 Incentive Stock Option
Plan", below.
(5) Disclaims any ownership in shares of Common Stock held by LLC,
which may from time to time own shares of Common Stock in the
Company in its role as a market maker of the Company's Common
Stock.
(6) Includes to each non-qualified options to acquire 5,000 shares
of Common Stock. See "1996 Non-Qualified Stock Option Plan",
below.
Board and Committee Meetings
Six (6) meetings of the Board of Directors were held during the
fiscal year ended September 30, 1997. No director attended fewer
than seventy-five (75%) percent of such meetings.
The Company has audit, compensation and stock option committees.
The function of the audit committee is to review and report to the
Board with respect to the annual audit of the Company's independent
accountants, including the scope and general extent of their
examination, the audit procedures that will be utilized by the
independent accountants, and the compensation of the independent
accountants; to review and report to the Board on the general
policies and procedures utilized by the Company with respect to
internal auditing, accounting, and financial controls; and to
review and report to the Board on the subject of retention of the
Company's independent accountants. The functions of the
compensation committee are to determine the general compensation
policies of the Company, establish compensation plans, and
determine senior management compensation. The function of the stock
option committee is to administer the Company's stock option plans.
Bernard Herman and Leonard Neuhaus are each members of the audit,
compensation, and stock option committees. Kenneth R. Aupperle also
serves on the audit committee. Kenneth Plotkin also serves as a
member of the compensation committee. The stock option and audit
committees met twice and the compensation committee met once during
the fiscal year ending September 30, 1997.
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
The following sets forth the ownership with respect to each person
known to own beneficially more than 5% of the Company's Common
Stock as of January 27, 1998:
Name and Amount and Nature Percent
Title address of of Beneficial of
of Class Beneficial Owner Ownership(1) Class
- -------- ---------------- ------------ -----
Common Stock Kenneth R. Aupperle 392,610 direct 8.8 %
$.01 par value 91 Cabot Court and beneficial
Hauppauge, NY 11788
Common Stock Kenneth Plotkin 398,150 direct 8.9%
$.01 par value 91 Cabot Court and beneficial
Hauppauge, NY 11788
Common Stock Laura Aupperle 302,550 direct 6.8%
$.01 par value 23 Sequoia Drive and beneficial
Hauppauge, NY 11788
Common Stock Dorothy Plotkin 305,950 direct 6.9%
$.01 par value 21 Pine Hill Drive and beneficial
Dix Hills, NY 11746
Common Stock LCO Investments Limited 284,500 direct 6.5%
$.01 par value c/o Richards & O'Neil,LLP and beneficial
885 Third Avenue
New York, NY 10022
_________________
(1) See footnotes to table under "Security Ownership of Management."
EXECUTIVE COMPENSATION
Summary
The following describes the components of the total compensation of
Kenneth Plotkin, the CEO of the Company, and John Casey, Vice-President of
Technology who is the only executive of the Company with a total annual
salary and bonus for the year ended September 30, 1997 in excess of $100,000.
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long term compensation
------------------------ --------------------------------------
Awards Payouts
------------------ -----------------
Other Securities All
Name and annual Restricted underlying LTIP other
principal Salary Bonus compen- stock options / payouts compen-
position Year ($) ($) sation($) award(s)($) SARs (#) ($) sation($)
- -------- ---- ------ ----- ---------- --------- ---------- ------ --------
Kenneth 1997 94,016 -- 4,800(1) --- --- --- ---
Plotkin,
CEO 1996 62,746 -- 4,820(1)(2) --- 15,000 --- ---
1995 56,083 -- 1,600(1)(2) --- 150,000 --- ---
John 1997 103,574 -- --- --- 4,500 --- ---
Casey,
V.P.- 1996 96,346 -- --- --- 10,000 --- ---
Techn.
1995 85,067 -- --- --- --- --- ---
______________
(1) Represents non-cash compensation in the form of the use of a car and
related expenses.
(2) Does not include compensation deferred as of September 30, 1996 in the
amount of $12,331 and September 30, 1995 in the amount of $9,231.
Stock Options
OPTION/SAR GRANTS IN LAST FISCAL YEAR
[Individual Grants]
Number of Percent of
securities total options/
underlying SARs granted Exercise
Options/SARs in fiscal or base Expiration
Name granted (#) year price ($/Sh) Date
- ---- ------------- ------------ ------------ ----
Kenneth Plotkin, 0 0% n/a n/a
CEO
John Casey, V.P.- 2,500 3% $2.69 1/31/2007
Technology
2,000 2% $2.69 3/4/2003
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number
of securities Value
underlying unexercised in-
unexercised the-money options/
Shares SARs at FY-end(#) SARs at FY-end($)
acquired on Value exercisable / exercisable /
Name exercise (#) realized($) unexercisable unexercisable
- ----- ------------ ----------- ------------- ----------------
Kenneth Plotkin,
CEO -0- -0- 45,000(1)/120,000 $54,562.50/$139,500
John Casey, V.P.-
Technology -0- -0- 2,000/12,100 $ 1,125/$11,801.25
- -----------
(1) Includes options to acquire 30,000 shares which became exercisable as a
result of the Company achieving pre-tax income in excess of $1,000,000 in
fiscal year ended September 30, 1997. See "Security Ownership of Management",
above.
Compensation of Directors
Directors of the Company are not compensated solely for being on the Board of
Directors. However, during the fiscal year, 5,000 non-qualified options were
issued to each of the non-employee directors. See "1996 Non-Qualified Stock
Option Plan". It is the intention of the Company to issue non-qualified
options in the future to non-employee directors.
Employment Agreements
On January 10, 1995, Kenneth R. Aupperle and Kenneth Plotkin each entered
into a three year employment agreement (the "1995 Employment Agreements")
with the Company to serve as president, and chief operations officer, and
chief executive officer, vice-president in charge of marketing and secretary,
respectively. The 1995 Employment Agreements provided for an annual salary of
$60,000 during the first year, $80,000 during the second year and $100,000
during the third year. Each of the 1995 Employment Agreements provided for
disability benefits, a car allowance of $400 per month, reasonable
reimbursements for automobile expenses and also medical insurance as is
standard for the employees of the Company. The 1995 Employment Agreements
expired on December 31, 1997.
As of January 10, 1998, Kenneth R. Aupperle and Kenneth Plotkin each entered
into new employment agreements (the "1998 Employment Agreements") with the
Company to serve as president and chief operations officer, and chief
executive officer, vice-president in charge of marketing and secretary,
respectively. The 1998 Employment Agreements each provide for a three year
term which term is automatically renewable each year unless otherwise
<PAGE>
authorized by the Board of Directors. The 1998 Employment Agreements provide
for an annual base salary of $125,000 during the first year, $150,000 during
the second year, and $180,000 during the third year. For each Annual Period
(as defined in the 1998 Employment Agreements) thereafter, the 1998
Employment Agreements provide that compensation shall be as mutually
determined, but not less than that for the preceding Annual Period. In
addition, the 1998 Employment Agreements provide for a bonus to be paid as
follows: an amount equal to 2% of the Company's earnings, excluding earnings
that are not from operations, before reduction for interest and income taxes
("EBIT"), for each fiscal year starting with the year ended September 30,
1998, provided that the Company's EBIT for the applicable fiscal year exceeds
120% of the prior fiscal year's EBIT and if not, then 1% of the Company's
EBIT. The determination of EBIT shall be made in accordance with the
Company's audited filings with the Securities and Exchange Commission on its
Form 10-KSB or Form 10-K. The 1998 Employment Agreements further provide for
disability benefits, term life insurance in the amount of $500,000 each for
the benefit of the executives' families and the Company, a car allowance of
$500 per month, reasonable reimbursement for automobile expenses, and medical
insurance as is standard for executives of the Company. In the event of a
Change of Control in the Company (as defined in the 1998 Employment
Agreements), a one-time bonus shall be paid equal to three times the amount
of the executive's average annual compensation (including salary, bonus and
benefits) received by him during the thirty-six month period preceding the
date of the Change of Control.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than
ten percent of the Company's Common Stock, to file initial reports of
ownership and reports of changes in ownership with the Securities and
Exchange Commission. Executive officers, directors and greater than 10%
beneficial shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and
directors, the Company believes that during the fiscal year ended September
30, 1997 all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than 10% beneficial owners were complied
with.
1994 INCENTIVE STOCK OPTION PLAN
On August 2, 1994, the Company adopted an Incentive Stock Option Plan
("ISO"), as defined in section 422 of the Internal Revenue Code, as amended.
200,000 shares of Common Stock have been reserved for issuance under the ISO.
Pursuant to the ISO, options may be granted for up to ten years with exercise
prices (A) during the first two years after January 10, 1995, of no less than
the greater of $3.15, or the fair market value of the Common Stock on the
<PAGE>
date of grant, or (B) thereafter, of no less than fair market value of the
Common Stock on the date of grant. On August 6, 1997, the ISO was registered
with the Securities and Exchange Commission under Form S-8. Pursuant to the
1998 Employment Agreements, on January 21, 1998, options to acquire a total
of 54,100 shares were granted to Kenneth R. Aupperle and Kenneth Plotkin, in
equal shares, exercisable in increments of 33 1/3% per year at $5.0875 per
share, for a period of five years from the date the options first become
exercisable. Options to acquire a total of 18,500 shares have been granted to
Gerald Tucciarone and 14,500 to John Casey, each an executive officer, of
which an aggregate of 15,667 are exercisable within sixty (60) days from the
date of this proxy statement. As of January 27, 1998, options to acquire
200,000 shares were granted under this plan, exercisable at prices ranging
between $2.69 and $5.0875 per share. All but 10,000 of these options granted
are exercisable for a term of 5 years from the date they first become
exercisable. Options to acquire 85,067 shares are exercisable within sixty
(60) days from the date of this proxy statement; to date, 7,000 options under
the ISO have been exercised.
1996 NON-QUALIFIED STOCK OPTION PLAN
On December 14, 1995, the Board of Directors authorized the adoption of the
1996 Non Qualified Option Plan (the "1996 Non-Qualified Plan") which was
approved by the Company's stockholders on March 15, 1996.
The 1996 Non-Qualified Plan authorizes the grant of 250,000 shares subject to
adjustment as provided therein. The 1996 Non-Qualified Plan terminates ten
(10) years after stockholder approval. On August 6, 1997, the 1996
Non-Qualified Plan was registered with the Securities and Exchange Commission
under Form S-8. Options granted shall specify the exercise price, the
duration of the option, the number of shares to which the option applies and
such other terms and conditions not inconsistent with the 1996 Non-Qualified
Plan as the Board of Directors or committee administering the 1996
Non-Qualified Plan shall determine. Payment of the exercise price for options
under the 1996 Non-Qualified Plan is to be made in cash, by the exchange of
Common Stock having equivalent value or through a "Cashless Exchange". If a
Participant elects to utilize a Cashless Exercise, he shall be entitled to a
credit equal to the amount of that equity by which the current Fair Market
Value exceeds the option price on that number of options surrendered and to
utilize that credit to exercise additional options held by him that such
equity could purchase. There shall be canceled that number of options
utilized for the credit and for the options exercised for such credit. In the
event of any change of the outstanding Common Stock by reason of a stock
split, stock dividend, combination, reclassification or exchange of shares,
recapitalization, merger, consolidation or other similar event, the number of
shares available for options and the price thereof shall be proportionately
adjusted.
Pursuant to the 1998 Employment Agreements, on January 21, 1998, options to
acquire 30,000 shares were granted to each Kenneth R. Aupperle and Kenneth
Plotkin, exercisable for a period of ten years at $4.625 per share. On March
15, 1996, options to acquire 15,000 shares each were granted to Kenneth R.
Aupperle and Kenneth Plotkin, exercisable for a period of ten years at $3.00
<PAGE>
per share. On March 5, 1997, options to acquire 5,000 shares each were
granted to Bernard Herman and Leonard Neuhaus, exercisable for a period of
five years at $2.69 per share. As of January 27, 1998, options to acquire a
total of 100,000 shares have been granted under this plan.
CERTAIN TRANSACTIONS
The Company occupies a 25,000 square foot facility at 91 Cabot Court,
Hauppauge, New York which it uses as its executive offices and for the
testing, storage, and shipping of its products. The Company considers the
premises to be suitable for all its needs. The building is owned by Laddok,
a partnership consisting of Messrs. Aupperle and Plotkin and their wives and
is leased to the Company under a lease agreement expiring on January 31, 2006
with an option of the Company to extend the lease for an additional three
years. Rent is currently at the annual rate of $321,958 and will increase to
$338,058 per year on February 1, 1998. The rent is payable in equal monthly
installments and increases at a rate of 5% per year on February 1 of each
year thereafter including during the option period. The premises are subject
to two mortgages which have been guaranteed by the Company upon which the
outstanding principal amount due as of September 30, 1997 was $1,147,989. The
Company pays the taxes and operating costs of maintaining the premises.
On December 17, 1996 the Board of Directors approved the issuance of warrants
to Laddok in consideration of Laddok's agreement to cancel the last three
years of the Company's lease and to grant an option to the Company to extend
the lease for three years. The result is that the Company will have no loss
but will have flexibility to relocate at that time if necessary. The Stock
Option Committee authorized the grant of a warrant to Laddok to acquire
60,000 shares at an exercise price of $3 13/16, which is exercisable for a
term of ten years.
For a discussion regarding the employment agreements of, and stock options
granted to, Messrs. Plotkin and Aupperle, see "Executive Compensation-Employment
Agreements" and "Security Ownership of Management", above.
PROPOSAL TO APPROVE THE ADOPTION OF THE COMPANY'S 1998
INCENTIVE STOCK OPTION PLAN
---------------------------
Introduction
The Board of Directors unanimously recommends that the shareholders approve
the 1998 Incentive Stock Option Plan.
Description of the 1998 Incentive Stock Option Plan
On December 17, 1997, the Board of Directors adopted and authorized the
submission to the Company's stockholders for their approval at the Annual
Meeting on March 12, 1998, the 1998 Incentive Stock Option Plan (the "1998
Incentive Plan") under Section 422 of the Internal Revenue Code. The 1998
Incentive Plan is applicable to the Company's key employees. The purpose of
the 1998 Incentive Plan is to encourage and reward key employees by giving
them an opportunity to share in any future success of the Company without
burdening the Company's cash resources. The 1998 Incentive Plan authorizes
<PAGE>
stock incentives for the key employees to acquire shares of the Company's
Common Stock.
As adopted by the board, the 1998 Incentive Plan authorizes the grant of
350,000 shares of Common Stock, subject to adjustment as provided in the
plan. Pursuant to the 1998 Employment Agreements, on January 21, 1998,
options to acquire a total of 35,900 shares were granted to Kenneth R.
Aupperle and Kenneth Plotkin, in equal shares, exercisable in increments of
33 1/3% per year at $5.0875 per share, for a period of five years from the
date the options first become exercisable.
The following summary provides a description of the significant provisions of
the 1998 Incentive Plan. However, such summary is qualified in its entirety
by reference to the full text of the 1998 Incentive Plan.
Eligibility to participate in the 1998 Incentive Plan is limited to key
employees of the Company and its subsidiaries. The 1998 Incentive Plan
terminates December 16, 2007. The term of each option may not exceed ten
years. Options will not be transferable except upon death and, in such
event, transferability will be effected by will or by the laws of descent and
distribution.
Options under the 1998 Incentive Plan may not be granted at less than 100% of
fair market value at the time of the grant. Options granted to employees who
own more than 10% of the Company's outstanding Common Stock will be granted
at not less than 110% of fair market value for a term of five years. The
aggregate market value of stock for which Incentive Stock Options are
exercisable during any calendar year by an individual is limited to $100,000,
but the value may exceed $100,000 for which options may be granted to an
individual. Payment of the exercise price for options under the 1998
Incentive Plan are to be made in cash or by the exchange of Common Stock
having equivalent value.
For purposes of the 1998 Incentive Plan, fair market value is the last price
for the Company's Common Stock as quoted by NASDAQ.
No disposition of Common Stock received upon exercise of Options shall be
made within two (2) years from the date of grant of the Option nor within one
(1) year after the exercise.
In the event of any future recapitalization, split-up or consolidation of
shares, the number of shares and exercise price shall be proportionately
adjusted.
Vote Required for Approval
A copy of the 1998 Incentive Plan is annexed hereto as Exhibit "1." The 1998
Incentive Plan must be approved by the Company's stockholders. The
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Annual Meeting on March 12, 1998 is required for approval
of this proposal. Abstentions are not counted in determining the number of
votes required to attain a majority of the outstanding shares in connection
with this proposal. "Broker non-votes" (which represent shares of Common
Stock held by stockbrokers and not voted by the brokers) will not be
<PAGE>
considered as votes cast in determining the outcome of this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE ADOPTION OF THE 1998 INCENTIVE STOCK
OPTION PLAN.
PROPOSAL TO RATIFY APPOINTMENT
OF INDEPENDENT AUDITORS
-----------------------
The Board of Directors of the Company has appointed the firm of BDO Seidman,
LLP, Certified Public Accountants as the Company's independent auditors for
the fiscal year ending September 30, 1998. The Board of Directors will
propose ratification of the appointment of BDO Seidman, LLP. BDO Seidman,
LLP has no financial interest of any kind in the Company and has had no
connection with the Company at any time in the past except for the
professional relationship between auditor and client.
The affirmative vote of the holders of a majority of the Common Stock of the
Company represented at the Annual Meeting will be required for approval of
the auditors. If such approval is not obtained, selection of independent
auditors will be reconsidered by the Board of Directors.
Representatives of BDO Seidman, LLP are expected to be present at the
stockholders meeting with the opportunity to make a statement if they desire
to do so, and shall be available to respond to appropriate questions.
BDO Seidman, LLP was named as the Company's independent public accountants
effective August 10, 1995. BDO Seidman, LLP was not previously consulted by
the Company with respect to any matter preceding the date of their
appointment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR RATIFICATION OF THE APPOINTMENT OF BDO SEIDMAN,
LLP, AS INDEPENDENT AUDITORS.
PROCEDURE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR NEXT ANNUAL MEETING
Proposals by stockholders for inclusion in the next annual meeting proxy
statement must be received in writing prior to December 14, 1998. Proposals
should be addressed to the Secretary of Hauppauge Digital, Inc., 91 Cabot
Court, Hauppauge, New York 11788 and should be sent by certified mail,
receipt requested. All such proposals are subject to the applicable rules
and requirements of the Securities and Exchange Commission.
OTHER MATTERS
So far as the Board of Directors is aware, only the aforementioned matters
will be acted upon at the meeting. If any other matters properly come before
the meeting, it is intended that the accompanying proxy may be voted on such
other matters in accordance with the best judgment of the person or persons
voting said proxy.
By order of the Board of Directors.
Dated: January 28, 1998
KENNETH PLOTKIN
Secretary
<PAGE>
HAUPPAUGE DIGITAL, INC.
91 Cabot Court
Hauppauge, New York 11788
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MARCH 12, 1998 SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints KENNETH R. AUPPERLE and KENNETH PLOTKIN
and each or either of them (with power of substitution) and proxies for the
undersigned, to vote all shares of Common Stock of record on January 27, 1998
of HAUPPAUGE DIGITAL, INC. which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders to be held on March
12, 1998 at 10:00 a.m. local time, or at any adjournment thereof, upon the
matters set forth in the Notice of and Proxy Statement for said Meeting,
copies of which have been received by the undersigned, and, in their
discretion, upon all other matters which may properly come before said
meeting. Without otherwise limiting the generality of the foregoing said
proxies are directed to vote as follows:
No. 1: ELECTION OF DIRECTORS
To serve for the term continuing through the next annual meeting and
until the election and qualification of their respective successors.
Kenneth R. Aupperle, Kenneth Plotkin, Leonard Neuhaus and Bernard Herman
[ ] FOR all nominees listed above (except as withheld in the space
below.)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
(Instruction: To withhold authority to vote for any individual nominee
write that nominee's name in the space provided below.)
____________________________________________________________________
No.2 APPROVAL OF 1998 INCENTIVE STOCK OPTION PLAN
Proposal to approve the adoption of the 1998 Incentive Stock Option Plan
in the form attached to the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
____________________________________________________________________
No. 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Proposal to ratify the appointment of BDO Seidman, LLP, Certified Public
Accountants, as the independent auditors to examine the financial
statements of the Company for the fiscal year ending September 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO CONTRARY DIRECTION IS GIVEN ABOVE, AND THIS PROXY IS
PROPERLY SIGNED, THE SHARES WILL BE VOTED FOR THE PROPOSALS LISTED ABOVE.
Your proxy is important to assure a quorum at the meeting whether or not you
plan to attend the meeting in person. You may revoke this proxy at any time,
and the giving of it will not affect your right to attend the meeting and
vote in person.
Dated _______________________________________
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
_____________________________________________
Number of Shares as of January 27, 1998
This proxy must be signed exactly as name
appears. When shares are held by joint tenants,
both should sign. When signing as attorney or as
trustee, executor or guardian, please give full
title as such. If a corporation, please sign in
full corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
<PAGE>
EXHIBIT "1"
-----------
HAUPPAUGE DIGITAL, INC.
1998 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The purpose of the Plan is to provide additional incentive
for such Key Employees of the Company, its Subsidiaries and divisions, as may
be designated for participation in the Plan by granting incentive stock
options and thereby encouraging such Key Employees to invest in such shares,
thereby furthering their identity of interest with the Company's sharehold-
ers, giving them a greater personal interest and increasing their interest in
and commitment to the future growth and prosperity of the Company.
2. DEFINITIONS. Unless otherwise required by the context,the following
terms, when used in the Plan, shall have the meanings set forth in this
section 2. In addition to the definitions provided in this section 2, certain
words and phrases used in the Plan may be defined elsewhere in the Plan.
Act: The Securities Exchange Act of 1934, as amended.
Board of Directors or Board: The Board of Directors of the Company.
Change of Control: Any merger or consolidation of the Company, any
tender offer, exchange offer or other purchase of any outstanding
securities of the Company, or any sale of assets of the Company,
if, as a result of such event, the members of the Company's Board
of Directors prior to such event shall thereafter constitute less
than a majority of the Board of Directors of the Company (or of the
surviving or resulting corporation, as the case may be).
Committee: (i) The Stock Option Committee of the Board of
Directors, which shall consist of not less than two (2) directors
of the Company (the members of the Committee shall be "disinter-
ested" persons within the meaning of Rule 16b-3); or (ii) such
<PAGE>
other entity as authorized under Rule 16b-3 promulgated under the
Act, as the same may be amended or supplemented from time to time.
Common Stock: The Common Stock of the Company, par value $0.01 per
share, or such other class of shares or other securities as may be
applicable pursuant to the provisions of section 6.
Company: Hauppauge Digital, Inc., or such amended name as utilized
by the Company.
Fair Market Value: As applied to any date, the last closing price
of the Common Stock reported by NASDAQ, or if not applicable, by
the National Quotation Bureau or such stock exchange as said common
stock may be listed on.
Incentive Stock Option: A stock option that satisfies the
requirements of section 422 of the Internal Revenue Code.
Internal Revenue Code: The Internal Revenue Code of 1986, as
amended, and include the regulations promulgated pursuant thereto.
Key Employee: An employee of the Company or of a Subsidiary,
including an officer or director who is an employee, who in the
opinion of the Committee can contribute significantly to the growth
and successful operations of the Company or a Subsidiary. The grant
or recommendation of the grant of an Incentive Stock Option to an
employee by the Committee shall be deemed a determination by the
Committee that such employee is a Key Employee.
Plan: The Incentive Stock Option Plan herein set forth as the same
may from time to time be amended.
Restricted Shares: Shares of Common Stock issued or transferred
subject to restrictions as authorized by paragraph (c) of Section
9 of the Plan.
Subsidiary: A corporation or other form of business association of
<PAGE>
which shares (or other ownership interests) having 50% or more of
the voting power are owned or controlled, directly or indirectly,
by the Company.
3. ADMINISTRATION OF PLAN.
(a) COMMITTEE. The Plan shall be administered by a stock option
committee, or other entity as may be authorized under Rule 16b-3 of the Act.
The members of the Committee shall be appointed by and shall serve at the
pleasure of the Board, which may from time to time change the Committee's
membership.
(b) AUTHORITY. The Committee shall have the sole and complete
authority to:
(i) determine the individuals to whom Incentive Stock Options
are granted, the amounts of Incentive Stock Options to be
granted and the time of all such grants;
(ii) determine the terms, conditions and provisions of, and
restrictions relating to, each Incentive Stock Option
granted;
(iii)interpret and construe the Plan and all agreements;
(iv) prescribe, amend and rescind rules and regulations
relating to the Plan;
(v) determine the content and form of all agreements;
(vi) determine all questions relating to Incentive Stock
Options under the Plan;
(vii) maintain accounts, records and ledgers relating to
Incentive Stock Options;
(viii) maintain records concerning its decisions and
proceedings;
(ix) employ agents, attorneys, accountants or other persons
<PAGE>
for such purposes as the Committee considers necessary or
desirable;
(x) do and perform all acts which it may deem necessary or
appropriate for the administration of the Plan and to
carry out the objectives of the Plan.
(c) DETERMINATIONS. All determinations, interpretations, or other
actions made or taken by the Committee pursuant to the provisions of the Plan
shall be final, binding and conclusive for all purposes and upon all persons.
(d) DELEGATION. Except as required by Rule 16b-3 promulgated
under the Act (and any successor to such rule) with respect to the grant of
Incentive Stock Options to Key Employees who are subject to Section 16 of the
Act, the Committee may delegate to appropriate senior officers of the Company
its duties under the Plan pursuant to such conditions and limitations as the
Committee may establish.
4. GRANTS OF INCENTIVE STOCK OPTIONS.
Subject to the provisions of the Plan, the Committee may at any
time, or from time to time, grant Incentive Stock Options under this Plan to,
and only to, Key Employees.
5. STOCK SUBJECT TO THE INCENTIVE STOCK OPTIONS.
(a) Subject to the provisions of paragraph (c) of this section 5
and of Section 7, the aggregate number of shares of Common Stock which may be
issued or transferred pursuant to Incentive Stock Options granted under the
Plan shall not exceed 350,000.
(b) Authorized but unissued shares of Common Stock and shares of
Common Stock held in the treasury, whether acquired by the Company
specifically for use under the Plan or otherwise, may be used, as the
Committee may from time to time determine, for purposes of the Plan,
provided, however, that any previously issued shares acquired or held by the
<PAGE>
Company for the purposes of the Plan shall, unless and until transferred to
a Key Employee in accordance with the Plan, be and at all times remain
treasury shares of the Company, irrespective of whether such shares are
entered in a special account for purposes of the Plan, and shall be available
for any corporate purposes and subject to the claims of creditors of the
Company.
(c) If any shares of Common Stock subject to an Incentive Stock
Option shall not be issued or transferred and shall cease to be issuable or
transferable for any reason or if any such shares shall, after issuance or
transfer, be reacquired or repurchased by the Company or Subsidiary, the
shares not so issued or transferred or the shares so reacquired or
repurchased by the Company or a Subsidiary may again be made subject to
Incentive Stock Options.
6. PROVISIONS OF INCENTIVE STOCK OPTIONS.
(a) All Incentive Stock Options shall be subject to the following
provisions:
(1) The purchase price per share shall be determined by the
Committee from time to time and shall in no event be less
than 100% of the Fair Market Value of such share on the
date of grant.
(2) Subject to the provisions of paragraphs (a)(5) and (a)(7)
of this section 6, an Option granted under the Plan may
not be exercised unless, at the time of such exercise,
the optionee shall be in the employ of the Company and
shall have completed at least twelve months of continuous
employment with the Company from the date of the grant of
his Option. However, in the event there is a Change in
Control, an Option granted under the Plan shall become
<PAGE>
immediately vested and exercisable.
(3) Each Option shall expire at such time as the Committee
may determine, at the time the Option shall be granted,
but not later than ten years from the date such Option
shall have been granted.
(4) Any Option granted under the Plan may be exercised solely
by the person to whom granted (or by his guardian or
legal representative), except as provided in paragraph
(a)(7) of this section 6 in the case of such person's
death.
(5) Absence on leave, approved by an officer of the Company
or a Subsidiary authorized to give such approval, shall
not be considered an interruption or termination of
employment for any purpose of the Plan, or Options
granted thereunder, except that no Option may be granted
to an employee while he is absent on leave.
(6) An Option may be exercised, in whole or in part, at any
time or from time to time during the balance of the term
of the Option, except as limited by provisions contained
in the Option.
(7) The Option shall terminate if and when the optionee shall
cease to be an employee of the Company and its
Subsidiaries, except as follows:
(i) If the optionee shall die while in the employ of
the Company or of a Subsidiary, the Option shall be
exercisable, as and to the extent exercisable by
such person or persons as shall have acquired the
optionee's rights under the Option by will or the
<PAGE>
laws of descent and distribution, but not later
than one year after the date of death and not after
the expiration of the specific period fixed in the
Option grant.
(ii) If an optionee shall become disabled (within the
meaning of section 105(d)(4) of the Internal
Revenue Code) while in the employ of the Company
or of a Subsidiary and such optionee's employment
shall terminate by reason of such disability the
Option shall be exercisable, as and to the extent
exercisable at the time of the termination of his
employment, within such period as shall be set
forth in the Option grant, but only within one year
after the termination of the optionee's employment
and not after the expiration of the specific period
fixed in the Option grant as in effect at the time
of the termination of his employment.
(8) Shares purchased upon exercise of an Option shall be paid
for in full by cash, in the equivalent amount of the
Company's Common Stock or through a "Cashless Exercise".
If a Participant elects to utilize a Cashless Exercise,
he shall be entitled to a credit equal to the amount of
that equity by which the current Fair Market Value
exceeds the option price on that number of options
surrendered and to utilize that credit to exercise
additional options held by him that such equity could
purchase. There shall be canceled that number of options
utilized for the credit and for the options exercised for
<PAGE>
such credit. For example, if the Participant has options
to acquire 20,000 shares which are exercisable, the Fair
Market Value is $2.00 per share, the exercise price is
$1.25 per share, and the participant elects to utilize
for a credit 10,000 options ($7,500), then upon a
Cashless exercise in connection therewith he shall be
entitled to acquire 6,000 shares of Common Stock in
exchange for the options for 10,000 shares for which a
credit has been received and options for 6,000 shares
have been exercised. The Participant will still have
exercisable options to acquire 4,000 shares of Common
Stock.
(9) The Option agreements or Option grants authorized by the
Plan may contain such other provisions as the Committee
shall deem advisable provided they do not violate the
provisions of Section 422 of the Internal Revenue Code.
(10) The aggregate Fair Market Value (determined as of the
time of grant) of stock for which Incentive Stock Options
are exercisable for the first time during any calendar
year by an optionee is to be limited to $100,000, but the
value may exceed $100,000 for which options may be
granted to an optionee.
(11) In the event that any Incentive Stock Option is granted
under the Plan to any individual who, at the time such
Incentive Stock Option is granted, owns stock possessing
more than ten percent of the total combined voting power
of all classes of stock of the Company or of any
Subsidiary, the purchase price per share under such
<PAGE>
Incentive Stock Option shall be at least 110% of the fair
market value of such share at the time such Incentive
Stock Option is granted and such Incentive Stock Option
shall not be exercisable after the expiration of five
years from the date it is granted.
(12) Upon the exercise of the Incentive Stock Option, no
disposition of such Common Stock shall be made within
two (2) years from the date of the granting of the Option
nor within one (1) year after the transfer of the Common
Stock to him.
7. ADJUSTMENT PROVISIONS. In the event that any recapitalization, or
reclassification, split-up or consolidation of shares of Common Stock shall
be affected, or the outstanding shares of Common Stock are, in connection
with a merger or consolidation of the Company or a sale by the Company of all
or a part of its assets, exchanged for a different number or class of shares
of stock or other securities of any other corporation, or new, different or
additional shares or other securities of the Company or of another
corporation are received by the holder of Common Stock or any distribution is
made to the holders of Common Stock other than a cash dividend, (a) the
number and class of shares or other securities that may be issued or
transferred and (b) the option price shall in each case be equitably adjusted
as the Committee may, in the reasonable exercise of its discretion,
determine. In no event may any change be made under this section 7 in any
Incentive Stock Option which would constitute a "modification" within the
meaning of Section 425(h)(3) of the Internal Revenue Code.
8. TERM. The Plan shall be deemed adopted and shall become effective
upon approval and adoption by the shareholders at an Annual Meeting of
Shareholders of the Company to be held on March 12, 1998(the "Annual
<PAGE>
Meeting"). No Incentive Stock Options shall be granted under the Plan on or
after December 16, 2007.
9. GENERAL PROVISIONS.
(a) The Committee may from time to time adopt such rules and
regulations, not inconsistent with the provisions of the Plan, as it deems
necessary to determine eligibility to participate in the Plan and for the
proper administration of the Plan, and may amend or revoke any rule or
regulation so established. The Committee may make such determinations and
interpretations under or in connection with the Plan as it deems necessary or
advisable. All such rules, regulations, determinations and interpretations
shall be binding and conclusive upon the Company, its Subsidiaries, its
shareholders and all employees and upon their respective legal
representatives, beneficiaries, successors and assigns and upon all other
persons claiming under or through any of them.
(b) Any action required or permitted to be taken by the Committee
under the Plan shall require the affirmative vote of a majority of all the
members of the Committee.
(c) With respect to any shares of Common Stock issued or
transferred under the provision of the Plan, such shares may be issued or
transferred subject to such conditions, in addition to those specifically
provided in the Plan, as the Committee may direct and, without limiting the
generality of the foregoing, provision may be made in that shares issued or
transferred upon their grant or exercise shall be Restricted Shares subject
to forfeiture upon failure to comply with conditions and restrictions imposed
in the grant of such Incentive Stock Options.
(d) Nothing in the Plan nor in any instrument executed pursuant
thereto shall confer upon any employee any right to continue in the employ of
the Company or a Subsidiary or shall affect the right of the Company or of a
<PAGE>
Subsidiary to terminate the employment of any employee with or without cause.
(e) No shares of Common Stock shall be sold, issued or transferred
pursuant to an Incentive Stock Option unless and until there has been
compliance, in the opinion of counsel to the Company, with all legal
requirements, applicable to the sale, issuance or transfer of such shares.
In connection with any such sale, issuance or transfer, the person acquiring
the shares shall, if requested by the Company, give assurances satisfactory
to counsel to the Company that the shares are being acquired for investment
and not with a view to resale or distribution thereof and assurances in
respect of such other matters as the Company or a Subsidiary may deem
desirable to assure compliance with all applicable legal requirements.
(f) No employee (individually or as a member of a group), and no
beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any shares of Common Stock allocated or
reserved for the purposes of the Plan except as to such shares of Common
Stock, if any, as shall have been issued or transferred to him.
(g) No Incentive Stock Option shall be assignable or subject to
any encumbrance, pledge or charge of any nature, shall be subject to
execution, attachment or similar process, or shall be transferable other than
by will or the laws of descent and distribution, and every Incentive Stock
Option and all rights under the Plan shall be exercisable during the
employee's lifetime only by him or his guardian or legal representative.
10. AMENDMENT OR DISCONTINUANCE OF PLAN.
(a) The Plan may be amended by the Committee at any time, provided
that, without the approval of the shareholders of the Company, no amendment
shall be made which (i) increases the aggregate number of shares of Common
Stock that may be issued or transferred pursuant to Incentive Stock Options
as provided in paragraph (a) of Section 5, (ii) materially increases the
<PAGE>
benefits accruing to participants under the Plan, (iii) materially modifies
the requirements as to eligibility for participation in the Plan, (iv) amends
Section 8 to extend the term of the Plan, (v) amends this section 10 or which
would otherwise invalidate this Plan under Section 422 of the Internal
Revenue Code.
(b) The Committee may, by resolution adopted by a majority of the
entire Committee, discontinue the Plan.
(c) No amendment or discontinuance of the Plan by the Committee or the
shareholders of the Company shall adversely affect, except with the consent
of the holder, any Incentive Stock Option theretofore granted.
11. COMPLIANCE WITH SECTION 422 OF THE INTERNAL REVENUE CODE. This
Plan is intended to comply with the provisions of Section 422 of the Internal
Revenue Code and to the extent inconsistent or non-complying, the provisions
of said section shall be deemed applicable to this Plan.
12. NO GUARANTEE OF EMPLOYMENT BY PARTICIPATION.
Nothing in the Plan shall interfere with or limit in any way the
right of the Company to terminate any employee's employment at any time, nor
confer upon any employee any right to continue in the employment of the
Company.
