SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Hauppauge Digital 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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):
--------------------------------------------
<PAGE>
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials
[ ] 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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
HAUPPAUGE DIGITAL INC.
91 Cabot Court
Hauppauge, New York 11788
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
July 18, 2000
To the Stockholders of Hauppauge Digital Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Hauppauge Digital Inc., a Delaware corporation (the "Company"),
will be held at the Company's executive offices at 91 Cabot Court, Hauppauge,
New York 11788 on July 18, 2000 at 10:00 a.m., New York time, for the following
purposes:
(1) To elect a Board of four (4) directors.
(2) To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized Common
Shares from 10,000,000 to 25,000,000 (the "Authorized Share
Increase").
(3) Subject to stockholder approval of the Authorized Share
Increase, to ratify the adoption of the Company's 2000
Performance and Equity Incentive Plan.
(4) Subject to stockholder approval of the Authorized Share
Increase, to ratify the adoption of the Company's Employee
Stock Purchase Plan.
(5) To ratify the appointment of BDO Seidman, LLP as the Company's
independent auditors for the fiscal year ending September 30,
2000.
(6) To transact such other business as may properly come before
the Meeting.
Only stockholders of record at the close of business on June 8, 2000
are entitled to notice of and to vote at the Meeting or any adjournment thereof.
By Order of the Hauppauge Digital Inc.
Board of Directors
Kenneth Plotkin
Secretary
Hauppauge, New York
June [ ], 2000
----
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, WE URGE YOU TO
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF
DIRECTORS OF HAUPPAUGE DIGITAL INC., AND RETURN IT IN THE PRE-ADDRESSED ENVELOPE
PROVIDED FOR THAT PURPOSE. A STOCKHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE
THE MEETING BY WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED
PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE>
HAUPPAUGE DIGITAL INC.
91 Cabot Court
Hauppauge, New York 11788
PROXY STATEMENT
SOLICITING, VOTING AND REVOCABILITY OF PROXY
This Proxy Statement is being mailed to all stockholders of record of
Hauppauge Digital Inc. (the "Company") at the close of business on June 8, 2000
in connection with the solicitation by the Board of Directors of Proxies to be
voted at the Annual Meeting of Stockholders (the "Meeting") to be held at the
Company's executive offices at 91 Cabot Court, New York 11788 on July 18, 2000
at 10:00 a.m., local time, or any adjournment thereof. The Proxy and this Proxy
Statement were mailed to stockholders on or about June [ ], 2000.
All references to share amounts contained herein reflect a 100% stock
dividend paid on March 24, 2000 to all stockholders of record on February 24,
2000.
All shares represented by Proxies duly executed and received will be voted
on the matters presented at the Meeting in accordance with the instructions
specified in such Proxies. Proxies so received without specified instructions
will be voted (1) FOR the nominees named in the Proxy to the Company's Board of
Directors, (2) FOR the proposal to approve an amendment to the Company's
Certificate of Incorporation to increase the number of authorized Common Shares
from 10,000,000 to 25,000,000, (3) FOR the ratification of the adoption of the
Company's 2000 Performance and Equity Incentive Plan, (4) FOR the ratification
of the adoption of the Company's Employee Stock Purchase Plan and (5) FOR the
ratification of the appointment of BDO Seidman, LLP as the Company's independent
auditors for the fiscal year ending September 30, 2000. The Board does not know
of any other matters that may be brought before the Meeting nor does it foresee
or have reason to believe that Proxy holders will have to vote for substitute or
alternate nominees to the Board. In the event that any other matter should come
before the Meeting or any nominee is not available for election, the persons
named in the enclosed Proxy will have discretionary authority to vote all
Proxies not marked to the contrary with respect to such matters in accordance
with their best judgment.
The total number of shares of Common Stock of the Company ("Common Shares")
outstanding and entitled to vote as of May 25, 2000 was 9,309,578. The Common
Shares are the only class of securities of the Company entitled to vote on
matters presented to the stockholders of the Company, each share being entitled
to one noncumulative vote. A majority of the Common Shares outstanding and
entitled to vote as of May 25, 2000, or 4,654,789 Common Shares, must be present
at the Meeting in person or by proxy in order to constitute a quorum for the
transaction of business. Only stockholders of record as of the close of business
on June 8, 2000 will be entitled to vote.
<PAGE>
With regard to the election of directors, votes may be cast in favor or
withheld. Directors shall be elected by a plurality of the votes cast for such
individuals. Votes withheld in connection with the election of one or more of
the nominees for director will not be counted as votes cast for such
individuals.
Stockholders may expressly abstain from voting on Proposals 2, 3, 4 and/or
5 by so indicating on the Proxy. Abstentions and broker non-votes will be
counted for purposes of determining the presence or absence of a quorum for the
transaction of business. Abstentions are counted as present in the tabulation of
votes on each of the proposals presented to the stockholders. Broker non-votes
will not be counted for the purpose of determining whether a particular proposal
has been approved. Since Proposal 2 requires the approval of a majority of the
outstanding Common Shares, abstentions and broker non-votes will have the effect
of a negative vote. Since Proposals 3, 4 and/or 5 require the affirmative
approval of a majority of the Common Shares present in person or represented by
proxy at the Meeting (assuming a quorum is present at the Meeting), abstentions
will have the effect of a negative vote while broker non-votes will have no
effect.
Any person giving a Proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise. The Proxy may be revoked
by filing with the Company a written notice of revocation or a fully executed
Proxy bearing a later date. The Proxy may also be revoked by affirmatively
electing to vote in person while in attendance at the Meeting. However, a
stockholder who attends the Meeting need not revoke a Proxy given and vote in
person unless the stockholder wishes to do so. Written revocations or amended
Proxies should be sent to the Company at 91 Cabot Court, Hauppauge, New York
11788, Attention: Corporate Secretary.
The Proxy is being solicited by the Company's Board of Directors. The
Company will bear the cost of the solicitation of Proxies, including the charges
and expenses of brokerage firms and other custodians, nominees and fiduciaries
for forwarding proxy materials to beneficial owners of the Company's shares.
Solicitations will be made primarily by mail, but certain Directors, officers or
employees of the Company may solicit Proxies in person or by telephone,
telecopier or telegram without special compensation.
A list of stockholders entitled to vote at the Meeting will be available
for examination by any stockholder for any purpose for a period of ten days
prior to the Meeting, at the offices of the Company, 91 Cabot Court, Hauppauge,
New York 11788, and also during the Meeting for inspection by any stockholder
who is present.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information for the fiscal years
ended September 30, 1999, 1998 and 1997 concerning the compensation of Kenneth
Plotkin, Chairman of the Board, Chief Executive Officer, Vice President of
Marketing, Secretary and Director of the Company, Kenneth R. Aupperle,
President, Chief Operating Officer and Director of the Company, John Casey, Vice
President of Technology of the Company and Gerald Tucciarone, Chief Financial
Officer and Treasurer of the Company. No other Executive Officer of the Company
had a combined salary and bonus in excess of $100,000 for the fiscal year ended
September 30, 1999.
1
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Annual Common Shares Underlying
Name and Principal Position Year Salary Bonus Compensation Options Granted
--------------------------- ---- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Kenneth Plotkin 1999 $ 142,145 $ 41,848 $ 6,000(1) -0-
Chairman of the Board, Chief
Executive Officer, Vice 1998 $ 120,412 -0- $ 5,500(1) 75,000
President of Marketing,
Secretary and Director 1997 $ 94,016 -0- $ 4,800(1) -0-
Kenneth R. Aupperle 1999 $ 142,145 $ 41,848 $ 6,000(1) -0-
President, Chief Operations
Officer and Director 1998 $ 120,412 -0- $ 5,500(1) 75,000
1997 $ 94,016 -0- $ 4,800(1) -0-
John Casey 1999 $ 110,000 $ 8,471 -0- 4,000
Vice President of Technology
1998 $ 110,888 -0- -0- 15,500
1997 $ 103,574 -0- -0- 4,500
Gerald Tucciarone 1999 $ 100,193 $ 8,471 -0- 8,000
Chief Financial Officer and
Treasurer 1998 $ 95,600 -0- -0- 9,500
1997 $ 86,554 -0- -0- 3,500
=========== =============== ============ ================== ================================
-------------------
(1) Represents non-cash compensation in the form of the use of a car and related expenses.
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning individual
grants of stock options during the fiscal year ended September 30, 1999:
<TABLE>
<CAPTION>
Number of Common Shares Percentage of Total
Underlying Options Granted to
Name Options Granted Employees in Fiscal Year Exercise Price Expiration Date
---- --------------- ------------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Kenneth Plotkin -0- -0- N/A N/A
Kenneth R. Aupperle -0- -0- N/A N/A
John Casey 8,000 2% $3.94 March 22, 2009
Gerald Tucciarone 16,000 4% $3.94 March 22, 2009
</TABLE>
2
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
Table
The following table sets forth certain information concerning the value of
options unexercised as of September 30, 1999:
<TABLE>
<CAPTION>
Number of Common Shares
Underlying Unexercised Value of Unexercised In-
Number of Common Options at September 30, the-Money Options at
Shares Acquired on 1999 September 30, 1999
Name Exercise Realized Value Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Kenneth Plotkin -0- -0- 246,000/234,000 $2,813,625/$2,676,375
Kenneth R. Aupperle -0- -0- 246,000/234,000 $2,813,625/$2,676,375
John Casey 8,000 $ 22,640 16,000/44,000 $183,000/$503,250
Gerald Tucciarone 20,000 $217,300 4,000/40,000 $45,750/$457,500
</TABLE>
Compensation of Directors
Directors of the Company are not compensated solely for being on the Board
of Directors. However, during the fiscal year ended September 30, 1999, 10,000
non-qualified options were issued to each of Messrs. Herman and Kuperschmid. See
"Security Ownership of Certain Beneficial Owners and Management". It is the
intention of the Company to issue non-qualified options in the future to
non-employee directors. The By-Laws of the Company provide that Directors of the
Company may, by resolution of the Board, be paid a fixed sum and expenses for
attendance at each regular or special meeting of the Board. No Director's fees
have been paid to date. The Certificate of Incorporation also provides, to the
extent permitted by law, for certain indemnification of its Directors.
Employment Contracts; Termination of Employment and Change-in-Control
Arrangements
As of January 10, 1998, after the expiration of their prior employment
agreements with the Company, Kenneth R. Aupperle and Kenneth Plotkin each
entered into employment agreements (the "1998 Employment Agreements") with the
Company to serve as President and Chief Operations Officer, and Chief Executive
Officer, Vice President of Marketing and Secretary, respectively. The 1998
Employment Agreements each provide for a three year term, which term
automatically renews from year to year thereafter unless otherwise terminated by
the Board of Directors or the executive. 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 between the
Company and the executive, 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. Pursuant to the 1998 Employment Agreements, on January 21, 1998, incentive
stock options to acquire a total of
3
<PAGE>
90,000 Common Shares each were granted to Messrs. Aupperle and Plotkin,
exercisable, beginning on January 21, 1999, in increments of 33 1/3% per year at
$2.544 per share. Each increment of these options expires five (5) years after
it first becomes exercisable. Also on January 21, 1998, pursuant to the 1998
Employment Agreements, non-qualified options to acquire a total of 60,000 Common
Shares each were granted to Messrs. Aupperle and Plotkin, exercisable
immediately for a period of ten (10) years. These options expire as of January
20, 2008. 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 termination of
employment associated with a Change in Control of the Company (as defined in the
1998 Employment Agreements), a one-time bonus shall be paid to the executive
equal to three times the amount of the executive's average annual compensation
(including salary, bonus and benefits) received by him for the thirty-six month
period preceding the date of the Change of Control.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Common Stock
The following table sets forth, to the knowledge of the Company based
solely upon records available to it, certain information as of May 25, 2000
regarding the beneficial ownership of the Company's Common Shares (i) by each
person who the Company believes to be the beneficial owner of more than 5% of
its outstanding Common Shares, (ii) by each current Director, (iii) by each
person listed in the Summary Compensation Table under "Executive Compensation"
and (iv) by all current executive officers and Directors as a group:
Name of Management Person
and Name and Address
of Beneficial Owner Number Percent
------------------- ------ -------
Kenneth Plotkin(1)(2) 952,300(3) 9.9%
91 Cabot Court
Hauppauge, NY 11788
Kenneth R. Aupperle(1)(2) 921,220(4) 9.5%
91 Cabot Court
Hauppauge, NY 11788
Laura Aupperle(1)(2) 605,100(2) 6.5%
23 Sequoia Drive
Hauppauge, NY 11788
Dorothy Plotkin(1)(2) 597,900(2)(5) 6.4%
21 Pine Hill Drive
Dix Hills, NY 11746
4
<PAGE>
LCO Investments Limited 470,000 5.1%
c/o Richards & O'Neil, LLP
885 Third Avenue
New York, NY 10022
John Casey 110,200(6) 1.2%
Bernard Herman 23,996 *
Gerald Tucciarone 18,000(7) *
Steven J. Kuperschmid 0 *
Directors and executive officers
as a group (6 persons) 2,025,716(8) 20.2%
---------------------------------
* Less than one (1%) percent.
(1) Laura Aupperle, wife of Kenneth R. Aupperle, beneficially owns 605,100
shares, or 6.5% of the outstanding Common Shares. Dorothy Plotkin, wife of
Kenneth Plotkin, beneficially owns 597,900 shares or 6.4% of the
outstanding Common Shares. Ownership of Common Shares by each individual
does not include ownership by that person's spouse which is disclaimed by
the named individual.
(2) One presently exercisable warrant has been issued for 120,000 Common Shares
to LADOKK Realty Co. ("LADOKK"), 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 represents such partner's percentage interest in the
partnership, which is equal to 30,000 Common Shares.
(3) Includes 180,000 Common Shares issuable upon the exercise of currently
exercisable non- qualified stock options 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 300,000 Common Shares at
$1.575 per share. Also includes 90,000 Common Shares issuable upon the
exercise of currently exercisable non-qualified options and 60,000 Common
Shares issuable upon the exercise of currently exercisable incentive stock
options. Does not include 120,000 Common Shares issuable upon the exercise
of currently unexercisable non-qualified stock options and 30,000 Common
Shares issuable upon the exercise of currently unexercisable incentive
stock options.
(4) Includes 180,000 Common Shares issuable upon the exercise of currently
exercisable non- qualified stock options 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 300,000 Common Shares at
$1.575 per share. Also includes 78,000 Common Shares issuable upon the
exercise of currently exercisable non-qualified options and 60,000 Common
Shares issuable upon the exercise of currently exercisable incentive stock
options. Does not include 120,000 Common Shares issuable upon the exercise
of currently unexercisable non-qualified stock options and 30,000 Common
Shares issuable upon the exercise of currently unexercisable incentive
5
<PAGE>
stock options. Does not include 7,000 Common Shares, in the aggregate, that
Mr. Aupperle gifted on January 13 1999 to his brother as custodian for each
of his two minor children (3,500 Common Shares to each minor child) under
the New York Uniform Gifts to Minors Act. Mr. Aupperle disclaims beneficial
ownership of all such 7,000 Common Shares.
(5) Does not include 7,000 Common Shares, in the aggregate, that Mrs. Plotkin
gifted to her children on January 13, 1999. Mrs. Plotkin transferred 3,500
Common Shares to her adult daughter on such date. Mrs. Plotkin transferred
an additional 3,500 Common Shares on such date to Mr. Plotkin's father as
custodian for her minor child under the New York Uniform Gifts to Minors
Act. Mrs. Plotkin disclaims beneficial ownership of all such 7,000 Common
Shares.
(6) Includes 20,000 Common Shares issuable upon the exercise of currently
exercisable incentive stock options. Does not include 32,000 Common Shares
issuable upon the exercise of currently unexercisable incentive stock
options.
(7) Includes 2,000 Common Shares issuable upon the exercise of currently
exercisable incentive stock options. Does not include 32,000 Common Shares
issuable upon the exercise of currently unexercisable incentive stock
options.
(8) Includes an aggregate of 670,000 Common Shares issuable upon the exercise
of currently exercisable incentive and non-qualified stock options. Also
includes the interests of Messrs. Plotkin and Aupperle (60,000 Common
Shares in the aggregate) in the presently exercisable warrant described in
note 2.
CERTAIN RELATIONSHIPS AND RELATED 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 LADOKK Realty Co., 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 $372,707 and will increase to $391,342 per
year on February 1, 2001. 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, 1999 was $978,655. 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 LADOKK in consideration of LADOKK'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 Stock Option Committee authorized the
grant of a warrant to LADOKK to acquire 120,000 Common Shares at an exercise
price of $1.906 which warrant is exercisable for a term of ten years.
6
<PAGE>
For a discussion regarding the employment agreements of, and stock options
granted to, Messrs. Plotkin and Aupperle, see "Executive Compensation", above.
Certilman Balin Adler & Hyman, LLP, a law firm of which Mr. Kuperschmid is
a member, serves as counsel to the Company. It is presently anticipated that
such firm will continue to represent the Company and its subsidiaries and
affiliates and will receive fees for its services at rates and amounts not
greater than would be paid to unrelated law firms performing similar services.
PROPOSAL 1: ELECTION OF DIRECTORS
Nominees for Director
Four Directors are to be elected at the Meeting to serve until the next
annual meeting of stockholders and until their respective successors have been
elected and have qualified, or until their earlier resignation or removal. If
for some unforeseen reason one or more of the nominees is not available as a
candidate for Director, the Proxies may be voted for such other candidate or
candidates as may be nominated by the Board. The Board recommends a vote FOR all
nominees.
The following table sets forth the positions and offices presently held
with the Company by each nominee, his age as of June __, 2000 and the year in
which he became a Director. Proxies not marked to the contrary will be voted in
favor of each such nominee's election. The Board recommends a vote FOR all
nominees.
Officer and Year Became
Name Age Positions Held Director
---- --- -------------- --------
Kenneth R. Aupperle 42 President, Chief 1994
Operations Officer
and Director
Kenneth Plotkin 48 Chairman of the 1994
Board of
Directors, Chief
Executive Officer,
Vice President of
Marketing,
Secretary and
Director
Bernard Herman 72 Director 1996
Steven J. Kuperschmid 40 Director 1998
Kenneth R. Aupperle is a co-founder of the Company and has served as a Director
since the Company's inception in 1994. 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.
7
<PAGE>
Kenneth Plotkin is a co-founder of the Company and has served as a Director
since the Company's inception in 1994. 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.
Bernard Herman has served as a Director of the Company since 1996, and from 1979
to 1993, Mr. Herman 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.
Steven J. Kuperschmid has served as a Director of the Company since 1998, has
been practicing law since 1986 and has been a partner with Certilman Balin Adler
& Hyman, LLP, counsel to the Company, since January 1, 1994. Mr. Kuperschmid
received his BA from New York University and JD from Fordham University School
of Law.
Board Committees
The Audit Committee is responsible for reviewing and making recommendations
regarding the Company's employment of independent auditors, the annual audit of
the Company's financial statements and the Company's internal accounting
controls, practices and policies. The Compensation Committee is responsible for
determining the general compensation policies of the Company, establishing
compensation plans, and determining senior management compensation. The Stock
Option Committee is responsible for administering the Company's stock option
plans. Bernard Herman and Steven J. Kuperschmid 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 Audit Committee met once during the fiscal year ended September
30, 1999. The Compensation Committee and the Stock Option did not meet
separately during the fiscal year ended September 30, 1999.
Meetings
The Board held eleven (11) meetings during the fiscal year ended September
30, 1999. All of the then incumbent Directors of the Company attended each
meeting. The Board also acted on three (3) occasions during the fiscal year
ended September 30, 1999 by unanimous written consent in lieu of a meeting.
Family Relationships
There is no family relationship among any of the Company's executive
officers and Directors.
Term of Office
Each Director will hold office until the next Annual Meeting of
Stockholders or until his or
8
<PAGE>
her successor is elected and qualified. Each executive officer will hold office
until the next regular meeting of the Board of Directors following the next
Annual Meeting of Stockholders or until his or her successor is elected or
appointed and qualified.
Report on Executive Compensation
The Company's executive compensation program is designed to attract,
motivate and retain management with incentives linked to financial performance
and enhanced stockholder value. The Company's compensation program currently
consists of a number of components, including a cash salary, a cash incentive
bonus and stock option grants.
The Compensation Committee reviews salary, bonus and option award
information for competitive companies of comparable size in similar industries,
as well as that of companies not in its industry which do business in locations
where the Company has operations. Based in part on this information, the
Compensation Committee generally sets salaries at levels comparable to such
companies. Bonuses generally are linked to Company performance during the year
and thus align the interest of executive officers with those of the
stockholders. The Compensation Committee also assesses each executive officer's
individual performance and contribution in determining bonus levels. The
Compensation Committee and the Stock Option Committee use the Company's stock
option program to motivate its executive officers and to improve long-term
market performance of the Company's Common Shares.
The Company entered into an employment agreement with Mr. Plotkin in
January 1998 which set the compensation payable to Mr. Plotkin to serve as the
Company's Chief Executive Officer, Vice President of Marketing and Secretary,
respectively, for a three (3) year period beginning on January 10, 1998 (the
"Employment Agreement"). The Employment Agreement provides for an annual cash
salary of $125,000 during the first year of the Employment Agreement, $150,000
during the second year of the Employment Agreement and $180,000 during the third
year of the Employment Agreement. The Employment Agreement also provides that
Mr. Plotkin is entitled to receive a bonus equal to 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. For the fiscal year ended September 30, 1999, the
Compensation Committee reviewed salary information for competitive companies, as
well as that of companies not in its industry which do business in locations
where the Company has operations, Mr. Plotkin's extensive experience in various
aspects of the computer peripheral industry and his past performance and service
with the Company and determined that the amounts payable to Mr. Plotkin for the
fiscal year ended September 30, 1999 under the terms of the Employment
Agreement, which included a $41,848 cash bonus, adequately compensated Mr.
Plotkin for the services he rendered to the Company in fiscal 1999. See
"Executive Compensation" and "Employment Contracts; Termination of Employment
and Change-in-Control Arrangements."
Since the Compensation Committee and the Stock Option Committee believe
that the granting of options to purchase Common Shares provides its executive
employees with the long-term incentive to work for the betterment of the
Company, stock options are generally granted annually to executives and
periodically to other selected employees whose contributions and skills are
critical to the long-term success of the Company. Options are granted with an
exercise price equal to the market price of the Company's common stock on the
date of the grant, generally vest over a period of at least
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three years and generally expire after ten years. Mr. Plotkin was not granted
stock options during the fiscal year ended September 30, 1999.
The Company also intends to compensate its executive employees through the
grant of awards under the 2000 Performance and Equity Incentive Plan and the
2000 Employee Stock Purchase Plan, provided such plans are approved by the
stockholders of the Company. See "Proposal 3: 2000 Performance and Equity
Incentive Plan" and "Proposal 4: 2000 Employee Stock Purchase Plan."
This report has been approved by the Board of Directors as of June [__],
2000.
Kenneth Plotkin
Bernard Herman
Steven J. Kuperschmid
Compensation Committee Interlocks and Insider Participation
The current members of the Board's Compensation Committee are Messrs.
Plotkin, Herman and Kuperschmid. Neither of Messrs. Herman and Kuperschmid is an
employee of the Company, however, Mr. Plotkin is, and was during fiscal 1999,
the Chairman of the Board, Chief Executive Officer, Vice President of Marketing
and Secretary of the Company. See "Executive Compensation" and "Employment
Contracts; Termination of Employment and Change-in-Control Arrangements."
Company Stock Performance
The following graph shows a five year comparison of cumulative total
stockholder return, calculated on a dividend reinvested basis, for the Company,
the NASDAQ Market Index (the "NASDAQ Index") and the MG Group (Computer
Peripheral) Index (the "Industry Index"). The graph assumes $100 was invested in
each of the Common Shares, the NASDAQ Index and the Industry Index on April 25,
1995. Data points on the graph are annual. Note that historic stock price
performance is not necessarily indicative of future stock performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
September
Company/Index 4/25/95(1) 9/29/95 9/30/96 9/30/97 9/30/98 9/30/99
------------- ---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Hauppauge 100.00 58.33 131.25 143.75 264.59 762.50
Digital Inc.
NASDAQ Index 100.00 118.22 138.02 187.60 194.96 315.39
Industry Index 100.00 109.43 95.06 131.93 116.15 204.56
</TABLE>
(1) The Company's Common Shares were first registered under Section 12 of the
Securities Exchange Act of 1934, as amended, on January 5, 1995.
10
<PAGE>
Source: Media General Financial Services, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended ("Section
16"), requires that reports of beneficial ownership of capital stock and changes
in such ownership be filed with the Securities and Exchange Commission (the
"SEC") by Section 16 "reporting persons," including directors, certain officers,
holders of more than 10% of the outstanding Common Stock and certain trusts of
which reporting persons are trustees. The Company is required to disclose in
this Proxy Statement each reporting person whom it knows to have failed to file
any required reports under Section 16 on a timely basis during the fiscal year
ended September 30, 1999 or prior fiscal years.
To the Company's knowledge, based solely on a review of copies of Forms 3,
4 and 5 furnished to it and written representations that no other reports were
required, during the fiscal year ended September 30, 1999, the Company's
officers, Directors and 10% stockholders complied with all Section 16(a) filing
requirements applicable to them except: Mr. Plotkin failed to file one report
relative to one transaction. Mr. Aupperle failed to file one report relative to
one transaction. Mr. Tucciarone failed to file one report relative to one
transaction. Mr. Casey failed to file two reports relative to three
transactions. Mr. Herman failed to file one report relative to one transaction.
Mr. Kuperschmid failed to timely file one report relative to one transaction.
PROPOSAL 2: AMENDMENT TO CERTIFICATE OF INCORPORATION TO
INCREASE NUMBER OF AUTHORIZED COMMON SHARES
The Board of Directors has recommended an amendment to the Company's
Certificate of Incorporation to increase the number of authorized Common Shares
from 10,000,000 to 25,000,000. The Board believes such action to be in the best
interest of the Company so as to make additional shares available for
acquisitions, financing, present and future employee benefit programs and other
corporate purposes.
As indicated above, the Company is currently authorized to issue 10,000,000
Common Shares. As of May 25, 2000 there were 9,309,578 Common Shares issued and
outstanding. In addition, as of such date, there were 1,515,904 Common Shares
issuable pursuant to the exercise of outstanding options.
The additional Common Shares may be issued from time to time as the Board
of Directors may determine without further action of the stockholders of the
Company. Although the Board has no current plans to utilize such shares to
entrench present management, it may, in the future, be able to utilize the
additional shares as a defensive tactic against hostile takeover attempts. The
authorization of such shares shall have no current anti-takeover effect. No
hostile takeover attempts are, to management's knowledge, threatened. There are
no other provisions in the Company's charter or By- laws or other material
agreements to which the Company is a party which would, in management's
judgment, have an anti-takeover effect.
The relative rights and limitations of the Common Shares would remain
unchanged under the amendment. Stockholders of the Company do not currently
possess, nor upon the adoption of the
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<PAGE>
proposed amendment will they acquire, preemptive rights, which would entitle
such persons, as a matter of right, to subscribe for the purchase of any shares,
rights, warrants or other securities or obligations convertible into, or
exchangeable for, securities of the Company.
Recommendation and Required Vote
The affirmative vote of the holders of a majority of all of the outstanding
Common Shares of the Company is required for approval of this proposal. The
Board recommends a vote FOR the adoption of the proposed amendment to the
Certificate of Incorporation.
PROPOSAL 3: 2000 PERFORMANCE AND EQUITY INCENTIVE PLAN
The Company's Board of Directors adopted the 2000 Performance and Equity
Incentive Plan (subject to stockholder approval thereof) (the "2000 Plan") on
May 9, 2000. The purpose of the 2000 Plan is to provide equity ownership
opportunities and performance based incentives to attract and retain the
services of key employees, directors and non-employee consultants of the Company
and to motivate such individuals to put forth maximum efforts on behalf of the
Company.
The following summary provides a description of the significant provisions
of the 2000 Plan. However, such summary is qualified in its entirety by
reference to the full text of the 2000 Plan which is available at the offices of
the Company.
Shares Reserved for Distribution Pursuant to Awards Under the 2000 Plan
The number of Common Shares reserved for distribution pursuant to stock
options or other awards under the 2000 Plan is 500,000, subject to adjustment in
the event of any merger, reorganization, consolidation, recapitalization, stock
dividend, stock split or other changes in corporate structure affecting the
Common Stock. All of the Common Shares which may be awarded under the 2000 Plan
may be subject to delivery through Incentive Stock Options.
Administration
The 2000 Plan is to be administered by the Board of Directors or a
Committee thereof composed of two or more members who are non-employee directors
(the "Committee"). Grants of awards under the 2000 Plan to non-employee
directors require the approval of the Board of Directors.
The Board or the Committee may amend, suspend or discontinue the 2000 Plan
or any portion thereof at any time, but no amendment, suspension or
discontinuation shall be made which would impair the right of any holder without
the holder's consent. Subject to the foregoing, the Board or the Committee has
the authority to amend the 2000 Plan to take into account changes in law and tax
and accounting rules, as well as other developments. The Board or the Committee
may institute loan programs to assist participants in financing the exercise of
options through full recourse interest bearing notes not to exceed the cash
consideration plus applicable taxes in connection with the acquisition of
shares.
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Nature of Options
Stock options granted under the 2000 Plan may be of two types, those
intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended ("Incentive Stock Options") and those not so
intended to qualify ("Non-Qualified Stock Options"). To the extent that a stock
option does not qualify as an Incentive Stock Option, it shall constitute a Non-
Qualified Stock Option. Non-employee directors and non-employee consultants may
only be granted Non-Qualified Stock Options.
Option Price and Duration of Options
Incentive Stock Options granted under the 2000 Plan shall be exercisable at
fair market value at the date of grant, generally the closing price as reported
or such higher price as shall be determined by the Board or the Committee, and
shall be exercisable no more than 10 years after the date of grant.
Non-Qualified Stock Options shall be exercisable at such price as is determined
by the Board or the Committee and shall be exercisable no more than 10 years and
1 month. Stock options are exercisable at such times and under such terms and
conditions as shall be determined by the Board or the Committee. Incentive Stock
Options shall not be granted to any owner of 10% or more of the combined voting
power of the Company, unless the exercise price is at least 110% of the fair
market value on the date of grant, and the option states that it is not
exercisable after the expiration of 5 years from the date of grant. The
aggregate fair market value (determined on the date the option is granted) of
shares subject to an Incentive Stock Option granted to an optionee in any
calendar year shall not exceed $100,000.
Reload Feature
The Board or the Committee may grant options with a reload feature. A
reload feature shall only apply when the option price is paid by delivery of
Common Shares. The agreement for options containing the reload feature shall
provide that the option holder shall receive, contemporaneously with the payment
of the option price in Common Shares, a reload stock option to purchase that
number of Common Shares equal to the number of Common Shares used to exercise
the option, and, to the extent authorized by the Board of the Committee, the
number of Common Shares used to satisfy any tax withholding requirement incident
to the underlying Stock Option. The exercise price of the reload options shall
be equal to the fair market value of the Common Shares on the date of grant of
the reload option and each reload option shall be fully exercisable six months
from the effective date of the grant of such reload option. The term of the
reload option shall be equal to the remaining term of the option which gave rise
to the reload option. No additional reload options shall be granted to optionees
when Stock Options are exercised following the termination of the optionee's
employment. Subject to the foregoing, the terms of the 2000 Plan applicable to
the option shall be equally applicable to the reload option.
Stock Appreciation Rights
Stock Appreciation Rights may be granted in conjunction with all or part of
any stock option granted under the 2000 Plan or independent of a stock option
grant. Stock Appreciation Rights shall be subject to such terms and conditions
as shall be determined by the Board or the Committee. Upon the exercise of a
Stock Appreciation Right, a holder shall be entitled to receive an amount in
cash,
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<PAGE>
Common Shares, or both, equal in value to the excess of the fair market value
over the option exercise price per Common Share.
Restricted Stock
Shares of Restricted Stock may also be issued either alone or in addition
to other amounts granted under the 2000 Plan. The Board or the Committee shall
determine the officers, key employees and non-employee consultants to whom and
the time or times at which grants of Restricted Stock will be made, the number
of shares to be awarded, the time or times within which such awards may be
subject to forfeiture and any other terms and conditions of the award.
Long Term Performance Awards
Long Term Performance Awards may be awarded either alone or in addition to
other awards granted under the 2000 Plan. The Board or the Committee shall
determine the nature, length, and starting date of the performance period which
shall be at least two years. The maximum award for any individual with respect
to any one year of any applicable performance period shall be 100,000 Common
Shares.
Effect of Change in Control on Awards Under the 2000 Plan
Upon a Change in Control as defined in the 2000 Plan, but only to the
extent determined by the Board or the Committee, Stock Options, Stock
Appreciation Rights and Long Term Performance Awards (the "Award") will vest,
provided that no award granted to an employee of the Company shall vest or be
exercisable unless the employee's employment is terminated within 24 months from
the date of the Change in Control, unless the employee is terminated for Cause,
as defined by the 2000 Plan, or if the employee resigns his employment without
Good Reason, as defined by the 2000 Plan. Otherwise, the Award shall not vest
and be exercisable upon a Change in Control, unless otherwise determined. The
employee shall have 30 days from after his employment is terminated due to a
Change in Control to exercise all unexercised Awards. However, in the event of
the death or disability of the employee, all unexercised Awards must be
exercised within twelve (12) months after the death or disability of the
employee.
Eligibility
The Company estimates that approximately 50 employees and executive
officers and two (2) non-employee Directors are eligible at the present time to
participate in the 2000 Plan. No options, Common Shares or awards to date have
been granted under the 2000 Plan.
Federal Income Tax Consequences
Options granted under the 2000 Plan may be either Incentive Stock Options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
Non-Qualified Stock Options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options are as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the
14
<PAGE>
option grant, and no regular taxable income is generally recognized at the time
the option is exercised. The optionee will, however, recognize taxable income in
the year in which the purchased shares are sold or otherwise made the subject of
a taxable disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has not
disposed of the shares for more than 2 years after the option grant date and has
held the shares for more than 1 year after the exercise date. If either of these
two holding periods is not satisfied, then a disqualifying disposition will
result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then, in general, the excess of (i) the fair market
value of the shares on the exercise date over (ii) the exercise price paid for
those shares will be taxable as ordinary income to the optionee. However, if the
net proceeds of the disposition are less, then only the net proceeds, if any,
will be taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be taxable as a capital gain or loss.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Qualified Stock Options. No taxable income is recognized by an optionee
upon the grant of a Non-Qualified Stock Option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised, equal
to the excess of the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares, and the optionee will be
required to satisfy the tax withholding requirements applicable to such income.
Stock Appreciation Rights. No taxable income is recognized upon the receipt
of a stock appreciation right. The holder will recognize ordinary income, in the
year in which the right is exercised, equal to the excess of the fair market
value of the underlying Common Shares on the exercise date over the base price
in effect for the exercised right, and the holder will be required to satisfy
the tax withholding requirements applicable to such income. The Company will be
entitled to an income tax deduction equal to the amount of ordinary income
recognized by the holder in connection with the exercise of the stock
appreciation right. The deduction will be allowed for the taxable year of the
Company in which such ordinary income is recognized.
Long Term Performance Awards. Awards under Long Term Performance Plans will
usually be contingent on the attainment by the Company of certain performance
goals. Such grant, which by its terms will be contingent upon the attainment of
a specified future financial goal, is generally not taxable to the recipient,
even if the financial goal (such as earnings) is met prior to the award date.
The performance goals will not be considered met until the performance period
actually ends since, conceivably, the goals may fail to be realized because of
subsequent events. When the amount under the performance is both earned and paid
or made available to the participant, it will be treated as ordinary income. A
corporate deduction is available at the end of the year corresponding with the
year of the participant's inclusion of the award. Performance units are subject
to accounting treatment as variable awards, so that the expected cost of each
award must be estimated and accrued as an expense over the performance period.
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<PAGE>
Restricted Stock. Restricted stock is usually subject to forfeiture and is
non-transferable until a specified period of time has elapsed. Typically,
forfeiture of the shares will occur if the employee's employment is terminated
prior to the completion of the restricted period. Unless the employee makes an
election to be taxed in the current year, the employee must include in gross
income the excess of the fair market value of the restricted shares over the
amount paid for such shares at the time the shares become transferable or are no
longer subject to a substantial risk of forfeiture. In general, the Company will
obtain a deduction in the tax year in which the employee includes the value of
the award in his or her income in the same amount as the income.
Recommendation and Required Vote
The affirmative vote of the holders of a majority of the outstanding Common
Shares of the Company present at the Meeting in person or by proxy is required
for approval of this proposal. The Board recommends a vote FOR ratification of
the adoption of the 2000 Performance and Equity Incentive Plan.
PROPOSAL 4: EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors adopted the Employee Stock Purchase Plan
(subject to stockholder approval thereof) (the "Employee Stock Purchase Plan")
on May 9, 2000, under Section 423 of the Internal Revenue Code of 1986, as
amended from time to time. The Employee Stock Purchase Plan is intended to
provide a method whereby full-time employees of the Company will have an
opportunity to acquire a proprietary interest in the Company through the
purchase of Common Shares. As adopted, subject to adjustment, there has been
reserved initially for issuance 100,000 Common Shares under the Employee Stock
Purchase Plan.
The following summary provides a description of the significant provisions
of the Employee Stock Purchase Plan. However, such summary is qualified in its
entirety by reference in the full text of the Employee Stock Purchase Plan which
is available at the offices of the Company.
Administration
The Employee Stock Purchase Plan is to be administered by the Board or a
Committee appointed by the Board of Directors to consist of two or more
disinterested persons (the "Committee"). The Board or the Committee has the
complete power and authority to terminate or amend the Employee Stock Purchase
Plan, however the Board or the Committee shall not, without the approval of the
stockholders of the Company, alter (i) the aggregate number of shares that may
be issued under the Employee Stock Purchase Plan or (ii) the class of employees
eligible to receive options under the Employee Stock Purchase Plan other than to
designate additional subsidiary corporations. No termination, modification or
amendment, may without the consent of an employee then having an option under
the Employee Stock Purchase Plan, adversely affect the rights of such employee
under such option.
Eligibility
Each employee who works more than twenty hours per week and more than five
months in a calendar year, who has completed six (6) consecutive months of
employment with the Company and is employed by the Company on the date his
participation in the Employee Stock Purchase Plan is to become effective is
eligible to participate in offerings under the Employee Stock Purchase Plan
which
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<PAGE>
commence after such six (6) month period has concluded. Persons who are not
employees are not eligible to participate.
No employee will be granted an option to purchase Common Shares if
immediately after the grant, such employee would own Common Shares and/or hold
outstanding options to purchase Common Shares possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or which
permits such employee the right to purchase stock under all employee stock
purchase plans of the Company to accrue at a rate which exceeds $25,000 in fair
market value (determined with reference to the value of the stock at the time
such option is granted) for each calendar year in which such option is
outstanding at any time.
Offerings Under the Employee Stock Purchase Plan
The Employee Stock Purchase Plan will terminate on December 31, 2003.
Except during the first year (year 2000), the Employee Stock Purchase Plan will
be implemented by four offerings each year on a quarterly basis. In each
offering, the maximum number of shares that may be issued in any quarterly
offering is 10,000, plus unissued shares from all prior offerings whether
offered or not. If while options are outstanding, the number of outstanding
Common Shares have increased, decreased, changed or been exchanged for a
different number through any reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split or similar transaction,
appropriate adjustment may be made by the Board or the Committee.
Option Grants and Prices
Each participating employee will be deemed to have been granted an option
to purchase a maximum number of Common Shares equal to (i) that percentage of
the employee's compensation which the employee has elected to have withheld,
multiplied by (ii) the employee's compensation during the Offering (as such term
is defined in the Employee Stock Purchase Plan) then divided by (iii) the
applicable option price.
Employees may elect payroll deductions up to 10% for each pay period. The
option price shall be the lower of 85% of the closing price of the Common Shares
on the offering commencement or termination date as reported on such date or the
nearest prior business day on which trading occurred on the NASDAQ National
Market System. If more than the maximum number of shares authorized are
exercised, the Company will make a pro-rata allocation.
Eligibility
The Company estimates that approximately 50 employees are eligible at the
present time to participate in the Employee Stock Purchase Plan including
executive officers whose ownership and options do not exceed the ownership
limits on participants. No options to date have been granted under the Employee
Stock Purchase Plan.
Federal Income Tax Consequences
As long as an option is granted pursuant to a plan under Section 423 of the
Internal Revenue Code, the employee will not recognize taxable income on the
exercise on the option. The basis of the Common Shares received upon the
exercise of an option is the option exercise price.
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If the employee disposes of Common Shares acquired by an exercise of an
option under a stock purchase plan before the expiration of the statutory
holding period, in the year of the disqualifying disposition the employee must
recognize as ordinary compensation income the difference between the optioned
Common Shares' fair market value and the option's exercise price. If the sale or
other taxable disposition of Common Shares occurs after the statutory holding
period has expired, the employee's gain on the sale of the Common Shares is an
amount equal to the excess of the proceeds of the sale over the employee's basis
in the option Common Shares. The statutory holding period for a Section 423 plan
stock is the later of two years after the granting of an option or one year from
the date of transfer of the Common Shares pursuant to the exercise of the
option.
Where an option is granted pursuant to a stock purchase plan at an option
price of more than 85% and less than 100% of the fair market value of the Common
Shares, the employee must include in taxable income at time of sale or other
taxable disposition of the optioned Common Shares, or upon the employee's death
while still holding the Common Shares, the lesser of:
(1) the amount, if any, by which the fair market value of the Common
Shares when the option was granted exceeds the option price; or
(2) the amount, if any, by which the Common Shares' fair market value at
the time of such disposition or death exceeds the exercise price paid.
The basis of the option Common Shares will be increased by the amount of
the compensation income recognized. This applies regardless of whether the
employee has held the Common Shares for the statutory holding period.
The Company may not deduct the difference between the fair market value of
the option Common Shares and the option exercise price if the option is issued
pursuant to a Section 423 plan.
Recommendation and Required Vote
The affirmative vote of the holders of a majority of the outstanding Common
Shares of the Company present at the Meeting in person or by proxy is required
for approval of this proposal. The Board recommends a vote FOR ratification of
the adoption of the Employee Stock Purchase Plan.
PROPOSAL 5: RATIFICATION OF 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, 2000. The Board of Directors
proposes ratification of the appointment of BDO Seidman, LLP.
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.
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Recommendation and Required Vote
The affirmative vote of the holders of a majority of the outstanding Common
Shares of the Company present at the Meeting in person or by proxy is required
for approval of this proposal. The Board recommends a vote FOR ratification of
the ratification of the appointment of BDO Seidman, LLP as the Company's
independent auditors. If such approval is not obtained, selection of independent
auditors will be reconsidered by the Board of Directors.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's next Annual
Meeting of Stockholders pursuant to the provisions of Rule 14a-8 of the SEC,
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), must be received by the Secretary of the Company at the principal
executive offices of the Company by March 1, 2001 for inclusion in the Company's
Proxy Statement and form of Proxy relating to such meeting. The Company,
however, intends to hold next year's annual meeting earlier in the year than
this year's meeting. Accordingly, the Company suggests that stockholder
proposals intended to be presented at next year's annual meeting be submitted
well in advance of January 1, 2001, the earliest date upon which the Company
anticipates the proxy statement and form of proxy relating to such meeting will
be released to stockholders.
OTHER BUSINESS
While the accompanying Notice of Annual Meeting of Stockholders provides
for the transaction of such other business as may properly come before the
Meeting, the Company has no knowledge of any matters to be presented at the
Meeting other than those listed as Proposals 1, 2, 3, 4 and 5 in the notice.
However, the enclosed Proxy gives discretionary authority in the event that any
other matters should be presented.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement is accompanied by a copy of the Company's Annual
Report for the fiscal year ended September 30, 1999.
The following information from the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1999, as amended (File No. 001-13550), as
filed with the Securities and Exchange Commission (the "SEC") pursuant to
Section 13 or 15(d) of the Exchange Act, is hereby incorporated by reference
into this Proxy Statement:
(i) "Management's Discussion and Analysis," include in Item 7
thereof;
(ii) "Market Risks,", included in Item 7A thereof;
(iii)the consolidated financial statements of the Company as of
September 30, 1999 and for the years ended September 30, 1999,
1998 and 1997, included in Item 8 thereof; and
(iv) "Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure," included in Item 9 thereof.
The following additional information from the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 2000 (File No. 001-13550), as filed
with the SEC pursuant to Section 13
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<PAGE>
or 15(d) of the Exchange Act, is hereby incorporated by reference into this
Proxy Statement:
(i) the condensed consolidated financial statements of the Company as
of March 31, 2000 and for the six months ended March 31, 2000 and
1999, included in Item 1 of Part I thereof; and
(ii) "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included in Item 2 of Part I thereof.
Any statement contained in a document incorporated herein by reference
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
By Order of the Hauppauge Digital Inc.
Board of Directors
Kenneth Plotkin
Chairman of the Board
and Chief Executive Officer
Hauppauge, New York
June , 2000
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