<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
- ------------------------------------------------------------------------------
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
- ------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0- 11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
4041 N. CENTRAL AVENUE
PHOENIX, ARIZONA 85012
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 4, 1997
TO THE STOCKHOLDERS OF INTERACTIVE FLIGHT TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the
"Annual Meeting") of Interactive Flight Technologies, Inc., a Delaware
corporation (the "Company"), will be held at the Hyatt Regency Phoenix, located
at 122 North Second Street, Phoenix, Arizona, on June 4, 1997, at 10:00 a.m.,
local time, for the following purposes, all as more fully described in the
attached Proxy Statement:
1. The election of directors for the coming year.
2. To approve the adoption by the Board of Directors of the
Company's 1997 Stock Option Plan.
3. To approve a proposal to amend the Company's Certificate of
Incorporation so as to grant the Company's Board of Directors the
authority to adopt, amend and repeal the Company's Bylaws.
4. To approve the appointment by the Board of Directors of KPMG Peat
Marwick LLP, certified public accountants, as independent auditors of the
Company for the fiscal year ending October 31, 1997.
5. To transact such other business as may properly come before the
meeting and any and all adjournments thereof.
The Board of Directors has fixed the close of business on April 9, 1997 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Annual Meeting or any adjournment thereof.
A copy of the Company's Annual Report for the fiscal year ended October
31, 1996 is enclosed.
YOU ARE EARNESTLY REQUESTED TO DATE, SIGN AND RETURN THE ACCOMPANYING FORM
OF PROXY IN THE ENCLOSED ENVELOPE PROVIDED FOR THAT PURPOSE (TO WHICH NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES) WHETHER OR NOT YOU EXPECT TO
ATTEND THE ANNUAL MEETING IN PERSON. THE PROXY IS REVOCABLE BY YOU AT ANY TIME
PRIOR TO ITS EXERCISE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE
EVENT YOU ATTEND THE ANNUAL MEETING. THE PROMPT RETURN OF THE PROXY WILL BE OF
ASSISTANCE IN PREPARING FOR THE ANNUAL MEETING AND YOUR COOPERATION IN THIS
RESPECT WILL BE GREATLY APPRECIATED.
By Order of the Board of Directors
Lauren Snopkowski
Secretary
April 15, 1997
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE> 3
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
4041 N. CENTRAL AVENUE, SUITE 2000
PHOENIX, ARIZONA 85012
--------------------------
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1997
--------------------------
This Proxy Statement and the accompanying proxy are being furnished to
stockholders of Interactive Flight Technologies, Inc., a Delaware corporation
(the "Company") in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board") for use in voting at the Annual Meeting
of Stockholders to be held at the Hyatt Regency Phoenix, located at 122 North
Second Street, Phoenix, Arizona, on June 4, 1997, at 10:00 a.m., local time, and
at any and all adjournments thereof (the "Annual Meeting"). This Proxy Statement
and the accompanying proxy, together with a copy of the Annual Report of the
Company for the fiscal year ended October 31, 1996, including financial
statements, are first being mailed or delivered to stockholders of the Company
on or about April 15, 1997.
At the Annual Meeting, stockholders will be asked to consider and vote
upon the following proposals:
1. To elect eight directors to serve for a term of one year and
until their respective successors are elected and qualified.
2. To approve the adoption of the Company's 1997 Stock Option Plan,
under which options to purchase up to an aggregate 1,500,000 shares of
Class A Common Stock may be granted to officers, employees, directors and
consultants of the Company.
3. To approve a proposal to amend the Company's Certificate of
Incorporation so as to grant the Company's Board of Directors the
authority to adopt, amend and repeal the Company's Bylaws.
4. To approve the appointment by the Board of Directors of KPMG Peat
Marwick LLP, certified public accountants, as independent auditors of the
Company for the fiscal year ending October 31, 1997.
5. To transact such other business as may properly come before the
meeting and any and all adjournments thereof.
The enclosed proxy provides that each stockholder may specify that his or
her shares be voted "For", "Against" or "Abstain" from voting with respect to
each of the proposals. If the enclosed proxy is properly executed, duly returned
to the Company in time for the Annual Meeting and not revoked, your shares will
be voted in accordance with the instructions contained thereon. Where a signed
proxy is returned, but no specific instructions are indicated, your shares will
be voted FOR each of the proposals. Proxies marked as abstaining will be treated
as present for purposes of determining a quorum
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<PAGE> 4
for the Annual Meeting, but will not be counted as voting in respect of any
matter as to which abstinence is indicated.
Any stockholder who executes and returns a proxy may revoke it in writing
at any time before it is voted at the Annual Meeting by: (i) filing with the
Secretary of the Company, at the above address, written notice of such
revocation bearing a later date than the proxy or a subsequent proxy relating to
the same shares; or (ii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy).
Representatives of KPMG Peat Marwick LLP, independent accountants of the
Company, are expected to be present at the Annual Meeting and available to
respond to appropriate questions. Such representatives also will have the
opportunity, should they so desire, to make any statements to the stockholders
which they deem appropriate.
WHETHER OR NOT YOU ATTEND THE ANNUAL MEETING, YOUR VOTE IS IMPORTANT.
ACCORDINGLY, YOU ARE ASKED TO SIGN AND RETURN THE ACCOMPANYING PROXY REGARDLESS
OF THE NUMBER OF SHARES YOU OWN. SHARES CAN BE VOTED AT THE ANNUAL MEETING ONLY
IF THE HOLDER IS PRESENT IN PERSON OR IS REPRESENTED BY PROXY.
VOTING RIGHTS AND VOTING SECURITIES
VOTING AT THE ANNUAL MEETING
The Board of Directors of the Company (the "Board") has fixed the close of
business on April 9, 1997 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting (the
"Record Date"). Only stockholders of record at the close of business on the
Record Date will be entitled to vote at the Annual Meeting or any and all
adjournments thereof. On the Record Date, the Company had (i) _________ shares
of Class A Common Stock, par value $0.01 per share (the "Class A Common Stock"),
and (ii) ___________ shares of Class B Common Stock, par value $0.01 per share
(the "Class B Common Stock" and, together with the Class A Common Stock, the
"Common Stock") issued and outstanding. Each holder of Class A Common Stock will
be entitled to one vote per share, and each holder of Class B Common Stock will
be entitled to six votes per share, either in person or by proxy, on each matter
presented to the stockholders of the Company at the Annual Meeting.
The holders of a majority of all of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting constitute a quorum at the Annual
Meeting. The affirmative vote of the holders of a plurality of the votes
represented in person or by proxy at the Annual Meeting is required for election
of directors. The affirmative vote of the holders of a majority of the votes
represented in person or by proxy at the Annual Meeting is required to approve
Proposal 2 and Proposal 4. The affirmative vote of the holders of a majority of
the votes entitled to be cast at the Annual Meeting (whether or not represented
in person or by proxy at the Annual Meeting) is required to approve Proposal 3.
By virtue of their ownership of shares of Class B Common Stock, certain
officers, directors and affiliates of the Company controlled approximately ___%
of the outstanding voting power of the Common Stock on the Record Date. The
Company believes such individuals intend to vote "FOR" the election of all of
the director nominees listed in Proposal 1 and to vote "FOR" the approval of
Proposal 2, Proposal 3 and Proposal 4. Under these circumstances, all of the
directors nominated in Proposal 1 would be elected, and Proposal 2, Proposal 3
and Proposal 4 would be approved, at the Annual Meeting.
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PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of eight members. At
the Annual Meeting this year or any adjournments or postponements thereof, eight
directors are to be elected to serve for a term of one year and until their
respective successors are elected and qualified. The eight nominees receiving
the highest number of votes from holders of shares of the Common Stock of the
Company represented and voting at the Annual Meeting will be elected to the
Board of Directors of the Company. Abstentions and broker non-votes will have no
effect on the election of the directors listed below. Each director so elected
will hold office until the next annual meeting and until his successor is
elected and qualified.
GENERAL
Each proxy received will be voted for the election of the persons named
below, unless the stockholder signing such proxy withholds authority to vote for
one or more of these nominees in the manner described on the proxy. Should any
of the listed persons be unable to accept nomination or election (which the
Board of Directors does not anticipate), it is the intention of the persons
named in the enclosed proxy to vote for the election of such persons as the
Board of Directors may recommend.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Under Delaware law and the Bylaws of the Company, the election of
directors requires a plurality vote of those votes represented in person or by
proxy at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF EACH OF THE
NOMINEES LISTED BELOW.
INFORMATION REGARDING THE DIRECTORS AND NOMINEES FOR THE BOARD OF DIRECTORS OF
THE COMPANY
Each of the nominees for election as director is now a director of the
Company, other than Mr. Metzler who is currently the Company's President.
Messrs. Pritzker and Aron were appointed to the Board on December 10, 1996, as
required by the Company's Strategic Alliance Agreement with Hyatt Ventures, Inc.
and the Stockholders' Agreement described elsewhere herein. See "Certain
Relationships and Related Transactions. Mr. Barents was appointed to the Board
on December 10, 1996, to succeed Boris Itkis as a director of the Company. Each
incumbent director of the Company was nominated for re-election with the
exception of Mr. Howard Tytel, who resigned in March 1997.
Under the Stockholders' Agreement described elsewhere herein, Michail
Itkis, Yuri Itkis, Boris Itkis and Hyatt Ventures, Inc. have agreed to vote all
of their shares of Class A Common Stock and Class B Common Stock in favor of the
election of the respective nominees of Michail Itkis, Yuri Itkis and Hyatt
Ventures, Inc. See "Certain Relationships and Related Transactions --
Stockholders' Agreement." Such parties currently hold a sufficient number of
votes to elect each of those nominees. See "Security Ownership of Certain
Beneficial Owners and Management." The terms of Mr. Metzler's employment
agreement with the Company provide for his nomination to the Board as provided
herein. The persons named in the enclosed proxy intend to vote for the election
of the nominees for director who are listed below, unless the proxy is marked to
indicate that such authorization is expressly withheld.
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The following table sets forth the names, ages and current positions with
the Company of the nominees for director:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michail Itkis 33 Chief Executive Officer and Chairman of the Board
of Directors
Adam Aron 42 Director
Brian Barents 53 Director
General Alexander M. 72 Director
Haig, Jr.
Yuri Itkis 55 Director
Thomas M. Metzler 52 President and Chief Operating Officer
John Pritzker 43 Director
James H. Zukin 48 Director
</TABLE>
MICHAIL ITKIS has been the Chief Executive Officer and a director of the
Company since October 1994. Prior thereto, from January 1990, Mr. Itkis served
as the director of product development of FortuNet, Inc. ("FortuNet"), a
licensed gaming equipment manufacturer which distributes video gaming networks
to casinos and other gaming establishments. The Company has an exclusive license
from FortuNet for gaming technology for airline use. From May 1989 to November
1989, Mr. Itkis was project engineer for Computer Sciences Corp., a software
development firm, and, from July 1985 to May 1989, was project engineer for TRW,
Inc., a company engaged in defense system design. Michail Itkis is the son of
Yuri Itkis.
ADAM ARON has been a director of the Company since December 10, 1996.
Since July 1996, Mr. Aron has also served as Chairman of the Board and Chief
Executive Officer of Vail Resorts, Inc., the operator of the three largest ski
areas in the United States and largest ski-oriented company in the world. Prior
to joining Vail Resorts, Inc., from July 1993 to July 1996, Mr. Aron served as
President and Chief Executive Officer of Norwegian Cruise Line Limited, the
world's fourth largest cruise company. From November 1990 until July 1993 Mr.
Aron served as Senior Vice President of Marketing for United Airlines, and from
1987 to 1990 Mr. Aron served as Senior Vice President of Marketing of Hyatt
Hotels Corporation. Mr. Aron holds an M.B.A from the Harvard Business School and
a B.A in Government from Harvard College.
BRIAN BARENTS has been a director of the Company since December 10, 1996.
Since 1996, Mr. Barents has also acted as a Management Consultant for The
Pritzker Organization, based in Chicago, Illinois, principally in connection
with negotiations regarding possible formation of a U.S. based aerospace
company. From 1989 to 1996, Mr. Barents acted as President and Chief Executive
Officer of Learjet, Inc., a subsidiary of Bombardier, Inc. Prior thereto, Mr.
Barents served as the Vice President of Sales Staff of Toyota Motor Corporation
and as a Senior Vice President of Cessna Aircraft Company. Mr. Barents holds a
Bachelor of Business Administration degree from Western Michigan University and
attended a Graduate Studies program at the University of Michigan.
GENERAL ALEXANDER M. HAIG, JR. has been a director of the Company since
August 1996. General Haig is the Chairman and President of Worldwide Associates,
Inc., a consulting firm which assists public and private corporations both here
and abroad in developing and implementing marketing and acquisition strategies
in addition to providing strategic advice on the domestic and international
political, economic and security environment as will affect global commercial
activities. General Haig graduated from the U.S. Military Academy in 1947, was
commissioned a Second Lieutenant in the Army
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<PAGE> 7
and served in Japan, Korea, Europe and Vietnam in a variety of military
assignments. From 1962 to 1965 he served in the Pentagon and received the
Distinguished Service Cross for heroism during his service in Vietnam in 1966
and 1967. Advancing through the military ranks, he was promoted to full General
in 1972. General Haig was named White House Chief of Staff by President Nixon in
1973, at which point he retired from the military. In 1974, President Ford
recalled General Haig to active duty as Commander-in-Chief, U.S. European
Command, and was later appointed Supreme Allied Commander in Europe, responsible
for NATO's military force until he retired in 1979. General Haig was elected
President and Chief Operating Officer of United Technologies Corporation and a
member of its Board of Directors in 1979. On January 22, 1981, General Haig was
sworn in as the Nation's 59th Secretary of State under President Reagan. He
resigned from this position on July 5, 1982. He was an official candidate
(1987-1988) for the nomination of the Republican Party for the presidency of the
United States. General Haig is member of the Board of Directors of America
Online, Inc., Inteneuron Pharmaceutical, Inc., MGM Grand, Inc., and Progenitor,
Inc.
YURI ITKIS has been a director of the Company since October 1994. Since
October 1989, Mr. Itkis has been the president and sole stockholder of FortuNet.
Yuri Itkis is the father of Michail Itkis.
THOMAS M. METZLER has been the President and Chief Operating Officer of
the Company since November 1996. Prior thereto, from 1967 to 1996, Mr. Metzler
served in various capacities with AMR Corporation, the parent company of
American Airlines and AMR Services (a $500 million international diversified
airline services company). Mr. Metzler's positions with AMR Corporation
included, most recently, that of President and Chief Executive Officer of AMR
Services. Mr. Metzler holds a Bachelor of Business Administration degree from
the Adelphi University and attended the Advanced Management Program at the
Harvard Business School.
JOHN A. PRITZKER has been a director of the Company since December 10,
1996. Since January 1991, Mr. Pritzker has served as the Chief Executive Officer
of the Red Sail Companies, which provide ad specialty and catalogue fulfillment
services and operate water sports and retail facilities at resorts worldwide.
Mr. Pritzker is a director of Ticketmaster Group, Inc., and a trustee of the
U.S. Ski Team Foundation, San Francisco Museum of Modern Art, San Francisco Day
School and Children Now.
JAMES H. ZUKIN has been a director of the Company since June 1996. Mr.
Zukin is Senior Managing Director - Product Development, Chairman of the
Executive Committee, and a member of the Board of Directors of Houlihan Lokey
Howard & Zukin ("Houlihan Lokey"), a specialty investment banking firm. Prior to
joining Houlihan Lokey in September 1976, Mr. Zukin was founder and director of
ESOT Valuation Group at Marshall & Stevens and Vice President at Niederhoffer,
Cross & Zeckhauser. Currently, Mr. Zukin is a member of the ESOP Association of
America and the National Center for Employee Ownership, and a member of the
Board of Directors of Recreation World, Inc. and of the Brandeis-Bardin
Institute.
Directors serve until the next annual meeting or until their successors
are elected and qualified, subject to the provisions of a stockholders'
agreement. See "Certain Relationships and Related Transactions." Officers serve
at the discretion of the Board of Directors, subject to rights, if any, under
contracts of employment.
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MEETINGS OF THE BOARD OF DIRECTORS
The business affairs of the Company are managed under the direction of the
Board of Directors. Members of the Board are kept informed through various
reports and documents sent to them, through operating and financial reports
routinely presented at Board and committee meetings by Michail Itkis, as the
Chairman of the Board, and other officers, and through other means. In addition,
directors of the Company discharge their duties throughout the year not only by
attending Board meetings, but also through personal meetings and other
communications, including considerable telephone contact, with the Chief
Executive Officer and others regarding matters of interest and concern to the
Company.
During the fiscal year ended October 31, 1996, the Company's Board of
Directors held eight meetings. Each person who was a director attended all of
the Board meetings except (i) Mr. Haig was unable to attend two special meetings
of the Board and (ii) Mr. Boris Itkis was unable to attend one special meeting
of the Board.
BOARD COMMITTEES
The Company's Board of Directors has an Executive Committee, an Audit
Committee and a Compensation Committee but does not have a nominating committee.
The members of each committee are appointed by the Board of Directors.
Executive Committee. The Executive Committee has all of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Company to the fullest extent authorized by the provisions of the
Delaware General Corporation Law. The Executive Committee currently consists of
Messrs. Michail Itkis, John Pritzker and James Zukin. The Executive Committee
was in session at various times during fiscal 1996.
Audit Committee. The Audit Committee recommends to the Board of Directors
the auditing firm to be selected each year as independent auditors of the
Company's financial statements and to perform services related to the completion
of such audit. The Audit Committee also has responsibility for (i) reviewing the
scope and results of the audit, (ii) reviewing the Company's financial condition
and results of operations with management, (iii) considering the adequacy of the
internal accounting and control procedures of the Company, and (iv) reviewing
any non-audit services and special engagements to be performed by the
independent auditors and considering the effect of such performance on the
auditors' independence. The Audit Committee currently consists of Messrs. Aron
and Barents. There was no Audit Committee in session during any of the meetings
of the Board of Directors during fiscal 1996.
Compensation Committee. The Compensation Committee reviews and recommends
to the Board of Directors the compensation and benefits of all officers of the
Company, reviews general policy matters relating to compensation and benefits of
employees of the Company and administers the Company's stock incentive plan. The
Compensation Committee during fiscal 1996 consisted of Messrs Haig and Zukin.
The Compensation Committee currently consists of Messrs. Zukin and Pritzker. The
Compensation Committee was in session at various times during fiscal 1996.
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<PAGE> 9
PROPOSAL 2: ADOPTION OF 1997 STOCK OPTION PLAN
BACKGROUND
The Company's Amended and Restated 1994 Stock Option Plan (the "1994
Plan") provides for the issuance of up to 2,400,000 shares of Class A Common
Stock upon exercise of options granted thereunder. As of the Record Date, only
_______ of the 2,400,000 shares authorized for issuance under the 1994 Plan
remained available for new option grants. See "Executive Compensation -- Stock
Options."
PROPOSAL
At the Annual Meeting, the Company's stockholders are being requested to
approve the adoption of the Interactive Flight Technologies, Inc. 1997 Stock
Option Plan (the "1997 Plan"), which provides for the issuance of up to
1,500,000 shares of Class A Common Stock upon exercise of options granted under
the 1997 Plan. The shares which the Company is permitted to issue under the 1997
Plan would represent ____% of the outstanding shares of Class A Common Stock at
the Record Date, assuming the exercise of all options and other rights to
acquire Class A Common Stock outstanding at such date. No Options have been
granted to date under the 1997 Plan.
The Company believes that grants of stock options motivate high levels of
performance, align the economic interests of the Company's officers and
executives with those of the stockholders, and provide an effective method of
recognizing employee contributions to the success of the Company. The Company
also believes that its ability to grant stock options is critical to its success
in attracting and retaining experienced and qualified employees. The Company has
only _____ shares available for issuance under the 1994 Plan which are not
subject to currently outstanding options. Thus, since the adoption of the 1997
Plan is required to give the Board of Directors flexibility to grant additional
stock options, the Company believes it is necessary and in the best interests of
the Company and its stockholders to adopt the 1997 Plan.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Under Delaware law and the Bylaws of the Company, approval of the adoption
of the 1997 Plan requires the affirmative vote of the holders of a majority of
the votes represented in person or by proxy and cast at the Annual Meeting.
Abstentions will be treated as votes against the proposal and broker non-votes
will not be counted as represented at the meeting for purposes of calculating
the votes for and against the proposal.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL 2.
Summary of the 1997 Plan
The essential features of the 1997 Plan are outlined below. A copy of the
1997 Plan is attached as Appendix A to this Joint Proxy Statement/Prospectus.
The following summary does not purport to be fully descriptive and is subject in
its entirety to the full text of the 1997 Plan attached as Appendix A.
(a) Shares subject to the 1997 Plan. Up to an aggregate of 1,500,000
shares of Class A Common Stock are authorized for issuance under the 1997 Plan.
Shares which are not issued prior to
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expiration or termination of an option may thereafter be available for future
options under the 1997 Plan and will not be deemed to increase the aggregate
number of shares available under the 1997 Plan. The aggregate number of shares
available under the 1997 Plan and the number of shares subject to outstanding
options will be increased to reflect any changes in the outstanding common stock
of the Company by reason of any recapitalization, reclassification, stock
dividend, stock split, reverse stock split, merger, combination or other similar
transaction.
(b) Type of Options. Two types of options may be granted under the 1997
Plan: options intended to qualify as incentive stock options under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and options not
so qualified for favorable federal income tax treatment. Stock appreciation
rights entitling the holder to exercise an option by taking any appreciation
over the option exercise price in stock or, with the consent of the Committee
(as defined in (c), below), in cash, may be granted to in conjunction with
options.
(c) Administration. The 1997 Plan will be administered by the Compensation
Committee of the Board of Directors or another committee so designated by the
Board (the "Committee"). The members of the Committee will be (i) "non-employee
directors" within the meaning of, or otherwise satisfying the requirements of,
Rule 16b-3 under the Exchange Act, and (ii) "outside directors" within the
meaning of Section 162(m) of the Code.
(d) Amendment and Termination of the 1997 Plan. The Board may amend or
terminate the 1997 Plan from time to time in such respects as the Board may deem
advisable; provided that, to the extent necessary and desirable to comply with
Section 422 or Section 162(m) of the Code, Rule 16b-3 under the Exchange Act, or
any other successor or applicable law or regulation, the Company shall obtain
stockholder approval of any 1997 Plan amendment in such a manner and to such a
degree as is required by the applicable law, rule or regulation. Any amendment
or termination of the 1997 Plan shall not affect options or stock appreciation
rights already granted and such options and stock appreciation rights shall
remain in full force and effect as if the 1997 Plan had not been amended or
terminated, unless mutually agreed otherwise between the optionee and the
Committee, which agreement must be in writing and signed by the optionee and the
Committee. The Code and the rules and regulations thereunder governing incentive
stock option plans currently require stockholder approval for any increase in
the number of shares issuable under a plan and for changes in the eligibility
standards under a plan.
(e) Eligibility and Participation. All employees, directors, consultants
and advisors of the Company shall be eligible for selection to participate in
the 1997 Plan, except that only regular employees of the Company shall be
eligible to receive incentive stock options under the 1997 Plan. An individual
who has been granted an option may, if such individual is otherwise eligible, be
granted an additional option or options if the Committee shall so determine,
subject to the other provisions of the 1997 Plan. No officer may receive option
grants with respect to more than 500,000 shares of Class A Common Stock (subject
to adjustment in the event of stock splits, stock dividends and other similar
transactions) during any fiscal year or portion thereof.
(f) Duration of Options. Each option shall be of a duration specified in
the option agreement by the Committee, but all options shall expire within ten
years of the date of grant. Incentive stock options granted to employees owning
in excess of ten percent of the voting securities of the Company shall expire
within five years of the date of grant.
(g) Duration of the 1997 Plan. The 1997 Plan shall remain in effect until
for a term of ten years, unless sooner terminated by the Board.
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<PAGE> 11
(h) Rights as a Stockholder and Assignability. The recipient of an option
will have no rights as a stockholder with respect to shares covered by the
recipient's option until the date such recipient becomes the holder of record of
such shares. During the life of the option holder, the option will be
exercisable only by the recipient. Options will be transferrable only by will
and the laws of descent and distribution.
(i) Purchase Price. In the case of incentive stock options, the purchase
price payable upon the exercise of an option must be at least equal to the fair
market value of the stock on the date the option is granted. The exercise price
of a non-qualified stock option need not be equal to the fair market value of
the stock at the date of grant, but may be granted with any exercise price as
the Committee may determine. Additionally, grants of incentive stock options to
an employee owning over 10% of the voting stock of the Company must be at an
exercise price of not less than 110% of the fair market value on the date of
grant. Payment in full for the number of shares purchased upon the exercise of
either incentive or non-qualified stock options shall be made (i) in cash, (ii)
by means of a promissory note, (iii) by delivery of a properly executed exercise
notice together with other documentation require to effect an exercise of the
option and delivery to the Company of the sale or loan proceeds required to pay
the exercise price, (iv) if authorized by the Committee, or if specified in the
option being exercised, by delivery of Class A Common Stock already owned by and
in possession of the option holder, or (v) any combination thereof, at the same
time the option is exercised.
(j) Basic Terms of Options. Each option shall be evidenced by a stock
option agreement containing terms and conditions not inconsistent with the
provisions of the 1997 Plan. Options may be exercisable in one or more
installments and to the extent that an installment is not exercised when it
becomes exercisable, it shall continue to be exercisable until the option shall
terminate or expire notwithstanding any other provisions of the 1997 Plan or
agreement thereunder.
(k) Limitations on Value of Incentive Option Grants. The 1997 Plan limits
the aggregate market value of stock (valued at the date of option grant) subject
to incentive stock options for any employee in any calendar year to not more
than $100,000.
(l) Termination of Employment; Death. No incentive stock option will be
exercisable more than 90 days after termination of the employment of the option
holder except that (i) if such termination is due to death or disability of the
employee, then such option may be exercisable for no more than six months after
such employee's death or disability and (ii) if the optionee has disclosed
confidential information or trade secrets of the Company or is otherwise in
breach of his or her employment or consulting agreement with the Company, such
option shall cease to be exercisable immediately. Unless otherwise specified in
the individual option agreement, non-qualified options shall expire thirty days
after termination of the employment or other relationship of the option holder
with the Company except that, if such termination is due to death or disability,
the non-qualified stock options shall expire no more than six months after such
option holder's death or disability.
FEDERAL INCOME TAX CONSIDERATIONS
Under federal income tax law, the grant of a non-qualified stock option
has no tax effect on the Company or the optionee to whom it is granted. If the
shares received on exercise of a non-qualified option are not subject to
restrictions on transfer and risk of forfeiture, the exercise will result in
ordinary income to the optionee equal to the excess of the fair market value of
the shares at the time of exercise over the option price. The optionee's tax
basis in the shares received will be equal to the aggregate exercise price paid
by the optionee plus the amount of taxable income recognized. Upon any
subsequent
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<PAGE> 12
disposition of the shares, any further gain or loss will normally be capital
gain or loss, and will be long-term if held more than one year after exercise.
Subject to the limitations of Section 162(m) of the Code, discussed below, the
Company will generally be allowed, at the time of recognition of ordinary income
by the optionee upon exercise, to take a deduction for federal income tax
purposes in an amount equal to such recognized income, provided that the Company
has complied with any obligation it may have to withhold taxes with respect to
such non-qualified stock option.
If the shares received on exercise of a non-qualified option are subject
to certain restrictions on transfer and risks of forfeiture, the exercise of the
option will only result in a taxable transaction to the employee and a deduction
to the Company if the optionee elects to be taxed at that time, and the tax
consequences will be as described in the preceding paragraph. If an effective
election is not made, income will be recognized when restrictions on transfer or
risks of forfeiture lapse, at which time the optionee will recognize ordinary
income equal to the excess of the fair market value of the shares purchased over
the option price at that time and, subject to Section 162(m) of the Code, the
Company will generally be allowed an equal deduction. The optionee's tax basis
in the shares received will be equal to the aggregate option price plus the
amount of taxable income recognized. Taxation or any subsequent disposition of
shares will normally generate capital gain or loss as described above.
No tax will occur by reason of the grant of a stock appreciation right.
However, any cash and the fair market value of any shares received constitute
taxable income to the recipient upon the date of exercise except to the extent
the shares received are restricted as to transfer and subject to certain risks
of forfeiture and no effective election is made to be taxed at that time. If
such transfer restrictions and forfeiture risks exist and no effective election
is made, the recipient will recognize ordinary income equal to the fair market
value of the shares when the transfer restrictions or forfeiture risks lapse.
Subject to Section 162(m) of the Code, the Company will generally be allowed an
equal deduction at the time the recipient recognizes income. Any subsequent
disposition of the shares received will generate capital gain or loss if the
sale price is different from the amount of taxable income recognized with
respect to such shares as described above.
Except as noted below with respect to the alternative minimum tax, there
will also be no federal income tax consequences to the Company or the optionee
as a result of the grant or exercise of an incentive stock option. If the
optionee holds shares for at least two years from the date of the grant and at
least one year from the date of exercise, a subsequent sale of the shares at a
price different from the option price will generate taxable long-term capital
gain or loss. If the holding periods described above are met, no deduction will
be allowed to the Company for federal income tax purposes at any time. If,
however, the optionee disposes of the shares prior to satisfying both the
holding periods described above (a "Disqualifying Disposition"), (i) the
optionee will realize ordinary income in the year of such disposition in an
amount equal to the difference between the option price and the lesser of (a)
the fair market value of such shares on the date of exercise or (b) the sales
price; (ii) subject to Section 162(m) of the Code, the Company will generally be
entitled to a deduction for such year in the amount of the ordinary income so
realized; and (iii) the optionee will realize capital gain or loss in an amount
equal to the difference between (a) the amount realized by the optionee upon
such sale of the shares and (b) the option price paid by the optionee increased
by the amount or ordinary income, if any, realized by the optionee upon such
disposition.
The alternative minimum tax may apply to optionees because the excess of
the fair market value of shares received over the exercise price of an incentive
stock option on the exercise date constitutes an item of preference in the year
of exercise unless there is a Disqualifying Disposition in that year. The
alternative minimum tax may produce a higher tax than the regular income tax
applicable to the optionee.
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<PAGE> 13
While there are possible tax advantages to the employees who receive
incentive stock options rather than non-qualified stock options, there are tax
disadvantages to the Company. As discussed above, the Company normally is
entitled, subject to Section 162(m) of the Code, to take a deduction for tax
purposes in an amount equal to the ordinary income recognized by the optionee at
the time of exercise of a non-qualified stock option; but in the case of an
incentive stock option where there is no Disqualifying Disposition, the Company
normally will not be entitled to any deduction.
Section 162(m) of the Code, which was added to the Code in 1993, provides
that any publicly held corporation will be denied a deduction for compensation
paid to a "covered employee" to the extent that the compensation exceeds
$1,000,000. However, the deduction limit does not apply to "performance-based
compensation", as defined in Section 162(m). Performance-based compensation is
compensation where (i) the compensation is payable on account of the attainment
of one or more performance goals; (ii) the performance goals are established by
a compensation committee of the board of directors consisting of "outside
directors"; (iii) the material terms of the compensation and the performance
goals are disclosed to and approved by the stockholders in a separate vote; and
(iv) the compensation committee certifies that the performance goals have been
satisfied. If approved by the stockholders, the Company believes that the stock
options and stock appreciation rights granted under this plan (unless granted
for purchase prices below the fair market value of the stock subject to the
option or right) will satisfy the requirements to be treated as
performance-based compensation.
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<PAGE> 14
PROPOSAL 3: AMENDMENT TO CERTIFICATE OF INCORPORATION TO
AUTHORIZE BOARD OF DIRECTORS TO ADOPT, AMEND OR REPEAL BYLAWS
The Delaware General Corporation Law provides that, after a corporation
has received any payment for any of its stock, the power to adopt, amend or
repeal such corporation's bylaws is vested in the stockholders entitled to vote.
However, any corporation may in its certificate of incorporation confer upon its
directors the power to adopt, amend or repeal its Bylaws.
The Company's Certificate of Incorporation (the "Certificate") presently
does not grant the Board the authority to adopt, amend or repeal the Company's
Bylaws. The Board believes that it would be in the best interests of the Company
for the Board to have such authority, since most provisions of the Bylaws are
ministerial in nature, and soliciting stockholder approval of each Bylaw
amendment, however minor, is cumbersome, time consuming and unnecessarily
costly. For these reasons, the Board believes that it is uncommon for a board of
directors of a publicly-traded corporation not to have such authority. Further,
under Delaware law, granting the Board this authority will not limit the power
of the Company's stockholders thereafter to adopt, amend or repeal the Company's
Bylaws.
Consequently, the Board has adopted a resolution proposing that the
Certificate be amended to contain such a provision. The text of the proposed
amendment authorizing the Board to amend the Bylaws is as follows:
"Resolved that a new Article Ten be added to the Company's
Certificate of Incorporation which shall read in its entirety as follows:
ARTICLE TEN
BYLAWS
The Board of Directors is expressly empowered to adopt, amend
or repeal the Bylaws of the Corporation."
The Board of Directors does not presently intend to modify the Bylaws from
their current form except (i) to revise the descriptions therein of the various
officers of the Company so as to conform the descriptions with the Company's
current practice and (ii) to update the address of the Principal Executive
Offices of the Company.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Under Delaware law and the Bylaws of the Company, the affirmative vote of
the holders of a majority of the votes entitled to be cast at the Annual Meeting
(whether or not represented in person or by proxy) is required to adopt the
proposed amendment. For this purpose, abstentions and broker non-votes will have
the effect of votes against the proposal.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL 3.
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<PAGE> 15
PROPOSAL 4: APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG") to act
as its independent accountants for the fiscal year ending October 31, 1997 and
the financial statements relating thereto. KPMG previously acted as the
Company's independent accountants for its 1995 and 1996 fiscal years.
The stockholders are being asked to approve the appointment of KPMG by the
Board of Directors for the fiscal year ending October 31, 1997. In the event the
appointment is not approved, the Board of Directors will reconsider its
selection.
Representatives of KPMG are expected to be present at the Annual Meeting
and available to respond to appropriate questions by stockholders. Such
representatives also will be afforded an opportunity, should they so desire, to
make any statements to the stockholders which they deem appropriate.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Under Delaware law and the Bylaws of the Company, approval of the
appointment of KPMG, certified public accountants, as independent auditors of
the Company for the fiscal year ending October 31, 1997 requires the affirmative
vote of the holders of a majority of the votes represented in person or by proxy
at the Annual Meeting. For this purpose, abstentions will have the effect of
votes against the proposal. However, broker non-votes, like shares not
represented at the meeting, will neither be counted in favor of or against the
proposal, nor increase or decrease the number of votes required for approval,
and thus will have no effect on the outcome of the proposal.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL 4.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and current positions with
the Company of the Company's current executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michail Itkis 33 Chief Executive Officer
Thomas M. Metzler 52 President and Chief Operating Officer
John W. Alderfer 52 Chief Financial Officer and Treasurer
Robert Hooper 61 Vice President-- Sales and Marketing
</TABLE>
Background information for all executive officers other than Mr. Alderfer
and Mr. Hooper is provided above. See "Proposal 1: Election of Directors."
JOHN W. ALDERFER has served as the Company's Chief Financial Officer since
September 1996. Prior to joining the Company, from September 1990 through
September 1996, Mr. Alderfer served as the Senior Vice President, Treasurer and
Chief Financial Officer of Alliance Gaming Corporation, a publicly traded
diversified gaming company which operates various casinos and also engages in
gaming
-13-
<PAGE> 16
equipment manufacturing and distribution. From 1989 to 1990, Mr. Alderfer served
as the Chief Financial Officer of The Bicycle Club -- a Los Angeles based
California card club. From 1971 to 1989, Mr. Alderfer served in various
financial capacities with the Summa Corporation, the Howard R. Hughes Estate
Businesses, which operated numerous gaming establishments in Las Vegas and Reno.
From 1966 to 1971, he was employed as a certified public accountant by Deloitte
& Touche (then known as Haskins & Sells). Mr. Alderfer received his Bachelor of
Science in Business Administration with an accounting major from Texas Tech
University in 1966 and is a certified public accountant.
ROBERT HOOPER has served as the Company's Vice President -- Sales and
Marketing since January 1997. From June 1994 through November 1996, Mr. Hooper
acted as Vice President of Industry Marketing & Business Development for Stratus
Computer, Inc., a system and software manufacturer. From 1992 to 1994, Mr.
Hooper served as Vice President -- Marketing and Product Planning for American
Airlines (AMRIS, Transportation Automation Services), a subsidiary of AMR
Corporation. From 1989 to 1992, Mr. Hooper served as Vice President -- Marketing
and Sales and Vice President -- Airline Marketing of British Airways. From 1960
to 1989, Mr. Hooper held various positions with International Business Machines
Corp. including, most recently, that of Director of International Airline
Marketing. Mr. Hooper holds a Bachelor of Arts degree from the University of
Rochester and attended the Financial Management for Senior Executives program of
the Harvard Business School.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company for the fiscal period commencing
February 1, 1994 (commencement of operations) through October 31, 1994 and the
fiscal years ended October 31, 1996 and October 31, 1995 to (i) the Chief
Executive Officer (the "CEO"), and (ii) those executive officers other than the
CEO whose total annual compensation for the 1996 fiscal year exceeded $100,000
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) STOCK OPTIONS (#)
- --------------------------- ----------- ---------- -----------------
<S> <C> <C> <C>
Michail Itkis, Chief Executive Officer(1) ... 1996 $188,933 375,000
1995 $125,000 15,000
1994 -- --
Robert J. Aten, Former Chief Financial 1996 $216,380(4) 30,000
Officer(2) .................................. 1995 $ 97,115 --
1994 -- --
Lance D. Fieldman, Former Vice President 1996 $298,075(4) 35,000
Sales(3) .................................... 1995 $ 60,000 5,000
1994 -- --
</TABLE>
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<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Donald H. Goldman, Former President(5).............. 1996 $ 107,308(6) --
1995 $ 150,000 15,000
1994 -- --
</TABLE>
- -----------
(1) Excludes relocation expenses of $114,997 paid to Mr. Itkis during the 1996
fiscal year.
(2) Excludes relocation expenses of $20,453 paid to Mr. Aten during the 1996
fiscal year. Mr. Aten resigned as Chief Financial Officer as of October
11, 1996.
(3) Mr. Fieldman resigned as Vice-President of Sales as of November 2, 1996.
(4) Includes certain payments due as severance upon resignation. See "--
Employment and Severance Agreements."
(5) Mr. Goldman resigned as President as of May 10, 1996.
(6) Includes certain payments due as severance upon resignation. See "--
Employment and Severance Agreements."
OPTION GRANTS IN FISCAL YEAR
The following table sets forth the grant of stock options made during the
1996 fiscal year to the CEO and the Named Executive Officers:
<TABLE>
<CAPTION>
% Total Options Granted
to Employees in 1996 Exercise (Expiration
NAME Options Granted Fiscal Year(1) Price(2) (Date)
- ---- --------------- ---------------- -------- ---------
<S> <C> <C> <C> <C>
Michail Itkis................ 300,000 $ 9.875 8/27/2006
75,000 $ 11.00 2/20/2006
=======
375,000 24.52%
Robert J. Aten............... 30,000 1.96% $ 4.40 1/31/2006
Lance D. Fieldman ........... 25,000 $ 5.00 1/31/2005
10,000 $ 11.00 2/20/2006
=======
35,000 2.29%
Donald H. Goldman............ 25,000 1.64% $ 11.00 2/20/2006
</TABLE>
- -----------
(1) Based on a total of 1,529,000 options granted to employees during the 1996
fiscal year.
(2) Represents 100% of the fair market value of the Class A Common Stock on
the date of grant. However, all stock options under the 1994 Plan with
exercise prices in excess of $8.00 were repriced to $8.00 on January 6,
1997 provided the holder was a current employee, officer, director or
consultant of the Company.
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<PAGE> 18
AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR
AND FY-END OPTION VALUE
The following table provides certain information regarding stock option
ownership and exercises by the CEO and the Named Executive Officers, as well as
the number and assumed value of exercisable and unexercisable options held by
those persons, at October 31, 1996:
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options Options at
at October 31, October 31,
1996 (#) 1996($)
Shares Acquired Value Exercisable/ Exercisable/
NAME on Exercise (#) Realized ($) Unexercisable(1) Unexercisable(1)
- ---- --------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Michail Itkis............ - - 115,000/275,000 $99,000/$1,125,000
Robert J. Aten........... 19,847 $258,000 0/0 $0/$0
Lance D. Fieldman........ 3,040 $38,760 0/35,000 $0/$0
Donald H. Goldman........ 5,708 $58,507 0/25,000 $0/$0
</TABLE>
- -----------------
(1) Value of exercisable "in-the-money" options is equal to the difference
between the closing bid price per share of the Class A Common Stock on the
Nasdaq Small-Cap Market of $11.00 at October 31, 1996 and the option
exercise price per share multiplied by the number of shares subject to
options.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has an employment agreement with Michail Itkis, the Company's
Chief Executive Officer, which provides for per annum base salary of $125,000,
and the grant of options to purchase up to 15,000 shares of Class A Common Stock
per year, respectively, at an exercise price equal to the fair market value on
the date of grant, except for the first grant. The agreement provides for 12
months severance pay (with certain offset provisions) if Mr. Itkis is terminated
by the Company under certain conditions. The agreement also provides that Mr.
Itkis will not compete with the Company during the term of the agreement and for
a period of three years thereafter. The agreement expires October 30, 1997;
however, the Board has approved, and the Company and Mr. Itkis are negotiating
the terms of, a new employment for Mr. Itkis which would extend through August
27, 1999, and would provide for an annual base salary of $250,000 per year.
Donald H. Goldman served as a director of the Company and was employed by
the Company as President until he resigned from such positions as of May 10,
1996. Mr. Goldman left the Company voluntarily to pursue other interests. In
connection with his resignation, the Company and Mr. Goldman agreed that Mr.
Goldman will render such consulting, legal and other services to the Company,
consistent with his experience and background and subject to his other business
commitments, as may be reasonably requested by the Company's then President or
Chief Executive Officer during the 15 month period commencing on May 10, 1996.
The Company agreed to pay Mr. Goldman at the rate of $150,000 per year during
such 15 month period and to grant Mr. Goldman an option to purchase 10,000
shares of
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<PAGE> 19
Class A Common Stock in the event that either or both of Messrs. Michail Itkis
and Steven Fieldman receive compensatory options during the Consulting Term.
Robert J. Aten was employed by the Company as Chief Financial Officer
pursuant to an employment agreement with the Company until he was replaced in
that position as of October 11, 1996. In connection with his termination, the
Company and Mr. Aten agreed that Mr. Aten will render certain limited consulting
and other services to the Company as may be reasonably requested by the Company.
Pursuant to Mr. Aten's employment agreement, he received an aggregate severance
payment of $90,390 upon his termination.
Lance D. Fieldman was employed by the Company as Vice President of Sales
pursuant to an employment agreement with the Company until he resigned from the
position as of November 2, 1996. In connection with his resignation, the Company
and Mr. Fieldman agreed that Mr. Fieldman will render certain limited consulting
and other services to the Company, consistent with his experience and background
and subject to his other business commitments, as may be reasonably requested by
the Company during the one-year period commencing on November 2, 1996. The
Company agreed to pay Mr. Fieldman an aggregate of $100,000 as compensation for
such services and an additional $300,000 as settlement of certain commissions
claimed to be owed to him. Mr. Fieldman has further agreed that he will vote his
stock on all matters in proportion to the vote of the Company's other
stockholders.
Steven M. Fieldman served as a director of the Company and was employed by
the Company as Vice President of Business Development pursuant to an agreement
with the Company until he resigned from the position as of November 2, 1996. In
connection with his resignation, the Company and Mr. Fieldman agreed that Mr.
Fieldman will render certain limited consulting and other services to the
Company, consistent with his experience and background and subject to his other
business commitments, as may be reasonably requested by the Company during the
period ending October 27, 1999. Mr. Fieldman will receive a fee of $55,000 per
year for such services. In addition, the Company has agreed that,
notwithstanding Mr. Fieldman's resignation, all of his outstanding employee or
director stock options will continue to vest and be exercisable in accordance
with their respective terms, except that vesting of 300,000 options granted
August 27, 1996 will be partially accelerated. Mr. Fieldman has further agreed
that he will vote his stock on all matters in proportion to the vote of the
Company's other stockholders.
DIRECTOR COMPENSATION
Outside directors receive $2,500 for meeting attended in person and $1,000
for each meeting attended telephonically. In addition, all directors are
reimbursed for expenses actually incurred in connection with each meeting of the
Board of Directors or any Committee thereof attended. Certain directors are
entitled to automatic grants of options under the Company's 1994 Stock Option
Plan. See "-- Stock Options -- Directors' Options."
STOCK OPTIONS
In October 1994, the Board of Directors adopted, and in November 1994 the
Company's stockholders approved, the 1994 Stock Option Plan (the "1994 Plan").
In August 1996 the stockholders approved an amendment to the 1994 Plan which
increased the number of shares authorized under the plan to 2,400,000 shares of
the Company's Class A Common Stock. Under the 1994 Plan, employees, officers and
directors of, and consultants or advisers to, the Company and any subsidiary
corporations are eligible to receive incentive stock options ("incentive
options") within the meaning of Section 422 of
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<PAGE> 20
the Code and/or options that do not qualify as incentive options ("non-qualified
options"). The 1994 Plan, which expires in September 2004, is administered by
the Board of Directors or a committee of the Board of Directors, provided,
however, that with respect to "officers" and "directors," as such terms are
defined for the purposes of Rule 16b-3 ("Rule 16b-3") promulgated under the
Exchange Act, such committee shall consist of "disinterested" directors as
defined in Rule 16b-3, but only if at least two directors meet the criteria of
"disinterested" directors as defined in Rule 16b-3. The 1994 Plan also provides
for automatic grants of options to certain directors in the manner set forth
below under "--Directors' Options."
Options granted under the 1994 Plan may be either incentive options or
non-qualified options. Incentive options granted under the 1994 Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Class A Common Stock
on the date of the grant, except that the term of an incentive option granted
under the 1994 Plan to a stockholder owning more than 10% of the outstanding
voting power may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the Class A Common Stock on the date of
the grant. To the extent that the aggregate fair market value, as of the date of
grant, of the shares for which incentive options become exercisable for the
first time by an optionee during the calendar year exceeds $100,000, such
options will be treated as non-qualified options to the extent that the fair
market value of the optioned shares exceeds $100,000. Additionally, the
aggregate number of shares of Class A Common Stock that may be subject to
options granted to any person in a calendar year shall not exceed 25% of the
maximum number of shares of Class A Common Stock which may be issued from time
to time under the 1994 Plan. Options granted under the 1994 Plan to officers,
directors or employees of the Company may be exercised only while the optionee
is employed or retained by the Company or within 90 days of the date of
termination of the employment relationship or directorship, unless otherwise
agreed by the Company. However, options which are exercisable at the time of
termination by reason of death or permanent disability of the optionee may be
exercised within 12 months of the date of termination of the employment
relationship or directorship. Upon the exercise of an option, payment may be
made by cash or by any other means that the Board of Directors or the committee
determines. No option may be granted under the 1994 Plan after October 2004.
Options may be granted only to such employees, officers and directors of,
and consultants and advisors to, the Company or any subsidiary of the Company as
the Board of Directors or the committee shall select from time to time in its
sole discretion, provided that only employees of the Company or a subsidiary of
the Company shall be eligible to receive incentive options.
As of the Record Date, options to purchase an aggregate of ________ shares
had been granted under the 1994 Plan at exercise prices of between $4.40 and
$16.125 per share, of which ______ had been exercised and _____ had been
forfeited. Accordingly, as of the Record Date, options to purchase___________
shares were outstanding under the 1994 Plan. The Company has filed a
registration statement with the Commission covering the 2,400,000 shares of
Class A Common Stock issuable upon exercise of options granted under the 1994
Plan.
Directors' Options
The provisions of the 1994 Plan provide for the automatic grant of
non-qualified stock options to purchase shares of Common Stock ("Director
Options") to directors of the Company who are not employees or principal
stockholders of the Company ("Eligible Directors"). Eligible Directors of the
Company were granted a Director Option to purchase 10,000 shares of Class A
Common Stock on March 7, 1995 ("Initial Director Option"). Further, commencing
on the day immediately following the
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<PAGE> 21
date of the annual meeting of stockholders for the Company's fiscal year ending
October 31, 1996, each Eligible Director, other than directors who received an
Initial Director Option since the last annual meeting, will be granted a
Director Option to purchase 1,000 shares of Common Stock ("Automatic Grant") on
the day immediately following the date of each annual meeting of stockholders,
as long as such director is a member of the Board of Directors. The exercise
price for each share subject to a Director Option shall be equal to the fair
market value of the Class A Common Stock on the date of grant, except for
directors who receive incentive options and who own more than 10% of the voting
power, in which case the exercise price shall be not less than 110% of the fair
market value on the date of grant. Director Options are exercisable in four
equal annual installments, commencing one year from the date of grant. Director
Options will expire the earlier of 10 years after the date of grant or 90 days
after the termination of the director's service on the Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STRATEGIC ALLIANCE WITH HYATT GROUP
In November 1996, the Company executed a Strategic Alliance Agreement (the
"Alliance Agreement") to form a strategic alliance with Hyatt Ventures, Inc.
("Hyatt"). Mr. Pritzker has an indirect beneficial ownership interest in Hyatt
and serves as its President. Under the terms of the Alliance Agreement, Hyatt,
directly and through certain of its affiliates (collectively, the "Hyatt
Group"), has agreed to use its best commercial efforts to assist the Company in
advancing the Company's business with respect to the Entertainment Network. In
return, Hyatt will receive warrants to purchase Class A Common Stock comprising
up to ten percent of the fully-diluted outstanding Class A and Class B Common
Stock (after giving effect to the exercise of these warrants and the exercise of
all other rights, options and warrants outstanding as of that date).
One-ninetieth of these warrants will be issued for each airplane with respect to
which the Company, or a joint venture subsidiary of the Company, obtains a
binding purchase commitment from an airline (excluding Swissair, Debonair,
Alitalia and certain smaller airlines with which the Company has had prior
negotiations). Under the Alliance Agreement, Hyatt also purchased shares of the
Company's Class A Common Stock aggregating $1 Million in the open market.
Hyatt also has the right to designate no less than two nominees to the
Board of Directors of the Company (the "Board"), and may designate additional
nominees if the size of the Board is increased. Hyatt has designated John
Pritzker, President of Hyatt and Adam Aron, Chairman and Chief Executive Officer
of Vail Resorts, Inc. to be its representatives on the Board. Under the terms of
the Alliance Agreement, these individuals received options to purchase an
aggregate of 250,000 shares of Class A Common Stock under the Company's Amended
and Restated 1994 Stock Option Plan.
Hyatt also has the right under the Alliance Agreement to invest in each of
up to six joint ventures in order to raise up to one-third of the financing
required by the Company for specified airline projects and up to two such joint
ventures relating to non-airline projects (each, a "Joint Venture"). The
Alliance Agreement further provides that, at any time following completion of
the installation of all Entertainment Networks initially contemplated to be
financed and sold by a specified airline Joint Venture (or at a similar mutually
agreed upon milestone with respect to any non-airline Joint Venture), Hyatt
shall have the right to convert between fifty percent and one hundred percent of
its initial equity interest in such Joint Venture into shares of Class A Common
Stock. This conversion would be at a rate based on the then market price of a
share of Class A Common Stock and a valuation of Hyatt's equity interest in the
Joint Venture on the conversion date (as mutually agreed by the parties or,
absent such agreement, as determined by an independent appraiser using a
discounted cash flow method). Such a conversion may
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<PAGE> 22
not be fully exercised if, after giving effect thereto, the aggregate ownership
of Class A Common Stock by Hyatt or the Hyatt Group (excluding shares of Class A
Common Stock acquired under the above-described warrants, shares acquired in the
above-described $1 Million open market purchases and shares received for
executing the Qantas agreement as described below) would exceed twenty percent
of the aggregate number of shares of voting securities of the Company then
outstanding, calculated on a fully diluted basis.
The Alliance Agreement and related agreements also provide Hyatt with the
right to demand up to four registrations, and unlimited "piggyback" registration
rights, in connection with its resale of any shares acquired under the Alliance
Agreement (other than shares acquired in the open market).
Following execution of the Alliance Agreement, Hyatt agreed to execute an
agreement with Qantas which was necessary in order for the Company to become a
preferred provider in the Qantas bid alignment process, in exchange for which
Hyatt received an additional 60,000 shares Class A Common Stock.
FORTUNET LICENSE
In October 1994, the Company entered into an Intellectual Property License
and Support Services Agreement with FortuNet, Inc. ("Fortunet"), which was
amended and restated on November 7, 1996 (as amended, the "FortuNet License").
The FortuNet License grants the Company a worldwide, perpetual license to
FortuNet's current and future patents, copyrights, trade secrets and related
know-how covering a computerized system for use in all fields other than bingo
halls. Further, this license is exclusive to the Company within the airline
industry. As consideration, the Company must pay FortuNet an annual license fee
of $100,000 in monthly installments through November 2002. The Company was
previously also required to compensate FortuNet for certain development, support
and maintenance services, but this obligation has been terminated effective
November 7, 1996. Further, the restated version of the FortuNet License no
longer prohibits the Company from engaging in any gaming activities outside of
airplanes. In exchange for these amendments to the FortuNet License and certain
other modifications, on November 7, 1996, the Company issued to FortuNet a
warrant to purchase fifty thousand shares of Class A Common Stock at a price of
$9.75 per share, which was repriced on January 6, 1997 to $8.00 per share. Under
the FortuNet License, an aggregate of $100,000 was paid to FortuNet in fiscal
1996.
Yuri Itkis, a director and principal stockholder of the Company, is the
President and sole stockholder of FortuNet and Boris Itkis, a former director of
the Company and a son of Yuri Itkis, is an employee of FortuNet. Michail Itkis,
the Chief Executive Officer and a director of the Company, is also a son of Yuri
Itkis and was an employee of FortuNet until October 1994. The FortuNet License
was entered into after extensive negotiations between the parties and the
Company believes that the terms of the agreement are no less favorable to the
Company than could be obtained from an unaffiliated third party.
STOCKHOLDERS' AGREEMENT
In October 1994, the Company entered into a stockholders' agreement with
Yuri Itkis, Michail Itkis, Boris Itkis, Steven M. Fieldman, Donald H. Goldman
and Lance Fieldman (the "Stockholders' Agreement"). In connection with the May
1996 and November 1996 resignations of Messrs. Goldman, S. Fieldman and L.
Fieldman described in "Executive Compensation," and in connection with the
execution of the Strategic Alliance Agreement with Hyatt, the parties to the
Stockholders' Agreement entered into agreements which terminated the
Stockholders' Agreement as to Messrs. Goldman, S.
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<PAGE> 23
Fieldman and L. Fieldman, added Hyatt as a Stockholder under the Stockholders'
Agreement, and amended the terms of the Stockholders' Agreement.
As amended, the Stockholders' Agreement provides that Michail Itkis and
Yuri Itkis shall each be entitled to designate one nominee to the Company's
Board of Directors and that Hyatt shall be entitled to designate two nominees to
the Company's Board of Directors. No other parties have any continuing right
under the Stockholders' Agreement to nominate a director. Each stockholder who
is party to the Stockholders' Agreement agreed to vote all the shares of Common
Stock owned by him for the election of the directors so nominated and not to
take any action to remove any director so elected (except for the director(s)
nominated by such stockholder). In addition, the Stockholders' Agreement no
longer contains provisions which restrict the sale, transfer or assignment of
the parties stock in the Company and no longer governs meetings of the Company's
board of directors.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of its executive officers
and has granted such officers options to purchase shares of Class A Common
Stock. See "Executive Compensation-Employment Agreements." In addition, Michail
Itkis's wife, Lauren Snopkowski, is currently the Secretary and an employee of
the Company. Ms. Snopkowski, who also served as Controller and Treasurer of the
Company during fiscal 1996, received compensation in fiscal 1996 of $113,906. In
addition, Mr. Itkis' sister-in-law, Jennifer Snopkowski, was the Company's
Product Engineering Manager, for which she received compensation of $75,760 in
fiscal 1996. Jennifer Snopkowski was formerly a project engineer for Hughes
Aircraft Company for over 10 years, and has masters and bachelors degrees in
Mechanical Engineering from the Massachusetts Institute of Technology.
CONSULTING AND ADVISORY AGREEMENTS
The Company had consulting arrangements with former director Howard J.
Tytel pursuant to which he received fees of $100,000 for the fiscal year ended
October 31, 1996 and $50,000 for the fiscal year ended October 31, 1995. Mr.
Tytel's services to the Company included assistance in negotiating the FortuNet
License described below, the Stockholders' Agreement, and various employment
agreements of the Company, negotiation of certain financing arrangements for the
Company, as well as consulting on various business and financial matters. The
Company has no current consulting arrangements with Mr. Tytel.
Currently with the 1994 execution of the FortuNet License, the Company
entered into a Consulting Agreement with Yuri Itkis, which provided for an
annual consulting fee of $100,000 and the grant of stock options to purchase
40,000 shares of Class A Common Stock at an exercise price of $4.40 per share.
Under this consulting agreement, Mr. Itkis received an aggregate of $100,000 in
fiscal 1996. This consulting agreement was terminated effective November 7,
1996.
On April 8, 1996, the Company entered into a consulting agreement (the
"Haig Consulting Agreement") with General Alexander M. Haig, Jr. and Worldwide
Associates, Inc., a corporation controlled by General Haig. Pursuant to the Haig
Consulting Agreement, General Haig will provide strategic advisory services for
the Company to advance the Company's interests worldwide. In consideration of
such services, during the three-year term of the Haig Consulting Agreement the
Company will pay an aggregate of $50,000 annually and a fee of one percent (1%)
of gross revenues received by the Company from customers obtained through the
significant advice or assistance provided
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<PAGE> 24
by General Haig. Under the Haig Consulting Agreement, General Haig received
options to acquire an aggregate of 100,000 shares of Class A Common Stock
vesting over a three-year period.
By letter agreement dated May 28, 1996, the Company entered into a
financial advisory agreement with Houlihan Lokey Howard & Zukin Capital
("Houlihan Lokey"), pursuant to which Houlihan Lokey provides certain advice and
assistance regarding its strategic posture and alternatives and as to various
financing alternatives. The Company in turn agreed to pay Houlihan Lokey a
one-time retainer fee of $50,000 and a monthly fee thereafter of $20,000. The
Company also agreed to pay Houlihan Lokey a percentage of capital raised in
certain transactions and, pursuant this provision, the Company paid Houlihan
Lokey $699,377 for its services in connection with the Company's November 1996
Class B Warrant exercise offer. In addition, as compensation for its services in
negotiating the above-described transactions with Hyatt, Houlihan Lokey received
a warrant to purchase one hundred fifty thousand shares of Class A Common Stock
at an exercise price of $9.75 per share, which was repriced on January 6, 1997
to $8.00 per share. By letter dated February 25, 1997, the Company's agreement
with Houlihan Lokey was modified to eliminate the monthly retainer fee as well
as Houlihan Lokey's right to receive a percentage of any capital raised by the
Company, although the Company and Houlihan Lokey may agree from time to time, on
a project by project basis, for Houlihan Lokey to provide additional services
for fees to be agreed upon at that time. Mr. Zukin is a Managing Director of
Houlihan Lokey and a member of its Board of Directors.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the Record Date
regarding the ownership of Class A Common Stock and Class B Common Stock by (i)
each person known by the Company to own beneficially more than five percent of
any class of outstanding Common Stock, (ii) each director of the Company, (iii)
each "named executive officer" as defined under the rules and regulations of the
Securities Act of 1933, as amended, and (iv) all executive officers and
directors of the Company as a group.
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<PAGE> 25
<TABLE>
<CAPTION>
NAME AND ADDRESS OF CLASS B CLASS A
BENEFICIAL OWNER (1) COMMON STOCK(2) COMMON STOCK(2)
- -------------------- --------------------------------- -------------------------------
Number Percent Number Percent Percent of Total
of Shares of Class of Shares of Class Voting Power (3)
--------- -------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Michail Itkis .......... 888,889(4) 22.5% 215,000(4)(5)(6) 1.2% 13.2%
Yuri Itkis ............. 888,889(7) 22.5 140,000(8) * 13.1
Boris Itkis ............ 888,889(9) 22.5 0(9) * 12.8
Donald H. Goldman ...... 566,666 14.3 61,958(10) * 8.3
Steven M. Fieldman ..... 566,666(11) 14.3 255,000(12) 1.4 8.7(13)
Adam Aron .............. 0 * 20,000(14) * *
Brian Barents .......... 0 * 0 * *
Alexander M. Haig, Jr .. 0 * 50,000(15) * *
John A. Pritzker ....... 0 * 371,500(16) 2.0 *
James Zukin ............ 0 * 200,000(17) 1.1 *
Lance D. Fieldman ...... 160,001 * 35,000(18) * 2.4(13)
Robert J. Aten ......... 0 * 0 * *
All current executive
officers and directors
of the Company as a
group (11 persons) ... 1,777,778 44.9% 1,138,166(19) 6.0% 27.7%
</TABLE>
* Less than 1%.
(1) Except as otherwise indicated below, the address of each beneficial owner
is c/o Interactive Flight Technologies, Inc., 4041 N. Central Avenue,
Phoenix, Arizona 85012. Based on the most recent information provided to
the Company, Steven M. Fieldman's address is 609 B Manhattan Avenue,
Hermosa Beach, California 90254, (ii) Lance D. Fieldman's address is 326
Columbus, #4G, New York, New York 10023, and (iii) Donald H. Goldman's
address is 331 W. Broadway, Long Beach, New York, 11561. Unless otherwise
noted, the Company believes that all persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them, subject to the Stockholders' Agreement
described in "Certain Relationships and Related Transactions" and the
agreements by Steven Fieldman and Lance Fieldman to vote in proportion to
the Company's other stockholders as described in "Executive Compensation
-- Employment and Severance Agreements."
(2) Shares of Class B Common Stock convert on a share for share basis into
shares of Class A Common Stock automatically upon their transfer to any
person other than another holders of Class B Common Stock. Of the
3,960,000 shares of Class B Common Stock, 3,200,000 are shares held in
escrow and will be released to the holders only if the Company meets
certain specified performance criteria specified in the escrow agreement.
(3) Based on 3,960,000 shares of Class B Common Stock, each of which has six
votes per share, and 17,962,488 shares of Class A Common Stock
outstanding, except that shares underlying options to purchase Class A
Common Stock exercisable within 60 days are deemed to be outstanding for
purposes of calculating the percentage owned by the holder of such
options.
(4) Excludes shares owned by Yuri Itkis and Boris Itkis, Michail Itkis' father
and brother, respectively, as to which shares Michail Itkis disclaims
beneficial ownership.
(5) Includes 215,000 shares issuable upon exercise of options exercisable
within 60 days.
(6) Excludes 15,000 shares issuable upon exercise of options exercisable
within 60 days which are held by Mr. Itkis' wife, an employee of the
Company, as to which Mr. Itkis disclaims beneficial ownership.
(7) Excludes shares owned by Michail Itkis and Boris Itkis, as to which shares
Yuri Itkis disclaims beneficial ownership.
(8) Includes 90,000 shares issuable upon exercise of options exercisable
within 60 days and 50,000 shares issuable upon exercise of a Stock
Purchase Warrant held by FortuNet, Inc.
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<PAGE> 26
(9) Excludes shares owned by Michail Itkis and Yuri Itkis, as to which shares
Boris Itkis disclaims beneficial ownership.
(10) Includes 25,000 shares issuable upon exercise of options exercisable
within 60 days.
(11) Excludes shares owned by Lance Fieldman, Steven Fieldman's son, as to
which shares Steven Fieldman disclaims beneficial ownership.
(12) Includes 255,000 shares issuable upon exercise of options exercisable
within 60 days.
(13) Steven Fieldman and Lance Fieldman have agreed to vote all shares on all
matters in proportion to the vote of the Company's other stockholders. See
"Executive Compensation -- Employment and Severance Agreements."
(14) Includes 20,000 shares issuable upon exercise of options exercisable
within 60 days.
(15) Includes 50,000 shares issuable upon exercise of options exercisable
within 60 days.
(16) Includes 230,000 shares issuable upon exercise of options exercisable
within 60 days.
(17) Includes 50,000 shares issuable upon exercise of options exercisable
within 60 days and 150,000 shares issuable upon exercise of a Stock
Purchase Warrant held by Houlihan Lokey Howard & Zukin.
(18) Includes 35,000 shares issuable upon exercise of options exercisable
within 60 days.
(19) Includes 996,666 shares issuable upon exercise of options and warrants
exercisable within 60 days. Excludes shares beneficially held by those
Named Executive Officers who are no longer executive officers or directors
of the Company.
------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Securities and Exchange Commission (the "Commission") has
comprehensive rules relating to the reporting of securities transactions by
directors, officers and stockholders who beneficially own more than 10% of the
Company's Common Stock (collectively, the "Reporting Persons"). These rules are
complex and difficult to interpret. Based solely on a review of Section 16
reports received by the Company from Reporting Persons, the Company believes
that no Reporting Person has failed to file a Section 16 report on a timely
basis during the most recent fiscal year, except that (i) annual reporting of
changes for fiscal 1996 (or initial reports for newly elected directors and
officers, as the case may be) were not filed until (i) February 1997, in the
case of John Alderfer, Adam Aron, Brian Barents, Alexander Haig, Michail Itkis,
Thomas Metzler, and John Pritzker and Lauren Snopkowski and (ii) March 1997, in
the case of Yuri Itkis, Boris Itkis and James Zukin. Such statements, when
filed, disclosed the grant or issuance to Messrs. Alderfer, Aron, Barents, Haig,
M. Itkis, Y. Itkis, Metzler, Pritzker, and Zukin and Ms. Snopkowski (solely by
attribution of ownership due to her relationship to Mr. Itkis), or their
respective companies, of stock options and/or warrants aggregating 175,000,
20,000, 20,000, 100,000, 300,000, 50,000, 250,000, 230,000, 250,000, and 300,000
shares, respectively, of Class A Common Stock. Mr. Boris Itkis' statement
disclosed the sale of an aggregate of 25,000 class A warrants in July 1996. In
addition, Steven Fieldman and Lance Fieldman have not yet filed reports on Form
4 or Form 5 disclosing the following changes of beneficial ownership for fiscal
1996: the grant of options to Steven Fieldman to purchase 300,000 shares, the
grant of options to Lance Fieldman to purchase an aggregate of 35,000 shares,
the sale by Lance Fieldman of an aggregate of 30,000 shares of Class B Common
Stock, and the acceleration of vesting of certain options in connection with the
resignation of such persons from the Company, as discussed elsewhere herein.
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<PAGE> 27
1998 STOCKHOLDER PROPOSALS
In order for stockholder proposals for the 1998 Annual Meeting of
Stockholders to be eligible for inclusion in the Company's 1998 Proxy Statement,
they must be received by the Company at its principal executive offices, (Attn:
Secretary), on or prior to December 16, 1997. The Board of Directors will review
any stockholder proposals that are filed as required and will determine whether
such proposals meet applicable criteria for inclusion in the Company's 1998
Proxy Statement for the Annual Meeting.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for consideration at the Annual Meeting. Should any other matters
properly come before the Annual Meeting, it is the intention of the persons
named in the accompanying proxy to vote such proxy on behalf of the stockholders
they represent in accordance with their best judgment.
SOLICITATION OF PROXIES
The cost of this solicitation of proxies will be borne by the Company.
Directors, officers and regular employees of the Company may solicit proxies in
person, by telephone, by mail or by other means of communication, but such
persons will not be specially compensated for such services. The Company will
reimburse American Stock Transfer & Trust Company for forwarding proxy materials
to beneficial owners and serving as inspectors of election. The total estimated
cost for this solicitation of proxies is $30,000.
THE COMPANY SHALL PROVIDE TO ANY STOCKHOLDER, WITHOUT CHARGE, A COPY OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED OCTOBER 31,
1996, UPON THE WRITTEN REQUEST THEREFOR TO INTERACTIVE FLIGHT TECHNOLOGIES,
INC., 4041 N. CENTRAL AVENUE, SUITE 2000, PHOENIX, AZ 85012, ATTENTION: JOHN W.
ALDERFER, CHIEF FINANCIAL OFFICER.
Lauren Snopkowski
Secretary
April 15, 1997
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<PAGE> 28
Appendix A
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1997 Stock Option Plan
are:
- to attract and retain the best available personnel for positions of
substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under state corporate and securities
laws and the Code.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Class A Common Stock, $.01 par value,
of the Company.
(g) "COMPANY" means Interactive Flight Technologies, Inc.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is
compensated for such services, provided that the term "Consultant" shall
not include Directors who are paid only a director's fee by the Company or
who are not compensated by the Company for their services as Directors.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship is not interrupted or terminated by
the Company, any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any
leave of absence approved by the Board, including sick leave, military
leave, or any other personal leave; provided, however, that for purposes
of Incentive Stock Options, any such leave may not exceed ninety (90)
days, unless reemployment upon the expiration of such leave is guaranteed
by contract (including certain Company polices) or statute; or (ii)
transfers between locations of the Company or between the Company, its
Parent, its Subsidiaries or its successor.
(j) "DIRECTOR" means a member of the Board.
<PAGE> 29
(k) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and Directors
employed by the Company or any Parent or Subsidiary of the Company.
Neither service as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "employment" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation,
the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market
Value of a Share of Common Stock shall be the closing sales price
for such stock (or the closing bid, if no sales are reported) as
quoted on such system or exchange (or the exchange with the greatest
volume of trading in Common Stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Administrator deems reliable;
ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by
recognized securities dealers but selling prices are not reported,
the Fair Market Value of a Share of Common Stock shall be the mean
between the high bid and low asked prices for the Common Stock on
the last market trading day prior to the day of determination, as
reported in the Wall Street journal or such other source as the
Administrator deems reliable;
(iii) In the absence of any established market for the Common
Stock, the Fair Market Value shall be determined in good faith by
the Administrator.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "NOTICE OF GRANT" means a written notice evidencing certain
terms and conditions of an individual Option grant. The Notice of Grant is
part of the Option Agreement.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
A-2
<PAGE> 30
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions
of the Plan.
(u) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise
price.
(v) "OPTIONED STOCK" means the Common Stock subject to an Option.
(w) "OPTIONEE" means an Employee, Director or Consultant who holds
an outstanding Option.
(x) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "PLAN" means this 1997 Stock Option Plan.
(z) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
(aa) "SECTION 162(m)" means Section 162(m) of the Code and the
regulations thereunder, as amended.
(ab) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ac) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
(ad) "TERMINATION EVENT" means (i) any use or disclosure by an
Optionee of confidential information or trade secrets of the Company or
any Parent or Subsidiary in violation of any confidentiality or
nondisclosure agreement by which the Optionee is bound, or (ii) the
termination of Optionee's Continuous Status as an Employee or Consultant
for cause as defined pursuant to applicable law, as a result of a breach
of Optionee's employment or consulting agreement, as a result of theft,
fraud or embezzlement, or as a result of any disclosure or use of
confidential information or trade secrets described in part (i) of this
paragraph.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned under the
Plan is One Million Five Hundred Thousand (1,500,000) Shares of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common Stock. However,
should the Company reacquire Shares which were issued pursuant to the exercise
of an Option, such Shares shall not become available for future grant under the
Plan.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).
A-3
<PAGE> 31
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees who are neither
Directors nor Officers.
ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS
SUBJECT TO SECTION 16(b). With respect to Option grants made to Directors
or to Employees who are also Officers or Directors subject to Section
16(b) of the Exchange Act, the Plan shall be administered by (A) the
Board, if the Board may administer the Plan in compliance with the
requirements for grants under the Plan to be exempt acquisitions under
Rule 16b-3, or (B) a committee designated by the Board to administer the
Plan, which committee shall consist of "Non-Employee Directors" within the
meaning of Rule 16b-3. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board.
From time to time the Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all
members of the Committee and thereafter directly administer the Plan, all
to the extent permitted by the requirements for grants under the Plan to
be exempt acquisitions under Rule 16b-3.
iii) ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES SUBJECT
TO SECTION 162(m) OF THE CODE. With respect to Option grants made to
Employees who are also "covered employees" within the meaning of Section
162(m) of the Code and the regulations thereunder, as amended, the Plan
shall be administered by a committee designated by the Board to administer
the Plan, which committee shall be constituted to satisfy the requirements
applicable to Options intended to qualify as "performance-based
compensation" under Section 162(m). Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by
the Board. From time to time the Board may increase the size of the
Committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules applicable to Options
intended to qualify as "performance-based compensation" under Section
162(m).
iv) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With respect
to Option grants made to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a committee designated by the Board, which committee
shall be constituted to satisfy Applicable Laws. Once appointed, such
Committee shall serve in its designated capacity until otherwise directed
by the Board. The Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause) and substitute
new members, fill vacancies (however caused), and remove all members of
the Committee and thereafter directly administer the Plan, all to the
extent permitted by Applicable Laws.
A-4
<PAGE> 32
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
ii) to select the Directors, Consultants and Employees to whom
Options may be granted hereunder;
iii) to determine whether and to what extent Options are granted
hereunder;
iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
v) to approve forms of agreement for use under the Plan;
vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time
or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions,
and any restriction or limitation regarding any Option or the shares of
Common Stock relating thereto based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
vii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by
such Option shall have declined since the date the Option was granted;
viii) to construe and interpret the terms of the Plan;
ix) to prescribe, amend and rescind rules and regulations relating
to the Plan;
x) to modify or amend each Option (subject to Section 14(c) of
the Plan);
xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously
granted by the Administrator;
xii) to institute an Option Exchange Program;
xiii) to determine the terms and restrictions applicable to Options;
and
xiv) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.
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5. ELIGIBILITY. Nonstatutory Options may be granted to Directors,
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been granted
an Option may be granted additional Options.
6. LIMITATIONS.
(a) Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:
i) of Shares subject to an Optionee's incentive stock options
granted by the Company, any Parent or Subsidiary, which (ii) become
exercisable for the first time during any calendar year (under all plans
of the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options shall be treated as Nonstatutory Stock Options. For purposes of
this Section 6(a), incentive stock options shall be taken into account in
the order in which they were granted, and the Fair Market Value of the
Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option shall confer upon an Optionee
any right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(c) No Officer shall be granted in any fiscal year of the Company
Options to purchase more than 500,000 Shares. The foregoing limitation set forth
in this Section (c) is intended to satisfy the requirements applicable to
Options intended to qualify as "performance-based compensation" (within the
meaning of Section 162(m)). In the event the Administrator determines that such
limitation is not required to qualify Options as performance-based compensation,
the Administrator may modify or eliminate such limitation.
7. TERM OF THE PLAN. Subject to Section 18 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the Company as described in Section 18 of the
Plan. It shall continue in effect for a term of ten (10) years unless terminated
earlier under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term as may be provided in the Notice of Grant. Moreover, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant or such shorter term as may be provided in the Notice of
Grant.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The price per share exercise price for the Share
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
i) In the case of an Incentive Stock Option
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(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on the
date of grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.
ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined in the discretion of the
Committee, but may be more or less than the Fair Market Value per
Share on the date of grant.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant.
Such consideration may consist entirely of:
i) cash;
ii) a promissory note made by the Optionee in favor of the
Company;
iii) if permitted by the Administrator, in its sole
discretion, other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised:
iv) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the Optionee's
broker, if applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required to pay
the exercise price;
v) any combination of the foregoing methods of payment; or
vi) such other consideration and method of payment for the
issuance of Shares to the extent permitted by the Administrator and
Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
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<PAGE> 35
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (1)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. Subject to Section 12, the Company shall issue (or cause
to be issued) such stock certificate promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) ACCELERATED TERMINATION OF OPTION TERM. Notwithstanding anything
to the contrary contained in the Plan, an Optionee's Options under the Plan
shall terminate and cease to be exercisable immediately upon the occurrence of a
Termination Event with respect to such Optionee.
(c) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event that an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability or as a result of
a Termination Event), the Optionee may exercise his or her Option, but only
within such period of time as is determined by the Administrator, and only to
the extent that the Optionee was entitled to exercise it at the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). In the case of an Incentive Stock
Option, the Administrator shall determine such period of time (in no event to
exceed ninety (90) days from the date of termination) when the Option is
granted. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(d) DISABILITY OF OPTIONEE. In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within six (6) months from the date of such termination, but only to the extent
that the Optionee was entitled to exercise it at the date of such termination
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant). If, at the date of termination the Optionee is
not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(e) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within six (6) months following the date of
death (but in no event later than the
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<PAGE> 36
expiration of the term of such Option as set forth in the Notice of Grant), by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent that the Optionee was
entitled to exercise the Option at the date of death. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the Shares
covered by unexercisable portion of the Option shall immediately revert to the
Plan. If, after death, the Optionee's estate or a person who acquires the right
to exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
11. NON-TRANSFERABILITY OF OPTIONS.
(a) NO TRANSFER. An Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.
(b) DESIGNATION OF BENEFICIARY. An Optionee may file a written
designation of a beneficiary who is to receive any Options that remain
unexercised in the event of the Optionee's death. If an Optionee is married and
the designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective. Such designation of beneficiary may be
changed by the Optionee at any time by written notice, subject to the above
spousal consent conditions.
(c) EFFECT OF NO DESIGNATION. In the event of the death of the
Optionee and in the absence of a beneficiary validly designated under the Plan
who is living at the time of such Optionee's death, the Company shall deliver
such options to the executor or administrator of the estate of the Optionee, or
if no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such options to the spouse
or to any one or more dependents or relatives of the participant, or if no
spouse, dependent or relative is known to the Company, then to such other person
as the Company may designate.
12. WITHHOLDING TAXES. Upon (i) the disposition by an Optionee of shares
of Common Stock acquired pursuant to the exercise of an Incentive Stock Option
within two years of the granting of such Incentive Stock Option or within one
year after exercise of such Incentive Stock Option, or (ii) the exercise of a
Nonstatutory Stock Option, the Company shall have the right to require such
Optionee to pay the Company the amount of any taxes which the Company may be
required to withhold with respect to such shares of Common Stock.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, if the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares of securities of the Company through reorganization, recapitalization,
reclassification, stock combination, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares as to which Options may
be granted under this Plan. A corresponding adjustment changing the number or
kind of shares allocated to unexercised Options which have been granted prior to
any such change, shall likewise be made. Any such adjustment in the outstanding
Options shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the Options but with a corresponding adjustment in
the price for each share or other unit of
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<PAGE> 37
any security covered by the Option. Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option had not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. Subject to the provisions of paragraph (d)
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, the
Administrator, upon 30 days prior written notice to the Option holders, may, in
its discretion, do one or more of the following: (i) shorten the period during
which Options are exercisable (provided they remain exercisable for at least 30
days after the date the notice is given); (ii) accelerate any vesting schedule
to which an Option is subject; (iii) arrange to have the surviving or successor
entity grant replacement options with appropriate adjustments in the number and
kind of securities and option prices; or (iv) cancel Options upon payment to the
Optionees in cash, with respect to each Option to the extent then exercisable
(including any Options as to which the exercise has been accelerated as
contemplated in clause (ii) above), of an amount equal to the excess of the Fair
Market Value of the number of Shares as to which the Option is then exercisable
(at the effective time of the merger, reorganization, sale of other event) over
the aggregate exercise price with respect to such Shares. The Administrator may
also provide for one or more of the foregoing alternatives in any particular
Option Agreement.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter or suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment only to the extent necessary and desirable to
comply with Rule 16b-3, with Section 422 or 162(m) of the Code or with any
Applicable Laws, including the requirements of any exchange or quotation system
on which the Common Stock is listed or quoted. Such shareholder approval, if
required, shall be obtained in such a manner and to such a degree as is required
by Applicable Law.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of an Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
the requirements of any stock exchange or quotation system upon which the Shares
may then be listed or quoted, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery,
A-10
<PAGE> 38
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) INVESTMENT REPRESENTATION. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell, transfer or
distribute such Shares.
16. LIABILITY OF COMPANY.
(a) INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned Stock covered
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 14(b) of the Plan.
(c) RIGHTS OF PARTICIPANTS AND BENEFICIARIES. The Company shall pay
all amounts payable hereunder only to the Optionee or beneficiaries entitled
thereto pursuant to the Plan. The Company shall not be liable for the debts,
contracts or engagements of any Optionee or his or her beneficiaries, and rights
to Shares or cash payments under the Plan may not be taken in execution by
attachment or garnishment, or by any other legal or equitable proceeding while
in the hands of the Company.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under Applicable Law. Options may be
granted but not exercised prior to shareholder approval of the Plan. If any
Options are so granted and stockholder approval shall not have been obtained
within twelve months of the date of adoption of this Plan by the Board of
Directors, such Options shall terminate retroactively as of the date they were
granted.
19. GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with the laws of the State of Delaware (without giving effect to
conflicts of law principles).
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<PAGE> 39
PROXY
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michail Itkis and Thomas Metzler (with
full power to act without the other and with power to appoint his substitute) as
the undersigned's proxies to vote all shares of Common Stock of the undersigned
in INTERACTIVE FLIGHT TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), which the undersigned would be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Hyatt Regency Phoenix,
located at 122 North Second Street, Phoenix, Arizona, on June 4, 1997, at 10:00
a.m., local time, and at any and all adjournments or postponements thereof as
follows:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as marked to the
contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
Michail Itkis; Adam Aron; Brian Barents; Alexander M. Haig, Jr.;
Yuri Itkis; Thomas M. Metzler; John A. Pritzker; James H. Zukin
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
2. Proposal to adopt the Company's 1997 Stock Option Plan, under which
options may be granted to purchase an aggregate of 1,500,000 shares,
as described more fully in the Proxy Statement accompanying this
Proxy.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the Board of Directors' appointment of KPMG Peat
Marwick LLP, certified public accountants, as independent auditors
of the Company for the fiscal year ending October 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve the amendment to the Company's Certificate of
Incorporation so as to grant the Company's Board of Directors the
authority to adopt, amend and repeal the Company's Bylaws
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion such other business as may properly come before
the meeting and any and all adjournments thereof.
- --------------------------------------------------------------------------------
Please sign on the reverse side and return promptly in the enclosed envelope
THE SHARES OF CLASS A COMMON STOCK AND/OR CLASS B COMMON STOCK REPRESENTED
BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE FOREGOING INSTRUCTIONS.
IN THE ABSENCE OF ANY INSTRUCTIONS, SUCH SHARES WILL BE VOTED "FOR" THE
ELECTION OF ALL NOMINEES LISTED IN PROPOSAL 1 AND "FOR" THE APPROVAL OF
PROPOSALS 2, 3 AND 4.
<PAGE> 40
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders to be held on June 4, 1997 and the Proxy Statement
of the Company, each dated April __, 1997, and the Company's Annual Report
for the fiscal year ended October 31, 1996.
The undersigned hereby revokes any proxy to vote shares of Class A Common
Stock and/or Class B Common Stock of the Company heretofore given by the
undersigned.
Dated ___________________________________________
___________________________________________
Signature
___________________________________________
Signatures, if held jointly
___________________________________________
Title (if applicable)
Please date, sign exactly as name appears on this
proxy, and promptly return in the enclosed
envelope. When signing as guardian, executor,
administrator, attorney, trustee, custodian, or in
any other similar capacity, please give full
title. If a corporation, sign in full corporate
name by president or other authorized officer,
giving title, and affix corporate seal. If a
partnership, sign in partnership name by
authorized person. In the case of joint ownership,
each joint owner must sign.
