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 l4a-12
<PAGE>
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:
(2)
<PAGE>
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
4041 N. CENTRAL AVENUE, SUITE 2000
PHOENIX, ARIZONA 85012
October __, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Interactive Flight Technologies, Inc. (the "Company"), to be held at the
Metropolitan Club, located at One East 60th Street, New York, New York, on
October 22, at 10:00 a.m., local time. This is a change from the previous proxy
materials sent to you on or about August 10, 1998.
At the Annual Meeting, in addition to the election of directors and the
appointment of independent auditors, you will be asked to consider and approve
(i) the amendment of the Company's Amended and Restated Certificate of
Incorporation to provide for classification of the Company's Board of Directors
and (ii) a one-for-two reverse stock split of the Company's outstanding shares
of Class A and Class B Common Stock.
The enclosed proxy statement contains important information concerning the
directors to be elected and the other proposals to be considered at the Annual
Meeting. We hope you will take the time to study it carefully. Your vote is very
important, regardless of how many shares you own. Even if you presently plan to
attend the Annual Meeting, please complete, sign, date and return the enclosed
proxy card promptly in the accompanying self-addressed postage prepaid envelope.
If you do join us at the Annual Meeting and wish to vote in person, you may
revoke your proxy at that time.
Sincerely,
/s/ IRWIN L. GROSS
-------------------
Irwin L. Gross
Chairman of the Board and
Chief Executive Officer
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD, AND RETURN IT IN THE ENVELOPE
PROVIDED, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE
ANNUAL MEETING.
(3)
<PAGE>
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
4041 N. CENTRAL AVENUE, SUITE 2000
PHOENIX, ARIZONA 85012
REVISED NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 22, 1998
TO THE STOCKHOLDERS OF INTERACTIVE FLIGHT TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the postponed annual meeting of stockholders
(the "Annual Meeting") of Interactive Flight Technologies, Inc., a Delaware
corporation (the "Company"), will be held at the Metropolitan Club, located at
One East 60th Street, New York, New York, on October 22, 1998, at 10:00 a.m.,
local time, for the following purposes, all as more fully described in the
attached Proxy Statement:
1. To elect five directors who would serve for the coming year or, if
Proposal 2 is adopted, as set forth therein.
2. To approve a proposal to amend the Company's Amended and Restated
Certificate of Incorporation to divide the Board of Directors into three
classes.
3. To approve a proposal to amend the Company's Amended and Restated
Certificate of Incorporation to effect a reverse stock split of the Company's
outstanding shares of Class A and Class B Common Stock, on the basis of one new
share for every two outstanding shares.
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, 1998.
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 September 30,
1998 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,
1997 is enclosed.
YOUR VOTE IS IMPORTANT, 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. ACCORDINGLY, THE COMPANY EARNESTLY REQUESTS THAT YOU 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
(4)
<PAGE>
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 IS GREATLY APPRECIATED.
October __, 1998 By Order of the Board of Directors
/s/ DAVID N. SHEVRIN
--------------------
David N. Shevrin
Secretary
(5)
<PAGE>
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
4041 N. CENTRAL AVENUE, SUITE 2000
PHOENIX, ARIZONA 83012
-------------------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 22, 1998
-------------------------------------
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 Metropolitan Club, located at One East 60th
Street, New York, New York, on October 22, 1998, 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, 1997, including financial
statements, are first being mailed or delivered to stockholders of the Company
on or about October __, 1998. There are substantial changes included herein from
the Proxy Statement mailed to you on or about August 10, 1998 and therefore
this constitutes a resolicitation of proxies for the Annual Meeting.
At the Annual Meeting, stockholders will be asked to consider and vote upon
the following proposals:
1. To elect five directors who would serve for the coming year.
2. To approve a proposal to amend the Company's Amended and Restated
Certificate of Incorporation to divide the Board of Directors into three
classes.
3. To approve a proposal to amend the Company's Amended and Restated
Certificate of Incorporation to effect a reverse stock split of the
Company's outstanding shares of Class A and Class B Common Stock, on the
basis of one new share for every two outstanding shares.
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, 1998.
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
(6)
<PAGE>
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 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.
VOTING RIGHTS AND VOTING SECURITIES
VOTING AT THE ANNUAL MEETING
The Board has fixed the close of business on September 30, 1998 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) 16,082,637 shares of Class A Common Stock, par value $0.01 per share (the
"Class A Common Stock"), and (ii) 3,733,334 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, except for the shares
subject to the Proxy Agreement, which are currently entitled to one vote per
share (see "Litigation" and "Proxy Agreement and Voting Agreement"), 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 the voting power 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
Proposals 2 and 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.
(7)
<PAGE>
By virtue of their ownership of shares of Class A Common Stock, certain
officers, directors and affiliates of the Company effectively controlled
approximately 8.3% of the outstanding voting power of the Common Stock on the
Record Date, after giving effect to certain voting and proxy agreements executed
by Messrs. Steven Fieldman and Lance Fieldman and Messrs. Yuri Itkis, Boris
Itkis and Donald Goldman. See "Executive Compensation -- Employment and
Severance Agreements" and "Security Ownership of Certain Beneficial Holders and
Management." Also see "LITIGATION." The Company believes such officers,
directors and affiliates intend to vote "FOR" the election of all of the
director nominees listed in Proposal 1 and to vote "FOR" the approval of
Proposals 2, 3 and 4.
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
On December 17, 1997, the Company's Board of Directors voted to reduce the
number of directors from eight to four, and that number was expanded to five on
July 22, 1998. Accordingly, the Board currently consists of five members. On
August 25, 1998, Ocean Castle Partners, LLC ("Ocean Partners") filed preliminary
consent solicitation materials with the Securities and Exchange Commission
requesting other stockholders to join with Ocean Partners to remove the
Company's existing Board and elect a slate of directors proposed by Ocean
partners. On September 2, 1998, Ocean Partners filed preliminary consent
solicitation/proxy material with the Securities and Exchange Commission to elect
its slate and to support and oppose certain proposals set forth by the Company.
On September 15, 1998, the former Board of Directors resigned and elected the
current directors (who were the Ocean Partners nominees) as the Board of the
Company. In connection with such resignations, the new Board has undertaken the
following: (i) to have at least one independent director, (ii) that at least one
independent director has to approve certain transactions with the Company and
(iii) the Company will get an outside valuation opinion if it undertakes certain
transactions. At the Annual Meeting or any adjournments or postponements
thereof, five directors are to be elected to serve until the next annual meeting
of stockholders and until their respective successors are elected and qualified.
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 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 may recommend.
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. Each was elected to the Board by the former Board on September 15,
1998.
(8)
<PAGE>
The following table sets forth the names, ages and current positions with
the Company of the nominees for director. It also indicates the class to which
such director will belong if the Proposal to amend the Company's Amended and
Restated Certificate of Incorporation to provide for a classified Board of
Directors is adopted. See "Proposal 2 -- Authorization of a Classified Board of
Directors."
<TABLE>
<CAPTION>
NAME CLASS AGE POSITION
<S> <C> <C> <C>
Irwin L. Gross 3 54 Chief Executive Officer and Chairman of
the Board of Directors
Charles T. Condy 3 58 Director
Stephen Schachman 2 54 Director
M. Moshe Porat 1 51 Director
James W. Fox 1 48 Director
</TABLE>
IRWIN L. GROSS, is a founder of ICC Technologies, Inc., a publicly held
company listed on NASDAQ National Market, which is currently engaged in Internet
related technology, was the chairman and a director since the Company's
inception in May 1984. Since 1988, ICC has been engaged in the design,
manufacturing and marketing of innovative climate control systems. Mr. Gross
retired from that company in July, 1998 to pursue an array of investment
strategies. In addition, Mr. Gross had served as the chief executive officer of
Engelhard/ICC, a joint venture between ICC and Englehard which was the successor
to ICC's business and which ICC Technologies, Inc. from its formation in
February, 1994 to its restructuring in February, 1998, was a fifty percent (50%)
partner with Engelhard Corporation. In February 1998, Engelhard/ICC was
restructured. In April, 1998, ICC acquired by merger Rare Medium, Inc. which is
an Internet service provider. Mr. Gross was also a founder of Interdigital
Company (AMEX) and served as a director and executive vice president until April
1984. Mr. Gross has served as a consultant to, investor in and director of,
numerous publicly held and private companies. Mr. Gross also serves on the board
of directors of several charitable organizations. Mr. Gross has a Bachelor of
Science degree in Accounting from Temple University and a Juris Doctor degree
from Villanova University.
CHARLES T. CONDY, had been a director of ICC Technologies, Inc. since June
1996. Mr. Condy is the founder, chairman and chief executive officer of Next
Century Restaurants, Inc., a private company which is the owner of Aqua, and
Charles of Nob Hill, both of which are in San Francisco. He is founder and has
been chairman and chief executive officer of Proven Alternatives, Inc., a
privately held international energy management company, since 1991. Mr. Condy
was chairman and chief executive officer of California Energy Company, Inc., a
geothermal energy company which he founded in 1971, and which became the largest
geothermal energy company in the world. Prior to founding California Energy
Company, Mr. Condy was executive vice president-Western region of John Nuveen
(9)
<PAGE>
and Company, members of the New York Stock Exchange. In the public policy area,
Mr. Condy helped found and has served as board member of the Business Council
for a Sustainable Energy Future and the Coalition for Energy Efficiency and
Renewable Technologies. Mr. Condy currently advises the U.S. Department of
Energy, the U.S. Agency for International Development, and the U.S. Asian
Environmental Partnership on energy efficiency technology transfer and related
funding to developing economies.
STEPHEN SCHACHMAN, is presently a private consultant and is the owner of
his own consulting firm, Public Affairs Management, located in the suburban
Philadelphia area. From 1992 to 1995 has was an executive officer and consultant
to Penn Fuel Gas Company, a supplier of natural gas products. Prior thereto, he
was an attorney with the Philadelphia law firm of Dilworth, Paxson, Kalish &
Kaufman. Mr. Schachman was also executive vice president of Bell Atlantic Mobile
System and prior thereto president of the Philadelphia Gas Works, the largest
municipally owned gas company in the United States. Mr. Schachman has a Bachelor
of Arts degree from the University of Pennsylvania and a Juris Doctor degree
from the Georgetown University Law School.
M. MOSHE PORAT, is currently the Dean of the School of Business and
Management at Temple University. He is the Chairholder of the Joseph E. Boettner
Professorship in Risk Management and Insurance. From 1988 to 1996 he was
Chairman of the Risk Management, Insurance and Actuarial Science Department at
Temple University. He received his undergraduate degree in economics and
statistics (with distinction) from Tel Aviv University. His M.B.A. (Magna Cum
Laude) is from the Recanati Graduate School of Management at Tel Aviv
University. He completed his doctoral work at Temple University. Prior to his
academic work, Dr. Porat served as deputy general manager of a large
international insurance brokerage firm and insurance company as an economic and
financial consultant. Dr. Porat has authored several monographs on captive
insurance companies and their use in risk management, has published numerous
articles on captive insurance companies, self insurance and other financial and
risk topics, has served as an expert witness and has won several awards. Dr.
Porat holds the CPCU professional designation and is a member of ARIA (American
Risk and Insurance Association), IIS (International Insurance Society), RIMS
(Risk and Insurance Management Society) and Society of CPCU.
JAMES W. FOX, is presently the Managing Partner of First Lawrence Capital
Corp., located in New York City, and is responsible for the firm's management
and the growth of its mergers and acquisitions advisory and principal investment
activities. From 1989 to 1996, Mr. Fox was a director with national practice
development and management responsibility with Coopers & Lybrand in New York,
with primary responsibility for mergers and acquisitions activities. He has held
senior mergers and acquisitions positions with General Foods Corp., Arthur Young
and W.R. Grace Co. Mr. Fox has a Bachelor of Arts degree in Mathematics and
History from Amherst College and an M.B.A. in Finance from the University of
Pennsylvania's Wharton School.
None of these persons has any family relationship to any other.
(10)
<PAGE>
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 Irwin L. Gross, 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, 1997, the Company's Board of
Directors held five meetings. Each person who was then a director attended all
of the Board meetings, except as follows: (i) Mr. Haig was unable to attend one
meeting; (ii) Mr. Yuri Itkis was unable to attend two meetings and (iii) Mr.
Barents was unable to attend two meetings.
BOARD COMMITTEES
The Board does not have a nominating committee and, in connection with the
reduction in the number of directors, the Executive Committee and the
Compensation Committee have been suspended and their functions have been assumed
by the entire Board.
The Board does have an Audit Committee whose purpose is to recommend 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 during fiscal 1997 consisted of
Messrs. Adam Aron and Brian Barents. Messrs. Aron and Barents resigned from the
Board of Directors on November 11, 1997 and October 28, 1997, respectively. The
Audit Committee currently consists of Messrs. Schachman and Condy. There was no
Audit Committee in session during any of the meetings of the Board of Directors
during fiscal 1997.
The new Board established a Compensation Committee comprised of Messrs.
Porat and Condy. The Compensation Committee is responsible for approving the
compensation arrangements of senior management.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
The election of directors requires a plurality vote of those votes
represented in person or by proxy at the Annual Meeting. Accordingly, the five
nominees receiving the highest number of votes from holders of shares of the
Common Stock represented and voting at the Annual Meeting will be elected to
serve on the Board. Abstentions and broker non-votes will have no effect on the
election of the directors listed above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF EACH OF THE
NOMINEES LISTED ABOVE.
(11)
<PAGE>
PROPOSAL 2
AUTHORIZATION OF A CLASSIFIED BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved and
recommended to the stockholders an amendment to the Company's Amended and
Restated Certificate of Incorporation (the "Certificate") to provide that the
Board of Directors be divided into three classes: Class 1, Class 2 and Class 3,
with the directors in each class to hold office for staggered terms of three
years each. Under Delaware law, the amendment would become effective upon
stockholder approval and filing of the amendment to the Certificate. If Proposal
2 is adopted, a new Article Nine will be added to the Certificate, and existing
Article Nine will be redesignated Article Ten. New Article Nine will read as
follows:
"ARTICLE NINE
CLASSIFIED BOARD OF DIRECTORS
4.1 The Board of Directors shall consist of five (5)
members. Such set number of directors may be changed from
time to time by resolution of the Board of Directors,
except as otherwise provided by law or the Certificate of
Incorporation. Any director may resign at any time upon
written notice to the Corporation. Directors need not be
stockholders.
4.2 The Board of Directors shall be divided into three
classes, as nearly equal in numbers as the then total
number of directors constituting the entire Board permits
with the term of office of one class expiring each year.
At the 1998 Annual Meeting of Stockholders, directors of
the first class shall be elected to hold office for a
term expiring at the next succeeding annual meeting,
directors of the second class shall be elected to hold
office for a term expiring at the second succeeding
annual meeting and directors of the third class shall be
elected to hold office for a term expiring at the third
succeeding annual meeting. Subject to the foregoing, at
each Annual Meeting of Stockholders the successors to the
class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third
succeeding annual meeting."
If Proposal 2 is adopted, all directors will be elected to their classified
terms as described in this Proxy Statement. Initially, the term of the Class 1
(12)
<PAGE>
directors would expire at the next annual meeting in 1999, and the terms of
Class 2 and Class 3 directors would expire at the 2000 and 2001 annual meetings,
respectively. Successors to the directors in each class would be elected for
three-year terms. The Proposed Amendment would thus have the effect of causing
only one class of directors per year to be elected, with the directors in the
other two classes remaining in office until the elections held in later years.
Under Delaware law, a director of a corporation with a classified board of
directors may be removed by the stockholders only for cause unless the
certificate of incorporation provides otherwise. The Certificate does not
provide otherwise, and the contrary provision in the Bylaws will be ineffective
as a matter of law and will be suspended if Proposal 2 is passed. Therefore, if
Proposal 2 is approved, the holders of a majority of the outstanding voting
shares would be able to remove a director during their elected terms only for
"cause." In this context, "cause" is not defined by statute. If a vacancy occurs
during the term of any director, under Delaware law the majority of the Board
may fill the vacancy, and the director so appointed will hold office until the
next election of the class to which he or she was appointed. If Proposal 2 is
passed, the Board will amend the Bylaws to conform to these changes.
Proposal 2 was approved by the Board based on its observation of a trend
towards third parties accumulating substantial stock positions in public
companies as a prelude to proposing a takeover, a restructuring or sale of all
or part of the company, or other similar extraordinary corporate action. Such
actions are often undertaken by the third party without advance notice to, or
consultation with, management of the company involved. In many cases, the
purchaser also seeks representation on the company's board of directors in order
to increase the likelihood that the extraordinary corporate action proposed will
be implemented by the company. If the company resists the efforts of the
purchaser to obtain representation on the board, the purchaser may commence a
proxy contest to have its nominees elected in place of some or all of the
existing directors. The Board of Directors believes that an imminent threat of
removal in such situations would severely curtail its ability to negotiate
effectively. Under such pressure, the directors could be deprived of the time
and information necessary to evaluate the takeover proposal, to study
alternative proposals and to help ensure that the best price is obtained in any
transaction which may ultimately occur. Moreover, the Board believes that the
longer time required to displace a classified board may help to ensure the
future continuity and stability of the Company's management and policies, since
a majority of the directors at any given time will ordinarily have had prior
experience as directors of the Company.
In considering this Proposal, stockholders should be aware that Proposal 2,
if approved, might have the effect of preventing even a majority stockholder
from electing any directors or taking any other action until the next annual
meeting. Thus, Proposal 2 will, if approved, make any change in the composition
of the Board of Directors more difficult. For example, holders of a majority of
the Company's voting stock might not be able to elect a majority of the
Company's directors until two or more annual meetings have been held. As a
result, some persons who might otherwise seek to take over the Company may
decide not even to attempt such step because of the potential that the Company
might have a Board of Directors not under their control for some period of time.
(13)
<PAGE>
In addition, changes in management not related to a takeover will become more
difficult.
Takeovers or changes in management of the Company which are proposed and
effected without prior negotiations with the Company's management are not
necessarily detrimental to the Company and its stockholders. Indeed, their
decreased likelihood might discourage certain potential stockholders from
acquiring the Company's stock, thus potentially reducing trading activity to the
possible disadvantage of some or, under certain conditions, all of the Company's
stockholders. However, the Board believes that the benefits of seeking to
protect its ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to take over or restructure the Company outweigh the
disadvantages of discouraging such proposals. Proposal 2 is not being submitted
as the result of, and the Board is unaware of, any specific effort by any
persons to obtain control of the Company or to accumulate large amounts of its
stock.
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's voting stock entitled to vote at the Annual Meeting is required
to adopt Proposal 2.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL 2.
PROPOSAL 3
APPROVAL OF REVERSE STOCK SPLIT
REVERSE STOCK SPLIT
The Board of Directors of the Company has unanimously approved and
recommended to the stockholders an amendment to the first paragraph of the
Article Four of the Certificate to provide for a reverse split of the
outstanding Common Stock, $.01 par value, on the basis of one (1) new share of
either Class A Common Stock or Class B Common Stock, as appropriate, for each
two (2) shares of presently outstanding Class A Common Stock and Class B Common
Stock (the "Reverse Stock Split"). There will be no reduction of the authorized
number of shares of Common Stock (40,000,000 shares) or Preferred Stock, $.01
par value (5,000,000 shares). Under Delaware law, the Reverse Stock Split would
become effective upon the filing of a Certificate of Amendment with the Delaware
Secretary of State (the "Effective Date").
It the Reverse Stock Split is approved, the first paragraph of the Fourth
Article will be amended to read as follows:
"4.1 Authorized Shares. The total number of shares of all classes of
stock which the corporation shall have authority to issue is forty-nine
million (49,000,000), consisting of three classes of capital stock:
(a) 40,000,000 shares of Class A Common Stock, par value $.01 per
share (the "Class A Shares");
(14)
<PAGE>
(b) 4,000,000 shares of Class B Common Stock, par value $.01 per share
(the "Class B Shares"); and
(c) 5,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Shares").
Upon effectiveness of this amendment to the Amended and Restated
Certificate of Incorporation, each two (2) Class A Shares issued and
outstanding immediately prior thereto shall be automatically combined into
one (1) Class A Share and each two (2) Class B Shares issued and
outstanding immediately prior thereto shall be automatically combined into
one (1) Class B Share. No fractional shares shall be issued to stockholders
in connection with such reverse stock split, but in lieu thereof the
Corporation shall pay in cash the fair value of fractions of a share, if
any, as of the effective date of this amendment to the Amended and Restated
Certificate of Incorporation."
GENERAL DESCRIPTION
The Company is presently authorized to issue 44,000,000 shares of Common
Stock, $.01 par value, comprised of 40,000,000 shares of Class A Common Stock,
$.01 par value, 4,000,000 shares of Class B Common Stock, $.01 par value, and
5,000,000 shares of preferred stock, $.01 par value. The Reverse Stock Split
would not change the number of authorized shares, or the par value, of the
Common Stock and preferred stock.
At the close of business on July 31, 1998, there were 16,082,637 shares of
Class A Common Stock, and 3,733,334 shares of Class B Common Stock outstanding
and no shares of preferred stock outstanding. Subject to stockholder approval of
the Reverse Stock Split, the Board of Directors has authorized the transfer from
the Capital account to the Additional Paid-in Capital account of the excess
funds which will be created by the Reverse Stock Split without a proportionate
increase in par value.
PRINCIPAL EFFECTS
The principal effects of the Reverse Stock Split will be as follows:
1. Based upon the 19,815,971 shares of Common Stock outstanding on July 31,
1998, the proposed one-for-two reverse stock split would decrease the number of
outstanding shares of Common Stock by fifty percent (50%), and thereafter
approximately 9,907,985 shares of Common Stock would be outstanding. The Reverse
Stock Split will not affect any stockholder's proportionate equity interest in
the Company, subject to the provisions for the elimination of fractional shares
as described below.
2. As of July 31, 1998, there were outstanding options to purchase
2,000,968 shares of Class A Common Stock pursuant to the Company's 1994 and 1997
Stock Option Plans (the "Plans"). Options to purchase 1,765,782 shares of Class
A Common Stock remained available for grant pursuant to the Plans. If the
Reverse Stock Split is approved and effected, the number of shares subject to
such options would be decreased to approximately
(15)
<PAGE>
1,000,484 and the shares of Class A Common Stock remaining available for grant
under the Plans would be decreased to approximately 882,891 shares of Class A
Common Stock.
3. As of July 31, 1998, there were outstanding warrants to purchase 530,000
shares of Class A Common Stock. If the Reverse Stock Split is approved and
effected, the number of shares subject to such warrants would be decreased to
approximately 265,000.
The following table illustrates the principal effects of the Reverse Stock
Split described above:
<TABLE>
<CAPTION>
After
Before Reverse Split
Number of Shares of Common Stock Reverse Split ("Post-Split Shares")
-------------------------------- ------------- ---------------------
<S> <C> <C>
Authorized 40,000,000 40,000,000
Outstanding 19,815,971 9,907,985
Reserved for future issuance upon exercise of 2,000,968 1,000,484
options to be granted pursuant to the Plans
Reserved for future issuance upon exercise of 530,000 265,000
outstanding warrants
Available for future issuance by action of Board 1,765,782 882,891
of Directors (after giving effect to above
reservations)
</TABLE>
REASONS FOR APPROVAL AND RECOMMENDATION BY THE BOARD OF
DIRECTORS
The Board of Directors of the Company has unanimously approved the Reverse
Stock Split and has directed that it be submitted to a vote of stockholders at
the Annual Meeting. THE BOARD OF DIRECTORS BELIEVES THAT THE REVERSE STOCK SPLIT
IS IN THE BEST INTERESTS OF, AND FAIR TO, THE COMPANY AND ALL OF ITS
STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS A VOTE FOR THE REVERSE STOCK SPLIT.
In deciding to approve the Reverse Stock Split, the Board of Directors
considered a variety of factors, including:
COMPLIANCE WITH FUTURE NASDAQ REQUIREMENTS.
Under the NASDAQ Market Continued Listing Requirements (the
"Requirements"), which became effective as of February 23, 1998, the low market
price of the Class A Common Stock could impair its continued NASDAQ listing. The
(16)
<PAGE>
Requirements include, among other things, a minimum bid price of $1.00. Since
that time, the closing bid price for the Company's Class A Common Stock has
often been below the minimum bid price, and NASDAQ had notified the Company that
its status was under review and on September 17, 1998, NASDAQ scheduled a
Qualifications Hearing Panel in order to delist the Company's Class A Common
Stock. On such date, Irwin L. Gross attended such hearing on behalf of the
Company. The shares of Class A Common Stock were not delisted at that time,
however, there can be no assurance as to when, if ever, the NASDAQ may delist
such shares for failure to meet the minimum bid requirement. Although there can
be no assurance that the price of the Class A Common Stock after the Reverse
Stock Split will actually increase in an amount proportionate to the decrease in
the number of outstanding shares, the Board of Directors anticipates that the
Reverse Stock Split will enable the Company to satisfy the minimum bid
requirement.
ACCEPTANCE BY FINANCIAL COMMUNITY AND INVESTING PUBLIC.
The Company believes that the low market price of the Class A Common Stock
impairs its acceptance by important segments of the financial community and the
investing public. Theoretically, the number of shares outstanding should not by
itself affect the marketability of the stock, the type of investor who acquires
it, or the reputation of the Company in the financial community, but in practice
this is not necessarily the case, as many investors look upon low-priced stocks
as unduly speculative in nature and, as a matter of policy, avoid investment in
such stocks.
The Company believes that the current low market price of the Class A
Common Stock has reduced the effective marketability of the shares because of
the reluctance of many leading brokerage firms to recommend low-priced stocks to
their clients. Further, a variety of brokerage house policies and practices tend
to discourage individual brokers within those firms from dealing in low-priced
stocks. Some of those policies and practices pertain to the payment of brokers'
commissions and to time-consuming procedures that function to make the handling
of low-priced stocks unattractive to brokers from an economic standpoint. In
addition, the structure of trading commissions also tends to have an adverse
impact upon holders of low-priced stocks because the brokerage commission on a
sale of low-priced stocks generally represents a higher percentage of the sales
price than the commission on a relatively higher-priced issue. Finally, the
internal guidelines of many institutional investors prohibit the purchase of
stock trading below certain minimum prices.
Although there can be no assurance that the price of the Company's Common
Stock after the Reverse Stock Split will actually increase in an amount
proportionate to the decrease in the number of outstanding shares, the Reverse
Stock Split is intended to result in a price level that will increase investor
interest and eliminate the resistance of certain brokerage firms and
institutional investors to investment, or recommending investment, in the Class
A Common Stock.
(17)
<PAGE>
EXCHANGE OF STOCK CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE
INTERESTS
As soon as practicable after the Effective Date, the Company will provide
stockholders with any required instructions for the exchange of their present
Common Stock certificates for new certificates representing the appropriate
number of shares of Common Stock after the Reverse Stock Split. However, if
permitted, the Company may elect to effect such exchange in the ordinary course
of trading as certificates are returned for transfer. In either event, each
current certificate representing shares of Common Stock until so exchanged will
be deemed for all corporate purposes after the Effective Date to evidence
ownership of Common Stock in the proportionately reduced number. The Company may
appoint an exchange agent (the "Exchange Agent") to act for stockholders in
effecting the exchange of their certificates.
Stockholders will not be entitled to receive fractional shares in
connection with the Reverse Stock Split. In lieu thereof, the Company or the
Exchange Agent will pay to each stockholder who is otherwise entitled to a
fractional share upon surrender of the relevant stock certificate(s) the value
of the fractional interest to which such stockholder is entitled, based upon the
fair market value of the Common Stock on the Effective Date.
FEDERAL INCOME TAX CONSEQUENCES
1. Except with respect to any cash received for fractional shares, the
Reverse Stock Split will be a tax-free recapitalization for the Company and its
stockholders.
2. The new shares of Common Stock in the hands of a stockholder will have
an aggregate basis for computing gain or loss equal to the aggregate basis of
shares of Common Stock held by that stockholder immediately prior to the Reverse
Stock Split, reduced by the basis allocable to any fractional shares which such
stockholder is treated as having sold for cash (see paragraph 4 below).
3. A stockholder's holding period for the new shares of Common Stock will
be the same as the holding period of the shares of Common Stock exchanged
therefor.
4. Stockholders who receive cash for all of their holdings (as a result of
owning fewer than two (2) shares) will recognize a gain or loss for federal
income tax purposes as a result of the disposition of their shares of Common
Stock. Although the tax consequences to other stockholders who receive cash for
fractional shares are not entirely certain, such stockholders will probably be
treated for federal income tax purposes as having sold their fractional shares
and will recognize gain or loss in an amount equal to the difference between the
cash received and the portion of their basis for the Common Stock allocated to
the fractional shares. Stockholders who do not receive any cash for their
holdings will not recognize any gain or loss for federal income tax purposes as
a result of the Reverse Stock Split.
(18)
<PAGE>
VOTE REQUIRED
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of the Common Stock is required to approve the Reverse
Stock Split and amendment of the Company's Amended and Restated Certificate of
Incorporation. As a result, abstentions and broker non-votes are effectively
equivalent to votes against the Reverse Stock Split.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL 3.
PROPOSAL 4
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
BACKGROUND; PROPOSAL
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG") to act
as its independent accountants for the fiscal year ending October 31, 1998 and
the financial statements relating thereto. KPMG previously acted as the
Company's independent accountants for its 1996 and 1997 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, 1998. 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 that 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, 1998 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. 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.
PROXY AGREEMENT AND VOTING AGREEMENT
Pursuant to an agreement dated August 13, 1998 (the "Proxy Agreement"),
Ocean Partners entered into an arrangement with Yuri Itkis, Donald H. Goldman
and Boris Itkis, whereby Ocean Partners has been granted an irrevocable proxy
(19)
<PAGE>
("Ocean Proxies") to vote all of the shares of Common Stock beneficially owned
by Messrs. Yuri Itkis, Goldman and Boris Itkis. Yuri Itkis is the is the father
of, and Boris Itkis is the brother of, former CEO and director Michail Itkis.
The Proxy Agreement also provides for consulting agreements between Ocean
Partners and Messrs. Yuri Itkis and Donald Goldman, whereby, among other things,
Ocean Partners, upon the election of the Ocean Nominees which will constitute a
majority of the Board of Directors of the Company, will pay Yuri Itkis and
Donald Goldman each, $200,000 a year for 5 years, for services in connection
with current or future business strategies of the Company.
By virtue of its status as the holder of the Ocean Proxies, Ocean Partners
may be deemed to beneficially own all of the 2,231,111 (8.3% of the outstanding
voting power) shares of Class B Common Stock owned by Messrs. Yuri Itkis, Donald
Goldman and Boris Itkis as set forth below under "Security Ownership Of Certain
Beneficial Owners And Management." Also see "Litigation." Irwin L. Gross also
beneficially owns 52,000 shares of Class A Common Stock.
On August 11, 1998, Mr. Gross entered into an agreement (the "Voting
Agreement") with Steven Fieldman and Lance Fieldman, whereby Messrs. Fieldman
and Fieldman agreed to continue to vote the shares of Class B Common Stock and
Class A Common Stock beneficially owned by them in proportion to the vote of
other stockholders on matters submitted to stockholders. Steven Fieldman
beneficially owns 453,333 shares of Class B Common Stock and 355,000 shares of
Class A Common Stock (together representing approximately 11.2% of the
outstanding voting power) and Lance Fieldman beneficially owns 160,000 shares of
Class B Common Stock and 10,000 shares of Class A Common Stock (together
representing approximately 3.5% of the outstanding voting power). See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Messrs. Fieldman and
Fieldman have previously agreed, pursuant to their severance agreements with the
Company, to vote all shares on all matters in proportion to the vote of the
Company's other stockholders. The Voting Agreement provides that if the Ocean
Nominees constitute a majority of the Board of Directors of the Company, Irwin
Gross will use his best efforts to cause the Company to enter into a consulting
agreement with Steven Fieldman pursuant to which he would be engaged to advise
the Company, at $55,000 a year for 1 year, concerning current or future business
strategies of the Company.
LITIGATION
On August 25, 1998, Mr. Gross caused a complaint (the "Complaint") to be
filed on his behalf in the Court of Chancery of the State of Delaware in and for
New Castle County against the Company seeking an order pursuant to Section
211(c) of the Delaware General Corporation Law to schedule an annual meeting for
the election of directors of the Company since the Company had not had an annual
meeting in more than thirteen months since its last annual meeting. It is
presently intended that such Complaint will be dismissed by Mr. Gross.
(20)
<PAGE>
On August 31, 1998, the Company filed a complaint against Ocean Partners
(the "Company Complaint") in the Delaware Chancery Court alleging, among other
things, that the Proxy Agreement is invalid, is in violation of certain
stockholders agreements and resulted in an automatic conversion of the Class B
Common Stock subject to the Proxy Agreement. It is presently intended that such
Company Complaint will be dismissed by the Company.
On September 9, 1998, Ocean Partners was named as a defendant in a
derivative action filed in the Superior Court of the State of Arizona, Maricopa
County, entitled Barington Capital Group, L.P. et al. v. Michail Itkis, et al.
(No. CV98-16346). The lawsuit named ten current and former officers and
directors of the Company and alleged various breaches of fiduciary duty. The
complaint was substantially the same as the complaint filed by the same
plaintiff against virtually the same defendants in the Supreme Court of the
State of New York on March 6, 1998, except that this new complaint named Ocean
Partners and claimed that the Proxy Agreement is invalid, is in violation of
certain stockholders agreements and resulted in an automatic conversion of the
Class B Common Stock subject to the Proxy Agreement (essentially the same claims
that were in the Company Complaint) and sought an injunction against the
defendants to, among other things, delay the Annual Meeting of Stockholders. On
September 16, 1998, the Court in Arizona issued a Temporary Restraining Order
and Order to Show Cause delaying the Annual Meeting pursuant to an ex parte
order. A hearing was scheduled for September 23, 1998, and a preliminary hearing
was conducted on September 25, 1998. Pursuant to that hearing, the Court ruled
that the Class B Common Stock subject to the Proxy Agreement automatically
converted into Class A Common Stock. As a result, Ocean Partners beneficial
ownership was reduced from 33.8% to 8.3% of the voting power of the Company.
The Court also allowed the Annual Meeting to go forward and did not invalidate
the Proxy Agreement. Ocean Partners has not yet seen a written order from the
Court, and in any case, plans to appeal such order. It is presently unclear
as to how the Court's order affects any of the other shares of Class B
Common Stock. The Court's order may have reduced the six-to-one voting of all of
the shares of Class B Common Stock.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and current positions with
the Company of the Company's current executive officers:
NAME AGE POSITION
Irwin L. Gross 54 Chief Executive Officer
Morris C. Aaron 35 Chief Financial Officer
David N. Shevrin 35 Secretary
Officers serve at the discretion of the Board of Directors, subject to
rights, if any, under contracts of employment.
(21)
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company for the fiscal years ended October
31, 1997, October 31, 1996 and October 31, 1995 to (i) the Chief Executive
Officer (the "CEO"), and (ii) those executive officers other than the CEO as
well as one other employee whose total annual compensation for the 1997 fiscal
year exceeded $100,000 (the "Named Executives"). The compensation presented
below does not include any perquisites and other personal benefits, securities
or property paid to the individuals in which the aggregate amount was less than
$50,000 or 10% of the total annual salary and bonus reported for the Named
Executive.
(22)
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL FISCAL ANNUAL ANNUAL LONG TERM
POSITION YEAR COMPENSATION COMPENSATION COMPENSATION
BONUS($) AWARDS STOCK
OPTIONS(#)
<S> <C> <C> <C> <C>
Michail Itkis, Chief Executive 1997 263,995 279,075 --
Officer (1) 1996 188,933 -- 375,000
1995 125,000 -- 15,000
Thomas M. Meltzer, President 1997 314,000 181,399 250,000
and Chief Operating Officer (2) 1996 -- -- --
1995 -- -- --
John W. Alderfer, Vice 1997 214,000 111,630 --
President - Chief Financial 1996 13,846 -- 175,000
Officer (3) 1995 -- -- --
Robert C. Hooper, Jr., Vice 1997 112,499 37,969 30,000
President - Sales and 1996 -- -- --
Marketing (4) 1995 -- -- --
Frank Gomer, Director of 1997 96,058 20,000 27,000
Engineering (5) 1996 -- -- --
1995 -- -- --
</TABLE>
(1) Excludes relocation expenses of $62,718 and $114,997 paid to Mr. Itkis
during the 1997 and 1996 fiscal years, respectively. The amount for the
annual bonus during the 1997 fiscal year includes 91,575 shares of the
Company's Class A Common Stock valued at a fair market value of $1.00 on
the date of transfer.
(2) Mr. Meltzer started employment with the Company on November 23, 1996.
Excludes relocation expenses of $43,555 paid to Mr. Metzler during the 1997
fiscal year. The amount for the annual bonus during the 1997 fiscal year
includes 59,524 shares of the Company's Class A Common Stock valued at a
fair market value of $1.00 on the date of transfer.
(3) Excludes relocation expenses of $28,410 and $7,569 paid to Mr. Alderfer
during the 1997 and 1996 fiscal years, respectively. The amount for the
annual bonus during the 1997 fiscal year includes 36,630 shares of the
Company's Class A Common Stock valued at a fair market value of $1.00 on
the date of transfer.
(4) Mr. Hooper started employment with the Company on January 27, 1997, and his
employment was terminated in May 1998. Excludes relocation expenses of
$38,094 paid to Mr. Hooper during the 1997 fiscal year.
(5) Dr. Gomer started employment with the Company on February 10, 1997. The
amount for the annual bonus during the 1997 fiscal year represents a
signing bonus.
(23)
<PAGE>
OPTION GRANTS IN FISCAL YEAR
The following table sets forth the grant of stock options made
during the 1997 fiscal year to the CEO and the Named Executives:
<TABLE>
<CAPTION>
NAME OPTIONS % TOTAL OPTIONS EXERCISE EXPIRATION
GRANTED GRANTED TO PRICE(2)($) DATE
EMPLOYEES IN 1997
FISCAL YEAR(1)
<S> <C> <C> <C>
Michail Itkis -- -- --
Thomas M. Meltzer 250,000 29.53% 8.000
John W. Alderfer -- -- --
Robert C. Hooper, Jr. 15,000 7.938
15,000 4.500 4/22/2007
--------
30,000 3.54%
========
Frank Gomer 12,000 7.313 3/04/2007
15,000 4.500 4/22/2007
--------
27,000 3.19%
========
</TABLE>
(1) Based on a total of 846,700 options granted to employees during the 1997
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. On February 10, 1998, the Company's Board of Directors
adopted a plan to reduce the exercise price on the stock options under the
Company's 1994 and 1997 Plans on specified dates to $0.875 provided the
holder is a current employee on the applicable future dates.
On January 6, 1997, the stock options under the Company's 1994 Plan held by
persons who were then an employee, officer, director, or consultant of the
Company and which had exercise prices in excess of $8.00 were repriced to $8.00,
the current market price at the time. On February 10, 1998, the Company's Board
of Directors adopted a plan to reduce the exercise price on the stock options
under the Company's 1994 and 1997 Plans. The exercise price on one-half of each
outstanding option will be reduced to $0.875 per share (the closing price for
the Company's stock on February 10, 1998), provided that the option holder is
still employed by the Company on the earlier of October 10, 1998 or the
completion of certain additional work for Swissair. A similar reduction in the
exercise price for the remaining half of the options will occur 180 days
following the reduction of the first half, provided the option holder is still
employed by the Company at that time. The plan amendment was approved by the
Board of Directors in recognition of the difficulty the Company was having in
(24)
<PAGE>
retaining key employees and that the existing options were not providing the
expected incentive for the holders and were in fact lowering employee morale.
The Board of Directors felt that the recent decline in the market price of the
Common Stock had significantly diminished the incentive value of the Company's
outstanding stock options and that the repricing was necessary to retain
appropriate levels of incentive, retain key personnel and maintain competitive
compensation levels. In making its decision, the Board decided to condition any
repricing on the employee continuing to remain with the Company during the next
year.
As a result of this plan, 75,000 options and 300,000 options held by Mr.
Itkis with exercise prices of $11.00 and $9.875, respectively, 250,000 options
held by Mr. Metzler with an exercise price of $10.50 and 175,000 options held by
Mr. Alderfer with an exercise price of $11.375 were repriced to $8.00 and will
be repriced to $0.875, provided the individual remains employed by the Company
on the applicable dates. Additionally, 12,000 options and 15,000 options held by
Dr. Gomer with exercise prices of $7.313 and $4.50, respectively, will be
repriced to $0.875 provided Dr. Gomer remains employed by the Company on the
applicable dates.
AGGREGATED OPTION EXERCISES IN 1997 FISCAL YEAR
AND FY-END OPTION VALUE
The following table provides certain information regarding the number of
exercisable and unexercisable options held by the CEO and the Named Executives
as of October 31, 1997 (none of these persons exercised any options during the
1997 fiscal year):
NAME NUMBER OF UNEXERCISED OPTIONS
AT OCTOBER 31, 1997
(#) EXERCISABLE/UNEXERCISABLE (1)
Michail Itkis 290,000/100,000
Thomas M. Meltzer 83,333/166,667
John W. Alderfer 58,333/116/667
Robert C. Hooper, Jr. 7,500/22,500
Frank Gomer 7,500/19,500
(1) Subject to reduction as described above under "Option Grants in Fiscal
Year," none of these options had an exercise price less than the closing
bid price per share of the Class A Common Stock on the Nasdaq National
Market of $1.156 at October 31, 1997.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The company had an employment agreement through August 27, 1999 with
Michail Itkis, the Company's Chief Executive Officer, under which Mr. Itkis
received a per annum base salary of $262,500. Pursuant to the agreement, if Mr.
Itkis is terminated by the Company or if Mr. Itkis terminates his employment for
any reason at least six months following a change of control, he is entitled to
two times the annual base salary and the target bonus. The agreement also
provided that Mr. Itkis will not compete with the Company during the term of the
agreement and for a period of three years thereafter. Mr. Itkis resigned as an
officer and director of the Company on September 15, 1998, and the terms of his
(25)
<PAGE>
employment agreement with respect to a change in control were effected, whereby
Mr. Itkis will receive two times his annual base salary and his target bonus.
The Company had an employment agreement through November 25, 1998 (with an
option to extend the agreement for one additional year) with Thomas M. Meltzer,
the Company's President and Chief Operating Officer, under which Mr. Meltzer
received a per annum base salary of $341,250, plus a bonus if the Company meets
certain goals established by the Board of Directors. Pursuant to the agreement,
if Mr. Meltzer is terminated by the Company or if Mr. Meltzer terminates his
employment for any reason at least six months following a change of control, he
is entitled to two times the annual base salary and target bonus. In connection
with the agreement, Mr. Meltzer received options to purchase 250,000 shares of
Class A Common stock which vest over two years from the grant date. Mr. Meltzer
resigned as an officer and director of the Company on September 15, 1998, and
the terms of his employment agreement with respect to a change in control were
effected, whereby Mr. Meltzer will receive two times his annual base salary and
a target bonus.
The Company had an employment agreement through October 1, 1999 with John
W. Alderfer, the Company's Chief Financial Officer, under which Mr. Alderfer
currently receives a per annum base salary of $210,000, plus a bonus if the
Company meets certain goals established by the Board of Directors. Pursuant to
the agreement, if Mr. Alderfer is terminated by the Company or if Mr. Alderfer
terminates his employment for any reason at least six months following a change
of control, he is entitled to two times the annual base salary and target bonus.
In connection with the agreement, Mr. Alderfer received options to purchase
175,000 shares of Class A Common Stock which vest over three years from the
grant date. Mr. Alderfer resigned as an officer and director of the Company on
September 15, 1998, and the terms of his employment agreement with respect to a
change in control were effected, whereby Mr. Alderfer will receive two times his
annual base salary and a target bonus.
DIRECTOR COMPENSATION
Outside directors receive $2,500 for each 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. Each director has also
received 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. The 1994 Plan expires in September 2004.
(26)
<PAGE>
In June 1997, the Company's stockholders approved the 1997 Stock Option
Plan (the "1997 Plan"). Options exercisable for a total of 1,500,000 shares of
the Company's Class A Common Stock are issuable under the 1997 Plan. The 1997
Plan expires in June 2007.
Under the 1994 Plan and the 1997 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 the Code and/or options that do not qualify as
incentive options ("non-qualified options"). The 1994 Plan and the 1967 Plan are
administered by the Board of Directors or a committee of the Board of Directors.
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 and the 1997 Plan may be either
incentive options or non-qualified options. Incentive options granted under the
1994 Plan and the 1997 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 or the 1997 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 and the 1997 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,
under the 1994 Plan, options that 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. Under the 1997 Plan, options that are exercisable at the time of
termination by reason of death or permanent disability of the optionee may be
exercised within 6 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.
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.
(27)
<PAGE>
As of July 15, 1998, options to purchase an aggregate of 2,519,200 shares
had been granted under the 1994 Plan at exercise prices ranging from $4.40 to
$14.375 per share, of which 133,250 had been exercised and 479,032 had been
forfeited. Accordingly, as of July 15, 1998, options to purchase 1,906,918
shares were outstanding under the 1994 Plan. As of July 15, 1998, options to
purchase an aggregate of 162,500 shares had been granted under the 1997 Plan at
exercise prices ranging from $0.7813 to $6.75 per share, of which none had been
exercised and 74,950 had been forfeited. Accordingly, as of July 15, 1998,
options to purchase 87,550 shares were outstanding under the 1997 Plan. The
Company has agreed to reduce the exercise price on stock options under the
Company's 1994 and 1997 Plans provided that the option holder is still employed
by the Company on specified dates as described in "Executive Compensation-Option
Grants in Fiscal Year." The Company has filed registration statements with the
Commission covering the 2,400,000 shares of Class A Common Stock issuable upon
exercise of options granted under the 1994 Plan and 1,500,000 shares of Class A
Common Stock issuable upon exercise of options granted under the 1997 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 date of the annual meeting of stockholders
for the Company's fiscal year ending October 31, 1997, 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. The 1994 Plan and the 1997 Plan also allow
grants to any director in addition to or in lieu of the foregoing automatic
grants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1996, the Company executed a Strategic Alliance Agreement, (the
"Alliance Agreement") to form a strategic alliance with Hyatt Ventures, Inc.
("Hyatt"). The Alliance Agreement was terminated in November 1997 as a result of
changing market conditions. Mr. John Pritzker, a former director of the Company
has an indirect beneficial ownership interest in Hyatt and serves as its
President. Pursuant to the Alliance Agreement, Hyatt, directly and through
certain of its affiliates (collectively, the "Hyatt Group"), agreed to use its
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<PAGE>
best commercial efforts to assist the Company in advancing the Company's
business with respect to the Entertainment Network. In return, Hyatt was to
receive warrants to purchase Class A Common Stock based on purchase commitments
from airlines. No warrants were earned by Hyatt under the Alliance Agreement
prior to the Agreement's termination. Under the Alliance Agreement, Hyatt also
purchased 141,500 shares of the Company's Class A Common Stock in the open
market for an aggregate of approximately $1,000,000. Hyatt also had the right
under the Alliance Agreement to invest in joint ventures providing financing for
specified projects, No joint ventures were commenced prior to the termination of
the Alliance Agreement.
Hyatt also had the right to designate two nominees to the Board of
Directors of the Company. Hyatt 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 of Directors. Messrs. Pritzker and Aron
resigned from the Board of Directors on October 20, 1997 and November 11, 1997,
respectively. 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.
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 of 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
1997.
Yuri Itkis, a former director and a 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 former Chief Executive Officer and a former director of the
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<PAGE>
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, Steven Fieldman and
Lance Fieldman, 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,
Steven Fieldman and Lance Fieldman, added Hyatt as a Stockholder under the
Stockholders' Agreement, and amended certain terms of the Stockholders'
Agreement. On November 10, 1997 with the termination of the Alliance Agreement
with Hyatt, the Stockholders' Agreement was amended again to terminate Hyatt's
rights.
As amended, the Stockholders' Agreement provided that Michail Itkis and
Yuri Itkis shall each be entitled to designate one nominee to the Company's
Board of Directors. No other parties had any continuing right under the
Stockholders' Agreement to nominate a director. Each stockholder who was a 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). The Stockholders' Agreement was terminated on September
15, 1998.
EMPLOYMENT MATTERS
The Company has employment agreements with certain of its executive
officers and has granted such officers options to purchase shares of Class A
Common Stock. See "Executive Compensation -- Employment and Severance
Agreements." In addition, Michail Itkis's wife, Lauren Snopkowski, was
previously the Secretary of the Company and an employee of the Company until
April 1997. Ms. Snopkowski, who served as Director of Purchasing during fiscal
1997, received compensation in fiscal 1997 of $59,222 and severance of $115,775.
SEVERANCE AGREEMENTS
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 would render such consulting, legal and other services to the Company,
consistent with his experience and background and subject to his other business
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<PAGE>
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.
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 would 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 would 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.
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 various
employment agreements, the original FortuNet License, the original Stockholders'
Agreement and certain financing arrangements for the Company, as well as
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<PAGE>
consulting on various business and financial matters. The Company has no current
consulting arrangements with Mr. Tytel.
Concurrently 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. The Haig Consulting
Agreement was terminated on October 11, 1997 concurrent with General Haig's
resignation from the Board of Directors. Pursuant to the Haig Consulting
Agreement, General Haig was to provide strategic advisory services to advance
the Company's interests worldwide. In consideration of such services, during the
three-year term of the Haig Consulting Agreement the Company was to 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 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. Worldwide Associates, Inc.
received an aggregate of $56,063 and $41,667 during fiscal 1997 and fiscal 1996,
respectively.
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 provided 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 to 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. James H. Zukin, a former director
of the Company, is a Managing Director of Houlihan Lokey and a member of its
Board of Directors.
On September 15, 1998, the Company entered into consulting agreements with
Messrs. Michail Itkis, Thomas M. Metzler and John W. Alderfer in connection with
the Company's agreements with Swissair. In consideration for such services, the
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<PAGE>
Company has agreed to pay Mr. Itkis $200,000 through September 15, 1999, Mr.
Meltzer $300,000 through June 15, 1999 and Mr. Alderfer $235,000 through March
15, 1999.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 31, 1998
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 and (iv) all then current executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
CLASS B CLASS A PERCENT
NAME AND COMMON STOCK(2) COMMON STOCK OF TOTAL(3)
ADDRESS OF ---------------------- ---------------------- -----------
BENEFICIAL NUMBER PERCENT NUMBER PERCENT VOTING
OWNER(1) OF SHARES OF CLASS OF SHARES OF CLASS POWER
---------- --------- -------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Irwin L. Gross
1811 Chestnut Street 2,231,111 59.8% 52,000 * 8.3%
Philadelphia, PA 19103
Charles T. Condy --- --- --- --- ---
Stephen Schachman --- --- --- --- ---
M. Moshe Porat --- --- --- --- ---
James W. Fox --- --- --- --- ---
</TABLE>
- -------------
* Less than 1%.
(1) Unless otherwise noted, 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 Proxy Agreement between Ocean Partners, Yuri
Itkis, Donald H. Goldman and Boris Itkis and are subject to the Stock
Escrow Agreement. Ocean Partners only has voting power with respect to the
shares of Common Stock subject to the Proxy Agreement; it does not have
investment power with respect to such shares.
(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 holder of Class B Common Stock. Of the 3,733,334
shares of Class B Common Stock outstanding, 3,200,000 shares are held in
escrow (the "Stock Escrow Agreement") and will be released to the holders
only if the Company meets certain earnings or market price criteria. If the
conditions are not met by January 31, 1999, such shares will be canceled
and contributed to the Company's capital. Of the escrow shares, 1,250,000
shares will be released from escrow, on a pro rata basis if, and only if,
the Company's pretax income amounts to at least $10,100,000 for fiscal 1998
or the closing bid price of the Company's Class A Common Stock is in excess
of $20.00 for a 30-day period in the 18-month period subsequent to 18
months after the Company's public offering. The remaining 1,950,000 escrow
shares will be released from escrow if, and only if, the Company's pretax
income amounts to at least $14,500,000 for fiscal 1998 or the closing bid
price of the Company's Class A Common Stock is in excess of $28.00 for a
30-day period in the 18-month period subsequent to 18 months after the
Company's public offering. If none of the Class B shares are released from
escrow, the voting rights in the Company would be significantly changed. On
September 25, 1998, the Superior Court of the State of Arizona, Maricopa
County, ruled that the shares of Class B Common Stock subject to the Proxy
Agreement had automatically converted into Class A Common Stock and
therefore no longer have a six-to-one vote. See "Litigation."
(3) Based on 3,733,334 shares of Class B Common Stock outstanding, 16,082,637
shares of Class A Common Stock outstanding, except that shares underlying
options and warrants to purchase Class A Common Stock exercisable within
sixty (60) days are deemed to be outstanding for purposes of calculating
the percentage owned by the holder(s) of such options and warrants.
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<PAGE>
The persons (other than the new Directors) who beneficially own more
than five percent (5%) of the outstanding Common Stock are as follows:
<TABLE>
<CAPTION>
CLASS B CLASS A PERCENT
NAME AND COMMON STOCK(2) COMMON STOCK OF TOTAL(3)
ADDRESS OF ---------------------- ---------------------- -----------
BENEFICIAL NUMBER PERCENT NUMBER PERCENT VOTING
OWNER(1) OF SHARES OF CLASS OF SHARES OF CLASS POWER
---------- --------- -------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Michail Itkis 888,889(4) 23.8% 541,575(4)(5) 3.4% 21.4%
Steven M. Fieldman 453,333(6)(7) 12.1% 355,000(5)(6)(7) 2.2% 11.2%(7)
</TABLE>
The following table sets forth the beneficial ownership of the Common
Stock, as of July 31, 1998, held by each of the then directors and executive
officers and those directors and executive officers as a group.
<TABLE>
<CAPTION>
CLASS B CLASS A PERCENT
NAME AND COMMON STOCK(2) COMMON STOCK OF TOTAL(3)
ADDRESS OF ---------------------- ---------------------- -----------
BENEFICIAL NUMBER PERCENT NUMBER PERCENT VOTING
OWNER(1) OF SHARES OF CLASS OF SHARES OF CLASS POWER
---------- --------- -------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Michail Itkis 888,889(4) 23.8% 541,575(4)(5) 3.4% 21.4%
Thomas M. Meltzer --- --- 236,191(5) 1.5% *
John W. Alderfer --- --- 104,963(5) * *
Frank Gomer --- --- 14,500(5) * *
All then current
executive officers and
directors of the
Company as a group (4
persons) 888,889 23.8% 897,229(5) 5.6% 22.3%
</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 public information about
the Company, Steven M. Fieldman's address is 700 Manhattan Avenue,
Manhattan Beach, California 90266, (ii) Donald H. Goldman's address is 331
W. Broadway, Long Beach, New York 11561, (iii) Yuri Itkis's address is 2620
S. Highland Dr., Las Vegas, Nevada 89109, and (iv) Boris Itkis's address is
2620 S. Highland Dr., Las Vegas, Nevada 89109. Unless otherwise noted,
all persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(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 holder of Class B Common Stock. Of the 3,733,334
shares of Class B Common Stock outstanding, 3,200,000 shares are held in
escrow and will be released to the holders only if the Company meets
certain earnings or market price criteria. If the conditions are not met by
January 31, 1999, such shares will be canceled and contributed to the
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<PAGE>
Company's capital. Of the escrow shares, 1,250,000 shares will be released from
escrow, on a pro rata basis if, and only if, the Company's pretax income
amounts to at least $10,100,000 for fiscal 1998 or the closing bid price of
the Company's Class A common stock is in excess of $20.00 for a 3-day
period in the 18-month period subsequent to 18 months after the Company's
public offering. The remaining 1,950,000 escrow shares will be released
from escrow if, and only if, the Company's pretax income amounts to at
least $14,500,000 for fiscal 1998 or the closing bid price of the Company's
Class A Common Stock is in excess of $28.00 for a 30-day period in the
18-month period subsequent to 18 months after the Company's public
offering. If none of the Class B shares are released from escrow, the
voting rights in the Company would be significantly changed. On September
25, 1998, the Superior Court of the State of Arizona, Maricopa County,
ruled that the shares of Class B Common Stock subject to the Proxy
Agreement had automatically converted into Class A Common Stock and
therefore no longer have a six-to-one vote. See "Litigation".
(3) Based on 3,733,334 shares of Class B Common Stock outstanding and
16,082,637 shares of Class A Common Stock outstanding, except that shares
underlying options and warrants 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(s) of such options and
warrants.
(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 shares issuable upon exercise of options exercisable within 60
days as follows: Michail Itkis -- 390,000 shares; Yuri Itkis -- 90,000
shares; Donald H. Goldman -- 25,000 shares; Steven M. Fieldman -- 355,000
shares; Thomas M. Metzler -- 166,667 shares; John W. Alderfer - 58,333
shares; Frank Gomer - 14,500 shares; and all then executive officers and
directors of the Company as a group - 629,500.
(6) Excludes shares owned by Lance Fieldman, Steven Fieldman's son, as to which
shares Steven Fieldman disclaims beneficial ownership.
(7) Steven Fieldman has agreed to vote all shares on all matters in proportion
to the vote of the Company's other stockholders. Steven Fieldman and Lance
Fieldman have entered into an agreement on August 11, 1998, with Irwin L.
Gross, whereby they both agreed to continue to vote all shares on all
matters in proportion to the vote of the Company's other stockholders.
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
Class A 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 the Company believes Mr.
Zukin will be filing a late Form 5 with respect to two transactions.
1999 STOCKHOLDER PROPOSALS
In order for stockholder proposals for the 1999 Annual Meeting of
Stockholders to be eligible for inclusion in the Company's 1999 Proxy Statement,
they must be received by the Company at its principal executive offices, (Attn:
Secretary), on or prior to ____________, 1999. Proposals submitted outside the
processes of Rule 14a-8 under the Securities Exchange Act of 1934 will be
considered untimely if not submitted prior to _______________. The Board of
Directors will review any stockholder proposals that are filed as required and
will determine
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<PAGE>
whether such proposals meet applicable criteria for inclusion in the Company's
1999 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. In addition, the
Company has retained MacKenzie Partners, Inc., to assist in the solicitation of
proxies, to which it will pay a fee of at least $___________ and has agreed to
reimburse it for its reasonable expenses. The Company has additionally agreed to
indemnify MacKenzie Partners, Inc. under certain circumstances. 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 $50,000.
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,
1997, UPON THE WRITTEN REQUEST THEREFOR TO INTERACTIVE FLIGHT TECHNOLOGIES,
INC., 4041 N. CENTRAL AVENUE, SUITE 2000, PHOENIX, AZ 85012, ATTENTION: DAVID N.
SHEVRIN, SECRETARY.
/s/ IRWIN L. GROSS
--------------------------------
Irwin L. Gross Chairman of the Board and Chief
Executive Officer
October __, 1998
PROXY
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Irwin L. Gross and Charles T. Condy (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 Metropolitan Club, located at One
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<PAGE>
East 60th Street, New York, New York, on October 22, 1998, at 10:00 a.m., local
time, and at any and all adjournments or postponements thereof, in the manner
indicated below and on the reverse side hereof.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders to be held on October 22, 1998 and the Proxy Statement of the
Company, each dated October __, 1998, and the Company's Annual Report for the
fiscal year ended October 31, 1997.
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.
Please complete, 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 INSTRUCTIONS SET FORTH BELOW AND
ON THE REVERSE SIDE HEREOF. 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.
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:
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
Nominees: Irwin L. Gross, Class 3; Charles T. Condy, Class 3; Stephen
Schachman, Class 2; M. Moshe Porat, Class 1; James W. Fox,
Class 1.
2. Proposal to amend the Company's Amended and Restated Certificate of
Incorporation to divide the Board of Directors into three classes, as
described more fully in the Proxy Statement accompanying this Proxy.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to amend the Company's Amended and Restated Certificate of
Incorporation so as to effect a one-for-two reverse stock split of the
Company's outstanding shares of Class A and Class B Common Stock, as
described more fully in the Proxy Statement accompanying this Proxy.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. 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, 1998.
(37)
<PAGE>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion such other business as may properly come before the
meeting and any and all adjournments thereof.
Dated
-----------------------------
-----------------------------------
Signature
-----------------------------------
Signatures, if held jointly
-----------------------------------
Title (if applicable)
Please date and sign exactly as
name appears on this proxy card,
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.
(38)
