HUNGARIAN BROADCASTING CORP.
C/O COHEN & COHEN 1118 Budapest
445 Park Avenue Szamoda u.19 Hungary
New York NY 10022 Tel: 361 209 0505
Tel: (212) 758-9870 Fax: 361 209 0504
Fax: (212) 758-9896
TO THE STOCKHOLDERS OF HUNGARIAN BROADCASTING CORP.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of Hungarian Broadcasting Corp., a Delaware corporation (the
"Company"), will be held at 10:00 a.m. (New York time), on June 21, 1996 at
the offices of Cohen and Cohen, 445 Park Avenue, 15th Floor, New York, New
York 10022.
1. To consider and vote upon a proposed amendment to the Certificate
of Incorporation of the Company that would increase the authorized
stock of the Company from 5,000,000 shares of Common Stock to
15,000,000 shares of Common Stock;
2. To consider and vote upon a proposed amendment to the Certificate
of Incorporation of the Company that would authorize a new class
of 5,000,000 shares of Preferred Stock.
3. To vote upon a proposal to increase the number of shares of the
Company's 1995 Incentive Stock Option Plan from 100,000 shares to
350,000 shares for use as incentive awards to certain key
employees, directors, and consultants.
4. To transact such other business as may properly come before the
Special Meeting and any adjournments thereof.
The Board of Directors has fixed May 22, 1996 as the record date (the
"Record Date") for the determination of stockholders entitled to notice of,
and to vote at, the Meeting and any adjournment or postponement thereof.
Only holders of record of the Company's common stock, par value $.001 per
share ("Common Stock"), at the close of business on the Record Date are
entitled to vote on all matters coming before the Meeting or at any
adjournment or postponement thereof. A complete list of stockholders of
record entitled to vote at the Meeting will be maintained in the Company's
offices at 445 Park Avenue, New York, New York 10022, for ten days prior to
the Meeting.
Whether or not you plan to attend the Meeting in person, please mark,
execute, date and return the enclosed proxy in the envelope provided (which
requires no postage if mailed within the United States). Should
you attend the Meeting in person you may, if you wish, withdraw your proxy
and vote your shares in person.
By Order of the Board of Directors,
Frank R. Cohen
Secretary
New York, New York
May 29, 1996
<PAGE>
HUNGARIAN BROADCASTING CORP.
C/O COHEN & COHEN 1118 Budapest
445 Park Avenue Szamoda u.19 Hungary
New York NY 10022 Tel: 361 209 0505
Tel: (212) 758-9870 Fax: 361 209 0504
Fax: (212) 758-9896
May 29, 1996
PROXY STATEMENT
A Special Meeting of Stockholders
To Be Held June 21, 1996
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Hungarian Broadcasting Corp.
(the "Company") to be used at the Special Meeting of Stockholders
of the Company to be held at 10 a.m. local time, on June 21, 1996, at the
at the offices of Cohen and Cohen, 445 Park Avenue, 15th Floor, New York,
New York 10022, or at any adjournments or postponements thereof
(the "Meeting"). This Proxy Statement and the accompanying Notice of
Special Meeting and form of proxy are first being sent or given to
stockholders on or about May 22, 1996.
At the Meeting, the stockholders of the Company are being asked to consider
and vote upon: (i) a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Common
Stock thereunder from 5,000,000 to 15,000,000; (ii) a proposal to amend the
Company's Certificate of Incorporation to authorize the issuance of up to
5,000,000 shares of preferred stock; and (iii) a proposal to
increase the number of shares of the Common Stock available under the
Company's 1994 Incentive Stock Option Plan, as amended, from 100,000 shares
to 350,000 shares for use as incentive awards to certain key employees,
directors, and consultants.
Voting Rights and Proxy Information
All shares of common stock, par value $.001 per share, of the Company (the
"Common Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. The Company does not
know of any matters, other than as described in the Notice of Special
Meeting, that are to come before the Meeting. If any other matters are
properly presented at the Meeting for action, the persons named in the
enclosed form of proxy and acting thereunder will have the discretion to
vote on such matters in accordance with their best judgement.
Proxies should not be sent by the stockholder to the Company, but to
American Stock Transfer & Trust Company, the Company's Registrar and
Transfer Agent, at 40 Wall Street, New York, New York 10005. A
pre-addressed, postage-paid envelope is provided for this purpose.
<PAGE>
A proxy delivered pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked by (i) filing with the Secretary
of the Company at or before the Meeting a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of the
Company at or before the Meeting, or (iii) attending the Meeting and voting
in person (although attendance at the Meeting will not in and of itself
constitute revocation of a proxy). Any written notice revoking a proxy
should be delivered to Frank R. Cohen, Secretary, Hungarian Broadcasting
Corp., 445 Park Avenue, New York, New York 10022.
Vote Required for Approval
The presence, in person or by proxy, of a majority of the shares of Common
Stock entitled to vote is required to constitute a quorum for the
transaction of business at the Meeting. The affirmative vote of a majority
of the shares of Common Stock outstanding and entitled to vote on such
matters at the Meeting is required for approval of the proposals to amend
the Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock thereunder and to authorize the issuance
of shares of preferred stock. Accordingly, abstentions and proxies returned
by brokers as "non-votes" will have the same effect as a vote
against such proposals. The affirmative vote of a majority of the shares
present in person or by proxy and voted on such matter at the Meeting is
required for approval of the increase in the number of shares available
under the Company's 1995 Incentive Stock Option Plan, as amended. Proxies
submitted which contain abstentions or broker "non-votes" will be deemed
present at the Meeting in determining the presence of a quorum.
Your Board of Directors has unanimously approved each of the proposals set
forth herein. Accordingly, the Board recommends a vote FOR both proposals
to amend the Company's Certificate of Incorporation and the proposal to
increase the shares available under the Company's 1994 Stock Option
Plan.
Voting Securities
May 22, 1996 has been set as the record date (the "Record Date") for
determining stockholders entitled to notice of, and to vote at, the
Meeting. As of the Record Date, there were outstanding 2,577,500 shares of
Common Stock. Each holder thereof is entitled to one vote per share.
Securities Ownership of Certain Beneficial Owners And Management
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of May 22, 1996 by (i) each person known
by the Company to own beneficially more than 5% of the outstanding Common
Stock; (ii) each director of the Company; and (iii) all executive officers
and directors as a group. Except as otherwise indicated below, each of the
entities or persons named in the table has sole voting and investment
powers with respect to all shares of Common Stock beneficially owned by it
or him as set forth opposite its or his name.
<PAGE>
Shares Shares Beneficially Percent
Beneficially Owned on a Fully Owned on a Fully
Name and Address Owned Diluted Basis Diluted Basis
Peter E. Klenner (2)(5) 390,000 765,000 27.06%
Szamado u. 19
Budapest, Hungary
Hungarian Teleconstruct
Corp. (1) 250,000 250,000 8.40%
Szamado u.19
Budapest, Hungary
Frank R. Cohen(3)(5) 30,000 290,000 10.26%
445 Park Avenue
New York, NY 10022
Imre Kovats 5,000 5,000 *
Szamado u.19
Budapest, Hungary
All Officers and Directors
as a Group (3 persons) 435,000 810,000(4) 28.20%
* less than 1%
(1) Messrs. Klenner and Cohen own 17.2% and 2.3%, respectively
(aggregating 19.5%), of the outstanding shares of Hungarian
Teleconstruct Corp. including options currently exercisable and
constitute 2 of its 5 members of its Board of Directors and,
could be considered able to control the voting of these shares.
(2) Includes 250,000 shares owned of record by HTEL. Mr. Klenner is a
director and a shareholder of HTEL and together with Mr. Cohen can be
deemed to exercise voting control of HTEL shares. Mr. Klenner
disclaims beneficial ownership of such shares. Also includes 50,000
stock options currently exercisable and an option to purchase 75,000
shares from an unaffiliated person.
(3) Includes 250,000 shares owned of record by HTEL. Mr. Cohen is a
director and shareholder of HTEL and together with Mr. Klenner can be
deemed to exercise voting control of HTEL shares. Mr. Cohen disclaims
beneficial ownership of such shares. Also includes 10,000 stock
options currently exercisable.
(4) Includes 250,000 shares owned of record by HTEL, since Messrs. Klenner
and Cohen can be deemed to exercise voting control of HTEL shares.
(5) Peter E. Klenner and Frank R. Cohen may be deemed to be the
"promoters" or "parents" of the company, as those terms are
defined in the rules and regulations as adopted under the Securities
Act of 1933, as amended.
<PAGE>
Certain Relationships and Related Transactions
On September 14, 1994, the Company sold 480,000 shares to Peter E. Klenner,
president of the Company for $4,800 ($.01 per share); 320,000 shares to
Robert Genova, Chairman of the Board for $3,200 ($.01 per share); and
50,000 shares to Frank R. Cohen, Secretary, Treasurer, Director and Counsel
to the Company for $500 ($.01 per share) for an aggregate of $8,500. In
December 1995, Messrs. Klenner, Genova and Cohen contributed 100,000
shares, 100,000 shares, and 20,000 shares, respectively to the Company
without cost to the Company for cancellation as a condition to the
Underwriter agreeing to underwrite the Offering. On January 17, 1996, Mr.
Genova resigned as Chairman of the Board as as a Director of the Company
and granted Klenner an option to purchase 75,000 of his shares at $3 per
share.
In December 1994 and March 1995, the Company borrowed $800,000 from
Hungarian Teleconstruct Corp. (''HTEL''), at 6% per annum interest. The
loan is payable upon closing of this offering (or on December 31,
1995, whichever comes first). As a partial consideration, the Company (1)
issued 100,000 shares of its Common Stock to HTEL; (ii) granted HTEL an
option to purchase 150,000 additional shares of Common Stock at $3 per
share from the Company exercisable until April 30, 1995. HTEL exercised its
option to purchase 150,000 additional shares in March 1995. Messrs.
Klenner, Genova and Cohen, officers and directors of the Company,
own approximately 28.4% of the outstanding shares of the Common Stock
(including shares subject to exercisable options) of HTEL.
In connection with the July private placement in which the Company sold
182,500 shares at $3 per share, Peter E. Klenner purchased 30,000 shares on
the same terms as the other investors.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, certain officers and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Forms 4 or 5 with the
Securities and exchange Commission (the "Commission"). Such officers,
directors and ten percent shareholders are also required by the
Commission's rules to furnish the Company with copies of all Section 16(a)
reports they file.
Specific due dates for such reports have been established by the Commission
and the Company is required to disclose in this Proxy Statement any failure
to file reports by such dates during fiscal 1995. Based solely on
its review of the copies of such reports received by it, or written
representations from certain reporting persons that no Forms 5 were
required for such persons, the Company believes that during the fiscal year
ended December 31, 1995, all Section 16(a) filing requirements applicable
to its officers, directors and ten percent shareholders were complied with.
<PAGE>
I
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
THE COMPANY'S COMMON STOCK THEREUNDER FROM 10,000,000 TO 15,000,000
(ITEM 1 ON THE PROXY CARD)
On April 12, 1996, the Board of Directors of the Company adopted a
resolution approving, and recommending to the Company's stockholders for
their approval, an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of Common
Stock from 5,000,000 to 15,000,000. The text of Article Fourth of the
Certificate of Incorporation, as amended by this proposed amendment and the
proposed amendment to authorize the issuance of up to 5,000,000 shares of
preferred stock, is attached hereto as Appendix A hereto and the
description thereof set forth below is qualified in its entirety by
reference to such text. The proposed amendment to the Certificate of
Incorporation would replace the existing Article Fourth in its entirety.
As of May 22, 1996, 2,577,500 shares of Common Stock were issued and
outstanding; 100,000 shares were reserved for issuance pursuant to certain
warrants; and 90,000 shares are reserved for issuance pursuant to
unexercised options granted and shares still available under the Company's
1994 Incentive Stock Option Plan (based on the 100,000 shares currently
available thereunder). Thus, the Company only has a balance of 2,232,500
shares of Common Stock available for other purposes.
While it is not presently contemplated that any shares of Common Stock will
be issued by the Company, the Board of Directors believes that the increase
in the authorized shares of Common Stock is in the best interests
of the Company and its stockholders. The Board of Directors believes that
the proposed increase in the authorized shares of Common Stock, combined
with the creation of a class of preferred stock (see "Proposal to Amend the
Company's Certificate of Incorporation to Authorize the Issuance of
5,000,000 Shares of Preferred Stock), would provide the Company with more
financial flexibility and the Company would be able to issue shares of
Common Stock and Preferred Stock, including debt securities or shares of
preferred stock convertible into Common Stock, without the expense and
delay of a stockholders' meeting. Some of the purposes for which the
additional shares of Common Stock could be used are raising additional
capital, future acquisitions of other businesses, stock dividends and stock
splits, management incentive and employee benefit plans, sales to employee
savings plans, stock purchase plans, extraordinary corporate transactions,
and for general corporate purposes from time to time. If the proposed
amendment is approved, the Board would be able to authorize the issuance of
Common Stock in future transactions for any of the foregoing purposes, at
any time, without obtaining further authorization from the Company's
stockholders, unless such authorization is required by applicable law or
the rules of any regulatory authorities to which the Company or its Common
Stock may be subject.
<PAGE>
The amendment to the Certificate of Incorporation to increase the number of
authorized shares of Common Stock is not being proposed for an
anti-takeover related purpose or in response to any known effort to obtain
control of the Company. The Board of Directors is required to make any
determination to issue shares of Common Stock based on its judgment as to
the best interests of the Company and its stockholders. Although the
Board of Directors has no present intention of doing so, it could issue
shares of Common Stock that could make it more difficult or discourage an
attempt to obtain control of the Company by means of a merger, tender
offer, proxy contest or other means. When, in the judgment of the Board of
Directors this action would be in the best interests of the Company and its
stockholders, such shares of Common Stock could be used to create voting or
other impediments or to discourage persons seeking to gain control of the
Company. Such additional shares of Common Stock could be issued by the
Board in a public or private sale, merger or similar transaction, thereby
increasing the number of outstanding shares and diluting the equity
interest and voting power of a party attempting to obtain control of the
Company.
The Board of Directors recommends that stockholders vote "FOR" approval of
the proposal to amend the Company's Certificate of Incorporation to
increase the number of authorized shares of the Company's Common Stock
thereunder from 5,000,000 to 15,000,000.
II
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF
INCORPORATION TO AUTHORIZE THE ISSUANCE OF
UP TO 5,000,000 SHARES OF PREFERRED STOCK
(ITEM 2 ON THE PROXY CARD)
On May 10, 1996, the Board of Directors of the Company adopted a resolution
approving, and recommending to the Company's stockholders for their
approval, an amendment to the Company's Certificate of Incorporation to
authorized the issuance of up to 5,000,000 shares of preferred stock from
time to time at the discretion of the Board of Directors. The text of
Article Fourth of the Certificate of Incorporation, as amended
by this proposed amendment and the proposed amendment to increase the
number of authorized shares of Common Stock thereunder, is set forth in
Appendiz A hereto and the description thereof set forth below is
qualified in its entirety by reference to such text. The proposed amendment
to the Certificate of Incorporation would replace the existing Article
Fourth in its entirety.
The Board of Directors believes that the increase in the creation of the
preferred stock is in the best interests of the Company and its
stockholders, and that it is advisable to authorize the preferred shares to
have them available for, among other things, possible issuances in
connection with such activities as raising additional capital, financing
obligations of the Company, future acquisitions of other businesses,
extraordinary corporate transactions, and for general corporate purposes
from time to time. The Company is presently contemplating issuing shares of
<PAGE>
preferred stock to raise additional capital for the Company but has no
binding commitments with any placement agent or underwriter. The Company
believes that this class of securities combined with an increase in the
number of authorized shares of Common Stock, will provide greater
flexibility for financing of the Company's activities in the future. If the
proposed amendment is approved by the Board would be able to
authorize the issuance of such preferred shares in future transactions for
any of the foregoing purposes at any time without obtaining further
authorization from the Company's stockholders unless such authorization is
required by applicable law or the rules of any regulatory authorities to
which the Company or its capital stock may be subject.
The proposed amendment would empower the Board of Directors of the Company,
without the necessity of further stockholder action (unless required in a
particular case by applicable law, regulation or stock exchange rule), to
cause the Company to issue shares of the preferred stock from time to time
in one or more series, and to determine, with respect to each series, among
other things: (i) the distinctive designation and maturity date, if any, of
such series and the number of shares constituting such series; (ii) the
dividend rights, if any, including the dividend rate and whether dividends
would be cumulative or non-cumulative; (iii) the rights, if any, upon a
dissolution or distribution of the assets of the Company; (iv) the
conversion or exchange provisions, if any; (v) the redemption provisions,
if any; (vi) the sinking fund provisions, if any; and (vii) the voting
rights, if any; provided, however, that the holders of shares of preferred
stock would not be entitled to more than one vote per share when voting as
a class with the holders of the Common Stock.
Until such time as the Board of Directors authorizes the issuance and
determines the rights of any series of preferred stock, it is not possible
to state the precise effect that issuance of such series would have on the
holders of the Common Stock. However, such effect might include: (i) a
reduction in the amount available for the payment of dividends on the
Common Stock, to the extent dividends are payable on the preferred stock,
and restrictions on dividends on the Common Stock if dividends on the
preferred stock are in arrears; (ii) dilution of the voting power of the
Common Stock to the extent that the preferred stock has voting rights; and
(iii) limitations on the rights of the holder of Common Stock to share in
the Company's assets upon liquidation until satisfaction of any liquidation
preference granted to the preferred stock.
The amendment to the Certificate of Incroporation to authorize the issuance
of up to 5,000,000 shares of preferred stock is not being proposed for an
anti-takeover related purpose or in response to any known effort to obtain
control of the Company. The Board of Directors is required to make any
determination to issue shares of preferred stock based on its judgment as
to the best interests of the Company and its stockholders. Although the
Board of Directors has no present intention of doing so, it could issue
shares of preferred stock that could, depending on the terms of such
series, make it more difficult or discourage an attempt to obtain control
of the Company by means of a merger, tender offer, proxy contest or other
means. When, in the judgment of the Board of Directors this action would be
in the best interests of the Company and its stockholders, such shares of
<PAGE>
Common Stock could be used to create voting or other impediments or to
discourage persons seeking to gain control of the Company. Such additional
shares could be privately placed with purchasers favorable to the Board
of Directors in opposing such action. In addition, the Board of Directors
could authorize holders of a series of preferred stock to vote either
separately as a class or with the holders of the Company's Common Stock, on
any merger, sale or exchange of assets by the Company or any other
extraordinary corporate transaction.
The Board of Directors recommends that stockholders vote "FOR" approval of
the proposal to amend the Company's Certificate of Incorporation to
authorize the issuance of 5,000,000 shares of preferred stock.
III
PROPOSAL TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
AVAILABLE UNDER THE COMPANY'S 1993 INCENTIVE STOCK OPTION
PLAN, AS AMENDED, FROM 100,000 SHARES TO 350,000 SHARES
FOR USE AS INCENTIVE AWARDS TO CERTAIN KEY EMPLOYEES,
DIRECTORS AND CONSULTANTS
ITEM 3 ON THE PROXY CARD)
Background of the Proposed Amendment
The Company's 1994 Incentive Stock Option Plan, as amended (the "Stock
Option Plan") presently provides that the aggregate number of shares of
Common Stock subject to options granted thereunder shall not
exceed 100,000. Following a review of the options granted to date under the
Stock Option Plan and the number of options which the Board of Directors
believes should be available for awards in the future, the Board of
Directors has determined that the number of shares presently available for
awards under the Stock Option Plan is insufficient to achieve the purposes
of the Stock Option Plan. Based upon that determination, the Board of
Directors has determined that an increase in the number of shares of Common
Stock subject to Options under the Stock Option Plan would be in the best
interests of the Company and its stockholders. Accordingly, on May 11,
1996, the Board of Directors unanimously determined that the number of
shares of Common Stock subject to stock options available for grants under
the Stock Option Plan, be increased from 100,000 shares to 350,000
shares in order to provide incentive for certain key employees, directors
and consultants. The Board of Directors also unanimously recommended that
the Company's stockholders approve such increase.
Description of the Stock Option Plan
The following description of the Stock Option Plan does not purport to be
complete and is qualified in its entirety by reference to the full text of
the Stock Option Plan, which may obtained by any stockholder of the
Company by contacting Hungarian Broadcasting Corp., Attn: Frank R. Cohen,
Secretary, 445 Park Avenue, New York, New York 10022.
<PAGE>
Purpose. The purpose of the Stock Option Plan is to provide an incentive
to employees of the Company (including directors and officers of the
Company), to encourage proprietary interest in the Company, to encourage
employees to remain in the employ of the Company and to attract to the
Company individuals of experience and ability to serve as employees,
directors and consultants.
Shares Subject to the Stock Option Plan. The maximum number of shares of
Common Stock as to which options may be granted under the Stock Option Plan
(subject to adjustment as described below) presently is 100,000 shares. Any
shares subject to an option which for any reason expires or terminates
unexercised may again be the subjected of another option granted under the
Stock Option Plan. As of the Record Date, options with respect to 90,000 of
Common Stock have been granted and are outstanding under the Stock Option
Plan.
Administration. The Stock Option Plan will be administered by a committee
(the "Committee") appointed by the Board of Directors, which consists of at
least two members of the Board of Directors. The Committee shall from time
to time, at its discretion, make determinations with respect to individuals
who shall be granted options (Incentive Stock Options or Non-Qualified
Stock Options, which may be referred to collectively as "Options"), the
number of shares subject to Options and the designations of such Options as
Incentive Stock Options (an option described in Section 422(b) of the
Internal Revenue Code of 1986, as amended, and also known as "Qualified
Option") or Non-Statutory Stock Options (an option not described in Section
422(b) or 423(b) of the Internal Revenue Code of 1986, as amended, and also
known as a "Non-Qualified Option"). Notwithstanding such designations, to
the extent that the aggregate fair market value of the shares with respect
to which Options designated as Incentive Stock Options are exercisable for
the first time by any optionee during any calendar year exceeds $100,000,
such Options shall be treated as Non-Qualified Options. The Committee
determines vesting requirements and other conditions of such awards,
interprets the Stock Option Plan, and makes all other decisions relating to
the operation of Stock Option Plan.
Eligibility. All key employees (including directors who are employees), or
directors who are not employees (other than those serving as members of the
Committee), and consultants (who are neither employees nor directors)
(individually, an "Optionee," and together, the "Optionees") of the Company
or any of its subsidiaries who perform services of special importance to
the management, operation and development of the business of the Company as
the Committee may select are eligible to receive Options under the Stock
Option Plan. As of the Record Date, there were five (5) persons eligible to
participate in the Stock Option Plan as directors, employees or
consultants.
Option Contracts. Each grant of an Option is evidenced by a written
contract between the Company and the Optionee receiving the grant,
containing such terms and conditions not inconsistent with the Stock Option
Plan. Each Optionee shall agree to remain in the employ of, and to render
to, the Company his or her services for a period of one (1) year from the
date of the granting of any Option, but such agreement shall not impose
<PAGE>
upon the Company any obligation to retain the Optionee for any period of
time.
Terms and Conditions of Options. Options may be granted for terms
determined by the Committee; provided, however, that no Option shall be
exercisable after the expiration of 10 1/2 years from the date it is granted;
and provided further that, an Incentive Stock Option may not exceed 10
years (5 years if the option holder owns (or is deemed to own) stock
possessing more than 10% of the voting power of the Company). In the case
of an Incentive Stock Option, the per share exercise price shall be no less
than 100% of the "fair market value per share" (as defined below) on the
date of grant, except that, if granted to an employee who, at the time of
the grant of such Incentive Stock Option, owns (or is deemed to own) stock
representing more than 10% of the voting power of all classes of stock of
the Company or any parent or subsidiary, the per share exercise price shall
be no less than 110% of the fair market value per share on the date of
grant. In the case of a Non-Qualified Option, the per share exercise price
may be less than, equal to, or greater than the fair market value per share
on the date of grant, as determined by the Committee. The "fair market
value per share" shall be the closing price per share of the Common Stock
on the principal exchange or quotations system on which the Common
Stock is traded or quoted on the date of the grant.
The consideration to be paid for shares to be issued upon exercise of an
Option shall be United States dollars; provided, however, that, with the
consent of the Committee, the purchase price may be paid by the
surrender of shares of Common Stock in good form for transfer owned by the
person exercising the Option and having a fair market value on the date of
exercise equal to the purchase price or in any combination of cash and
shares, so long as the total of the cash so paid and the fair market value
of the shares surrendered equals the purchase price. No shares shall be
issued until full payment therefor has been made.
Options may not be transferred other than by will or by the laws of descent
and distribution, and may be exercised during the Optionee's lifetime only
by him or his legal representatives. With respect to an Option
granted to an employee, if the employment of such employee is terminated
for any reason other than death or a permanent and total disability, the
Option may be exercised, to the extent exercisable by the holder at the
time of termination of employment, within three months thereafter (twelve
months if termination was due to disability or, in the case of
Non-Qualified Options, if termination was due to retirement), but in no
event after expiration of the term of the Option. In the case of death of
the Optionee while employed (or within three months after termination of
employment), his executor or administrator of his or her estate may
exercise the Option, to the extent exercisable on the date of death, within
one year after such death, but in no event after the expiration of the term
of the Option.
Adjustment in Event of Capital Changes. Subject to any required action by
the Company's stockholders, the number of shares covered by the Stock
Option Plan, the number of shares covered by each outstanding
Option, and the exercise price thereof shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
<PAGE>
resulting from a subdivision or consolidation of the Common Stock,
stock split, or the payment of a stock dividend.
Subject to any required action by the Company's stockholders, if the
Company shall be the surviving corporation in any merger or consolidation,
each outstanding Option shall pertain and apply to the securities to
which a holder of the number of shares subject to the Option would have
been entitled. A dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation
shall cause each outstanding Option to terminate, unless the agreement of
merger or consolidation shall otherwise provide; provided that, each
Optionee shall in such event, if a period one (1) year from the date of the
grant of the Option shall have elapsed, have the right immediately prior to
such dissolution or liquidation, or merger or consolidation in which the
Company is not the surviving corporation, to exercise the Option in whole
or in part, subject to limitations on exercisability under the Stock Option
Plan.
In the event of a change in the Common Stock as presently constituted,
which is limited to a change of all of its authorized shares with par value
into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Stock Option Plan.
To the event that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive.
Duration and Amendments of the Stock Option Plan. Options may be granted
pursuant to the Stock Option Plan until the termination of the Stock Option
Plan on October 1, 2004. The Board of Directors may at any time, subject to
applicable law, suspend, terminate or amend the Stock Option Plan in any
respect; provided, however, that, without the approval of the Company's
stockholders, no amendment may be made which would (a) increase
the number of shares available for the grant of Options (except the
anti-dilution adjustments described above), (b) materially increase
benefits accruing to participants under the Stock Option Plan or (c) change
the eligibility requirements for participating in the Stock Option Plan.
Federal Income Tax Treatment. The following is a general summary of the
federal income tax consequences under current tax law of Incentive Stock
Options and Non-Qualified Options. It does not purport to cover all of the
special rules, including the exercise of an option with previously acquired
shares, or the state or local income or other tax consequences inherent in
the ownership and exercise of stock options and the ownership and
disposition of the underlying shares.
An Optionee will not recognize taxable income for federal income tax
purposes upon the grant of an Incentive Stock Option or a Non-Qualified
Option and the Company obtains no deduction from the grant of such Options.
In the case of an Incentive Stock Option, no taxable income is recognized
upon exercise of the Incentive Stock Option and the Company will not be
entitled to a tax deduction by reason of such exercise; provided that,
<PAGE>
the holder is still employed by the Company (or terminated employment no
longer than three months before the exercise date). Additional exceptions
to this exercise timing requirement apply upon the death or disability of
the Optionee. If the Optionee disposes of the shares acquired pursuant to
the exercise of an Incentive Stock Option more than two years after the
date of grant and more than one year after the exercise, the Optionee will
recognize long-term capital gain or loss in the amount of the difference
between the amount realized on the sale and the exercise price for such
shares and the Company will not be entitled to a deduction. Generally, upon
a sale or disposition of the shares prior to the foregoing holding
requirements (referred to as "disqualifying disposition"), the Optionee
will recognize ordinary compensation income, and the Company will receive a
corresponding deduction equal to the lesser of (i) the excess of the fair
market value of the shares on the date of transfer to the Optionee over the
exercise price, or (ii) the excess of the amount realized on the
disposition over the exercise price.
Upon the exercise of a Non-Qualified Option, the amount by which the fair
market value of the shares on the date of exercise exceeds the exercise
price will be taxed to the Optionee as ordinary compensation income. The
Company will generally be entitled to a deduction in the same amount;
provided that, it satisfies certain requirements relating to the terms of
the Option and makes all required wage withholdings on the compensation
element attributable to the exercise. In general, the Optionee's tax basis
in the shares acquired by exercising a Non-Qualified Option is equal to the
fair market value of such shares on the date of exercise. Upon a subsequent
sale of any such shares in a taxable transaction, the Optionee will realize
capital gain or loss in an amount equal to the difference between his or
her basis in the shares and the sales price.
In addition to the federal income tax consequences described above, an
Optionee may be subject to the alternative minimum tax, which is payable to
the extent it exceeds the Optionee's regular tax. For this purpose,
upon the exercise of an Incentive Stock Option, the excess of the fair
market value of the shares over the exercise price therefor is an
adjustment which increases alternative minimum taxable income. In addition,
the Optionee's basis in such shares is increased by such amount for
purposes of computing the gain or loss on the disposition of the shares for
alternative minimum purposes. If an optionee is required to pay an
alternative minimum tax, the amount of such tax which is attributable to
deferral preferences (including the incentive stock option adjustment) is
allowed as a credit against the Optionee's regular tax liability in
subsequent years. To the extent the credit is not used, it is carried
forward.
To the extent required by applicable federal, state, local or foreign law,
the recipient of any payment or distribution under the Stock Option Plan
will make arrangements satisfactory to the Company for the satisfaction
of any withholding tax obligations that arise by reason of such payment or
distribution. The Company will not be required to make such payment or
distribution until such obligations are satisfied.
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Outstanding Stock Option Awards
The benefits to be awarded to and received by the employees, directors and
consultants of the Company under the Stock Option Plan, as proposed to be
amended, in the future are not presently determinable. The benefits that
would have been received by the employees, directors and consultants of the
Company for the last completed fiscal year if the Stock Option Plan, as
proposed to be amended, had been in effect is not presently determinable.
All shares currently subject to Options, as well as any additional shares
that may become subject to future Options (including the proposed increase
in shares subject to stockholder approval), under the Stock Option Plan are
comprised of authorized but unissued shares of Common Stock. Accordingly,
the exercise of any such Options and the issuance of shares pursuant
thereto will have the effect of diluting the interests of existing
stockholders to the extent of such issuance.
The table below sets forth the number of shares subject to current Options
granted under the Stock Option Plan to date to (i) the Named Executives;
(ii) all current executive officers as a group; (iii) all current directors
who are not executive officers as a group; and (iv) all employees and
consultants who are not executive officers, as a group.
Number of Shares
Name Title Subject to Options
Peter E. Klenner Director and President, 50,000
Chief Executive Officer and
Chief Financial Officer
Frank R. Cohen Director, Secretary, Treasurer 10,000
Marion Teppers Manager of Sales 30,000
Current executive 60,000
officers as a group
(2 persons)
Employees and consultants who are not 30,000
executive officers, as a group (1 person)
Certain Interests of Directors
In considering the recommendations of the Board of Directors with respect
to the increase in the number of shares available under the Stock Option
Plan,
stock holders should be aware that the members of the Board of Directors
have certain interests which may present them with conflicts of interest in
connection with such proposal. As discussed above, all current directors of
the Company are eligible to participate in the Stock Option Plan.
<PAGE>
The Board of Directors recognizes that approval of the proposal to increase
the number of shares available under the Stock Option Plan may benefit such
individual directors of the Company and their successors, but it believes
that approval of the additional shares available under the Stock Option
Plan will strengthen the Company's ability to continue to attract, motivate
and retain certain qualified employees and officers. Furthermore, the Board
of Directors believes that such approval will advance the interests of the
Company and its stockholders by encouraging key employees, directors and
consultants to make significant contributions to the long-term success of
the Company. The Board of Directors believes that the increase in the
number of shares available under the Stock Option Plan is in the best
interests of the Company and its stockholders, and therefore, unanimously
recommends a vote FOR the approval of the proposal to increase the number
of shares of Common Stock available under the Stock Option Plan from the
current 100,000 shares to 350,000 shares for use as incentive awards for
key employees, directors and consultants.
The Board of Directors recommends that stockholders vote "FOR" approval of
the proposal to increase the number of shares of Common Stock available
under the Stock Option Plan from 100,000 shares to 350,000 shares for use
as incentive awards to certain key employees, directors and consultants.
OTHER BUSINESS
The Board of Directors is not aware of any matter other than the matters
described above to be presented for action at the Meeting. However, if any
other proper items of business should come before the Meeting, it is the
intention of the person or persons acting under the enclosed form of proxy
to vote in accordance with their best judgment on such matters.
By Order of the Board of Directors
Peter E. Klenner
President
Dated: May 10, 1996
New York, New York
<PAGE>
APPENDIX A
PROPOSED ARTICLE FOURTH OF THE COMPANY'S
CERTIFICATE OF INCORPORATION, AS AMENDED
FOURTH: The total number of shares of common stock which this corporation
is authorized to issue is 15,000,000.
All such shares are to have a par value and are classified as 15,000,000
shares of Common Sock and the par value of each such share of Common Stock
is $.001.
Each issued and outstanding share of Common Stock shall entitle the holder
of record thereof to one vote.
The total number of shares of preferred stock which the corporation is
authorized to issue is 5,000,000. The preferred stock may be issued in one
or more series as may be determined from time to time by the Board of
Directors. All shares of any one series of preferred stock will be
identical except as to the date of issue and dates from which dividends on
shares of the series issued on different dates will cumulate, if
cumulative. Authority is hereby expressly granted to the Board of Directors
to authorize the issuance of one or more series of preferred stock, and to
fix by resolution or resolutions providing for the issue of each such
series voting power the designations, preferences, and relative,
participating, optional, redemption, conversion, exchange or special
qualifications, limitations or restrictions of such series, and the number
of shares in each series, to the extent now or hereafter permitted by law.
The redemption, purchase or acquiring by the Company of any shares of its
preferred stock, shall not be deemed to reduce the authorized number of
shares of preferred stock of the Company. Any shares of the Company's
preferred stock redeemed, retired, purchased or otherwise acquired
(including shares acquired by conversion) shall be canceled and shall
assume the status of authorized but unissued preferred stock in the same
manner as if the shares had never been issued as shares of any series of
preferred stock and be undesignated as to future series.
