<PAGE>
SCHEDULE 14A
(Rule 14a-101)
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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of
the Commission Only (as
permitted by Rule 14a-
6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
VIDEOLAN TECHNOLOGIES, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / 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:
Common Stock
(2) Aggregate number of securities to which transaction applies:
N/A
(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):
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
/X/ Fee paid previously with preliminary materials.
$125.00
/ / 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 date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
VIDEOLAN TECHNOLOGIES, INC.
July 18, 1997
To Our Stockholders:
On behalf of the Board of Directors, it is our pleasure to invite you to
attend the Annual Meeting of Stockholders of VideoLan Technologies, Inc. (the
'Company').
As shown in the formal notice enclosed, the meting will be held at 10:00
a.m. (EDT) on August 21, 1997 at the Harborside Hyatt Conference Center & Hotel,
101 Harborside Drive, Boston, Massachusetts.
When I last reported to you in February, I indicated the considerable
progress the Company had made through that period. Since the last letter, we
have completed our management team by filling in the one remaining key opening.
Mr. Leon Pierhal has joined the Company as Senior Vice President of Sales and
Marketing. Mr. Pierhal brings extensive experience in the video conferencing
field and was formerly Vice President of one of our sub- system suppliers. He
knows our industry, our customers, and our product.
We have just completed the acquisition of the assets of ImageLink, Inc.
This acquisition provides us with a considerably expanded sales and sales
support organization. This company had in place a large reseller organization
well-trained in the sales and support of video conferencing products. ImageLink
is also the primary distributor of the Bitfield codec, a major component of most
video conferencing systems. The two technologies are very complimentary and will
now provide our customers with one of the broadest ranges of video conferencing
products in the industry. As a result of the acquisition, we anticipate
receiving several significant contracts for both VideoLan and ImageLink products
in the near future.
In addition to these pending contracts, we have successfully completed the
initial installation of our system on the desks of six generals at the Pentagon.
We have been informed that an order for seven additional generals will be
entered shortly. The next stage of the contract is a potential to equip up to
forty Pentagon colonels with similar equipment.
In order to further improve our market penetration, we have announced a
series of upwardly compatible systems, starting as low as $999 per position. We
have recently installed a showcase system at Time, Inc.
We continue to receive positive feedback from our existing installations
and are presently in negotiations with several universities, hospitals and
military bases for additional installations.
The management of the Company continues to believe strongly that the best
interests of the stockholders are met by aggressively marketing its product to a
variety of vertical niche markets. We have developed a strong, highly motivated
engineering and sales organization. In this fast moving market, today's
technology is yesterday's product. We must and are continually providing feature
enhancements, improved capability, greater reliability and lower costs to our
customers. The technology developed in this Company a year ago has long since
been over taken by newer, better and easier to use products. I believe we have
one of the finest engineering and sales organizations for a company of our size.
Their continued dedication is what will make this Company successful. I look
forward to the opportunity of introducing the members of my staff to you at the
Annual Meeting of Stockholders of VideoLan Technologies, Inc.
It is important that your shares be represented at this meeting in order
that the presence of a quorum may be assured. WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING, YOU ARE URGED TO DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY
CARD IN THE ENVELOPE PROVIDED AND TO DO SO IN ADEQUATE TIME FOR YOUR DIRECTIONS
TO BE RECEIVED AND TABULATED PRIOR TO THE SCHEDULED MEETING.
Sincerely,
JACK SHIRMAN
Chief Executive Officer
<PAGE>
VIDEOLAN TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 21, 1997
TO THE STOCKHOLDERS OF VIDEOLAN TECHNOLOGIES, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the 'Annual
Meeting') of VideoLan Technologies, Inc., a Delaware corporation (the
'Company'), will be held on Thursday, August 21, 1997, at 10:00 a.m. (EDT), at
the Harborside Hyatt Conference Center & Hotel, Boston, Massachusetts, for the
purposes of considering and acting upon the following:
(1) the election of four directors;
(2) the adoption of an amendment to the Company's Certificate of
Incorporation to cause a one-for-eight reverse stock split of the Company's
common stock;
(3) the adoption of the 1997 Employee Stock Purchase Plan;
(4) the ratification of the appointment of Grant Thornton LLP as the
Company's independent accountants for the fiscal year ending December 31, 1997;
and
(5) the transaction of such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors recommends that stockholders vote, according to
their voting rights, 'FOR' the nominees for the directorships and further
recommends that stockholders vote 'FOR' the other agenda items above.
Abstentions and 'broker non-votes' are counted for purposes of determining
the presence or absence of a quorum for the transaction of business.
Only stockholders of record at the close of business on July 11, 1997, will
be entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. The Annual Meeting may be adjourned from time to time without notice
other than by announcement. A list of stockholders entitled to vote at the
Annual Meeting will be available for inspection by any stockholder for any
purpose germane to the Annual Meeting, during ordinary business hours, during
the ten days prior to the Annual Meeting, at the Company's headquarters located
at 11403 Bluegrass Parkway, Suite 400, Louisville, Kentucky 40299.
By Order of the Board of Directors
STEVEN B. ROTHENBERG
Secretary
Louisville, Kentucky
July 18, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING,
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, IN ORDER THAT A QUORUM MAY BE
ASSURED. WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING IN PERSON,
PLEASE COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING
RETURN ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED BY THE SENDER IF MAILED
WITHIN THE UNITED STATES. IF YOU RECEIVE MORE THAN ONE PROXY BECAUSE YOUR SHARES
ARE REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY SHOULD BE SIGNED
AND RETURNED TO ASSURE THAT ALL OF YOUR SHARES WILL BE VOTED. THE PROXY SHOULD
BE SIGNED BY ALL REGISTERED HOLDERS EXACTLY AS THE STOCK IS REGISTERED.
<PAGE>
VIDEOLAN TECHNOLOGIES, INC.
11403 BLUEGRASS PARKWAY, SUITE 400
LOUISVILLE, KENTUCKY 40299
-----------------------------------
PROXY STATEMENT
-----------------------------------
1997 ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION
This Proxy Statement is furnished to stockholders of VideoLan Technologies,
Inc., a Delaware corporation (the 'Company'), in connection with the
solicitation of proxies by the Board of Directors of the Company (the 'Board of
Directors') for use at the Annual Meeting of Stockholders of the Company to be
held at 10:00 a.m. (EDT) on August 21, 1997, at the Harborside Hyatt Conference
Center & Hotel, Boston, Massachusetts, and any adjournment or adjournments
thereof (the 'Annual Meeting'), for the purposes set forth in the accompanying
Notice of Annual Meeting of Stockholders. This Proxy Statement, the attached
Notice of Annual Meeting of Stockholders, the accompanying form of proxy and the
Annual Report to Stockholders of the Company for the fiscal year ended December
31, 1996 are first being sent to stockholders of the Company on or about July
18, 1997.
The record date for stockholders of the Company entitled to notice of, and
to vote at, the Annual Meeting is the close of business on July 11, 1997 (the
'Record Date'). On the Record Date, there were issued and outstanding 18,050,398
shares of the Company's common stock, $0.01 par value (the 'Common Stock'). All
of such shares are of one class with equal voting rights. Presence in person or
by proxy of holders of 9,025,199 shares of Common Stock will constitute a quorum
at the Annual Meeting.
A proxy, in the accompanying form, which is properly executed, duly
returned to the Company and not revoked will be voted in accordance with the
instructions contained thereon. If no specific instructions are indicated on the
proxy, the shares represented will be voted FOR the election of four persons
nominated herein as directors, for Item 2 described herein, for Item 3 described
herein, for Item 4 described herein, and at the discretion of the persons who
are named in the accompanying form of proxy with respect to such other matters
as may properly come before the Annual Meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed for the meeting, who also will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote. Thus, an
abstention from voting on a matter has the same legal effect as a vote 'against'
the matter, even though the stockholder may interpret such action differently.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
Each proxy granted may be revoked by the person granting it at any time (i)
by giving written notice to such effect to the Secretary of the Company, (ii) by
execution and delivery of a proxy bearing a later date, or (iii) by attendance
and voting in person at the Annual Meeting, except as to any matter upon which,
prior to such revocation, a vote has been cast at the Annual Meeting pursuant to
the authority conferred by such proxy. The mere presence at the Annual Meeting
of a person appointing a proxy does not revoke the appointment.
OWNERSHIP OF EQUITY SECURITIES
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of the Record Date by (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock of the Company, (ii) each of the
Company's current directors, (iii) each of the Company's executive officers, and
(iv) all directors and executive officers of the
<PAGE>
Company as a group. Unless indicated otherwise, the Company believes that each
person named below has the sole power to vote and dispose of the shares of
Common Stock beneficially owned by such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED(1) PERCENT OF TOTAL
- --------------------------------------------------------------------------- --------------------- ----------------
<S> <C> <C>
Video & Communications Solutions, Inc...................................... 4,000,000(2) 22.2%
Ted Ralston(3)............................................................. 1,100,000 6.1%
Jack Shirman............................................................... 0(4) *
Steven B. Rothenberg....................................................... 61,500(5) *
Peter Beck................................................................. 50,020(6) *
John R. Glankler........................................................... 45,000(7) *
Norman Barkeley............................................................ 0 *
Executive Officers and Directors as a Group (5 persons).................... 156,520 *
</TABLE>
- ------------------
* Less than 1%
(1) Does not include shares subject to options which are not exercisable and
will not become exercisable within 60 days of July 18, 1997.
(2) Includes 3,000,000 shares of Common Stock which are subject to cancellation
if the Company does not achieve certain sales objectives. The address of
Video & Communications Solutions, Inc. is 3100 Arapahoe Drive, Suite 503,
Boulder, Colorado 80303.
(3) The address of Mr. Ted Ralston is 1941 S. Kemp, Lima, Ohio 45806.
(4) Mr. Shirman was granted options for 100,000 shares of Common Stock
exercisable on September 25, 1997. These options were exchanged on January
23, 1997, for options for 82,000 shares of Common Stock. The newer options
vest at a later date than the prior options. The address for Mr. Shirman is
11403 Bluegrass Parkway, Suite 400, Louisville, Kentucky 40299.
(5) In 1995, Mr. Rothenberg was granted options for 100,000 shares of Common
Stock exercisable within 60 days of July 18, 1997. These options were
exchanged on January 23, 1997 for options for 82,000 shares of Common Stock
of which 61,500 are exercisable within 60 days of July 18, 1997. The address
for Mr. Rothenberg is 11403 Bluegrass Parkway, Suite 400, Louisville,
Kentucky 40299.
(6) In 1995, Mr. Beck was granted options for 75,000 shares of Common Stock
exercisable within 60 days of July 18, 1997. Mr. Beck exercised 14,000
options in 1996. The remaining 61,000 options were exchanged on January 23,
1997 for options for 50,020 shares of Common Stock exercisable within 60
days of July 18, 1997. The address for Mr. Beck is 11403 Bluegrass Parkway,
Suite 400, Louisville, Kentucky 40299.
(7) Represents 25,000 shares of Common Stock owned by record and 20,000 other
shares of Common Stock subject to options exercisable within 60 days of July
18, 1997. The address of Mr. Glankler is 1300 Courthouse Plaza NE, Dayton,
Ohio 45402.
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
NOMINEES
In accordance with the Company's By-Laws, the Board of Directors has fixed
the number of directors at four. Accordingly, four persons will be elected to
the Board of Directors at the Annual Meeting. Directors are elected by a
plurality of the votes cast by the holders of the shares present in person or
represented by proxy at a meeting at which a quorum is present. 'Plurality'
means that the individuals who receive the largest number of votes cast are
elected as directors up to the maximum number of directors to be chosen at the
meeting. Consequently, any shares not voted (whether by withholding authority or
broker non-vote) have no impact in the election of directors, except to the
extent the failure to vote for the individual results in another individual
receiving a larger number of votes.
The persons named in the accompanying form of proxy, unless otherwise
instructed, intend to vote the shares of Common Stock covered by valid proxies
FOR the election of the four persons named below to the Board of Directors. In
the event that any of such persons is unable to continue to be available for
election, the persons named in the accompanying form of proxy will have
discretionary power to vote for a substitute and will
2
<PAGE>
have discretionary power to vote or withhold their vote for any additional
nominees named by stockholders. There are no circumstances presently known to
the Board of Directors which would render any of the following persons
unavailable to continue to serve as a director, if elected.
The business experience of each of the foregoing director nominees, during
the past five years, is as follows:
Jack Shirman, age 62, became a member of the Board of Directors when he
became Chief Executive Officer of the Company on September 30, 1996. From 1988
until 1996, Mr. Shirman served as Corporate Vice President and Group President
of Dynatech Corporation, a designer and manufacturer of a diversified line of
instruments, equipment, and software used to support voice, data, and video
communications. Prior to such time, Mr. Shirman served as President and Chief
Executive Officer of Telco Systems, Inc., a manufacturer of fiber optic and
customer premise transmission equipment. Mr. Shirman received his BS and MS
degrees in Electrical Engineering from Cornell University, and his MBA from the
Rochester Institute of Technology.
Steven B. Rothenberg, age 51, has been Vice President Finance, Chief
Financial Officer, and Treasurer of the Company since September 1995. In January
1996, he was elected to the Board of Directors and elected Corporate Secretary.
During the two year period prior to joining the Company, Mr. Rothenberg was a
financial consultant to the telecommunications industry. From 1992 to 1994, Mr.
Rothenberg was Chief Financial Officer of H2O Plus, L.P., a specialty retailer
in the cosmetics and skincare business. From 1988 to 1991, Mr. Rothenberg was
Chief Financial Officer of Ellesse USA, a subsidiary of Reebok International,
Ltd. In addition, Mr. Rothenberg has held senior financial management positions
with Warner Communications, Inc., Revlon Inc., and Ernst and Young, LLP. Mr.
Rothenberg received a BS in accounting and finance from The American University.
Norman Barkeley, age 65, became a member of the Board of Directors on March
20, 1997. Mr. Barkeley is the Chairman of Ducommun Incorporated, a New York
Stock Exchange company ('Ducommun'). Ducommun is a manufacturer of components
and assemblies for the aerospace and wireless telecommunications industries. Mr.
Barkeley has been with Ducommun since 1988. Prior to joining Ducommun, Mr.
Barkeley had 30 years experience with Lear Siegler, Inc., a manufacturer of
aerospace, automotive, and commercial industrial products and attained the
positions of Chairman and Chief Executive Officer in 1986. Mr. Barkeley received
his bachelor's degree from Michigan State University.
John R. Glankler, age 39, has been a director of the Company since August
1995. He has been associated with the law firm of Sebaly, Shillito & Dyer, a
Legal Professional Association ('Sebaly, Shillito & Dyer'), Dayton, Ohio, since
April 1, 1995, and has been a shareholder and director of Sebaly, Shillito &
Dyer since July 1, 1996. For more than five years prior to April 1995, Mr.
Glankler was associated with another law firm in Ohio. Mr. Glankler obtained a
BA in economics from Duke University and a JD from the University of Cincinnati.
All directors hold office until their successors have been duly elected and
qualified or until their earlier resignation or removal. Directors are elected
annually.
The Board of Directors held 12 meetings during 1996. In addition, from time
to time during the year, the members of the Board of Directors acted by
unanimous written consent. All of the members of the Board of Directors attended
at least 75% of the meetings of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a Compensation Committee and an Audit Committee. The
Compensation Committee reviews, analyzes and makes recommendations to the Board
of Directors regarding salaries, incentive compensation and stock option grants
for officers, employees and directors of the Company. The current members of the
Compensation Committee are John R. Glankler and Norman Barkeley. The Audit
Committee reviews the results and scope of the Company's audits and other
services provided by the Company's independent auditors and approves the
selection of the auditors. The current members of the Audit Committee are John
R. Glankler and Norman Barkeley.
3
<PAGE>
EXECUTIVE COMPENSATION
Summary of Compensation in 1996. The following summary compensation table
sets forth information concerning compensation for services in all capacities
awarded to, earned by or paid to the executive officers of the Company whose
salary and bonus exceeded $100,000 during the year ended December 31, 1996
('Named Executive Officers').
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-----------------------------
SECURITIES
NAME OTHER UNDERLYING
AND ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($) SARS(#) COMPENSATION($)
- ---------------------------------------------- ---- --------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Jack Shirman ................................. 1996 50,997 -- 300,000(2) --
(Chief Executive Officer(1))
Ted Ralston .................................. 1996 -- -- -- 100,000(5)
(Interim Chief Executive Officer and 1995 75,000 -- 100,000(4) 40,000(6)
Chairman of the Board(3))
John E. Haines ............................... 1996 178,700 -- -- --
(Chief Executive Officer(7)) 1995 67,742 -- 150,000(8) 30,000(9)
Steven B. Rothenberg ......................... 1996 153,333 -- 10,000(10) --
(Chief Financial Officer) 1995 24,167 -- 100,000(11) 47,467(12)
Peter Beck ................................... 1996 106,250 241,494(13) 10,000(10) --
(Vice President Market Development) 1995 69,421 -- 75,000(14) --
Vernon L. Jackson(15) ........................ 1996 235,767 -- -- --
(President) 1995 166,250 -- 375,000(16) --
</TABLE>
- ------------------
(1) Mr. Shirman became Chief Executive Officer of the Company on September 30,
1996.
(2) Reflects options to purchase shares of Common Stock at $6.12 per share
granted on September 27, 1996. The options were exercisable as follows:
100,000 on September 27, 1997, 100,000 on September 27, 1998, 50,000 on
September 27, 1999, and 50,000 on September 27, 2000. These options were
exchanged on January 23, 1997 for options for 246,000 shares at an exercise
price of $1.56. The newer options vest at a later date than the prior
options.
(3) From January 1996 until September 30, 1996, Mr. Ralston was serving as the
interim Chief Executive Officer at the request of the Board of Directors.
Mr. Ralston did not receive a salary for this position. Mr. Ralston
resigned as Chairman of the Board of Directors and as a director in January
1997.
(4) Reflects options to purchase shares of Common Stock at $2.00 per share
granted on March 1, 1995. These options were not exercisable until the
Company had cumulative net income before income taxes of $1,000,000. These
options were canceled pursuant to Mr. Ralston's resignation as Chief
Executive Officer in September 1995.
(5) Reflects consulting fees paid to Mr. Ralston for the period January 1, 1996
to December 31, 1996 pursuant to a consulting agreement with the Company.
This consulting agreement required Mr. Ralston to provide at least thirty
hours of service per week and provided for a monthly payment to Mr. Ralston
of $10,000 in consideration of his performance of services.
(6) Reflects consulting fees paid to Mr. Ralston for the period September 1,
1995 to December 31, 1995 pursuant to a consulting agreement with the
Company. This consulting agreement required Mr. Ralston to provide at least
thirty hours of service per week and provided for a monthly payment to Mr.
Ralston of $10,000 in consideration of his performance of services.
(7) Mr. Haines' employment as Chief Executive Officer ceased in January 1996,
however, pursuant to his severance agreement with the Company, he received
$15,625 per calendar month through September 24, 1996.
(Footnotes continued on next page)
4
<PAGE>
(Footnotes continued from previous page)
(8) Reflects options to purchase shares of Common Stock at $3.00 per share
granted on August 18, 1995. Such options are exercisable semi-annually over
a 30 month period in five equal installments. All options were granted to
Mr. Haines as part of his severance agreement. These options vested as of
his severance date, January 17, 1996.
(9) Reflects consulting fees paid to Mr. Haines for the period of June 1, 1995
to August 31, 1995.
(10) Reflects options to purchase shares of Common Stock at $9.875 per share
granted on August 9, 1996. 50% of these options were to become exercisable
on August 9, 1996 and the remaining 50% were to become exercisable on
August 9, 1998. These options were exchanged on January 23, 1997 for
options for 8,200 shares at an exercise price of $1.56. The newer options
vest at a later date than the prior options.
(11) Reflects options to purchase shares of Common Stock at $3.00 per share
granted on August 23, 1995. The options were exchanged on January 23, 1997
for options for 82,000 shares of Common Stock at an exercise price of
$1.56. The newer options vest at a later date than the prior options.
(12) Reflects consulting fees paid to Mr. Rothenberg during 1995.
(13) Reflects proceeds received by Mr. Beck from the sale of shares obtained
upon the exercise of 14,000 options.
(14) Reflects options to purchase shares of Common Stock at $2.00 per share
granted on April 17, 1995. These options were exercisable on October 18,
1995. Mr. Beck exercised 14,000 of these options in 1996 and the remaining
61,000 options were exchanged on January 23, 1997 for options for 50,020
shares of Common Stock at an exercise price of $1.56. The newer options
vest at a later date than the prior options.
(15) Mr. Jackson's employment with the Company ceased in December 1996.
(16) Reflects options to purchase shares of Common Stock at $2.00 per share
granted on March 1, 1995. 187,500 of these options are not exercisable
until the Company has cumulative net income before income taxes of
$1,000,000. The options were canceled pursuant to Mr. Jackson's resignation
as President in August 1995.
Stock Options. The following table sets forth certain information
regarding option grants to Named Executive Officers during the year ended
December 31, 1996.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE ($/SH) DATE
- --------------------------------------------------------- ----------- ------------ --------------- ----------
<S> <C> <C> <C> <C>
Jack Shirman............................................. 300,000(1) 30.6% $ 6.12 9/26/01
Ted Ralston.............................................. 0 0 0 0
John E. Haines........................................... 0 0 0 0
Steven B. Rothenberg..................................... 10,000(2) 1.1% $ 9.875 8/8/01
Peter Beck............................................... 10,000(2) 1.1% $ 9.875 8/8/01
Vernon L. Jackson........................................ 0 0 0 0
</TABLE>
- ------------------
(1) Reflects options to purchase shares of Common Stock at $6.12 per share
granted on September 27, 1996. The options were exercisable as follows:
100,000 on September 27, 1997, 100,000 on September 27, 1998, 50,000 on
September 27, 1999 and 50,000 on September 27, 2000. These options were
exchanged on January 23, 1997 for options for 246,000 shares at an exercise
price of $1.56. The newer options vest at a later date than the prior
options.
(2) Reflects options to purchase shares of Common Stock at $9.875 per share
granted on August 9, 1996. 50% of these options were to become exercisable
on August 9, 1998 and the remaining 50% were to become exercisable on August
9, 1999. These options were exchanged on January 23, 1997 for options for
8,200 shares at an exercise price of $1.56. The newer options vest at a
later date than the prior options.
5
<PAGE>
OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
The following table provides information relating to the number and value
of stock options held by the Named Executive Officers at December 31, 1996.
Except as noted below, the Named Executive Officers did not exercise any stock
options during 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FY-END IN-THE-MONEY OPTIONS/SARS
(#) AT FY-END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack Shirman......................................... 0 300,000(1) 0 0
Ted Ralston.......................................... 0 100,000(2) 0 0
John E. Haines....................................... 100,000(3) 0 0 0
Steven B. Rothenberg................................. 75,000(4) 35,000(4)(5) 0 0
Peter Beck........................................... 61,000(6) 10,000(7) 0 0
Vernon L. Jackson.................................... 0 0 0 0
</TABLE>
- ------------------
(1) Reflects options to purchase shares of Common Stock at $6.12 per share
granted on September 27, 1996. The options were exercisable as follows:
100,000 on September 27, 1997, 100,000 on September 27, 1998, 50,000 on
September 27, 1999 and 50,000 on September 27, 2000. These options were
exchanged on January 23, 1997 for options for 246,000 shares at an exercise
price of $1.56. The newer options vest at a later date than the prior
options.
(2) Reflects options to purchase shares of Common Stock at $2.00 per share
granted on March 1, 1995. These options were not exercisable until the
Company had cumulative net income before income taxes of $1,000,000. These
options were canceled pursuant to Mr. Ralston's resignation as Chief
Executive Officer in September 1995.
(3) Reflects options to purchase shares of Common Stock at $3.00 per share
granted pursuant to Mr. Haines' severance agreement on January 17, 1996.
(4) On August 23, 1995 Mr. Rothenberg was granted 100,000 options to purchase
shares of Common Stock at $3.00 per share. The options were exchanged on
January 23, 1997 for options for 82,000 shares at an exercise price of
$1.56. The newer options vest at a later date than the prior options.
(5) 10,000 of these options are options to purchase shares of Common Stock at
$9.875 per share granted on August 9, 1996. 50% of these options were to
become exercisable on August 9, 1998 and the remaining 50% were to become
exercisable on August 9, 1999. These options were exchanged on January 23,
1997 for options for 8,200 shares at an exercise price of $1.56. The newer
options vest at a later date than the prior options.
(6) In 1995, Mr. Beck was granted options for 75,000 shares of Common Stock
exercisable at $2.00 per share. Mr. Beck exercised 14,000 options in 1996
and sold the shares for proceeds in the amount of $241,494. The remaining
61,000 options were exchanged on January 23, 1997 for options for 58,020
shares at an exercise price of $1.56. The newer options vest at a later date
than the price options.
(7) Reflects 10,000 options to purchase shares of Common Stock at $9.875 per
share granted on August 9, 1996. 50% of these options were to become
exercisable on August 9, 1998, and the remaining 50% were to become
exercisable on August 9, 1999. These options were exchanged on January 23,
1997 for options for 8,200 shares at an exercise price of $1.56. The newer
options vest at a later date than the prior options.
EMPLOYMENT AND CONSULTING AGREEMENTS
On April 17, 1995, the Company entered into a three-year employment
agreement with Peter Beck to serve as Chief Operating Officer of the Company at
an annual salary of $60,000. Mr. Beck's annual salary was increased to $100,000
annually on August 17, 1995. Mr. Beck also received options to purchase 75,000
shares of Common Stock pursuant to a stock option agreement. Mr. Beck exercised
14,000 options in 1996. Under his employment agreement, Mr. Beck is required to
devote his full time and attention to the Company. Mr. Beck's employment
agreement contains a confidentiality provision as well as a noncompetition
provision which prohibits Mr. Beck from competing with the Company during the
term of his employment agreement and for two years thereafter. Pursuant to the
terms of Mr. Beck's employment agreement, the Company is obligated to pay
6
<PAGE>
Mr. Beck severance in the amount of three months' salary plus one month's salary
for each full year that Mr. Beck is employed by the Company prior to his
termination, if Mr. Beck's termination is due to death or disability or if Mr.
Beck's termination is other than for cause.
On September 1, 1995, the Company entered into a two-year consulting
agreement with Ted Ralston, the Company's Chairman of the Board at the time.
Effective on the same date, Mr. Ralston resigned as Chief Executive Officer and
Treasurer of the Company, and his previous employment agreement was terminated.
Mr. Ralston's consulting agreement required him to provide at least 30 hours of
service per week and provided for a monthly payment to Mr. Ralston of $10,000 in
consideration of his performance of services. The agreement was terminated in
January 1997.
On September 1, 1995, the Company entered into a two-year employment
agreement with Steven Rothenberg to serve as Vice President Finance, Treasurer,
and Chief Financial Officer at an annual salary of $145,000. Pursuant to the
terms of Mr. Rothenberg's employment agreement, termination of his employment by
the Company for any reason without cause would entitle Mr. Rothenberg to
continue to receive his salary for six months. Mr. Rothenberg's employment
agreement contains a noncompetition provision which prohibits Mr. Rothenberg
from competing with the Company during the term of his employment agreement and
for two years thereafter. On February 14, 1997, the Company entered into an
agreement with Mr. Rothenberg. The agreement provides that upon a 'change in
control' accompanied by a dilution of Mr. Rothenberg's executive power, Mr.
Rothenberg may terminate his employment and receive a lump sum severance payment
in an amount equal to his then current salary for 24 months in addition to other
benefits.
On January 17, 1996, Mr. John E. Haines' employment as Chief Executive
Officer of the Company ceased. As a result of his termination and release
agreement with the Company, Mr. Haines received $15,625 per calendar month,
prorated for partial months, through September 24, 1996. The termination and
release agreement allows Mr. Haines to retain vested options to purchase 150,000
shares of common stock at $3.00 per share granted to him under his consulting
agreement. The termination and release agreement also required the Company to
register 50,000 of the 150,000 shares on June 20, 1996, and provides Mr. Haines
certain piggyback registration rights for the remaining 100,000 options. Upon
entering the termination and release agreement, Mr. Haines resigned as a
director of the Company.
On September 27, 1996, Mr. Jack Shirman joined the Company as Chief
Executive Officer. His employment contract is for a two-year term. Mr. Shirman's
annual base salary is $200,000 with possible bonuses in an amount to be
determined at a later date. Mr. Shirman was also granted 300,000 stock options
at an exercise price of $6.12 per share. The options were to expire on September
27, 2001. These options were exchanged on January 23, 1997 for options for
246,000 shares at an exercise price of $1.56. The newer options vest at a later
date than the prior options. On February 14, 1997, the Company entered into an
agreement with Mr. Shirman. The agreement provides that upon a 'change in
control' accompanied by a dilution of Mr. Shirman's executive power, Mr. Shirman
may terminate his employment and receive a lump sum severance payment in an
amount equal to his then current salary for 24 months in addition to other
benefits.
In December of 1996, Mr. Vernon L. Jackson's employment with the Company
ceased. Terms of Mr. Jackson's severance have not been resolved.
COMPENSATION OF DIRECTORS
The Company does not currently compensate directors who are also executive
officers of the Company for service on the Board of Directors. Under Company
policy, each non-employee director of the Company is entitled to reimbursement
of expenses incurred in connection with attending meetings of the Board of
Directors. Non-employee directors also receive immediately exercisable options
to purchase 10,000 shares of Common Stock, at the then fair market value, on the
date of their initial election to the Board of Directors and on each of the
first and second anniversary dates of their election to the Board of Directors,
if they are re-elected.
7
<PAGE>
AMENDMENT OF ARTICLE FOURTH, SECTION 1 OF THE
CERTIFICATE OF INCORPORATION TO CAUSE A ONE-FOR-EIGHT
REVERSE STOCK SPLIT OF COMMON STOCK
(ITEM 2 ON THE PROXY CARD)
At the Annual Meeting, stockholders will be asked to approve a proposed
amendment (the 'Amendment') to Article Fourth, Section 1 of the Company's
Certificate of Incorporation to effect a one-for-eight reverse stock split (the
'Reverse Split') whereby every eight shares of the Company's currently
authorized and outstanding common stock (the 'Old Common Stock') will be
exchanged for one share of newly created common stock (the 'New Common Stock').
The Company's 5,000,000 shares of authorized Preferred Stock ('Preferred Stock')
will not be affected by the proposed Reverse Split.
The Board of Directors has adopted a resolution to amend the Company's
Certificate of Incorporation to cause an exchange of each eight shares of Old
Common Stock for one share of New Common Stock. The Reverse Split will be
accompanied by a reverse split in the number of authorized shares from
80,000,000 shares of Old Common Stock to 10,000,000 shares of New Common Stock.
A copy of Article Fourth, Section 1 of the Certificate of Incorporation as it
would read following adoption of Amendment is included herewith as Annex A.
DESCRIPTION OF AND REASONS FOR THE PROPOSED AMENDMENT
The Board of Directors is submitting for one-for-eight reverse split of
Common Stock for approval of the stockholders primarily because it believes the
Reverse Split would increase the trading price of the Common Stock and thereby
enhance the likelihood of generating interest in the Company's stock by more
investors and members of the securities brokerage industry. The Board of
Directors also believes the Reverse Split would enhance the likelihood for
success of any acquisition or refinancing efforts which might be undertaken by
the Company. As a result of discussions by the Company's executive officers with
members of the brokerage and investment banking industries, the Company has been
advised by some members of the investment banking industry that brokerage firms
might be more willing to evaluate the Company's securities as a possible
investment opportunity for their clients and to act as a market maker in the
Company's securities if the price range for the Company's Common Stock were
higher. Based upon such discussions, the Company believes that additional
interest by the investment community in the Company's stock (which is not
assured) might result in a more liquid trading market for the stock and that
potential acquisition candidates might be more willing to accept shares of
Common Stock if the trading prices were in a higher range and the market for the
Common Stock were believed to be less volatile. Although the Company believes
that its ability to complete acquisitions or conduct refinancings might be
benefitted by the proposed Reverse Split, there can be no assurance that this
will occur. At the current time the Company has no agreements for any
acquisition offers or financings.
The Board of Directors believes that the proposed one-for-eight reverse
split is advisable to place the Company in a better position to maintain the
listing of its Common Stock on The Nasdaq SmallCap Market. To remain eligible
for continued listing on The Nasdaq SmallCap Market under current requirements,
the Company's Common Stock must maintain a minimum bid price of $1.00 or, as an
alternative if the bid price is less than $1.00, maintain capital and surplus of
$2,000,000 and a market value of the public float of $1,000,000. However, The
Nasdaq Stock Market recently announced proposed rule changes that would, among
other proposed changes, eliminate the alternative test and require removal of
listed status for any security trading at less than a minimum bid price of $1.00
per share. Bid prices for the Company's Common Stock have been almost
continuously less than $1.00 per share since April 1997. As of July 16, 1997,
the closing bid price for the Company's Common Stock as quoted by The Nasdaq
SmallCap Market was $0.875 per share. There can be no assurance, notwithstanding
the Reverse Split, that the Company's Common Stock will remain qualified for
listing on The Nasdaq SmallCap Market or on another securities exchange.
The Board of Directors further believes that low trading prices of the
Company's equity securities may have an adverse impact upon the efficient
operation of the trading market in the securities. In particular, brokerage
firms often charge a greater percentage commission on low-priced shares than
that which would be charged on a transaction in the same dollar amount of
securities with a higher per share price. A number of brokerage firms will not
recommend purchases of low-priced stock to their clients or make a market in
such shares, which tendencies may adversely affect the Company. Stockholders
should note that the effect of the Reverse Split upon the market prices for the
Company's Common Stock cannot be accurately predicted. In particular, there is
no
8
<PAGE>
assurance that prices for shares of New Common Stock will be eight times the
prices for shares of Old Common Stock immediately prior to the Reverse Split.
Furthermore, there can be no assurance that the proposed Reverse Split will
achieve the desired results which have been outlined above, nor can there be any
assurance that the Reverse Split will not adversely impact the market price of
the Common Stock or, alternatively, that any increased price per share of the
Common stock immediately after the proposed Reverse Split will be sustained for
any prolonged period of time. In addition, the Reverse Split may have the effect
of creating odd lots of stock for some stockholders and such odd lots may be
more difficult to sell or have higher brokerage commissions associated with the
sale of such odd lots.
The Board of Directors is hopeful that the decrease in the number of shares
of Common Stock outstanding as a consequence of the proposed Reverse Split, and
the anticipated corresponding increased price per share, will stimulate interest
in the Company's post-split Common Stock and possibly promote greater liquidity
for the Company's stockholders with respect to those shares held by them.
However, the possibility does exist that such liquidity could be adversely
affected by the reduced number of shares which would be outstanding after the
proposed Reverse Split.
EXCHANGE OF STOCK CERTIFICATE AND DETERMINATION OF NUMBER OF SHARES ISSUABLE
UPON SUCH EXCHANGE
If the Reverse Split is adopted by the stockholders, one share of New
Common Stock would be exchanged for each eight shares of Old Common Stock.
Shares of New Common Stock may be obtained by surrendering certificates
representing shares of Old Common Stock to the Company's transfer agent,
Continental Stock Transfer & Trust Co., 2 Broadway, New York, New York 10004
(the 'Transfer Agent'). HOWEVER, THE COMPANY HAS ESTABLISHED NO DEADLINE FOR THE
EXCHANGE OF CERTIFICATES, AND THE PRESENT CERTIFICATES OF OLD COMMON STOCK WILL
BE EXCHANGEABLE FOR SHARES OF NEW COMMON STOCK AT ANY TIME IN THE FUTURE FOR A
FEE TO BE PAID BY THE STOCKHOLDER. To determine the number of shares of New
Common Stock issuable to any record holder, the total number of shares
represented by certificates issued in the name of that record holder as set
forth on the records of the Transfer Agent (on the date upon which the Reverse
Split becomes effective) will be divided by eight. The holder will, upon
surrender of the share certificate(s) representing shares of Old Common Stock,
receive a share certificate representing the appropriate number of shares of New
Common Stock. Any fractional share which might result from the Reverse Split
will be rounded up to a full share. Holders of certificates of Old Common Stock
may transmit their certificates to the Transfer Agent whenever they wish to
obtain shares of New Common Stock. The Company will not require any stockholder
to exchange his or her certificate(s) of Old Common Stock for New Common Stock.
It is anticipated that the Reverse Split will be effected only after stockholder
approval and after required notices have been given to the Securities and
Exchange Commission, the National Association of Securities Dealers, and Nasdaq.
If the necessary stockholder vote is received at Annual Meeting, the Company
anticipates that it will seek to effect the Reverse Split as soon thereafter as
possible.
EFFECTS OF APPROVAL OF THE REVERSE SPLIT
General Effects. Theoretically the market price of the Company's Common
Stock should increase approximately eight-fold following the proposed Reverse
Split. It is hoped that this will result in a price level which will overcome
the reluctance, policies and practices of broker-dealers referred to above and
increase interest in the Company's securities by investors. However, there can
be no assurance that the foregoing will occur or that the per share price level
of the New Common Stock immediately after the proposed Reverse Split actually
will increase eight-fold or be maintained at the level for any period of time.
An additional effect of the adoption of the Reverse Split would be a change
in the par value of the Company's Common Stock to $.08 per share. The change in
par value is not expected to have a material effect upon the Company and its
stockholders. Par value represents the minimum consideration which may be
received by the Company for the issuance of a share of Common Stock.
9
<PAGE>
The following table illustrates the effects of the proposed Reverse Split
and increase in the authorized shares of Common Stock on authorized and
outstanding numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PRIOR TO PROPOSED AFTER PROPOSED
COMMON STOCK REVERSE SPLIT REVERSE SPLIT
- -------------------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Authorized...................................................................... 80,000,000 10,000,000
Outstanding..................................................................... 18,050,398 2,256,300
Available for future issuance................................................... 61,949,602* 7,743,700*
Percent of authorized available for future issuance............................. 77.4% 77.4%
</TABLE>
- ------------------
* Includes shares reserved for issuance upon the exercise of outstanding
options, warrants and convertible Preferred Stock.
Effects on Voting Rights and Other Rights Attributable to Common
Stock. The voting rights and other rights attributable to Common Stock will not
be altered by the Reverse Split. Except for the rounding up of fractional shares
(which will result in only minor adjustments), the proposed Reverse Split will
not affect any stockholder's proportionate equity interest in the Company. The
only effect of the Company's financial statements will be a reclassification of
the capital accounts on the Company's balance sheet and a recalculation of loss
per share and weighted average shares outstanding as if the Reverse Split had
occurred on the first day of each period presented.
Effect Upon Outstanding Options and Warrants. In connection with the
Reverse Split, all outstanding options and warrants will be adjusted so that the
number of shares issuable upon the exercise of such outstanding options or
warrants will be decreased in proportion for the one-for-eight reverse split,
and the exercise price per share under such outstanding options and warrants
will be rounded up to the nearest whole share and no cash payment will be made
in respect of any fractional share.
In particular, as a result of the Reverse Split, the Company will make
adjustments in the number of shares granted and reserved under the Company's
1995 Stock Option Plan. This plan provides that the number of shares granted and
reserved thereunder is to be adjusted appropriately to give effect to any
recapitalization such as a Reverse Split. Adoption of the Reverse Split would
require adjustments in the outstanding options granted under the 1995 Stock
Option Plan which would decrease the number of shares issuable upon exercise of
the options and increase the exercise price per share by a factor of eight. If
the Reverse Split is approved, the number of shares reserved for issuance under
the existing 1995 Stock Option Plan will be decreased from 2,000,000 to 250,000
shares.
Effect on Preferred Stock. The Company also has outstanding 5,500 shares
of Preferred Stock which are convertible into Common Stock of the Company. Under
the terms of the Company's Certificate of Incorporation, the number of shares of
Common Stock issuable upon conversion of the Preferred Stock will be decreased
in proportion to the one-for-eight reverse split, and the conversion price per
share will be proportionately increased.
Federal Income Tax Consequences. A summary of the federal income tax
consequences of the proposed Reverse Split is set forth below. The following
discussion is based upon present federal tax law and does not purport to be a
complete discussion of such consequences. Accordingly, STOCKHOLDERS ARE ADVISED
TO CONSULT THEIR OWN TAX ADVISORS FOR MORE DETAILED INFORMATION REGARDING THE
EFFECTS OF THE PROPOSED REVERSE SPLIT ON THEIR INDIVIDUAL TAX STATUS.
1. The proposed Reverse Split will not be a taxable transaction to the
Company.
2. A stockholder will not recognize any gain or loss as a result of the
Reverse Split.
3. The aggregate tax basis of a stockholder's New Common Stock will equal
the aggregate tax basis of the stockholder's shares of Old Common Stock. The
holding period of the New Common Stock generally will include the holding period
of the stockholder's Old Common Stock, provided the shares of Old Common Stock
were capital assets in the hands of such stockholder.
VOTES REQUIRED
The affirmative vote for the majority of the outstanding shares entitled to
vote thereon at the Annual Meeting will be required to adopt the proposed
amendment to Article Fourth, Section 1 of the Certificate of Incorporation. The
Board of Directors recommends a vote FOR approval of Item 2.
10
<PAGE>
ADOPTION OF 1997 EMPLOYEE STOCK PURCHASE PLAN
(ITEM 3 ON THE PROXY CARD)
At the Annual Meeting, stockholders will be asked to approve the 1997
Employee Stock Purchase Plan (the '1997 Plan'). The following summary of the
material provisions of the 1997 Plan does not purport to be complete and is
qualified in its entirety by reference to the 1997 Plan, a copy of which is
attached as Annex B.
PURPOSE OF THE 1997 PLAN
The purpose of the 1997 Plan is to provide employees of the Company with an
opportunity to participate in the growth of the Company and to further identify
the interests of the employees with the interests of the Company through the
purchase of shares of the Company's Common Stock.
ELIGIBILITY AND PARTICIPATION
Any employee of the Company whose customary employment is more than twenty
hours per week and more than five months in any calendar year (each an 'Eligible
Employee' or a 'Participant') may participate in the 1997 Plan during particular
offering periods set by the Board of Directors (the 'Offering Period') as long
as the Eligible Employee has completed 90 days of employment with the Company.
However, an Eligible Employee may not participate in the 1997 Plan if, upon the
employee's purchase of the largest amount of shares available to him or her for
purchase during a particular Offering Period, the employee would own stock,
and/or hold outstanding options to purchase stock, possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company.
ADMINISTRATION
The 1997 Plan is administered by the Board of Directors, provided that the
Board of Directors may appoint a committee (the 'Committee') to carry out
administration of the 1997 Plan. If a Committee is appointed by the Board of
Directors, the Board of Directors will have the power set the number of members
on the Committee and to add or remove members from the Committee. The act of a
majority of the members of the Committee present at any meeting will constitute
a valid act of the Committee. Subject to the express terms and conditions of the
1997 Plan, the Committee will have the sole power to (i) construe and interpret
the 1997 Plan; (ii) establish, amend or waive rules for its administration; and
(iii) correct any inconsistencies in the 1997 Plan. All determinations and
decisions made by the Board of Directors or the Committee pursuant to the
provisions of the 1997 Plan will be final, conclusive and binding.
SHARES AVAILABLE UNDER THE 1997 PLAN
In general, the number of shares of Common Stock reserved for issuance
under the 1997 Plan is 1,000,000 shares. If the Reverse Split is approved the
number of shares of Common Stock reserved for issuance under the 1997 Plan will
be 125,000. In the event of a merger, reorganization, consolidation,
recapitalization, reclassification, split-up, spin-off, separation, liquidation,
stock dividend, stock split, reverse stock split, share repurchase, share
combination, share exchange or other change in the corporate structure of the
Company affecting the Common Stock, the Board of Directors will equitably
substitute or adjust the total number and class of shares of Common Stock or
other stock or securities which may be issued under the 1997 Plan.
OFFERING PERIOD
The Board of Directors will, from time to time in its discretion, designate
Offering Periods with a duration of up to twelve months, during which time all
Eligible Employees may elect to purchase Common Stock under the 1997 Plan. The
Board of Directors may designate a maximum number of shares of Common Stock that
may be purchased by each Eligible Employee during the Offering Period or
restrict purchases by Eligible Employees to a set percentage of their
compensation, provided that no Participant in the 1997 Plan will be eligible to
purchase Common Stock with a value in excess of $25,000 in any calendar year.
During each Offering Period, each Eligible Employee may elect to purchase Common
Stock in accordance with the rules set by the Board of Directors or the
Committee for that particular Offering Period.
11
<PAGE>
PAYROLL DEDUCTIONS
The Committee may, in its discretion, allow Eligible Employees to purchase
Common Stock during an Offering Period by payroll deduction. If payroll
deduction is available during an Offering Period, an Eligible Employee will
signify his or her election to participate in the 1997 Plan for the Offering
Period by completing a form provided by the Committee (the 'Election Form') and
returning it to the Committee by the date indicated on the Election Form. A
Participant's election to have amounts withheld from his or her pay for the
purchase of Common Stock during an Offering Period is irrevocable. Furthermore,
no interest shall be paid on amounts withheld from a Participant's pay during an
Offering Period.
PURCHASE PRICE
Purchases of Common Stock under the 1997 Plan will occur on the last day of
each Offering Period (the 'Purchase Date'). Unless otherwise specified by the
Board of Directors, the purchase price (the 'Purchase Price') of each share of
Common Stock will be the lesser of:
(i) 85% of the closing price of the Common Stock on the first day of
the Offering Period, or the nearest prior business day on which trading
occurred on The Nasdaq SmallCap Market, or
(ii) 85% of the closing price of the Common Stock on the last day of
the Offering Period or the nearest prior business day on which trading
occurred on The Nasdaq SmallCap Market.
If the Common Stock is not admitted to trading on any of the dates in (i)
or (ii) above for which closing prices of the Common Stock are to be determined,
then the Purchase Price shall be the fair market value of the Common Stock on
that date, as determined by the Board of Directors.
FRACTIONAL SHARES
Fractional shares will not be issued under the 1997 Plan. Any accumulated
payroll deductions which would have been used to purchase fractional shares will
be returned to the Participant promptly after the last day of the Offering
Period, without interest.
ISSUANCE OF COMMON STOCK
The purchase of Common Stock pursuant to the 1997 Plan will be effective as
of the Purchase Date and the shares of Common Stock purchased will be deemed
outstanding as of such date. Stock certificates will be issued on the Purchase
Date, or as soon thereafter as is possible.
TERMINATION OF EMPLOYMENT OR DEATH OF THE PARTICIPANT
In the event a Participant ceases to be an employee of the Company for any
reason, including death, prior to the end of an Offering Period, all amounts
deducted from the Participant's pay or otherwise paid by the Participant towards
the purchase of Common Stock during the Offering Period and prior to the date of
termination shall be used to purchase shares of Common Stock on the next
Purchase Date. Notwithstanding the preceding sentence, if a Participant was not
an employee of the Company during the 90 day period preceding the Purchase Date,
the Company will return all amounts withheld from pay or paid to the Company for
the purchase of Common Stock during the Offering Period and no Common Stock will
be issued to such Participant or his or her heirs under the 1997 Plan. In the
event of a Participant's death, the Common Stock to be issued under the 1997
Plan, if any, and any other rights of the Participant with respect to an
Offering Period, will be issued to or exercised by the Participant's surviving
spouse, or if the Participant is not survived by a spouse, by the Participant's
estate.
12
<PAGE>
ASSIGNMENT
No Participant may assign or transfer his or her rights under the 1997 Plan
to any other person.
AMENDMENT, MODIFICATIONS AND TERMINATION
Except as specifically provided in the 1997 Plan, the Board of Directors or
the Committee may, at any time, amend, modify or terminate the 1997 Plan.
VOTES REQUIRED
The affirmative vote for the majority of the outstanding shares entitled to
vote thereon at the Annual Meeting will be required to adopt the 1997 Plan. The
Board of Directors recommends a vote FOR approval of Item 3.
SELECTION OF INDEPENDENT ACCOUNTANTS
(ITEM 4 ON THE PROXY CARD)
The Board of Directors has selected, subject to ratification by the
stockholders of the Company at the Annual Meeting, the firm of Grant Thornton
LLP as the independent accountants for the Company to audit the Company's
financial statements for its year ending December 31, 1997. Grant Thornton LLP
has served as the independent accountants for the Company since 1995. A
representative of Grant Thornton LLP is expected to be present at the Annual
Meeting, will have the opportunity to make a statement if such representative
desires to do so, and will be available to respond to appropriate questions.
The affirmative vote for the majority of the outstanding shares entitled to
vote thereon at the Annual Meeting will be required to ratify Grant Thornton LLP
as the independent accountants for the Company. The Board of Directors is
recommends a vote FOR approval of Item 4.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
A stockholder who desires to include a proposal in the proxy material
relating to the 1998 Annual Meeting of Stockholders of the Company must submit
the same in writing, so as to be received at the principal executive office of
the Company (to the attention of the Secretary) on or before May 2, 1998, for
such proposal to be considered for inclusion in the proxy statement for such
meeting. Such proposal must also meet the other requirements of the Securities
and Exchange Commission relating to stockholder proposals required to be
included in the Company's proxy statement as well as the special notice
provisions in the Company's amended and restated By-laws.
OTHER MATTERS
If other matters properly come before the Annual Meeting, the persons named
in the accompanying form of proxy intend to vote thereon in accordance with
their best judgment.
The Company will bear the cost of the Annual Meeting and the cost of
soliciting proxies, including the cost of mailing the proxy materials. In
addition to solicitation by mail, directors, officers and regular employees of
the Company (none of whom will be specifically compensated for such services)
may solicit proxies by telephone or otherwise. Arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to forward forms
of proxy and proxy materials to their principals and the Company will reimburse
them for their expenses in connection therewith in accordance with the
regulations of the Securities and Exchange Commission for sending proxies and
proxy materials to the beneficial owners of shares of Common Stock.
13
<PAGE>
The Company will furnish, without charge, to each person whose proxy is
being solicited, upon request, a copy of its Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, as filed with the Securities and
Exchange Commission, including the financial statements, notes to the financial
statements and the financial schedules contained therein. Copies of any exhibits
thereto also will be furnished upon the payment of a reasonable duplicating
charge. Requests for copies of any such materials should be directed to Steven
B. Rothenberg, Secretary, VideoLan Technologies, Inc., 11403 Bluegrass Parkway,
Suite 400, Louisville, Kentucky 40299.
By Order of the Board of Directors
STEVEN B. ROTHENBERG
Secretary
July 18, 1997
- ------------------------------------
Please date, sign and return the enclosed proxy at your earliest
convenience in the enclosed envelope. No postage is required for mailing in the
United States.
14
<PAGE>
ANNEX A
ARTICLE FOURTH, SECTION 1
1. The aggregate number of shares which the Corporation shall have
authority to issue is 15,000,000 of which 10,000,000 shares shall have a par
value of $.08 per share and shall be designated 'Common Stock', and 5,000,000
shares shall have a par value of $.01 per share and shall be designated
'Preferred Stock'.
<PAGE>
ANNEX B
VIDEOLAN TECHNOLOGIES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
(EFFECTIVE APRIL 30, 1997)
SECTION 1--PURPOSE
VideoLan Technologies, Inc. (the 'Company') hereby establishes this
employee stock purchase plan (the 'Plan') for the benefit of its employees, as
set forth below.
The purpose of this Plan is to provide employees of the Company with an
opportunity to participate in the growth of the Company and to further identify
the interests of the employees with the interests of the Company through the
purchase of shares of the Company's common stock. This Plan is intended to be an
employee stock purchase plan under Section 423 of the Code.
SECTION 2--DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings below
unless the context clearly indicates otherwise:
2.1 'Board' means the Board of Directors of the Company.
2.2 'Common Stock' means the Company's voting common stock, $.01 par value
per share.
2.3 'Code' means the Internal Revenue Code of 1986, as it may be amended
from time to time.
2.4 'Committee' means the committee appointed by the Board, if any,
pursuant to Section 6 to administer the Plan. If no Committee has been
appointed, Committee shall mean the Board.
2.5 'Compensation' means the Participant's base salary plus any overtime
and commissions, excluding cash bonuses.
2.6 'Eligible Employee' means any employee of the Company, or any
Subsidiary that, with the approval of the Company, has elected to participate in
this Plan, whose customary employment is more than twenty hours per week and
more than five months in any calendar year.
2.7 'Offering Period' means an offering period set by the Board pursuant
to Section 5.1 during which Eligible Employees may elect to purchase Common
Stock under the Plan.
2.8 'Participant' means an Eligible Employee who has elected to
participate in the Plan and who has not ceased participation herein.
2.9 'Subsidiary' means any entity in which the Company owns directly or
indirectly 50% or more of the voting stock, as determined in accordance with
Code Section 424(f).
SECTION 3--ELIGIBILITY AND PARTICIPATION
3.1 Initial Eligibility. An Eligible Employee may participate in the Plan
for any Offering Period that begins after the Eligible Employee has completed 90
days of employment with the Company or a participating Subsidiary.
3.2 Limitation on Eligibility. Notwithstanding Section 3.1, no Eligible
Employee may participate in the Plan for an Offering Period if, upon the
employee's purchase of the largest amount of shares available to him for
purchase during the Offering Period, the employee would own stock, and/or hold
outstanding options to purchase stock, possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company (for
purposes of this paragraph, the rules of Code Section 424(d) shall apply in
determining stock ownership of any employee).
SECTION 4--SHARES AVAILABLE UNDER THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.2,
the number of shares of Common Stock reserved for issuance under the Plan is
1,000,000 shares. Any shares of Common Stock issued under the Plan may consist,
in whole or in part, of authorized and unissued Common Stock or treasury shares
purchased in the open market or in private transactions.
<PAGE>
4.2 Adjustments in Authorized Shares. In the event of a merger,
reorganization, consolidation, recapitalization, reclassification, split-up,
spin-off, separation, liquidation, stock dividend, stock split, reverse stock
split, share repurchase, share combination, share exchange or other change in
the corporate structure of the Company affecting the Common Stock, the Board
shall substitute or adjust the total number and class of shares of Common Stock
or other stock or securities which may be issued under the Plan as it determines
to be appropriate and equitable to prevent dilution or enlargement of the rights
of Participants hereunder. If any of the events referred to above occur,
outstanding shares of Common Stock shall be treated like all other shares of
Common Stock.
SECTION 5--STOCK PURCHASES UNDER THE PLAN
5.1 Offering Periods. The Board shall, from time to time in its
discretion, designate Offering Periods with a duration of up to twelve months,
during which all Eligible Employees may elect to purchase stock under the Plan.
The Board may designate a maximum number of shares of Common Stock that may be
purchased by each Eligible Employee during the Offering Period or restrict
purchases by Eligible Employees to a set percentage of Compensation, provided
that no Participant shall be eligible to purchase Common Stock with a value in
excess of $25,000 in any calendar year. During each Offering Period, each
Eligible Employee may elect to purchase Company Stock in accordance with the
rules set by the Committee for that offering period.
5.2 Payroll Deductions. The Committee may, in its discretion, allow
Eligible Employees to purchase stock during an Offering Period by payroll
deduction. If payroll deduction is available during an Offering Period, an
Eligible Employee shall signify his election to participate in the Plan for the
Offering Period by completing a form provided by the Committee (the 'Election
Form') and returning it to the Committee by the date indicated thereon. A
Participant's election to have amounts withheld from his pay for the purchase of
Company Stock during an Offering Period shall be irrevocable. No interest shall
be paid on amounts withheld from a Participant's pay during an Offering Period.
5.3 Purchase Price. Purchases of Common Stock under the Plan shall occur
on the last day of each Offering Period (the 'Purchase Date'). Unless otherwise
specified by the Board when an Offering Period is designated under Section 5.1,
the purchase price (the 'Purchase Price') of each share of Common Stock will be
the lesser of:
(i) 85% of the closing price of the Common Stock on the first day of
the Offering Period, or the nearest prior business day on which trading
occurred, on the Nasdaq SmallCap System, or
(ii) 85% of the closing price of the Common Stock on the last day of
the Offering Period or the nearest prior business day on which trading
occurred on the Nasdaq SmallCap System.
If the Common Stock is not admitted to trading on any of the dates
referenced in (i) or (ii) above for which closing prices of the Common Stock are
to be determined, then reference shall be made to the fair market value of the
Common Stock on that date, as determined on such basis as shall be established
or specified for the purpose by the Committee.
5.4 Fractional Shares. Fractional shares will not be issued under the
Plan. Any accumulated payroll deductions which would have been used to purchase
fractional shares will be returned to the Participant promptly after the last
day of the Offering Period, without interest.
5.5 Issuance of Common Stock. The purchase of Common Stock pursuant to
the Plan will be effective as of the Purchase Date and the shares of Common
Stock purchased will be deemed outstanding as of such date. Stock certificates
will be issued on the Purchase Date, or as soon thereafter as is possible.
5.6 Termination of Employment or Death of the Participant. In the event a
Participant ceases to be an employee of the Company or a Subsidiary (except in
the case of transfer from one of such companies to another) for any reason,
including death, prior to the end of an Offering Period, all amounts deducted by
the from the Participant's Compensation or otherwise paid to by the Participant
toward the purchase of Common Stock during the Offering Period and prior to the
date of termination shall be used to purchase shares of Common Stock on the next
Purchase Date. Notwithstanding the preceding sentence, if a Participant was not
an employee of the Company or a Subsidiary during the 90 day period preceding
the Purchase Date, the Company shall return all amounts withheld from pay or
paid to the Company for the purchase of Common Stock during the Offering Period
and no Common Stock shall be issued to such Participant or his heirs under this
Plan. In the event of a
2
<PAGE>
Participant's death, the Common Stock to be issued under this Section 5.6, if
any, and any other rights of the Participant with respect to an Offering Period,
shall be issued to or exercised by the Participant's surviving spouse, or if the
Participant is not survived by a spouse, by the Participant's estate.
SECTION 6--ADMINISTRATION
6.1 Governance. This Plan shall be administered by the Board, provided
that the Board may appoint a Committee to carry out its administrative duties
under the Plan. If a Committee is appointed by the Board, the following
provisions shall apply: The number of Committee members shall be determined by
the Board. The Board shall add or remove members from the Committee as the Board
sees fit, and vacancies shall be filled by the Board. The Committee shall select
one of its members as the chairperson of the Committee and shall hold meetings
at such times and places as it may determine. The Committee may appoint a
secretary and, subject to the provisions of the Plan and to policies determined
by the Board, may make such rules and regulations for the conduct of its
business as it shall deem advisable. Writ ten action of the Committee may be
taken by a majority of its members, and actions so taken shall be fully
effective as if taken by a vote of a majority of the members at a meeting duly
called and held. A majority of Committee members shall constitute a quorum for
purposes of meeting. The act of a majority of the members present at any meeting
for which there is a quorum shall be a valid act of the Committee.
6.2 Committee to Interpret Plan. Subject to the express terms and
conditions of the Plan, the Committee shall have sole power to (i) construe and
interpret the Plan; (ii) establish, amend or waive rules and for its
administration; and (iii) correct any inconsistencies in the Plan.
6.3 Exculpation. No member of the Board or the Committee, nor any officer
or employee acting on their behalf, shall be liable for actions, determinations
or interpretations made in good faith with respect to the Plan. All members of
the Board and the Committee and each officer or employee of the Company acting
on their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
6.4 Decisions Binding. All determinations and decisions made by the Board
or the Committee pursuant to the provisions of the Plan shall be final,
conclusive and binding on all persons, including the Company, its shareholders,
Participants and their estates and beneficiaries.
SECTION 7--SECURITIES COMPLIANCE
It is the intention of the Company that the Plan and the administration of
the Plan comply in all respects with Section 16(b) of the Securities Exchange
Act of 1934, as amended, and the regulations adopted thereunder (collectively,
'Section 16(b)'), the exemption from Kentucky's Short-Swing Profits Statute for
certain acquisitions of shares of stock and stock options under certain stock
bonus, stock option or similar plans. If any Plan provision, or any aspect of
the administration of the Plan, is found not to be in compliance with Section
16(b), the provision or administration shall be deemed null and void, and in all
events the Plan shall be construed in favor of its meeting the requirements of
Section 16(b).
SECTION 8--NO ASSIGNMENT
No Participant may assign or transfer his rights under the Plan to any
other person.
SECTION 9--AMENDMENT, MODIFICATION AND TERMINATION
9.1 Right to Amend, Modify and Terminate. Except as provided in Section
9.2, the Board may, at any time, amend, modify or terminate the Plan.
9.2 Limitations on Amendment, Modification and Termination. The Plan may
not be amended, modified or terminated without shareholder approval to the
extent such approval is required to meet the conditions for exemption under
Section 16(b) or the requirements of any national securities exchange or system
on which the Common Stock is then listed or reported or a regulatory body having
jurisdiction with respect thereto.
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<PAGE>
SECTION 10--GENERAL PROVISIONS
10.1 Not a Contract of Employment. Neither the Plan, nor any action taken
under the Plan, shall be construed as conferring upon a Participant any right to
continue as an employee of the Company or a Subsidiary.
10.2 Withholding. The Company shall be entitled to take whatever steps it
deems necessary to satisfy its Federal, state and local taxes withholding
obligations under applicable law, if any, with respect to the Plan.
10.3 Governing Law. To the extent not preempted by Federal law, the Plan
shall be governed by, and construed in accordance with, the laws of the
Commonwealth of Kentucky without regard to its conflict of laws rules.
10.4 Gender and Number. Except where otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
10.5 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
10.6 Not a Shareholder. No person entitled to purchase Common Stock with
respect to an Offering Period hereunder will have any rights as a shareholder of
the Company with respect to the Common Stock to be purchased during an Offering
Period until such person has become the holder of record of such shares of
Common Stock on the Company's corporate records.
10.7 Headings. The headings in this Plan have been inserted solely for
convenience of reference and shall not be considered in the interpretation or
construction of this Plan.
SECTION 11--EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective on the date (the 'Effective Date') when the
Board adopts the Plan, subject to approval of the Plan by a majority of the
total votes eligible to be cast at a meeting of shareholders following adoption
of the Plan by the Board, which vote shall be taken within 12 months of the
Effective Date; provided, however, that the Board may designate an Offering
Period to begin before shareholder approval is obtained, but no shares of Common
Stock may be issued pursuant to such Offering Period prior to the date on which
shareholder approval is obtained. The Plan shall begin on the Effective Date and
shall continue until all Common Stock authorized for issuance under Section 4
has been issued under the Plan or until the Board terminates the Plan, if
sooner.
4
<PAGE>
VIDEOLAN TECHNOLOGIES, INC.
11403 Bluegrass Parkway, Road, Suite 400
Louisville, Kentucky 40299
PROXY--ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of VIDEOLAN TECHNOLOGIES, INC., a Kentucky
corporation (the 'Company'), hereby appoints JACK SHIRMAN and STEVEN B.
ROTHENBERG and each of them, the true and lawful attorneys and proxies with full
power of substitution, for and in the name, place and stead of the undersigned,
to vote all of the shares of Common Stock of the Company which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Stockholders to be held at the Harborside Hyatt Conference Center & Hotel,
Boston, Massachusetts, on Thursday, August 21, 1997, at 10:00 a.m. (EDT), and at
any adjournment thereof.
The undersigned hereby instructs said proxies of their substitutes:
1. Election of directors:
/ / Vote FOR all nominees listed above / / WITHHOLD AUTHORITY
(except those listed below) to vote for all nominees
listed below
JACK SHIRMAN, STEVEN B. ROTHENBERG, NORMAN BARKELEY AND JOHN R. GLANKLER.
INSTRUCTION: To withhold authority to vote for any individual nominee strike
that nominee's name from the list above.
2. Proposal to adopt Amendment to Certificate of Incorporation to cause a
one-for-eight reverse stock split of the Company's common stock.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal for adoption of the 1997 Employee Stock Purchase Plan.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN ON THE REVERSE SIDE AND
RETURN PROMPTLY.
<PAGE>
4. Proposal to ratify the appointment of Grant Thornton LLP as Independent
Accountants for the Company for the year ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH ANY
DIRECTIONS HERETOFORE GIVEN. UNLESS OTHERWISE SPECIFIED, THE PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4. MANAGEMENT RECOMMENDS A VOTE FOR THE ABOVE MATTERS.
5. Discretionary Authority: To vote with discretionary authority with respect to
all other matters which may properly come before the Meeting.
The undersigned hereby revokes all proxies heretofore given and ratifies and
confirms all that the proxies appointed hereby, or either of them, or their
substitutes, may lawfully do or cause to be done by virtue thereof. The
undersigned hereby acknowledges receipt of a copy of the Notice of Annual
Meeting and Proxy Statement, both dated July 18, 1997, and a copy of the
Company's Annual Report for the period ended December 31, 1996.
Date:
--------------------------------------
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Signature
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Signature, if held jointly
Please sign exactly as shares are
registered. If shares are held by joint
tenants, all parties in the joint tenancy
must sign. When signing as attorney,
executor, administrator, trustee or
guardian, please indicate the capacity in
which signing. If a corporation, please
sign in full corporate name by president or
other authorized officer. If a partnership,
please sign in partnership name by
authorized person.
