SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
DIPLOMAT CORPORATION
(Name of Registrant as specified in its charter)
(Name of Person(s) Filing Proxy Statement), if other than Registrant
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $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:
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(2) Aggregate number of securities to which transaction
applies:
--------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: (A)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid
previously. Identify the previous filing by
registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------
(2) Form, Schedule or Registration Statement No.:
---------
(3) Filing Party:
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(4) Date Filed:
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DIPLOMAT CORPORATION
25 Kay Fries Drive
Stony Point, New York 10980
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NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
-----------
TO THE STOCKHOLDERS OF DIPLOMAT CORPORATION:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of
Stockholders (the "Meeting") of Diplomat Corporation (the "Company") will be
held at the offices of Gersten, Savage, Kaplowitz & Fredericks, LLP, 101 East
52nd Street, 9th Floor, New York, New York 10022 on May 12, 1998, at 10:00 a.m.,
local time, for the following purposes:
1. To elect the Board of Directors of the Company for the ensuing
year;
2. To approve an amendment to the Company's Certificate of
Incorporation to change the Company's name to "Diplomat Direct
Marketing Corporation;"
3. To approve an amendment to the Company's Certificate of
Incorporation to increase the maximum number of Directors
from five (5) to seven (7);
4. To approve the adoption of the Company's 1998 Stock Option Plan;
5. To ratify the selection by the Board of Directors of Feldman
Radin, P.C., as the Company's independent certified public
accountants for the year ending September 30, 1998; and
6. To act upon such other business as may properly come before the
Meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 20,
1998 are entitled to notice of and to vote at the Meeting and any adjournments
thereof.
In order to ensure the presence of a quorum at the Meeting, it is
important that Stockholders representing a majority of the voting power of all
stock outstanding be present in person or represented by their proxies.
Therefore, whether you expect to attend the Meeting in person or not, please
sign, fill out, date and promptly return the enclosed proxy card in the enclosed
self-addressed, postage-paid envelope. If you attend the Meeting and prefer to
vote in person, you can revoke your proxy.
Dated: April ___, 1998 By Order of the Board of Directors
Robert M. Rubin
Chairman
DIPLOMAT CORPORATION
25 KAY FRIES DRIVE
STONY POINT, NEW YORK 10980
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PROXY STATEMENT
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1998 ANNUAL MEETING OF STOCKHOLDERS
To Be Held at 10:00 a.m., at
The Offices of Gersten, Savage, Kaplowitz & Fredericks, LLP
101 East 52nd Street
New York, New York 10022
on May 12, 1998
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Diplomat Corporation (the "Company")
for use at the 1998 Annual Meeting of Stockholders of the Company (the
"Meeting") to be held at 10:00 a.m. at the offices of Gersten, Savage, Kaplowitz
& Fredericks, LLP, 101 East 52nd Street, New York, New York 10022 on May 12,
1998, and at any adjournments thereof. Anyone giving a proxy may revoke it at
any time before it is exercised by giving the Chairman of the Board of Directors
of the Company written notice of the revocation, by submitting a proxy bearing a
later date, or by attending the Meeting and voting. This Proxy Statement, the
accompanying Notice of Meeting and form of proxy have been first sent to the
stockholders on or about April 24, 1998.
All properly executed, unrevoked proxies on the enclosed form, if
returned prior to the Meeting, will be voted in the manner specified by the
Stockholder. If no specific instruction is given, the shares represented by the
proxy will be voted in accordance with the Board of Directors' recommendations.
RECORD DATE AND SHARE OWNERSHIP
Only stockholders of record on the books of the Company at the
close of business on March 20, 1998, the date fixed by the Board of Directors in
accordance with the Company's By-Laws, are entitled to vote at the Meeting. As
of March 20, 1998, the record date fixed for the determination of Stockholders
entitled to vote at the Meeting, there were issued and outstanding 11,049,872
shares of common stock, $.0001 par value per share (the "Common Stock"). There
were also issued and outstanding shares of Series B, C, and D Preferred Stock
(the "Preferred Stock") which have aggregate voting rights equal to 6,666,667
shares of Common Stock. The Common Stock and the Preferred Stock shall be
collectively referred to as the Voting Securities.
Each outstanding share of Common Stock is entitled to one vote on
all matters properly coming before the Meeting. A majority of the Common Stock
and Preferred Stock outstanding on the record date and entitled to vote, present
in person or by proxy, shall constitute a quorum for the Meeting.
SECURITY OWNERSHIP
The following table sets forth certain information as of March
20, 1998 with respect to each beneficial owner of five percent (5%) or more of
the outstanding shares of Common Stock of the Company, each executive officer
and director of the Company and all officers and directors as a group. The table
does not include options that have not yet vested or are not exercisable within
60 days of the date hereof:
Name and Address Number of Shares Percent
of Beneficial Owner(1) Beneficially Owned(2) of Class
- ---------------------- --------------------- --------
Robert M. Rubin (3) 9,130,735 53.36%
Stuart A. Leiderman(4) 308,000 2.78%
Jonathan Rosenberg (5) 165,000 1.49%
Wesley C. Fredericks, Jr.(6) 258,334 2.31%
Howard Katz(7) 66,667 *
Warren Golden(8) 418,536 3.67%
Irving Magram(9) 933,302 7.85%
Jay Kaplowitz(10) 705,569 6.25%
All officers and directors
as a group (5 persons) 10,347,272 58.01%
* less than one percent.
- ----------
(1) Unless otherwise indicated, the address of all officers and directors
listed above is in the care of the Company.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities and includes Shares of
Common Stock issuable upon conversion of outstanding preferred stock, or
subject to options, or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days. The percentage of stock
outstanding for each stockholder is calculated by dividing (i) the
number of shares of Common Stock deemed to be beneficially held by such
stockholder as of March 20, 1998 by (ii) the sum of (A) the number of
shares of Common Stock outstanding as of March 20, 1998 plus (B) the
number of shares issuable upon exercise of
2
options or warrants held by such stockholder which were exercisable as
of March 20, 1998 or which will become exercisable within 60 days after
March 20, 1998.
(3) Represents (i) 3,068,967 shares of Common Stock currently owned, (ii)
1,000,000 shares of Common Stock issuable upon conversion of 100,000
shares of the Company's Series A Preferred Stock (iii) 290,000 shares of
Series B Preferred Stock which provide for certain conversion rights and
entitle him to 2,900,000 votes, (iv) 60,000 shares of Series C Preferred
Stock which provide for certain conversion rights and entitle him to
600,000 votes, (v) 20,000 shares of Common Stock issuable upon exercise
of currently exercisable options issued pursuant to the 1992 Stock
Option Plan, and (vi) 1,541,768 shares of Common Stock issuable upon
conversion of 46,253 shares of Series D Preferred Stock.
(4) Represents (i) 268,000 shares of Common Stock currently owned, and (ii)
40,000 shares of Common Stock issuable upon exercise of currently
exercisable options granted under the November 1996 Plan. Mr. Leiderman
also has an additional 60,000 options under the November 1996 Option
Plan which are not currently exercisable and will not become exercisable
in the next sixty days.
(5) Represents (i) 65,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted pursuant to the 1992 Stock Option
Plan, and (ii) 100,000 shares of Common stock issuable upon the exercise
of currently exercisable options granted pursuant to the November 1996
Plan. Mr. Rosenberg also has an additional 30,000 options under the 1992
Stock Option Plan and 150,000 options under the November 1996 Option
Plan which are not currently exercisable and will not become exercisable
in the next sixty days.
(6) Represents (i) 157,500 shares of Common Stock currently owned, (ii)
67,500 shares which may be issued upon exercise of currently exercisable
options granted pursuant to the August 1996 Stock Option Plan, and (iii)
33,333 shares which may be issued upon exercise of currently exercisable
options granted pursuant to the November 1996 Stock Option Plan. Mr.
Fredericks also has an additional 66,667 options under the November 1996
Stock Option Plan which are not currently exercisable and will not
become exercisable in the next sixty days.
(7) Includes 66,667 shares which may be issued upon exercise of currently
exercisable options granted pursuant to the November 1996 Stock Option
Plan. Mr. Katz also has an additional 58,333 options under the November
1996 Stock Option Plan which are not currently exercisable and will not
become exercisable in the next sixty days.
(8) Represents (i) 66,667 shares of Common Stock currently owned, and (ii)
351,869 shares of Common Stock issuable upon conversion of 10,556 shares
of Series D Preferred Stock.
(9) Represents (i) 100,000 shares of Common Stock currently owned, and (ii)
833,302 shares of Common Stock issuable upon conversion of 24,999 shares
of Series D Preferred Stock.
(10) Represents (i) 457,500 shares of Common Stock currently owned, (ii)
67,500 shares issuable upon exercise of currently exercisable options
granted pursuant to the August 1996 Plan, and (iii) 180,569 shares of
Common Stock issuable upon conversion of 5,417 shares of Series D
Preferred Stock.
3
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Unless marked otherwise, proxies received will be voted FOR the election of each
of the nominees below. If any nominee is unable or unwilling to serve as a
nominee for the office of director at the time of the Annual Meeting, the
proxies may be voted for either (i) a substitute nominee who shall be designated
by the proxy holders or by the Chairman of the Board to fill such vacancy, or
(ii) for the balance of the nominees, leaving a vacancy. Alternatively, the size
of the Board may be reduced accordingly. The Board of Directors has no reason to
believe that any of such nominees will be unwilling or unable to serve if
elected as director. Such persons have been nominated to serve until the next
annual meeting of stockholders or until their successors, if any, are elected or
appointed. Directors of the Company do not receive any compensation for acting
in such capacities, but may be reimbursed for expenses incurred in connection
with their services as such.
Stockholder Vote Required
The election of the directors shall require the affirmative vote of the majority
of the Voting Securities present in person or represented by proxy at the Annual
Meeting.
Name Age Position
Robert M. Rubin 57 Chairman of the Board and Director
Jonathan Rosenberg 37 President, Chief Executive Officer
and Director
Stuart A. Leiderman 53 Executive Vice President, Sales and
Marketing Director, Director
Warren H. Golden 55 Executive Vice President, Chief
Operating Officer, Director
Wesley C. Fredericks, Jr. 50 Director
Howard Katz 56 Director
David Abel 57 Director
ROBERT M. RUBIN has served as a Director of the Company since June 1992. Since
December 5, 1995, Mr. Rubin has been a Director of Help at Home, Inc., a public
company engaged in the business of providing homemaker and general housekeeping
services to elderly and disabled
4
persons at home. In October 1996, Mr. Rubin became a director of Med-Emerg
International Inc., an operator of nursing homes and related healthcare
services. Currently, Mr. Rubin is also a director of Arzan International, an
Israeli food distributor.
Mr. Rubin has served as the Chairman of the Board of Directors of Western
Power and Equipment Corporation ("WPEC"), a construction equipment distributor,
since November 20, 1992. Between November 20, 1992 and March 7 1993, Mr. Rubin
served as Chief Executive Officer of WPEC. Between October 1990 and January 1,
1994 Mr. Rubin served as the Chairman of the Board and Chief Executive Officer
of American United Global Inc., a telecommunications and software company
("AUGI") and since January 1, 1994, solely as Chairman of the Board of AUGI. Mr.
Rubin was the founder, President, Chief Executive Officer and a Director of
Superior Care, Inc. ("SCI") from its inception in 1976 until May 1986 and
continued as a Director of SCI (now known as Olsten Corporation ("Olsten") until
the latter part of 1987. Olsten, a New York Stock Exchange listed company is
engaged in providing home care and institutional staffing services and health
care management services. Mr. Rubin was formerly a Director and Vice Chairman,
and is a minority stockholder of American Complex Care, Incorporated ("ACCI"), a
public company which provided on-site health care services, including
intradermal infusion therapies. In April 1995, the principal operating
subsidiaries of ACCI petitioned in the Circuit Court of Broward County, Florida
for an assignment for the benefit of creditors. Mr. Rubin is also a Director,
Chairman and minority stockholder of Universal Self Care, Inc., a public company
engaged in the sale of products used by diabetics, and Response USA, Inc., a
public company engaged in the sale and distribution of personal emergency
response systems. Mr. Rubin is also Chairman, Chief Executive Officer and a
Director and a principal stockholder of ERD Waste Corp., a public company
specializing in the management and disposal of municipal solid waste, industrial
and commercial nonhazardous solid waste and hazardous waste. In September 1997,
ERD Waste corp. filed for protection under title 11 for reorganization under
Chapter 11 of the Bankruptcy Code.
JONATHAN ROSENBERG was appointed to the Board of Directors in July 1995 and has
been President and Chief Executive Officer since November 1996. Since 1993, Mr.
Rosenberg served as an independent consultant to the Company, providing advice
in the operations and finance areas and in long-term strategic planning. From
1987 until 1993, he was President and Chief Operating Officer of Servtex
International, Inc., a New York based company engaged in international sourcing
of imports and manufacturing activities on an agency basis for textile related
products.
STUART A. LEIDERMAN has served as Executive Vice President of Sales and
Marketing since July 1989, and has been a Director of the Company since June
1992. From 1985 to 1989, Mr. Leiderman was a Divisional Vice President for
Hasbro, Inc., Playskool Baby Division, a company engaged primarily in the
development, sales and marketing of toys.
WARREN H. GOLDEN was appointed to the Company's board of directors and as
Executive Vice President and Chief Operating officer of the Company in February
1998. Mr. Golden has been with Lew Magram since 1991, a mail order women's
apparel and accessories company that
5
was recently acquired by the Company. From 1989 to 1991, he was with S.C.
Corporation, most recently as President. From 1983 to 1989, Mr. Golden was Chief
Financial Officer, Treasurer and Vice President of Honeybee, Inc. He was also a
director of Honeybee, Inc. from 1986 - 1989.
WESLEY C. FREDERICKS, JR. has been a director of the Company since July 1997.
Since 1994, Mr. Fredericks has been a member of the law firm of Gersten, Savage,
Kaplowitz and Fredericks, LLP. From 1990 to 1994, Mr. Fredericks was a principal
Cp,[nd President of Manufacturers Products co., an automotive supply company.
HOWARD KATZ has been a Director of the Company since October 1996. Mr. Katz has
been Executive Vice President of American United Global, Incorporated since
April 15, 1996. From December 1995 through April 15, 1996 Mr. Katz was a
consultant for, and from January, 1994 through December, 1995 he held various
executive positions, including Chief Financial Officer with, National Fiber
Network (a fiber optics telecommunications company). From January 1991 through
December 1993 Mr. Katz was the President of Katlaw Construction Corporation, a
company that provides general contractor services to foreign embassies and
foreign missions located in the United States.
DAVID ABEL has been president of United Realty, an industrial and commercial
real estate company, since its inception in 1972. Mr. Abel has served as a
director of numerous companies, and is currently a director of M.S. Farrell
Holdings, Inc. and Innapharma, Inc. Mr. Abel is a member of The Society of
Industrial Realtors and The Commercial Industrial Brokers Society. Mr. Abel
received his BA from the Bernard Baruch School of Business in 1962.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ELECTION TO THE BOARD OF DIRECTORS OF THE COMPANY
FOR EACH OF THE NOMINEES
Committees and Meetings of the Board of Directors
The Company will have three formal committees; the Audit Committee, which,
pending shareholder approval of Proposal 1 hereof, will consist of Jonathan
Rosenberg, Wesley C. Fredericks, Jr. and David Abel; the Compensation Committee,
which, pending shareholder approval of Proposal 1 hereof, will consist of Robert
Rubin, Wesley C. Fredericks, Jr. and Howard Katz; and the Corporate Governance
Compliance Committee, which, pending approval of Proposal 1 hereof, will consist
of Warren Golden and Robert Rubin. The Company does not currently have a Stock
Option Committee or a Nominating Committee.
The functions of the Audit Committee include: (i) recommending for approval by
the Board of Directors a firm of certified public accountants whose duty it will
be to audit the financial statements of the Company for the fiscal year in which
they are appointed, and (ii) to monitor the
6
effectiveness of the audit effort, the Company's internal financial and
accounting organization and controls and financial reporting. The Audit
Committee will also consider various capital and investment matters.
The Compensation Committee will be responsible for establishing compensation
arrangements for officers and directors of the Company, reviewing benefit plans
and administering each of the Company's stock option plans.
The Corporate Governance Compliance Committee will be responsible for reviewing
the Company on an ongoing basis for the purpose of ensuring that the Company is
at all times in compliance with the corporate governance standards imposed upon
the Company by The Nasdaq Stock Market, Inc.
The Company's Board of Directors held two meetings and took action by unanimous
written consent on nine occasions during the year ended September 30, 1997.
Executive Compensation
Summary Compensation Table
The following table sets forth all cash compensation for services rendered in
all capacities to the Company, for the year ended September 30, 1997(referred to
as "1997" in this table) and the year ended September 30, 1996 (referred to as
"1996" in this table) paid to the Company's Chief Executive Officer as well as
each executive officer or other person whose compensation at the end of the
above 1997 and 1996 years exceeded $100,000 per annum.
7
===================================================================================================================================
Annual Long Term
Compensa- Compensa-
tion tion
===================================================================================================================================
Other Restricted Securities
annual stock Underlying LTIP
Name and principal Bonus compen- award(s) Options/ Payouts
position Year Salary ($) ($) sation ($) SARs (#) ($)
===================================================================================================================================
Jonathan
Rosenberg
CEO 1997 $190,769 0 0 0 250,00
(Elected 11/96) 1996 $130,804 0 0 0 75,000 0
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart Leiderman 1997 $150,000 0 0 0 100,000
Executive Vice 1996 $112,500 0 0 0 0 0
President
===================================================================================================================================
Employment Agreements
In January 1994, the Company entered into a three year financial consulting
agreement with Robert M. Rubin, a director and principal stockholder of the
Company, pursuant to which he is paid $125,000 per annum. In September 1996,
this agreement was extended until December 31, 1998.
In accordance with the Agreement and Plan of Merger to acquire Lew
Magram Ltd. ("Lew Magram"), upon completion of the acquisition on February 19,
1998, each of Irving Magram, Warren Golden and Stephanie Sobel entered into
employment agreements with the Company or Lew Magram effective as of February 2,
1998. The employment agreement between the Company and Warren Golden provides
that Mr. Golden will be employed as the Company's Executive Vice President and
Chief Operating Officer and Lew Magram's Executive Vice President for three
years, subject to annual renewals, at an annual salary of $235,000 subject to
certain periodic increases based on performance. The employment agreement
between Irving Magram and Lew Magram provides that Mr. Magram will be employed
as President of Lew Magram for three years, subject to annual renewals, at an
annual salary of $235,000 subject to certain periodic increases based on
performance. The employment agreement between Stephanie Sobel and Lew Magram
provides that Ms. Sobel will be employed as Senior Vice President of Marketing
for three years, subject to annual renewals, at an annual salary of $187,500
subject to certain periodic increases based on performance. Messrs. Golden and
Magram and Ms. Sobel will also receive cash bonuses based
8
on Lew Magram meeting certain profitability criteria. The maximum aggregate cash
bonus to Messrs. Golden and Magram and Ms. Sobel is $185,000 per year. Lew
Magram may only terminate each of these employment agreements for cause. Each
agreement provides that if the employee becomes disabled, Lew Magram may
terminate the employment agreement and pay the employee over a twelve month
period half of one year's base salary. In the event of death, the employee's
beneficiary will be paid the employee's salary for six months.
Brownstone Holdings, Inc. ("Brownstone"), a wholly-owned subsidiary of the
Company, is currently negotiating replacement agreements with each of Kenneth S.
Grossman and Joan Grossman, former principals of Jean Grayson's Brownstone
Studios, Inc. The Company, which has agreed to guarantee payment under these
agreements, expects that the terms will be substantially as described below. The
proposed employment agreement between Brownstone and kenneth Grossman provides
that Mr. Grossman will be employed as Brownstone's Divisional President for a
period of five years at an annual salalry of $200,000, plus certain other
benefits. Mr. Grossman's agreement also provides for Mr. Grossman to receive
$10,000 per year for merchandise consulting. The proposed employment agreement
between Brownstone and Joan Grossman provides that Ms. Grossman will be employed
as Brownstone's Director of Product Development for a period of five years at an
annual salary of $172,500, plus certain other benefits. Brownstone may only
terminate each of these agreements for cause. Each agreement provides that if
the employee becomes disabled, Brownstone may terminate the employment agreement
and pay the employee over twelve-month period half of one year's base salary. In
the event of death, the employee's beneficiary will be paid the employee's
salary for three months.
Stock Option Plans
1992 Stock Option Plan
The Company's 1992 Stock Option Plan ("1992 Stock Option Plan") provides
for the issuance of up to 200,000 shares of Common Stock upon exercise of
incentive stock options and is intended to qualify under Section 422 of the
Internal Revenue Service Code of 1986, as amended ("Code").
The Stock Option Plan may be administered by the Board of Directors or by a
stock option committee of the Board of Directors (the "Committee"). incentive
stock options are granted under the Stock Option Plan to employees generally on
the basis of the recipient's responsibilities and the achievement of performance
objectives. Subject to the limitations set forth in the Stock Option Plan, the
Board or the Committee has the authority to determine when the options may be
exercised and vest. Under the Plan, the per share exercise price may not be less
than 100% of the fair market value of the shares on the date of grant. With
respect to any participant who owns stock possessing more than 10% of the voting
rights of the Company's outstanding capital stock, the per share exercise price
must be at least 110% of the fair market value on the date of grant and the term
may not be longer than five years. As of this date, the Company has issued an
aggregate of 150,000 Stock Options, exercisable at $1.50 per share, to four
individuals, all of whom were affiliates or employees of the Company at the time
of grant.
August 1996 Stock Option Plan
The Company also established a non-qualified stock option plan providing
for the issuance of up to 1,500,000 shares of Common Stock to its directors,
officers, key employees and consultants (the "August 1996 Plan"). To date, the
Company has granted an aggregate of 150,000 incentive and non-qualified stock
options, at an exercise price of $2.50 per share, and 500,000 non-qualified
stock options to consultants of the Company, at an exercise price of $.95 per
share. Future grants could have an adverse affect on the market price of the
Company's securities.
November 1996 Stock Option Plan
Under the Company's November 1996 Incentive Stock Option Plan (the
"November 1996 Plan"), options to purchase a maximum of 1,500,000 shares of
Common Stock of the Company
9
(subject to adjustments in the event of stock splits, stock dividends,
recapitalizations and other capital adjustments) may be granted to employees,
officers and directors of the Company and other persons who provide services to
the Company. As of the date of this Prospectus, 1,060,000 of such options have
been granted at an exercise price of $1.00 and 150,000 have been granted at an
exercise price of $2.375. The options to be granted under the Plan are
designated as incentive stock options or non-incentive stock options by the
Board of Directors which also has discretion as to the persons to be granted
options, the number of shares subject to the options and the terms of the option
agreements. Only employees, including officers and part time employees of the
Company, and non-employee directors, consultants and advisors and other persons
who perform significant service for or on behalf of the Company, may be granted
incentive stock options.
The Plan provides that options granted thereunder shall be exercisable
during a period of no more than ten years from the date of grant, depending upon
the specific option agreement, and that, with respect to incentive stock
options, the option exercise price shall be at least equal to 100% of the fair
market value of the Common Stock at the time of the grant.
Employee Pension Plan
In 1985, the Company instituted a pension plan (the "Pension Plan"), which
is a defined benefit pension plan maintained for all employees. Benefits are
payable based on 60% of average compensation for the three highest paid
consecutive years of service, reduced for less than 29 years of service
retirement. The Pension Plan is funded as required by the Employee Retirement
Income Security Act of 1974 ("ERISA") and does not require employee
contributions. Full vesting occurs immediately upon joining the Plan. As of this
date, Sheldon R. Rose, former President and CEO of the Company, and Stuart A.
Leiderman have accrued 22 and 5 years, respectively, of service under the
Pension Plan. As of February 1993, the plan was curtailed and no additional
pension benefits will accrue.
Corporate Performance Graph
The following graph shows a comparison of cumulative total stockholder
returns from November 4, 1993 through September 30, 1997 for the Company, the
Nasdaq Stock Market - U.S. Index ("Nasdaq") and Nasdaq Non-Financial.
[LINE GRAPH]
11/04/93 9/94 9/95 9/96 9/97
-------- ---- ---- ---- ----
Diplomat Corporation ......... $100 $162 $ 64 $ 27 $ 62
NASDAQ Stock Market (U.S.) ... 100 99 136 162 222
NASDAQ Non-Financial ......... 100 96 134 157 211
10
The graph assumes that the value of the investment in the Company's Common
Stock, the Nasdaq Stock Market (U.S.U) and Nasdaq Non-Financial was $100 on
November 4, 1993 and that all dividends were reinvested. No dividends have been
declared or paid on the Common Stock.
INTERESTS OF MANAGEMENT IN CERTAIN TRANSACTIONS
In January 1994, the Company entered into a three year financial consulting
agreement with Robert M. Rubin, a director and principal stockholder of the
Company, providing for the payment to him of $125,000 per annum. Mr. Rubin
consults with the Company on financial management and long term planning
matters, including consideration of acquisitions. The term of the agreement was
extended to December 31, 1998 in consideration of Mr. Rubin's subordinated loan
to the Company made in connection with the credit agreement described above.
In February 1996, Mr. Rubin loaned the Company $2,353,500 to be used as
part of the acquisition price of Biobottoms, Inc. ("Biobottoms"). In connection
with such loan, the Company issued Mr. Rubin 100,000 shares of its Series A
Preferred Stock, convertible into 1,000,000 shares of common stock at the option
of Mr. Rubin. The holder of such shares of preferred stock will have the right,
subject to a subordination and intercreditor agreement by and among Congress,
Robert Rubin, American United Global, Inc. and Joan Cooper and Anita Dimondstein
as Agents, during any period during which there shall be an Event of Default
under the Rubin/American United Loans, as such term is defined therein, to
designate a majority of the members of the Board of Directors of the Company.
This right of designation continues during the duration of any such Event of
Default. The Company has agreed, at its sole cost and expense, to include the
common shares issuable upon conversion of the shares in any registration filed
with the Securities and Exchange Commission by the Company within six months of
the date of the issue. In the absence of such filing, the Company has agreed, at
its sole cost and expense and upon the request of Mr. Rubin, to file and use its
best efforts to effect a registration of such shares within three (3) months of
his written request.
In November 1996, the Company issued to Mr. Rubin of an aggregate of
550,000 shares of Common Stock in consideration of Mr. Rubin's waiver of certain
compensation owed to him and for restructuring certain debt owed to him, waiving
certain defaults and providing an additional loan to the Company in the
aggregate amount of $600,000.
As of September 30, 1996, the $600,000 loan was converted into 60,000
Shares of Series C Preferred Stock. The Series C Preferred Stock, which has a
liquidation value of $10.00 per Share is convertible into Common Stock at 75% of
the current market price based on the average closing price for the Common Stock
for the 10 days preceding the conversion. Each share of Series C Preferred Stock
entitles the holder to 10 votes per share. The Series C Preferred Stock pays an
annual dividend of 9%, based on the per Share liquidation value. In the event
that the dividend, which is payable monthly, is not paid for three consecutive
months , Mr. Rubin shall
11
be entitled to an additional 100,000 Shares of Common Stock for each month that
the dividend is not paid.
As of September 30, 1996, Robert Rubin converted an aggregate of
approximately $2,900,000 in outstanding debt into an aggregate of 290,000 Shares
of Series B Preferred Stock. The Series B Preferred Stock, which has a
liquidation value of $10 per share, is convertible into Common Stock at 75% of
the current market price based on the average closing price for the Common Stock
for the 10 days preceding the conversion. In addition, each share of Series B
Preferred entitles the holder thereof to 10 votes per share. The Series B
Preferred Stock pays an annual dividend of 9%, based on the per Share
liquidation value. In the event that the dividend, which is payable monthly, is
not paid for three consecutive months, Mr. Rubin shall be entitled to an
additional 100,000 Shares of Common Stock for each month that the dividend is
not paid.
On September 9, 1996, the Company entered into an arrangement with Gersten,
Savage, Kaplowitz & Fredericks, LLP ("GSKF") which provided that GSKF will
provide certain legal and consulting services to the Company over an extended
period of time. As compensation for its services, certain individual members of
GSKF received an aggregate of 350,000 shares of Common Stock and options to
purchase an aggregate of 150,000 shares of Common Stock at $2.50 per share.
In November 1996, the Company issued an aggregate of 1,060,000 options to
35 employees of the Company, including two executive officers and one outside
director, pursuant to the November 1996 Plan. The options are exercisable at
$1.00 per share, vest over a period of five years, and expire ten years from the
date of grant, if not sooner due to termination or death of the employee.
In May 1997, the Company issued an aggregate of 150,000 options pursuant to
the November 1996 Plan, 50,000 of which were issued to Howard Katz, a director
of the Company, and 100,000 of which were issued to Mr. Fredericks in connection
with his agreeing to become a member of the Company's board of directors.
In May 1997, the Company authorized the issuance of 200,000 shares of
Common Stock to Mr. Rubin in consideration of Mr. Rubin extending loans to the
Company as well as extending a personal guarantee to Congress on behalf of the
Company.
In September 1997, Robert Rubin and Jay Kaplowitz advanced $2,205,000 for
the financing of Jean Grayson's Brownstone Studio, Inc. prior to the asset
acquisition by the Company and for working capital for Biobottoms and the
Company.
In October 1997, in part to raise capital for the Company's acquisition out
of bankruptcy of the assets of Jean Grayson's Brownstone Studio, Inc., the
Company completed a private offering of its securities which raised $3,480,000
from accredited investors. The private
12
placement consisted of units, each unit consisting of ten shares of Series E
Preferred Stock and 7,500 shares of Common Stock at a purchase price of $10,000
per unit. As a result, the Company has issued an aggregate of 3,480 shares of
Series E Preferred Stock and 2,610,000 shares of Common Stock, Robert Rubin and
Jay Kaplowitz purchased an aggregate of 220.5 of the units for $2,205,000, the
proceeds of which repaid the $2,205,000 advance by Messrs. Rubin and Kaplowitz
made in September 1997.
In December 1997, the Company entered into an Agreement and Plan of Merger
with Lew Magram Ltd., Robert Rubin, Jay Kaplowitz, Irving Magram, Warren Golden
and Stephanie Sobel, all of the shareholders of Lew Magram Ltd. ("Merger").
Simultaneous with the closing of the Merger on February 19, 1998, Lew Magram
Ltd. Merged with Magram Acquisition Corp. resulting in Lew Magram becoming a
wholly owned subsidiary of the Company. Prior to the closing Messrs. Magram and
Golden and Ms. Sobel owned all of the outstanding common stock of Lew Magram
Ltd. and Messrs. Rubin and Kaplowitz owned all of the outstanding Senior
Convertible Preferred Stock of Lew Magram Ltd., which Messrs. Rubin and
Kaplowitz acquired in May 1997, which was convertible into one-half of the
outstanding common stock of Lew Magram Ltd. after giving effect to the
conversion. At the closing of the Merger, the Company issued 95,000 shares of
the Series D Preferred Stock to each of the Lew Magram Ltd. shareholders of
which Mr. Rubin received 46,253 shares, Mr. Magram received 24,999 shares
(excluding 2,497 shares sold to third parties who converted the shares to Common
Stock), Mr. Kaplowitz received 5,417 shares, Mr. Golden received 10,556 shares,
and Ms. Sobel received 5,278 shares. In addition, Mr. Magram, Mr. Golden and Ms.
Sobel received 100,000, 66,667 and 33,333 shares of the Company's Common Stock,
respectively, excluding 50,000 shares of the Company's Common Stock issued to
their counsel at the closing. Each share of the Company's Series D Preferred
Stock is convertible into 33 1/3 shares of the Company's Common Stock. Each of
the Lew Magram Ltd. shareholders have agreed to indemnify the Company for any
material breach of the representations made by Lew Magram Ltd. in the Merger
Agreement limited to $9,500,000 and which claims for indemnification must be
brought within one year of the closing date of the Merger. Messrs. Rubin and
Kaplowitz assigned to the Company their rights to any claim either of them may
have for breach of any warranty made by Lew Magram Ltd. in the May 1997 Senior
Convertible Preferred Stock Purchase Agreement in return for a release of their
indemnification obligations under the Merger Agreement.
The Company's principal working capital credit facility is provided by
Congress Financial Corporation ("Congress Financial"). The lines of credit
between Congress and each of the Company, Brownstone Holdings, Inc. and Lew
Magram Ltd. are personally guaranteed by Robert Rubin, a director and principal
stockholder of the Company, up to an aggregate amount of approximately
$1,600,000. Although Mr. Rubin has not received any consideration from the
Company for extending these personal guarantees, the Company's Board of
Directors expects to meet in the near future and determine what consideration,
if any, Mr. Rubin will receive.
13
SECTION 16(a) REPORTING
Under the securities laws of the United States, the Company's directors,
its executive (and certain other) officers, and any persons holding ten percent
or more of the Company's Common Stock must report on their ownership of the
Company's Common Stock and any changes in that ownership to the Securities and
Exchange Commission and to the National Association of Securities Dealers,
Inc.'s Automated Quotation System. Specific due dates for these reports have
been established. During the year ended September 30, 1997, the Company believes
its reports required to be filed by Section 16(a) were filed on a timely basis,
if at all.
14
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO CERTIFICATE
OF INCORPORATION TO CHANGE
THE COMPANY'S NAME.
Management and the Board of Directors believe that the present name of the
Company does not accurately describe its business operations. The Board has
unanimously recommended that the name of the Company be changed to one that it
believes will enhance the Company's recognition in the minds of both the
investment community and the direct marketing industry. Accordingly, after an
extensive examination of a wide variety of possibilities, the Board has
recommended that the Company's Certificate of Incorporation, as amended, be
amended to change the name of the Company to "Diplomat Direct Marketing
Corporation." Pending approval of this Proposal, the Company will apply to
change its NASDAQ symbol.
If this Proposal 2 is approved by the stockholders, Article 1 of the
Company's Certificate of Incorporation, as amended, will be amended to read as
follows:
"1. Name. The name of the corporation is Diplomat Direct Marketing
Corporation (the "Corporation")."
In order for Proposal 2 to go into effect, it must first be approved by the
affirmative vote of a majority of the stockholders entitled to vote at the
Meeting. Under applicable Delaware laws, abstentions and broker non-votes will
have the same effect as a vote against this proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE CHANGE OF NAME
15
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO CERTIFICATE
OF INCORPORATION TO INCREASE THE MAXIMUM
NUMBER OF DIRECTORS FROM FIVE TO SEVEN
Management and the Board of Directors believe that the present
limitation of a maximum of five Directors is not sufficient in light of the
Company's recent acquisitions of Lew Magram Ltd. and the assets of Jean
Grayson's Brownstone Studios, Inc. After discussion, the Board has recommended
that the Company's Certificate of Incorporation be amended to increase the
maximum number of Directors to seven.
If this Proposal 3 is approved by the stockholders, Article 5.2
of the Company's Certificate of Incorporation, as amended, will be amended to
read as follows.
"5.2 Number and Elction of Directors. The number of its
directors shall not be less than three nor more than seven. Directors need
not be stockholders."
In order for Proposal 3 to go into effect, it must first be
approved by the affirmative vote of a majority of the stockholders entitled to
vote at the Meeting. Under applicable Delaware laws, abstentions and broker
non-votes will have the same effect as a vote against this proposal.
PROPOSAL NO. 4
ADOPTION OF THE COMPANY'S
1998 STOCK OPTION PLAN
The Company's 1998 Stock Option Plan (the "1998 Option Plan") was
adopted by the Board of Directors in February, 1998. The purpose of the 1998
Option Plan is to grant officers, employees and others who provide significant
services to the Company a favorable opportunity to acquire Common Stock so that
they have an incentive to contribute to its success and remain in its employ.
Under the 1998 Option Plan, the Company is authorized to issue options for a
total of 1,200,000 shares of Common Stock.
Description of 1998 Stock Option Plan
All officers and other employees of the Company and other persons
who perform significant services for or on behalf of the Company are eligible to
participate in the 1998 Option Plan. The Company currently has approximately 32
full-time employees.
The Company may grant under the 1998 Option Plan both incentive
stock options ("Incentive Stock Options") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and stock options
that do not qualify for incentive treatment under the Code ("Nonstatutory
Options").
A copy of the 1998 Option Plan is attached hereto as Appendix I.
The following summary of the 1998 Option Plan does not purport to be complete
and is qualified in its entirety by reference to the complete text of the 1998
Option Plan.
Administration
The Plan shall be administered by the Board of Directors of the
Company (the "Board"), if each member is a "disinterested person" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("Rule 16b-3"), or a committee (the "Committee") of two or more directors, each
of whom is a disinterested person. Appointment of Committee members shall be
effective upon acceptance of appointment. Committee members may resign at any
time by delivering written notice to the Board. Vacancies in the Committee may
be filled by the Board.
Subject to the provisions of the 1998 Option Plan, the Committee
has the authority to construe and interpret the 1998 Option Plan, to prescribe,
adopt, amend and rescind rules and regulations relating to the administration of
the 1998 Option Plan and to make all other determinations necessary or advisable
for its administration. Subject to the limitations of the 1998 Option Plan, the
Committee also selects from among the eligible persons those individuals who
will receive options, whether an optionee will receive Incentive Stock Options
or Nonstatutory
16
Options, or both, and the amount, price, restrictions and all other
terms and provisions of such options (which need not be identical).
Stock Subject to the 1998 Option Plan
Subject to adjustment as described below, the stock to be offered
under the 1998 Option Plan are shares of authorized but unissued Common Stock,
including any shares repurchased under the terms of the 1998 Option Plan or any
stock option agreement ("Stock Option Agreement") entered into pursuant to the
1998 Option Plan. The cumulative aggregate number of shares of Common Stock to
be issued under the 1998 Option Plan will not exceed 1,200,000, subject to
adjustment as described below.
Exercise Price
The exercise price of each Incentive Stock Option granted under
the 1998 Option Plan will be determined by the Committee, but will be not less
than 100% of the "Fair Market Value" (as defined in the 1998 Option Plan) of
Common Stock on the date of grant (or 110% of Fair Market Value in the case of
an employee who at the time owns more than 10% of the total combined voting
power of all classes of capital stock of the Company). The exercise price of
each Nonstatutory Option will be determined by the Committee, but will not be
less than 85% of the Fair Market Value of Common Stock on the date of grant.
Whether an option granted under the 1998 Option Plan is intended to be an
Incentive Stock Option or a Nonstatutory Stock Option will be determined by the
Committee at the time the Committee acts to grant the option and set forth in
the related Stock Option Agreement.
"Fair Market Value" for purposes of the 1998 Option Plan means:
(i) the closing price of a share of Common Stock on the principal exchange on
which shares of Common Stock are then trading, if any, on the day previous to
such date, or, if shares were not traded on the day previous to such date, then
on the next preceding trading day during which a sale occurred; (ii) if the
Company's stock is trading on an established market but closing price is not
reported, the mean between the high bid and low asked prices for such stock on
the date before the date the value is to be determined, or if shares were not
traded on the date previous to such date, then the next preceding trading day
during which a sale occurred; or (iii) if there is no listing or trading of
Common Stock either on a national exchange or over-the-counter, that price
determined in good faith by the Committee to be the fair value per share of
Common Stock, based upon such evidence as it deems necessary or advisable.
In the discretion of the Committee exercised at the time the
option is exercised, the exercise price of any option granted under the 1998
Option Plan will be payable in full in cash, or by check (subject to any
limitations of applicable state corporations law) delivered at the time of
exercise. In the discretion of the Committee and upon receipt of all regulatory
approvals, an optionee may be permitted to deliver as payment in whole or in
part of the exercise price certificates for Common Stock of the Company (valued
for this purpose at its Fair Market Value on the day of exercise) or other
property deemed appropriate by the Committee. So-called cashless exercises as
permitted under applicable rules and regulations of the Securities and
17
Exchange Commission and the Federal Reserve Board also will be permitted in the
discretion of the Committee. The Committee also has discretion to permit
consecutive book entry stock-for-stock exercises of options.
Irrespective of the manner of payment of the exercise price of an
option, the delivery of shares pursuant to the exercise will be conditioned upon
payment by the optionee to the Company of amounts sufficient to enable the
Company to pay all applicable federal, state and local withholding taxes.
Exercise Period
The Committee shall provide, in the terms of each Stock Option
Agreement, when the option subject to such agreement expires and becomes
unexercisable, but in no event will an Incentive Stock Option granted under the
Plan be exercisable after the expiration of ten years from the date it is
granted. Without limiting the generality of the foregoing, the Committee may
provide in the Stock Option Agreement that the option subject thereto expires 30
days following a Termination of Employment for any reason other than death or
disability or twelve months following a Termination of Employment for disability
or following an optionee's death; provided, however, that in no event shall any
option granted under the Plan be exercised after the expiration date of such
option set forth in the applicable Stock Option Agreement.
Exercise of Options
Each option granted under the 1998 Option Plan will become
exercisable in a lump sum or in such installments, which need not be equal, as
the Committee determines. If in any given installment period the holder of an
option does not purchase all of the shares which the holder is entitled to
purchase in that installment period, the holder's right to purchase any shares
not purchased in that period will continue until the expiration or sooner
termination of such holder's option. The Committee may, at any time after grant
of the option and from time to time, increase the number of shares purchasable
in any installment, subject to the total number of shares subject to the option
and the limitations set forth in the 1998 Option Plan as to the number of shares
as to which Incentive Stock Options may first become exercisable in any year.
Transferability of Options
An option granted under the 1998 Option Plan will be
nontransferable by the optionee other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order (as defined in
the Code), and will be exercisable during the optionee's lifetime only by the
optionee or by his or her guardian or legal representative. More particularly,
an option may not be assigned, transferred (except as provided in the preceding
sentence), pledged or hypothecated (whether by operation of law or otherwise),
and will not be subject to execution, attachment or similar process.
Conditions to Issuance of Stock Certificates; Legends
18
In order to enforce any restrictions imposed upon Common Stock
issued upon exercise of any option granted under the 1998 Option Plan or to
which such Common Stock may be subject, the Committee may cause a legend or
legends to be placed on any share certificates representing such Common Stock.
Adjustments Upon Changes in Capitalization; Merger and Consolidation
If the outstanding shares of Common Stock are changed into, or
exchanged for cash or different number or kind of shares or securities of the
Company or of another corporation through reorganization, merger,
recapitalization, reclassification, stock split-up, reverse stock split, stock
dividend, stock consolidation, stock combination stock reclassification or
similar transaction, an appropriate adjustment will be made by the Committee in
the number and kind of shares as to which options may be granted. In the event
of such change or exchange, other than for shares or securities of another
corporation or by reason of reorganization, the Committee will also make a
corresponding adjustment in the number or kind of shares, and the exercise price
per share allocated to unexercised options or portions thereof, of options which
have been granted prior to such change. Any such adjustment, however, will be
made without change in the total price applicable to the unexercised options or
portions thereof, of options which have been granted prior to such change. Any
such adjustment, however, will be made without change in the total price
applicable to the unexercised portion of the option but with a corresponding
adjustment in the price for each share (except for any change in the aggregate
price resulting from rounding-off of share quantities or prices).
No fractional share of Common Stock will be issued on account of
any of the foregoing adjustments.
Amendment and Termination
The Board or the Committee may at any time suspend, amend or
terminate the 1998 Option Plan and may, with the consent of an optionee, make
such modifications of the terms and conditions of such optionee's option as it
deems advisable; provided, however, that approval of the Company's shareholders
shall be required if (a) shareholder approval is required to preserve incentive
stock option treatment for federal income tax purposes, or (b) the Board
otherwise concludes that shareholders approval is advisable. The amendment,
suspension or termination of the 1998 Option Plan will not, however, without the
consent of the optionee to be affected, alter or impair any rights or
obligations under any option.
No option may be granted during any period of suspension nor
after termination of the 1998 Option Plan.
Privileges of Stock Ownership; Reports to Option Holders
A participant in the 1998 Option Plan will not be entitled to the
privileges of stock ownership as to any shares of Common Stock unless and until
they are actually issued to the participant.
19
The Company will furnish to each optionee under the 1998 Option
Plan the Company's annual report and such other periodic reports, if any, as are
disseminated by the Company in the ordinary course to its stockholders.
Termination
Unless earlier terminated by the Board or the Committee, the 1998
Option Plan will terminate automatically as of the close of business on the day
preceding the tenth anniversary date of its adoption by the Board. The
termination of the 1998 Option Plan will not affect the validity of any Stock
Option Agreement outstanding at the date of such termination.
Federal Income Tax Treatment
Under the Code, neither the grant nor the exercise of Incentive
Stock Options is a taxable event to the optionee (except to the extent an
optionee may be subject to alternative minimum tax); rather, the optionee is
subject to tax only upon the sale of the common stock acquired upon exercise of
the Incentive Stock Option. Upon such a sale, the entire difference between the
amount realized upon the sale and the exercise price of the option will be
taxable to the optionee. Subject to certain holding period requirements, such
difference will be taxed as a capital gain rather than as ordinary income.
Optionees who receive Nonstatutory Options will be subject to
taxation upon exercise of such options on the spread between the Fair Market
Value of the Common Stock on the date of exercise and the exercise price of such
options. This spread is treated as ordinary income to the optionee, and the
Company is permitted to deduct as an employee expense a corresponding amount.
Nonstatutory Options do not give rise to a tax preference item subject to the
alternative minimum tax.
Stockholder Vote Required
Approval of the Company's 1998 Stock Option Plan requires the
affirmative vote of the holders of a majority of the Voting Securities present
in person or represented by proxy at the Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR APPROVAL OF
THE COMPANY'S 1998 STOCK OPTION PLAN.
20
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF FELDMAN RADIN & CO., P.C.
AS THE COMPANY'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
The Board of Directors of the Company has adopted resolutions
appointing Feldman Radin & Co., P.C. as the Company's independent certified
public accountants for the ensuing year. Feldman Radin & Co., P.C., which has
served as the Company's independent certified public accountants since
1993, is familiar with the Company's operations, accounting policies and
procedures and is, in the Company's opinion, well-qualified to act in this
capacity. A member of Feldman Radin & Co., P.C. will be available to answer
questions and will have the opportunity to make a statement if he or she so
desires at the Annual Meeting of Stockholders.
Stockholder Vote Required
Ratification of the appointment of Feldman Radin & Co., P.C. as
independent certified public accountants requires the affirmative vote of the
holders of a majority of the Voting Securities present in person or represented
by proxy at the Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF FELDMAN RADIN & CO., P.C. AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
OTHER MATTERS
The Board of Directors does not know of any matters other than
those referred to in the notice of meeting that will be presented for
consideration at the Meeting. However, it is possible that certain proposals may
be raised at the Meeting by one or more stockholders. In such case, or if any
other matter should properly come before the Meeting, it is the intention of the
person named in the accompanying proxy to vote such proxy in accordance with his
best judgment.
21
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company.
Solicitations may be made by mail, personal interview, telephone, and telegram
by directors, officers and employees of the Company. The Company will reimburse
banks, brokerage firms, other custodians, nominees and fiduciaries for
reasonable expenses incurred in sending proxy material to beneficial owners of
the Company's capital stock.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 1999 Annual Meeting of
Stockholders must be received by the Company no later than February 1, 1999 in
order that they may be considered for inclusion in the Proxy Statement and form
of proxy relating to that Meeting.
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION
Copies of the annual report, as amended, of the Company for the
year ended September 30, 1997, as filed with the Securities and Exchange
Commission (without exhibits), and any amendments thereto, are available to
stockholders free of charge by writing to Diplomat Corporation, 25 Kay Fries
Drive, Stony Point, New York 10980.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company and
its subsidiaries for the fiscal year ended September 30, 1997, and Management's
Discussion and Analysis of Financial Condition and Results of Operations, are
included in the Company's 1997 Annual Report which is attached hereto.
By Order of the Board of Directors of
Diplomat Corporation
Robert M. Rubin
Chairman
__________________, 1998
22
APPENDIX I
DIPLOMAT CORPORATION
1998 STOCK OPTION PLAN
As adopted February 1, 1998
1998 STOCK OPTION PLAN
OF
DIPLOMAT CORPORATION
1. PURPOSES OF THE PLAN
The purposes of the 1998 Stock Option Plan (the "Plan") of Diplomat
Corporation, a Delaware corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to improve
operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to accept
or continue employment or association with the Company or its Affiliates; and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Code"), or "nonqualified options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is an employee of
the Company or of any Affiliate (as defined below) of the Company is eligible to
receive NQOs or ISOs under this Plan. Every person who at the date of grant is a
consultant to, or non-employee director of, the Company or any Affiliate (as
defined below) of the Company is eligible to receive NQOs under this Plan. The
term "Affiliate" as used in the Plan means a parent or subsidiary corporation as
defined in the applicable provisions (currently Sections 424(e) and (f),
respectively) of the Code. The term "employee" includes an officer or director
who is an employee of the Company. The term "consultant" includes persons
employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
Subject to the provisions of Section 6.1.1 of the Plan, the total
number of shares of stock which may be issued under Options granted pursuant to
this Plan shall not exceed 1,200,000 shares of Common Stock. The shares covered
by the portion of any grant under the Plan which expires unexercised shall
become available again for grants under the Plan.
4. ADMINISTRATION
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") or by a committee (the "Committee") to which
administration of the Plan, or of part of the Plan, is delegated by the Board
(in either case, the "Administrator"). The Board shall appoint and remove
members of the Committee in its discretion in accordance with applicable laws.
If necessary in order to comply with Rule 16b-3 under the Exchange Act and
Section 162(m) of the Code, the Committee shall, in the Board's discretion, be
comprised solely of "non-employee directors" within the meaning of said Rule
16b-3 and "outside directors" within the meaning of Section 162(m) of the Code.
The foregoing notwithstanding, the Administrator may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper and
the Board, in its absolute discretion, may at any time and from time to time
exercise any and all rights and duties of the Administrator under the Plan.
(b) Subject to the other provisions of this Plan, the Administrator
shall have the authority, in its discretion: (i) to grant Options; (ii) to
determine the fair market value of the Common Stock subject to Options; (iii) to
determine the exercise price of Options granted; (iv) to determine the persons
to whom, and the time or times at which, Options shall be granted, and the
number of shares subject to each Option; (v) to interpret this Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to this Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an Option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
(c) All questions of interpretation, implementation, and application of
this Plan shall be determined by the Administrator. Such determinations shall be
final and binding on all persons.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after 10 years from the
date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option agreement,
in form satisfactory to the Administrator, executed by the Company and the
person to whom such Option is granted.
(c) The stock option agreement shall specify whether each Option it
evidences is an NQO or an ISO.
25
(d) Subject to Section 6.3.3 with respect to ISOs, the Administrator
may approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval, and the date of
approval shall be deemed to be the date of grant unless otherwise specified by
the Administrator.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1. NQOs shall be also subject to the terms and
conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All Options
granted under this Plan shall be subject to the following terms and conditions:
6.1.1 Changes in Capital Structure. Subject to Section 6.1.2,
if the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in (a) the number and class
of shares of stock subject to this Plan and each Option outstanding under this
Plan, and (b) the exercise price of each outstanding Option; provided, however,
that the Company shall not be required to issue fractional shares as a result of
any such adjustments. Each such adjustment shall be subject to approval by the
Board in its sole discretion.
6.1.2 Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at least 30 days prior to such proposed action. To the extent not
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action; provided, however, that the Administrator,
in the exercise of its sole discretion, may permit exercise of any Options prior
to their termination, even if such Options were not otherwise exercisable. In
the event of a merger or consolidation of the Company with or into another
corporation or entity in which the Company does not survive, or in the event of
a sale of all or substantially all of the assets of the Company in which the
shareholders of the Company receive securities of the acquiring entity or an
affiliate thereof, all Options shall be assumed or equivalent options shall be
substituted by the successor corporation (or other entity) or a parent or
subsidiary of such successor corporation (or other entity); provided, however,
that if such successor does not agree to assume the Options or to substitute
equivalent options therefor, the Administrator, in the exercise of its sole
discretion, may permit the exercise of any of the Options prior to consummation
of such event, even if such Options were not otherwise exercisable.
6.1.3 Time of Option Exercise. Subject to Section 5 and
Section 6.3.4, Options granted under this Plan shall be exercisable (a)
immediately as of the effective date of the stock option agreement granting the
Option, or (b) in accordance with a schedule as may be set by the Administrator
(each such date on such schedule, the "Vesting Base Date") and specified in the
26
written stock option agreement relating to such Option. In any case, no Option
shall be exercisable until a written stock option agreement in form satisfactory
to the Company is executed by the Company and the optionee.
6.1.4 Option Grant Date. The date of grant of an Option under
this Plan shall be the date as of which the Administrator approves the grant.
6.1.5 Nontransferability of Option Rights. Except with the
express written approval of the Administrator which approval the Administrator
is authorized to give only with respect to NQOs, no Option granted under this
Plan shall be assignable or otherwise transferable by the optionee except by
will, by the laws of descent and distribution or pursuant to a qualified
domestic relations order. During the life of the optionee, an Option shall be
exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full, in
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. The Administrator, in the exercise of
its absolute discretion, may authorize any one or more of the following
additional methods of payment:
(a) Subject to the discretion of the Administrator
and the terms of the stock option agreement granting the Option, delivery by the
optionee of shares of Common Stock already owned by the optionee for all or part
of the Option price, provided the fair market value (determined as set forth in
Section 6.1.10) of such shares of Common Stock is equal on the date of exercise
to the Option price, or such portion thereof as the optionee is authorized to
pay by delivery of such stock; and
(b) Subject to the discretion of the Administrator,
through the surrender of shares of Common Stock then issuable upon exercise of
the Option, provided the fair market value (determined as set forth in Section
6.1.10) of such shares of Common Stock is equal on the date of exercise to the
Option price, or such portion thereof as the optionee is authorized to pay by
surrender of such stock.
6.1.7 Termination of Employment. If for any reason other than
death or permanent and total disability, an optionee ceases to be employed by
the Company or any of its Affiliates (such event being called a "Termination"),
Options held at the date of Termination (to the extent then exercisable) may be
exercised in whole or in part at any time within three months of the date of
such Termination, or such other period of not less than 30 days after the date
of such Termination as is specified in the Option Agreement or by amendment
thereof (but in no event after the Expiration Date); provided, however, that if
such exercise of the Option would result in liability for the optionee under
Section 16(b) of the Exchange Act, then such three-month period automatically
shall be extended until the tenth day following the last date upon which
optionee has any liability under Section 16(b) (but in no event after the
Expiration Date). If an optionee dies or becomes permanently and totally
disabled (within the meaning of Section 22(e)(3) of the Code) while
27
employed by the Company or an Affiliate or within the period that the Option
remains exercisable after Termination, Options then held (to the extent then
exercisable) may be exercised, in whole or in part, by the optionee, by the
optionee's personal representative or by the person to whom the Option is
transferred by devise or the laws of descent and distribution, at any time
within twelve months after the death or twelve months after the permanent and
total disability of the optionee or any longer period specified in the Option
Agreement or by amendment thereof (but in no event after the Expiration Date).
For purposes of this Section 6.1.7, "employment" includes service as a director
or as a consultant. For purposes of this Section 6.1.7, an optionee's employment
shall not be deemed to terminate by reason of sick leave, military leave or
other leave of absence approved by the Administrator, if the period of any such
leave does not exceed 90 days or, if longer, if the optionee's right to
reemployment by the Company or any Affiliate is guaranteed either contractually
or by statute.
6.1.8 Withholding and Employment Taxes. At the time of
exercise of an Option and as a condition thereto, or at such other time as the
amount of such obligations becomes determinable (the "Tax Date"), the optionee
shall remit to the Company in cash all applicable federal and state withholding
and employment taxes. Such obligation to remit may be satisfied, if authorized
by the Administrator in its sole discretion, after considering any tax,
accounting and financial consequences, by the optionee's (i) delivery of a
promissory note in the required amount on such terms as the Administrator deems
appropriate, (ii) tendering to the Company previously owned shares of Stock or
other securities of the Company with a fair market value equal to the required
amount, or (iii) agreeing to have shares of Common Stock (with a fair market
value equal to the required amount) which are acquired upon exercise of the
Option withheld by the Company.
6.1.9 Other Provisions. Each Option granted under this Plan
may contain such other terms, provisions, and conditions not inconsistent with
this Plan as may be determined by the Administrator, and each ISO granted under
this Plan shall include such provisions and conditions as are necessary to
qualify the Option as an "incentive stock option" within the meaning of Section
422 of the Code.
6.1.10 Determination of Value. For purposes of the Plan, the
fair market value of Common Stock or other securities of the Company shall be
determined as follows:
(a) Fair market value shall be the closing price of
such stock on the date before the date the value is to be determined on the
principal recognized securities exchange or recognized securities market on
which such stock is reported, but if selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for
such stock on the date before the date the value is to be determined (or if
there are no quoted prices for such date, then for the last preceding business
day on which there were quoted prices).
(b) In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant
28
factors, including the goodwill of the Company, the economic outlook in the
Company's industry, the Company's position in the industry, the Company's
management, and the values of stock of other corporations in the same or a
similar line of business.
6.1.11 Option Term. Subject to Section 6.3.4, no Option shall
be exercisable more than 10 years after the date of grant, or such lesser period
of time as is set forth in the stock option agreement (the end of the maximum
exercise period stated in the stock option agreement is referred to in this Plan
as the "Expiration Date").
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
6.2.1 Exercise Price.
(a) Except as set forth in Section 6.2.1(b), the
exercise price of a NQO shall be not less than 85% of the fair market value
(determined in accordance with Section 6.1.10) of the stock subject to the
Option on the date of grant.
(b) To the extent required by applicable laws, rules
and regulations, the exercise price of a NQO granted to any person who owns,
directly or by attribution under the Code (currently Section 424(d)), stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or of any Affiliate (a "Ten Percent
Shareholder") shall in no event be less than 110% of the fair market value
(determined in accordance with Section 6.1.10) of the stock covered by the
Option at the time the Option is granted.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
6.3.1 Exercise Price.
(a) Except as set forth in Section 6.3.1(b), the
exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
(determined in accordance with Section 6.1.10) of the stock covered by the
Option at the time the Option is granted.
(b) The exercise price of an ISO granted to any Ten
Percent Shareholder shall in no event be less than 110% of the fair market value
(determined in accordance with Section 6.1.10) of the stock covered by the
Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by
exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the Code (a
disposition within two years from the date of grant of the Option or within one
year after the transfer such stock on exercise of the Option), the holder of the
stock immediately
29
before the disposition shall promptly notify the Company in writing of the date
and terms of the disposition and shall provide such other information regarding
the Option as the Company may reasonably require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
employment as provided in Section 5(d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.
6.3.4 Term. Notwithstanding Section 6.1.11, no ISO granted to
any Ten Percent Shareholder shall be exercisable more than five years after the
date of grant.
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall give written notice
to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price and withholding taxes as provided in Sections 6.1.6 and
6.1.8. The date the Company receives written notice of an exercise hereunder
accompanied by payment of the exercise price will be considered as the date such
Option was exercised.
(b) Promptly after receipt of written notice of exercise of an Option
and the payments called for by Section 7(a), the Company shall, without stock
issue or transfer taxes to the optionee or other person entitled to exercise the
Option, deliver to the optionee or such other person a certificate or
certificates for the requisite number of shares of stock. An optionee or
permitted transferee of the Option shall not have any privileges as a
shareholder with respect to any shares of stock covered by the Option until the
date of issuance (as evidenced by the appropriate entry on the books of the
Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted hereunder shall interfere
with or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
9. CONDITIONS UPON ISSUANCE OF SHARES
Shares of Common Stock shall not be issued pursuant to the exercise of
an Option unless the exercise of such Option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act").
30
10. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any
limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options other than under the Plan.
11. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue this
Plan. Without the consent of an optionee, no amendment, alteration, suspension
or discontinuance may adversely affect outstanding Options except to conform
this Plan and ISOs granted under this Plan to the requirements of federal or
other tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require shareholder approval unless (a)
shareholder approval is required to preserve incentive stock option treatment
for federal income tax purposes or (b) the Board otherwise concludes that
shareholder approval is advisable.
12. EFFECTIVE DATE OF PLAN; TERMINATION
This Plan shall become effective upon adoption by the Board; provided,
however, that no Option shall be exercisable unless and until written consent of
the shareholders of the Company, or approval of shareholders of the Company
voting at a validly called shareholders' meeting, is obtained within twelve
months after adoption by the Board. If such shareholder approval is not obtained
within such time, Options granted hereunder shall be of the same force and
effect as if such approval was obtained except that all ISOs granted hereunder
shall be treated as NQOs. Options may be granted and exercised under this Plan
only after there has been compliance with all applicable federal and state
securities laws. This Plan shall terminate within ten years from the date of its
adoption by the Board.
31
GENERAL PROXY - ANNUAL MEETING OF SHAREHOLDERS OF DIPLOMAT CORPORATION
The undersigned hereby appoints Jonathan Rosenberg, with full
power of substitution, proxy to vote all of the shares of Common Stock of the
undersigned and with all of the powers the undersigned would possess if
personally present, at the Annual Meeting of Shareholders of Diplomat
Corporation to be held at Gersten, Savage, Kaplowitz & Fredericks, LLP,, 101
East 52nd Street, 9th Floor, New York, New York on May 12, 1998 at 10:00 a.m.
and at all adjournments thereof, upon the matters specified below, all as more
fully described in the Proxy Statement dated April _____, 1998 and with the
discretionary powers upon all other matters which come before the meeting or any
adjournment thereof.
This Proxy is solicited on behalf of Diplomat Corporation's Board of Directors.
1. To elect directors to hold office for the ensuing year.
/ / FOR ALL NOMINEES / / WITHHELD FOR ALL NOMINEES
2. To approve the change of the Company's name to "Diplomat Direct Marketing
Corporation."
/ / FOR / / AGAINST / / ABSTAIN
3. To approve the increase of the maximum number of directors to seven.
/ / FOR / / AGAINST / / ABSTAIN
4. To Adopt the Company's 1998 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
5. To ratify the appointment of Feldman Radin & Co., P.C.as the Company's
independent certified public accountants.
/ / FOR / / AGAINST / / ABSTAIN
6. In their discretion, upon such other matter or matters that may properly come
before the meeting, or any adjournments thereof.
- --------------------------------------------------------------------------------
(Continued and to be signed on the other side)
(Continued from other side)
Every properly signed proxy will be voted in accordance with the specifications
made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSALS
1, 2, 3, 4 and 5.
The undersigned hereby acknowledges receipt of a copy of the accompanying Notice
of Meeting and Proxy Statement, and Diplomat Corporation's 1997 Annual Report,
and hereby revokes any proxy or proxies heretofore given.
Please mark, date, sign and mail your proxy promptly in the envelope provided.
Date: , 1998
-------------------------
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(Print name of Shareholder)
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(Print name of Shareholder)
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Signature
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Signature
Number of Shares
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Note: Please sign exactly as name appears in the
Company's records. Joint owners should each
sign. When signing as attorney, executor or
trustee, please give title as such.