SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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240.14a-12
MDI ENTERTAINMENT, INC.
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MDI ENTERTAINMENT, INC.
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MDI ENTERTAINMENT, INC.
201 ANN STREET
HARTFORD, CONNECTICUT 06103
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of MDI Entertainment, Inc.
The Annual Meeting of Stockholders of MDI Entertainment, Inc. (the
"Company") will be held at the offices of Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, 551 Fifth Avenue, 25th Floor, New York, New York, at 10:00 a.m.,
Eastern Standard Time, on February 9, 1999, for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To consider and act upon a proposal to amend the Company's Certificate
of Incorporation to decrease the authorized Common Stock of the Company
such that the aggregate number of shares of Common Stock which the
Company shall have the authority to issue shall be decreased from
200,000,000 to 25,000,000.
3. To consider and act upon a proposal to amend the Company's Certificate
of Incorporation to increase the authorized capital stock of the Company
such that the Company shall have the authority to issue an additional
5,000,000 shares, all of which shall be designated "Preferred Stock."
4. To consider and act upon a proposal to amend the Company's Certificate
of Incorporation by adding an Article pertaining to indemnification of
directors, officers, employees and agents of the Company.
5. To consider and act upon a proposal to amend the Company's Certificate
of Incorporation to effect a reverse stock split of the Company's Common
Stock (such split to combine a number of outstanding shares of Common
Stock between two (2) and three (3), such number consisting of only whole
shares and tenths of shares, into one (1) share of common stock.
6. To consider and act upon a proposal to adopt the Company's 1998 Stock
Option and Award Plan.
7. To ratify the appointment of Arthur Andersen LLP as the independent
auditors and accountants for the Company for the year ending May 31,
1999.
8. To transact such other business as may properly come before the meeting.
All stockholders are invited to attend the meeting. Stockholders of record
at the close of business on January 4, 1999, the record date fixed by the Board
of Directors, are entitled to notice of and to vote at the meeting. A complete
list of stockholders entitled to notice of and vote at the meeting will be open
to examination by stockholders beginning ten days prior to the meeting for any
purpose germane to the meeting during normal business hours at the office of the
Secretary of the Company at 201 Ann Street, Hartford, Connecticut 06103.
Whether or not you intend to be present at the meeting, please sign and date
the enclosed proxy and return it in the enclosed envelope.
By Order of the Board of Directors
KENNETH M. PRZYSIECKI
SECRETARY
Hartford, Connecticut
January 6, 1999
MDI ENTERTAINMENT, INC.
201 ANN STREET
HARTFORD, CONNECTICUT 06103
(860) 527-5359
------------------------
PROXY STATEMENT
------------------------
The accompanying proxy is solicited by the Board of Directors of MDI
Entertainment, Inc. (the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10:00 a.m., Eastern Standard
New York time, on February 9, 1999 at the offices of Squadron, Ellenoff, Plesent
& Sheinfeld, LLP, 551 Fifth Avenue, 25th Floor, New York, New York 10176 and any
adjournment thereof.
VOTING SECURITIES; PROXIES
The Company will bear the cost of solicitation of proxies. In addition to
the solicitation of proxies by mail, certain officers, consultants and employees
of the Company, without extra remuneration, may also solicit proxies personally
by telefax and by telephone. In addition to mailing copies of this material to
stockholders, the Company may request persons, and reimburse them for their
expenses in connection therewith, who hold stock in their names or custody or in
the names of nominees for others to forward such material to those persons for
whom they hold stock of the Company and to request their authority for execution
of the proxies.
The holders of a majority of the outstanding shares of Common Stock, par
value $.001 per share (the "Common Stock"), present in person or represented by
proxy shall constitute a quorum at the Annual Meeting. The approval of a
plurality of the outstanding shares of Common Stock present in person or
represented by proxy at the Annual Meeting is required for election of the
nominees as directors. In all other matters, the affirmative vote of the
majority of the shares of Common Stock present in person or represented by proxy
at the Annual Meeting and entitled to vote is required for the adoption of such
matters, except for proposals to amend the Certificate of Incorporation, to
which the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote is required for the adoption such
proposals.
The form of proxy solicited by the Board of Directors affords stockholders
the ability to specify a choice among approval of, disapproval of, or abstention
with respect to each matter to be acted upon at the Annual Meeting. Shares of
Common Stock represented by the proxy will be voted, except as to matters with
respect to which authority to vote is specifically withheld. Where the solicited
stockholder indicates a choice on the form of proxy with respect to any matter
to be acted upon, the shares will be voted as specified. Abstentions and broker
non-votes will not have the effect of votes in opposition to a director but will
have the effect of votes "against" any other proposal to be considered at the
Annual Meeting.
All shares of Common Stock represented by properly executed proxies which
are returned and not revoked will be voted in accordance with the instructions,
if any, given therein. If no instructions are provided in a proxy, the shares of
Common Stock represented by such proxy will be voted FOR the Board's nominees
for director, FOR the approval of Proposals 2, 3, 4, 5, 6 and 7 and in
accordance with the proxy-holder's best judgment as to any other matters raised
at the Annual Meeting.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice of such revocation to the Secretary of the
Company, executing and delivering to the Company a later dated proxy reflecting
contrary instructions or appearing at the Annual Meeting and taking appropriate
steps to vote in person.
At the close of business on January 4, 1999, 7,776,500 shares of Common
Stock were outstanding and eligible for voting at the meeting. Each stockholder
of record is entitled to one vote for each share of Common Stock held on all
matters that come before the meeting. Only stockholders of record at the close
of business on January 4, 1999 are entitled to notice of, and to vote at, the
meeting.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to Proposals 2, 3, 4, 5, 6 and 7.
This proxy material is first being mailed to stockholders commencing on or
about January 6, 1999.
PROPOSAL 1
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
The number of directors of the Company is set by a resolution adopted by a
majority of the entire Board of Directors. The number of directors is currently
fixed at five. The number of directors to be elected at the Annual Meeting to
constitute the Board of Directors has also been fixed at five. The directors are
to be elected to hold office for a period of one year, and in any event until a
successor has been elected and qualified. It is intended that the accompanying
proxy will be voted in favor of the following persons to serve as directors,
unless the stockholder indicates to the contrary on the proxy. Each of the
nominees is currently a director of the Company.
For reelection to the Board of Directors for one-year terms, the Board of
Directors has nominated the following individuals, each a current director:
STEVEN M. SAFERIN
ROBERT J. WUSSLER
KENNETH M. PRZYSIECKI
TODD P. LEAVITT
S. DAVID FINEMAN
The persons named in the accompanying proxy intend to vote for the election
as director of the nominees listed herein. Each nominee has consented to serve
if elected. The Board of Directors has no reason to believe that any nominee
will not serve if elected, but if any of them should become unavailable to serve
as a director, and if the Board of Directors designates a substitute nominee or
nominees, the persons named as proxies will vote for the substitute nominee or
nominees designated by the Board of Directors.
The following table sets forth certain information with respect to each
person who is currently a director or executive officer of the Company and the
individuals nominated and recommended to be elected by the Board of Directors of
the Company and is based on the records of the Company and information furnished
to it by such persons. Reference is made to "Security Ownership of Certain
Beneficial Owners and Management" for information pertaining to stock ownership
by each director and executive officer of the Company and the nominees.
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
Steven M. Saferin.................................... 50 President, Chief Executive Officer and Director
Robert J. Wussler.................................... 62 Director
Kenneth M. Przysiecki................................ 54 Chief Financial Officer, Secretary and Director
Charles W. Kline..................................... 38 Vice President of Sales and Marketing
Robert R. Kowalczyk.................................. 51 Vice President and General Manager
Todd P. Leavitt...................................... 46 Director
S. David Fineman..................................... 53 Director
STEVEN M. SAFERIN
Mr. Saferin has been the President, Chief Executive Officer and a member of
the Board of Directors of the Company since August 1997. Since January 1986, Mr.
Saferin has been President and Chief Executive Officer of MDIP, which today is a
wholly-owned subsidiary of the Company. In this capacity, Mr. Saferin has been
primarily responsible for product development, marketing and sales. Mr. Saferin
conceived and led MDIP's entry into the lottery industry and has since been the
key employee in revising, refining and creating new products and marketing
initiatives for the Company to offer to the lottery industry. Prior to founding
MDIP, Mr. Saferin was Director of Program Acquisitions at ESPN from 1982 to
1986. He supervised a 16 person department in the areas of product acquisition
and scheduling. From 1978
2
to 1982, Mr. Saferin was active in Cable television franchising as a Vice
President with both Viacom Communications and Warner Amex Cable. In those
capacities, he supervised Cable television franchising activities in dozens of
major markets. Prior to entering business, Mr. Saferin was an Attorney-Advisor
to the Cable Television Bureau of the Federal Communications Commission, as well
as a member of the law department at Viacom International, Inc. Mr. Saferin
received a B.A. in journalism from American University and received his J.D.
after attending the Georgetown University and the University of Maryland Schools
of Law.
ROBERT J. WUSSLER
Mr. Wussler has been a member of the Board of Directors since August 1997.
He has been Chairman of the Board of Directors of U.S. Digital Communications,
Inc., (a telecommunications company) since March 1997 and President and Chief
Executive Officer since June 1998. He has also been President and Chief
Executive Officer of The Wussler Group, which owns several telecommunications
ventures, since February 1992. From June 1995 to June 1998, Mr. Wussler served
as President and Chief Executive Officer of Affiliate Enterprises, Inc., a
privately held company which acts as the syndication branch of 51 media
companies. Prior to his current activities, he was the President and CEO of
Comsat Video, the international satellite telecommunications company, from 1990
to 1993. Mr. Wussler is one of the founders of CNN (Cable News Network) having
founded the network when he was Senior Executive Vice President with Turner
Broadcasting from 1980 to 1990. During his tenure with Turner Broadcasting, he
was also President of the Atlanta Braves professional baseball team and the
Atlanta Hawks professional basketball team. Prior to joining the Turner
organization, Mr. Wussler was President of Columbia Broadcasting System (CBS)
Television, a position he attained from his start in the CBS mail room through
being the President of CBS Television. Mr. Wussler is also an independent
business consultant having directed such projects as the establishment of a
French-Kuwaiti television network in 1993 and the acquisition of MetroMedia
Enterprises. He was the founding Chairman of International TelCell which later
became a part of MetroMedia International Group in 1993. Mr. Wussler also
advised and guided the first African American professional basketball ownership
group in the finance, purchase, management and resale of the Denver Nuggets
franchise of the National Basketball Association. Mr. Wussler also serves on the
Board of Directors of Beachport Entertainment Corp., The Translation Group, Ltd.
and EdNet Inc.
KENNETH M. PRZYSIECKI
Mr. Przysiecki has been Chief Financial Officer, Secretary and a member of
the Board of Directors of the Company since August 1997. Since August 1994, Mr.
Przysiecki has been Chief Financial Officer of MDIP. Prior to joining MDIP, Mr.
Przysiecki was involved in several business start-ups that required his
financial planning, negotiating and systems implementation skills. He was a
Senior Manager for Noreika, Rosenfeld and Hupp, a C.P.A. firm, from 1989-1992
and was employed as Vice President of Finance for the Keeney Manufacturing
Company (a plumbing supply manufacturing company) from 1976 until 1988. He
received his C.P.A. while with Arthur Andersen & Co. from 1972 to 1976, and
received his B.S. in Business Administration from American International
College.
CHARLES W. KLINE
Mr. Kline joined the Company as Vice President of Sales and Marketing in
February 1998. Prior to joining the Company, Mr. Kline was Executive Director of
the Pennsylvania State Lottery, the nation's sixth largest lottery from 1992 to
1997. As Executive Director, Mr. Kline oversaw the entire $1.7 billion sales
operation. During his five year tenure, Mr. Kline was credited with not only
reversing a 3-year slide in sales, but also engineering and implementing a
program that caused the lottery to undergo five consecutive years of sales
growth. Prior to this post, Mr. Kline served in a variety of key positions in
state government. Mr. Kline received a B.A. in Public Service and a Masters in
Public Administration, both from the Pennsylvania State University.
3
ROBERT R. KOWALCZYK
Mr. Kowalczyk joined the Company as Vice President and General Manager in
November 1997. Prior to joining the Company from 1995 to 1997, Mr. Kowalczyk was
Vice President and Management Supervisor of Yaffe and Company Advertising of
Southfield, Michigan ("Yaffe"). At Yaffe, Mr. Kowalczyk supervised the $10
million advertising and promotions account and aided the product planning for
the Michigan State Lottery. Mr. Kowalczyk also supervised the agency's business
development and research functions, and participated in the account planning and
management for clients including health care, financial services and various
retail chains. Prior to his time in Michigan, Mr. Kowalczyk managed product
planning and marketing, research and the $32 million advertising and promotional
budgets for the Florida Lottery from 1991 to 1995. Under his direction, the
lottery reversed a decline in sales growth in that category. Previous to that,
Mr. Kowalczyk was the Marketing Director for the Ohio Lottery Commission from
1987 to 1991. He successfully expanded the entire lottery market by introducing
instant scratch-off game marketing strategies that have been emulated by
virtually every lottery in the years that followed. During his tenure, Ohio
Lottery sales increased an average of 16% per year, instant ticket sales
increased at 58% per year and profitability increased at the rate of 4% per
year. Mr. Kowalczyk received his Associate Degree from Lorain County Community
College and earned his Executive M.B.A. from the Weatherhead School of
Management, Case Western Reserve University, Cleveland, Ohio.
TODD P. LEAVITT
Mr. Leavitt has been a member of the Board of Directors since November 1998.
He founded and has been Managing Director of Tulip Media Ltd.("Tulip Media")
since May 1998. Tulip Media furnishes services in areas of feature film,
television and video production and distribution as well as media consulting
services to a variety of United States and international companies engaged in
the entertainment industry. Prior to establishing Tulip Media, Mr. Leavitt
served as Chairman of the Alliance Television Group, supervising all television
production and distribution activities on behalf of Alliance Communications
Corporation, from 1995 to May 1998. Previously, Mr. Leavitt was Executive Vice
President of NBC Production Studios, the in-house production arm of the NBC
Television Network, from 1990 to 1995. Prior to joining NBC, Mr. Leavitt had
been Executive Vice President of Reeves Entertainment Group. Mr. Leavitt is a
Phi Beta Kappa graduate of Kenyon College, Gambier, Ohio, and received a law
degree from the New York University of Law.
S. DAVID FINEMAN
Mr. Fineman has been a member of the Board of Directors since November 1998.
He is the managing attorney and founder of Fineman & Bach, P.C., a Philadelphia,
PA law firm since 1986. Mr. Fineman represents a variety of clients, including
governmental authorities and private clients dealing with the government. He has
an active litigation practice and represents clients throughout the United
States and Japan in both the Federal and State courts. Mr. Fineman presently
serves as special counsel to the Philadelphia Parking Authority, the Secretary
of Banking of the Commonwealth of Pennsylvania, and the Insurance Commissioner
of the Commonwealth of Pennsylvania. In 1995, he was nominated by President
Clinton and confirmed by the United States Senate to a nine-year term on the
Board of Governors of the United States Postal Service, a nine member Board
which directs and controls the expenditures, reviews practices and policies, and
establishes basic objectives and long-range goals for the Postal Service. In
1994, Mr. Fineman was appointed to the Industry Policy Advisory Committee, a
CEO-level committee which advises the Secretary of Commerce and the U.S. Trade
Representative on international trade policy issues. Mr. Fineman received a B.A.
from American University and received his J.D. from George Washington University
Law School.
Each director holds office until the Company's annual meeting of
stockholders and until his successor is duly elected and qualified. Officers are
elected by the Board of Directors and hold office at the
4
discretion of the Board of Directors. There are no family relationships between
any of the directors or executive officers of the Company.
STOCKHOLDER VOTE REQUIRED
Election of each director requires a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the meeting and
entitled to vote on the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION TO THE BOARD OF
DIRECTORS OF THE COMPANY FOR EACH OF THE NOMINEES.
COMMITTEES OF THE BOARD--BOARD MEETINGS
The Board of Directors does not have a nominating committee, an audit
committee, a compensation committee or a stock option committee. These functions
are performed by the Board as a whole. The Board of Directors did not meet or
act by unanimous written consent during the fiscal year ended May 31, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Many of the following transactions occurred before, or as a result of, the
reverse mergers of Media Drop-In Productions, Inc., a Delaware corporation
("MDIP") and MDI-Missouri, Inc., a Missouri corporation ("MDIM") with and into
the Company in August 1997.
Since July 1996, Elaine Saferin, the mother of Steven M. Saferin, the
Company's President and CEO, has been a part-time employee of MDIP. She is paid
$1,000 per month for assisting in corporate and bulk mailings and other related
tasks.
From September 1992 to February 1998, Steven M. Saferin owed MDIP
approximately $467,260 pursuant to loans from MDIP on September 1, 1992 and May
22, 1995. The interest rate on the debt was the applicable Federal mid-term rate
during the duration of the loan (6.56% for final quarter). The loans were
secured by personal real estate and were paid in full in February 1998.
Since August 1994, the Company's subsidiary, MDIP, has retained 1010
Productions, Inc. ("1010") to consult in the areas of trade show activities,
software development, systems design, purchasing and product fulfillment. The
president and sole shareholder of 1010 is Linda Kesterson Saferin, spouse of
Steven M. Saferin, and former employee, officer and director of MDIP. 1010 is
currently paid $8,167 per month plus expenses and is retained until February 1,
2000 pursuant to its current consulting agreement with the Company.
MDI-Texas, LLC ("MDIT"), a company of which MDIP owns 66.7%, and MDIM, a
company of which Mr. Saferin previously owned 91%, have paid MDIP an aggregate
management fee of $198,000 in fiscal 1998 and $1,020,000 in fiscal 1997, to
operate the Texas and Missouri lottery programs. MDIT is being collapsed into
MDIP now that the Texas lottery contracts have ended. MDIM is now a wholly owned
subsidiary of the Company.
MDIT has incurred a commission expense of $10,663 and $51,590 in fiscal 1998
and 1997, respectively, to Steven M. Saferin in connection with the Texas
lottery.
Steven M. Saferin loaned MDIP $50,000 in 1997 and $60,000 in 1998. The loans
bore interest at the Federal funds rate and were paid in full as of May 31,
1998.
In August 1997, Kenneth M. Przysiecki, the Company's Chief Financial
Officer, acquired 230,000 shares of Common Stock of the Company from Steven M.
Saferin, pursuant to his employment agreement dated April 30, 1996. He was
entitled to 5% of any stock received by Mr. Saferin as a result of a sale or
merger of MDIP.
5
On August 8, 1997, the Company executed a promissory note to Steven M.
Saferin in the amount of $273,000 in exchange for Mr. Saferin's agreement to the
reverse mergers of MDIP and MDIM with and into the Company. The note had an
annual interest rate of 10% (starting on December 7, 1997) and was to be paid in
thirty-six equal monthly installments. The note was paid in full by the Company
in February 1998. In addition, Mr. Saferin received 4,366,124 shares of Common
Stock of the Company in such mergers.
As a result of the reverse mergers of MDIP and MDIM with and into the
Company in August 1997, the Company executed a promissory note to Agostino T.
Galluzzo in the amount of $27,000. The note has an annual interest rate of 10%
(which started on December 7, 1997) and will be paid in thirty-six equal monthly
installments (beginning September 1998). Mr. Galluzzo was a minority stockholder
of MDIP and MDIM. The note has not been paid. In addition, Mr. Galluzzo received
433,876 shares of Common Stock of the Company in such mergers.
On June 1, 1998, Steven M. Saferin guaranteed the Company's $500,000
performance bond provided to the Wisconsin lottery.
On September 23, 1998, Steven M. Saferin guaranteed the Company's $130,000
performance bond provided to the Louisiana lottery.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and the other equity securities of the Company. Officers, directors, and persons
who beneficially own more than ten percent of a registered class of the
Company's equities are required by the regulations of the Securities and
Exchange Commission to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, during the fiscal year ended May 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors, and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities for the fiscal year ended May 31, 1998 paid to Steven
M. Saferin, the Company's President and Chief Executive Officer and a director
and to Kenneth M. Przysiecki, the Company's Chief Financial Officer and
Secretary and a director (together the "Named Executive Officers"). No other
executive officer received compensation exceeding $100,000 during the fiscal
year ended May 31, 1998.
6
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------------- -------------------------------------------------
SECURITIES
UNDERLYING
OTHER ANNUAL RESTRICTED OPTIONS/ LONG-TERM
NAME AND PRINCIPAL FISCAL COMPENSATION STOCK SARS INCENTIVE
POSITION YEAR SALARY BONUS (1)(2) AWARD(S) (#) PLAN PAYOUTS
- --------------------------- ----------- ----------- --------- ------------- ------------- --------------- -----------------
Steven Saferin, 1998 $300,000(4) -- $ 114,593 -- -- --
President/CEO and
Director (3)
Kenneth M. Przysiecki, 1998 $ 102,000 $ 2,500 $ 37,106 -- -- --
Chief Financial Officer,
Secretary and Director
NAME AND PRINCIPAL ALL OTHER
POSITION COMPENSATION
- --------------------------- -------------
Steven Saferin, $ 3,654(5)
President/CEO and
Director (3)
Kenneth M. Przysiecki, $ 3,030(5)
Chief Financial Officer,
Secretary and Director
- ------------------------
(1) Represents revenue-based commissions accrued pursuant to employment
agreements. As of November 30, 1998, $180,459 of accrued commissions were
owed to Mr. Saferin and $10,874 of accrued commissions were owed to Mr.
Przysiecki.
(2) Excludes prerequisites and other personal benefits, securities and
properties otherwise categorized as salary or bonuses which, in the
aggregate, did not exceed the lesser of either $50,000 or 10% of the total
annual salary reported for such person.
(3) The Chief Executive Officer of Puff Process, Inc. did not receive any
compensation.
(4) Excludes amounts paid to Mr. Saferin's mother and the company owned by his
spouse. Such amounts aggregated $110,000 in fiscal 1998.
(5) Represents amounts contributed pursuant to the Company's 401(k) Savings
Plan.
DIRECTOR'S COMPENSATION
Directors did not receive compensation for serving on the Board of Directors
during the fiscal year ended May 31, 1998. However, the Company now compensates
its outside directors. In September 1998, Mr. Wussler received stock options
outside of the Plan (defined in Proposal 6) for 300,000 shares of Common Stock
as compensation for his services as an outside director of the Company. Messrs.
Leavitt and Fineman each received stock options pursuant to the Plan (defined in
Proposal 6), subject to stockholder approval of the Plan, for 150,000 shares of
Common Stock as compensation for their services as outside directors of the
Company.
401(K) SAVINGS PLAN
In fiscal 1996, the Company adopted a 401(k) savings plan, whereby
participants can elect to defer up to a specified maximum of their compensation
and the Company will match their contribution up to 3% of the employee's base
salary. In fiscal 1998 and 1997, the Company contributed $9,429 and $15,037 to
the plan, respectively.
EMPLOYMENT AGREEMENTS
STEVEN M. SAFERIN
MDIP has entered into an employment agreement with Mr. Saferin, guaranteed
by the Company, which expires on the later of August 8, 2002 or three years from
the date the Company first files a registration statement with the SEC
registering all of the shares of common or preferred stock owned by Mr. Saferin,
and the Company's shares are being traded on the New York Stock Exchange, the
American Stock Exchange or The Nasdaq Stock Market. Pursuant to his employment
agreement, Mr. Saferin
7
receives an annual base salary of $300,000, which may be increased each year in
an amount between 5% and 10% of the salary of the immediately preceding year. In
addition, Mr. Saferin is entitled to a bonus equal to 2% of the gross revenues
of the Company, up to a maximum amount of $335,000 over the term of the
agreement. The employment agreement is terminable by MDIP for "good cause" and
by Mr. Saferin for "good reason" upon the occurrence of certain events. In the
event that MDIP terminates Mr.Saferin's employment without "good cause" or Mr.
Saferin resigns for "good reason," MDIP shall pay an amount equal to the present
value sum of the salary fixed at the salary rate on the date of termination or
resignation which Mr. Saferin would have received through August 7, 2002 had his
employment not been terminated. The agreement does not contain any terms
regarding non-competition with the Company after the termination of Mr.
Saferin's employment.
KENNETH M. PRZYSIECKI
MDIP, Mr. Saferin and the Company have entered into an employment agreement
with Mr. Przysiecki, as amended, on a year to year basis starting from October 1
of each year. Pursuant to his employment agreement, Mr. Przysiecki receives an
annual base salary of $136,000. Mr. Przysiecki is entitled to a bonus equal to
0.5% of all trade revenue of the Company and its wholly owned entities (reduced
proportionately to reflect the Company's ownership interest if less than 100%).
Mr. Przysiecki's employment may be terminated by him or MDIP at any time upon
sixty days' prior written notice. However, if employment is terminated by MDIP
upon notice, or because of Mr. Przysiecki's death or disability, Mr. Przysiecki
is entitled to severance pay equal to one year of his current base salary. The
employment agreement provides that Mr. Przysiecki will not compete with MDIP in
North America for eighteen months after the termination of his employment. A
state court, however, may determine not to enforce such non-compete clause as
against public policy.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company, as of
December 30, 1998, regarding the beneficial ownership of the Company's voting
securities by (i) each person who is known by the Company to own of record or
beneficially more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors and the Named Executive Officers, as defined under the
heading "Executive Compensation" above, and (iii) all directors and executive
officers of the Company as a group. Unless otherwise indicated, each of the
stockholders listed in the table below has sole voting and dispositive power
with respect to shares beneficially owned by such stockholder.
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER (1) OWNED CLASS
- ------------------------------------------------------ ----------------- ---------------
Steven M. Saferin..................................... 4,366,124(2) 56.0%
Agostino T. Galluzzo.................................. 433,876 5.6%
Kenneth M. Przysiecki................................. 230,000(3) 3.0%
Robert J. Wussler..................................... 300,000(4) 3.7%
Todd P. Leavitt....................................... 0(5) 0%
S. David Fineman...................................... 0(5) 0%
All directors and executive officers as a group (7
persons)............................................ 4,896,124(6) 60.6%
- ------------------------------
(1) The address for Messrs. Saferin, Galluzzo, Przysiecki, Wussler, Leavitt and
Fineman is c/o MDI Entertainment, Inc., 201 Ann Street, Hartford,
Connecticut 06103
(2) Excludes 225,000 shares underlying options granted subject to stockholder
approval of the Plan.
(3) Excludes 30,000 shares underlying options granted subject to stockholder
approval of the Plan
(4) Includes 300,000 shares underlying exercisable options.
(5) Excludes 150,000 shares underlying options granted subject to stockholder
approval of the Plan.
(6) Excludes 50,000 shares underlying options granted subject to stockholder
approval of the Plan to executive officers not named above.
8
PROPOSAL 2
APPROVAL OF AMENDMENT
OF CERTIFICATE OF INCORPORATION TO
DECREASE THE AUTHORIZED COMMON STOCK
GENERAL
The Board of Directors has determined that it would be advisable to amend
the FOURTH Article of the Company's Certificate of Incorporation to decrease the
authorized Common Stock of the Company such that the aggregate number of shares
of Common Stock which the Company shall have the authority to issue shall be
decreased from 200,000,000 to 25,000,000.
The Board of Directors has unanimously adopted and declared it advisable and
unanimously recommends to the Company's stockholders that the FOURTH Article of
the Company's Certificate of Incorporation be amended as described. A copy of
the FOURTH Article of the Company's Certificate of Incorporation, as proposed to
be amended by the resolution adopted by the Board of Directors, is attached as
Annex A.
DECREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved, subject to stockholder approval at the
1999 Annual Meeting of Stockholders, a decrease in the number of authorized
shares of Common Stock from 200,000,000 to 25,000,000 ("Authorized Stock
Proposal"). The Company's Certificate of Incorporation currently authorizes the
issuance of 200,000,000 shares of Common Stock. As of January 4, 1999, the
record date for the Annual Meeting (the "Record Date"), 7,776,500 shares of
Common Stock were outstanding and 1,130,000 shares are reserved for issuance in
relation to outstanding options and the Plan (defined in Proposal 6).
Accordingly, there are 191,093,500 authorized shares of Common Stock unissued
and not reserved for future issuance. If Proposal 5 relating to a proposed
reverse stock split is adopted, the numbers referred to in the preceding
sentences would be reduced by a factor equal to the Split Ratio (as defined
therein). The proposed reverse stock split will not affect the number of shares
of Common Stock authorized for issuance.
The Board of Directors considers the proposed authorization of a decrease of
175,000,000 shares of Common Stock desirable because a decrease would reduce
franchise taxes and reduce capitalization to a level that corresponds more
closely to the number of outstanding shares of Common Stock.
BOARD OF DIRECTORS RESERVATION OF RIGHTS
If the amendment proposed in this Proposal 2 to amend the Company's
Certificate of Incorporation is approved by the stockholders, such amendment
will become effective upon the filing of a Certificate of Amendment of the
Certificate of Incorporation of the Company, with the Secretary of State of the
State of Delaware. The Board of Directors reserves the right, notwithstanding
stockholder approval and without further action by the stockholders, to elect
not to proceed with the Amendment, if at any time prior to filing a Certificate
of Amendment with the Secretary of State of the State of Delaware the Board of
Directors, in its sole discretion, determines that the Amendment is no longer in
the best interests of the Company and its stockholders. In addition, the Board
of Directors reserves the right to delay filing the Certificate of Amendment for
up to twelve months following stockholder approval of the Amendment at the
Annual Meeting. However, at the present time, the Board of Directors intends to
proceed with the Amendment as presented herein without delay.
STOCKHOLDER VOTE REQUIRED
An affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to adopt Proposal 2. Accordingly, abstentions and
broker non-votes could have a significant effect on the outcome of this
proposal. Proxies solicited by the Board of Directors will be voted in favor of
the
9
adoption of Proposal 2 to amend the FOURTH Article of the Certificate of
Incorporation unless otherwise indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE FOURTH ARTICLE OF THE COMPANY'S CERTIFICATE OF INCORPORATION, WHICH IS
DESIGNATED AS PROPOSAL 2 ON THE ENCLOSED PROXY CARD.
PROPOSAL 3
APPROVAL OF AMENDMENT
OF CERTIFICATE OF INCORPORATION TO
CREATE A CLASS OF PREFERRED STOCK
GENERAL
The Board of Directors has determined that it would be advisable to amend
the FOURTH Article of the Company's Certificate of Incorporation to increase the
authorized capital stock of the Company such that the aggregate number of shares
which the Company shall have the authority to issue shall be increased by
5,000,000 shares which shall be designated "Preferred Stock";
The Board of Directors has unanimously adopted and declared it advisable and
unanimously recommends to the Company's stockholders that the FOURTH Article of
the Company's Certificate of Incorporation be amended as described. A copy of
the FOURTH Article of the Company's Certificate of Incorporation, as proposed to
be amended by Proposals 2 and 3 hereof, is attached as Annex B.
CREATION OF A CLASS OF PREFERRED STOCK
The Board of Directors has approved, subject to stockholder approval at the
1999 Annual Meeting of Stockholders, the authorization of 5,000,000 shares of
Preferred Stock, which may be issued in one or more series and as to which the
Board of Directors is authorized to determine the voting powers, designations,
preferences, and rights and the qualifications, limitations, and restrictions
thereof, of each such series, including dividend rates, conversion prices,
redemption prices, liquidation preferences and voting and other rights
("Authorized Preferred Stock Proposal"). The Company's Certificate of
Incorporation currently authorizes the issuance of 200,000,000 shares of Common
Stock and no shares of Preferred Stock. Upon the approval of Proposal 2 hereof,
and the filing of the Amendment described therein, the Company shall have
authorized 25,000,000 shares of Common Stock.
The Board of Directors considers the proposed authorization of 5,000,000
shares of Preferred Stock desirable because it would provide the Company with
the ability to take advantage of future opportunities for the issuance of equity
in connection with financings, possible future acquisitions, other programs to
facilitate expansion and growth and for other general corporate purposes,
including stock dividends, stock splits and employee benefit plans, without the
delay and expense incident to the holding of a special meeting of stockholders
to consider any specific issuance. Such additional shares could also be issued
in a public offering or privately placed in order to raise capital for various
purposes. Authorized but unissued shares may be issued at such time or times, to
such person or persons and for such consideration as the Board of Directors
determines to be in the best interests of the Company, without further
authorization from the stockholders except as may be required by the rules of
NASDAQ or any stock exchange on which the Preferred Stock is then listed.
To the extent that any shares of Preferred Stock may be issued, such
Preferred Stock may (a) have priority over the Company's Common Stock with
respect to dividends and the assets of the Company upon liquidation; (b) have
significant voting power; (c) provide for representation of the holders of the
Preferred Stock on the Company's Board of Directors upon the occurrence of
certain events; and (d) require the approval of the Preferred Stock for the
taking of certain corporate actions, such as mergers. To the extent that any
shares of Preferred Stock (including preferred stock convertible into Common
Stock) may be
10
issued on other than a pro rata basis to current stockholders, the present
ownership position of current stockholders may be diluted. Such shares also
could be used to dilute the stock ownership of persons seeking to obtain control
of the Company, and thereby defeat a possible takeover attempt which (if
stockholders were offered a premium over the market value of their shares) might
be viewed as being beneficial to stockholders of the Company. Management of the
Company is not aware of any possible takeover attempts at this time.
Currently, the Company is not engaged in any negotiations concerning the
issuance of any shares of Preferred Stock, nor are there any plans, commitments,
agreements or understandings relating to the issuance of any shares of Preferred
Stock. The timing of the actual issuance of shares of Preferred Stock will
depend upon market conditions, the specific purpose for which the stock is to be
issued and other similar factors.
POSSIBLE ANTI-TAKEOVER EFFECTS OF AUTHORIZED PREFERRED STOCK PROPOSAL
The primary purpose of the Authorized Preferred Stock Proposal is to provide
the Company with the flexibility to raise additional capital from the sale of
shares of Preferred Stock and to take advantage of possible future opportunities
for which the issuance of shares of Preferred Stock may be deemed advisable
without the delay and expense incident to calling a special meeting of the
Company's stockholders in any case in which such a meeting would not otherwise
be required.
The issuance of shares of Preferred Stock may be deemed to have an
anti-takeover effect since such shares may be used, under certain circumstances,
to create voting impediments to frustrate persons seeking to effect a takeover
or otherwise gain control of the Company. The Preferred Stock may also be viewed
as having the effect of discouraging an attempt by another person or entity,
through the acquisition of a substantial number of shares of the Common Stock,
to acquire control of the Company, since the issuance of "blank check" preferred
stock may be used for adoption of a stockholder rights plan or "poison pill."
The Authorized Preferred Stock Proposal has not been proposed as an
anti-takeover measure nor is the Board of Directors aware of any offers to
acquire control of the Company. It should be noted that any action taken by the
Company to discourage an attempt to acquire control of the Company may result in
stockholders not being able to participate in any possible premiums which may be
obtained in the absence of anti-takeover provisions. Any transaction which may
be so discouraged or avoided could be a transaction that the Company's
stockholders might consider to be in their best interests. However, the Board of
Directors has a fiduciary duty to act in the best interests of the Company's
stockholders at all times.
The possible anti-takeover effects of this Proposal 3 should be considered
together with the provisions currently in place in the Company's Certificate of
Incorporation, By-Laws and other contracts to which the Company is a party.
BOARD OF DIRECTORS RESERVATION OF RIGHTS
If the amendment proposed in this Proposal 3 to amend the Company's
Certificate of Incorporation (the "Preferred Stock Amendment") is approved by
the stockholders, such amendment will become effective upon the filing of a
Certificate of Amendment of the Certificate of Incorporation of the Company,
with the Secretary of State of the State of Delaware. The Board of Directors
reserves the right, notwithstanding stockholder approval and without further
action by the stockholders, to elect not to proceed with the Preferred Stock
Amendment, if at any time prior to filing a Certificate of Amendment with the
Secretary of State of the State of Delaware the Board of Directors, in its sole
discretion, determines that the Preferred Stock Amendment is no longer in the
best interests of the Company and its stockholders. In addition, the Board of
Directors reserves the right to delay filing the Certificate of Amendment for up
to twelve months following stockholder approval of the Preferred Stock Amendment
at the Annual Meeting. However, at the present time, the Board of Directors
intends to proceed with the Amendment as presented herein without delay.
11
STOCKHOLDER VOTE REQUIRED
An affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to adopt Proposal 3. Accordingly, abstentions and
broker non-votes could have a significant effect on the outcome of this
proposal. Proxies solicited by the Board of Directors will be voted in favor of
the adoption of Proposal 3 to amend the FOURTH Article of the Certificate of
Incorporation unless otherwise indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE FOURTH ARTICLE OF THE COMPANY'S CERTIFICATE OF INCORPORATION, WHICH IS
DESIGNATED AS PROPOSAL 3 ON THE ENCLOSED PROXY CARD.
PROPOSAL 4
APPROVAL OF AMENDMENT
OF CERTIFICATE OF INCORPORATION TO
ADD INDEMNIFICATION PROVISIONS
GENERAL
The stockholders are being requested to consider and vote upon a proposal
pertaining to the protection of directors and officers of the Company against
certain liabilities to which they may become subject by reason of their service
as directors and officers of the Company. The proposal involves an amendment to
the Certificate of Incorporation which adds provisions to the Certificate of
Incorporation relating to indemnification of directors, officers, employees and
agents (the "Indemnification Amendment"), as more fully described under the
heading "Indemnification Amendment" below.
The Company is incorporated under the Delaware General Corporation Law (the
"Delaware Law"). The Delaware Law has long permitted a corporation to indemnify
its directors and officers against expenses, judgments, settlement payments and
other costs incurred in connection with litigation or similar proceedings,
subject to certain limitations. The Certificate of Incorporation of the Company,
however, does not provide for indemnification of directors, officers, employees
and agents of the Company to the fullest extent legally permissible under the
Delaware Law, although the Company's By-Laws contain an indemnification
provision for officers and directors. Delaware Law also permits a corporation to
purchase and maintain, on behalf of its directors and officers, insurance
against liability incurred in their capacities as such, regardless of whether
the corporation would have the power to indemnify against such liability under
the Delaware Law. The Company currently maintains such directors and officers
liability insurance.
The principal purpose and intent of the Indemnification Amendment is to give
its directors and officers reasonable assurances that their personal liability
exposure is limited.
INDEMNIFICATION AMENDMENT
The Indemnification Amendment would add an Article EIGHTH to the Certificate
of Incorporation pertaining to indemnification of directors, officers, employees
and agents of the Company.
Under the Article EIGHTH, the Company shall, to the extent permitted by
Delaware law, and subject to the provisions of Section 2 of Article EIGHTH,
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that he is or was a director,
officer, employee or agent of the Company, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company,
12
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful (see Paragraph 1 of Article EIGHTH).
Article EIGHTH provides that the Company shall indemnify such director,
officer, employee or agent of the Company against expenses (including attorneys'
fees) with regard to an action brought by or in the right of the Company,
provided that there shall be no indemnification with regard to such expenses if
such person shall have been adjudged to be liable to the Company unless and
until the appropriate court shall determine, in view of all of the
circumstances, such person is fairly and reasonably entitled to such indemnity
for such expenses (see Paragraph 2 of Article EIGHTH).
Paragraph 3 of Article EIGHTH provides that to the extent that a present and
former director or officer of the Company has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Paragraphs
1 or 2, such person must be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Paragraph 4 of Article EIGHTH provides that responsibility for
determinations with respect to any indemnification under Paragraphs 1 and 2
shall be made (i) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (ii) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (iii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (iv)
by the stockholders.
Paragraph 5 of Article EIGHTH provides that expenses (including attorney's
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such person to repay such amount if it
shall ultimately be determined that he is not entitled to indemnification. Such
expenses (including attorney's fees) incurred by former directors and officers
or other employees and agents shall be so paid upon such terms and conditions,
if any, as the Company deems appropriate.
Paragraph 6 of Article EIGHTH provides that indemnification and advancement
of expenses provided by Article EIGHTH shall not be deemed exclusive of any
other rights to which the indemnified person shall be entitled under any by-law,
agreement, vote of the stockholders or disinterested directors or otherwise.
Paragraph 7 of Article EIGHTH provides that the Company may purchase and
maintain insurance on behalf of a director, officer, employee or agent against
any liability incurred by such person in such capacity, whether or not the
Company has the power to indemnify him against such liability under any part of
Article EIGHTH.
Paragraph 8 of Article EIGHTH provides that indemnification and advancement
of expenses shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Paragraph 9 of Article EIGHTH provides that each director, officer, employee
or agent of the Company who serves while Article EIGHTH is in effect shall be
deemed to be doing so in reliance on the provisions of such Article, and neither
the amendment or repeal of Article EIGHTH, nor the adoption of any provision of
the Certificate of Incorporation inconsistent with Article EIGHTH, shall apply
to or have any effect on the indemnification of such person occurring prior to
such amendment, repeal, or adoption of an inconsistent provision.
The full text of Article EIGHTH is included in Annex C hereto.
If approved by the stockholders, Article EIGHTH would become effective upon
the filing with the Secretary of State of the State of Delaware a Certificate of
Amendment to the Company's Certificate of Incorporation, which filing would take
place after the Annual Meeting.
13
It should be noted that the members of the Board of Directors have an
interest in the approval of the Indemnification Amendment and such Amendment
could relieve such members of a significant potential liability if an applicable
claim should arise. The Board of Directors, however, is not aware of any claim
or any basis for a claim which, if asserted, would be impacted by the
Indemnification Amendment.
STOCKHOLDER VOTE REQUIRED
An affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to adopt Proposal 4. Accordingly, abstentions and
broker non-votes could have a significant effect on the outcome of this
proposal. Proxies solicited by the Board of Directors will be voted in favor of
the adoption of Proposal 4 to amend the Certificate of Incorporation to add
Article EIGHTH unless otherwise indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO ADD ARTICLE EIGHTH, WHICH IS
DESIGNATED AS PROPOSAL 4 ON THE ENCLOSED PROXY CARD.
PROPOSAL 5
APPROVAL OF A
REVERSE STOCK SPLIT
GENERAL
The Board of Directors has adopted a proposal declaring advisable the
approval of amendments to the Certificate of Incorporation of the Company (the
"Reverse Split Amendment") to effect a reverse stock split of all of the
authorized and outstanding Common Stock of the Company, such split to combine a
number of outstanding shares of Common Stock between two (2) and three (3), such
number consisting of only whole shares and tenths of shares, into one (1) share
of post-split Common Stock (the "Post-Split Common Stock"). Upon the approval of
Proposal 2 hereof, and the filing of the Amendment as described therein, the
Company shall have authorized 25,000,000 shares of Common Stock, $.001 par
value. Adoption of the proposed reverse stock split will reduce the number of
outstanding shares of Common Stock of the Company as of the Record Date from
7,776,500 to a range between 3,888,250 and 2,592,167. As the amendment will
effect a reduction in the number of shares of Common Stock outstanding without a
commensurate increase in the par value of the Common Stock, it will result in a
reduction in the Company's stated capital.
Except for changes resulting from the reverse stock split the rights and
privileges of holders of shares of Common Stock will remain the same, both
before and after the proposed reverse stock split.
Stockholders will, by voting to approve the Reverse Split Amendment, approve
a reverse stock split pursuant to which multiple shares (including tenths of
shares) of Common Stock will be combined into one share of Post-Split Common
Stock. The number of shares of Common Stock to be combined into one share of
Post-Split Common Stock will be a number (or fraction) between three (3) and two
(2), as determined by the Board (the "Split Ratio"). By approving the Reverse
Split Amendment, stockholders will approve amendments to the Certificate of
Incorporation of each number between three and two, including tenths of a share,
and authorize the Board to file only one such amendment and to abandon each
amendment not selected by the Board. The Reverse Split Amendment filed with the
Delaware Secretary of State will contain the number selected by the Board of
Directors. By approving the Reverse Split Amendment, the stockholder's authorize
the Board to implement the reverse stock split at any time within one year from
the date of such approval.
If approved by the stockholders, the Reverse Stock Split would become
effective upon filing the Reverse Split Amendment with the Delaware Secretary of
State (the "Effective Date"). Commencing on the Effective Date, each currently
outstanding certificate will be deemed for all corporate purposes to
14
evidence ownership of the reduced number of shares resulting from the proposed
reverse stock split. New stock certificates reflecting the number of shares
resulting from the stock split will be issued only as currently outstanding
certificates are transferred. However, the Company will provide stockholders
with instructions as to how to exchange their certificates and encourage them to
do so. No scrip or fractional certificates will be issued in the reverse stock
split. Holders of a number of shares of Common Stock not convertible into a
whole number of shares of Post-Split Common Stock will receive, in lieu of
fractional shares, the cash value of fractions of a share determined by the
average closing price of the Common Stock for the five (5) trading days
immediately preceding the Effective Date multiplied by such fractional interest.
Approval of the Reverse Split Amendment may result in additional brokerage costs
to stockholders who desire to sell their shares as a result of increased
transaction costs to brokers upon the sale of shares held in odd lots which may
have been held in round lots prior to the proposed reverse stock split.
The Company currently has stock options outstanding, both outside and under
the Company's 1998 Stock Option and Award Plan, to purchase approximately
997,500 shares of Common Stock, subject to approval by the stockholders of
Proposal 6 herein. After approval of the proposed reverse stock split, the
number of shares of Common Stock to be issued upon exercise of the outstanding
options will be reduced to a number between 498,750 and 332,500.
REASONS FOR THE REVERSE STOCK SPLIT
Management believes that the decrease in the number of shares of Common
Stock outstanding as a consequence of the proposed reverse stock split should
increase the per share price of the Common Stock, which may encourage greater
interest in the Common Stock and possibly promote greater liquidity for the
Company's stockholders. In addition, such increase in per share price will put
the Company in a better position to have its Post-Split Common Stock listed on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") National Market or NASDAQ Small Cap Market or on a national or
regional stock exchange.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the proposed reverse stock split. This summary does not purport to be
complete and does not address the tax consequences to holders that are subject
to special tax rules, such as banks, insurance companies, regulated investment
companies, personal holding companies, foreign entities, nonresident alien
individuals, broker-dealers and tax-exempt entities. This summary is based on
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
and proposed regulations, court decisions and current administrative rulings and
pronouncements of the Internal Revenue Service ("IRS"), all of which are subject
to change, possibly with retroactive effect, and assumes that the Post-Split
Common Stock will be held as a "capital asset" (generally, property held for
investment) as defined in the Code. Holders of Common Stock are advised to
consult their own tax advisers regarding the federal income tax consequences of
the proposed reverse stock split in light of their personal circumstances and
the consequences under state, local and foreign tax laws.
1 The proposed reverse stock split is intended to qualify as a
recapitalization described in Section 368(a)(1)(E) of the Code.
2. No gain or loss should be recognized by the Company in connection with
the proposed reverse stock split.
3. No gain or loss should be recognized by a stockholder who exchanges all
of his shares of Common Stock solely for shares of Post-Split Common
Stock (except to the extent of the cash received for any fractional
share).
15
4. The aggregate basis of the shares of Post-Split Common Stock to be
received in the proposed reverse stock split (excluding any fractional
share for which cash is received) will be the same as the aggregate basis
of the shares of Common Stock surrendered in exchange therefor.
5. The holding period of the shares of Post-Split Common Stock to be
received in the proposed reverse stock split will include the holding
period of the shares of Common Stock surrendered in exchange therefor.
BOARD OF DIRECTORS RESERVATION OF RIGHTS.
The Board of Directors reserves the right, notwithstanding stockholder
approval and without further action by the stockholders, to elect not to proceed
with the Reverse Split Amendment, if at any time prior to filing such Reverse
Split Amendment with the Secretary of State of the State of Delaware, the Board
of Directors, in its sole discretion, determines that it is no longer in the
best interests of the Company and its stockholders. In addition, the Board of
Directors reserves the right to delay the Reverse Split Amendment for up to
twelve months following stockholder approval thereof at the Annual Meeting.
However, at the present time, the Board of Directors intends to proceed with the
Reverse Split Amendment as presented herein without delay.
STOCKHOLDER VOTE REQUIRED
An affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to adopt Proposal 5. Accordingly, abstentions and
broker non-votes could have a significant effect on the outcome of this
proposal. Proxies solicited by the Board of Directors will be voted in favor of
the adoption of Proposal 5 to effect the reverse stock split unless otherwise
indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE REVERSE
STOCK SPLIT, WHICH IS DESIGNATED AS PROPOSAL 5 ON THE ENCLOSED PROXY CARD.
PROPOSAL 6
INTRODUCTION OF THE
1998 STOCK OPTION AND AWARD PLAN
The Company's Board of Directors has recommended, and at the meeting the
stockholders will be asked to approve, the adoption of the 1998 Stock Option and
Award Plan (the "Plan"). A description of the Plan, which Plan is attached
hereto as Annex D, appears below.
STOCK OPTION AND AWARD PLAN
On September 22, 1998, the Board of Directors of the Company adopted the
Company's 1998 Stock Option and Award Plan (the "Plan"), subject to stockholder
approval. The Plan provides for the grant of stock awards and options for up to
800,000 shares of Common Stock to those employees, officers, directors,
consultants or other individuals or entities eligible under the Plan (as
defined) to receive stock awards or options (each, a "Plan Participant").
Options may be either "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options. Incentive stock options may be granted only to employees
of the Company, while non-qualified options may be issued to non-employee
directors, consultants and others, as well as to employees of the Company. Stock
awards consist of the sale or transfer by the Company to a Plan Participant of
one or more shares of Common Stock which, unless otherwise determined by the
Board of Directors or committee administering the Plan, are subject to transfer
restrictions and the right of the Company to repurchase if certain conditions
specified in the award are not satisfied prior to the end of a restriction
period. The plan provides for automatic grants of non-qualified stock options to
purchase 150,000 shares of Common Stock to each non-employee director upon his
election or appointment to the Board of Directors at the fair
16
market value of the Common Stock on the date of the grant. Such options vest in
equal installments over three years. No Plan Participant may receive more than
an aggregate of 250,000 shares of Common Stock by grant of options and/or stock
awards during the term of the Plan.
The Plan is administered by the Board of Directors or a committee thereof
(the "Plan Administrator), which determines, among other things, those
individuals who receive options or awards, the time period during which the
options may be partially or fully exercised, the terms of the restrictions, if
any, on awards, the number of shares of Common Stock issued as an award or
issuable upon the exercise of each option and the option exercise price and the
award and repurchase prices.
The exercise price per share of Common Stock subject to an incentive option
may not be less than the fair market value per share of Common Stock on the date
the option is granted. The per share exercise price of the Common Stock subject
to a non-qualified option may be established by the Plan Administrator. The
aggregate fair market value (determined as of the date the option is granted) of
Common Stock for which any person may be granted incentive stock options which
first become exercisable in any calendar year may not exceed $100,000. No person
who owns, directly or indirectly, at the time of the granting of an incentive
stock option to such person, 10% or more of the total combined voting power of
all classes of stock of the Company (a "10% Stockholder") shall be eligible to
receive any incentive stock options under the Plans, unless the exercise price
is at least 110% of the fair market value of the shares of Common Stock subject
to the option, determined on the date of grant. Non-qualified options are not
subject to such limitation.
No stock option may be transferred by a Plan Participant other than by will
or the laws of descent and distribution, and, during the lifetime of a Plan
Participant, the option will be exercisable only by the Plan Participant. In the
event of termination of employment other than by death or disability, the Plan
Participant will have no more than three months after such termination during
which the Plan Participant shall be entitled to exercise the option, unless
otherwise determined by the Plan Administrator. Upon termination of employment
of a Plan Participant by reason of death or permanent disability, such Plan
Participant's options remain exercisable for one year thereafter to the extent
such options were exercisable on the date of such termination.
Options under the Plan must be issued within 10 years from the Plan's
effective date which is September 22, 1998. Incentive stock options granted
under the Plan, cannot be exercised more than 10 years from the date of grant.
Incentive stock options issued to a 10% Stockholder are limited to five-year
terms. All options granted under the Plan provide for the payment of the
exercise price in cash or by delivery to the Company of shares of Common Stock
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of such methods. Therefore, a Plan Participant
may be able to tender shares of Common Stock to purchase additional shares of
Common Stock and may theoretically exercise all of such Plan Participant's stock
options with no investment.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan.
NEW PLAN BENEFITS--1998 STOCK OPTION AND AWARD PLAN
Subject to stockholder approval of the Plan, the Company granted to (1) the
Chief Executive Officer and President of the Company options to purchase 225,000
shares of Common Stock, (2) other executive officers of the Company options to
purchase 80,000 shares of Common Stock, (3) employees of the Company options to
purchase 62,500 shares of Common Stock and (4) two of the Company's outside
directors options to purchase a total of 300,000 shares of Common Stock. If
Proposal 5 herein is also approved, the number of shares subject to the options
described above and available under the Plan would be reduced by a factor equal
to the Split Ratio (as defined therein). Except as disclosed above, the Company
does not currently know nor is it determinable the number of additional options
that the Company will grant under the Plan to any of the aforementioned persons.
17
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN UNDER CURRENT LAW
An optionee will recognize no taxable income at the time an option is
granted.
An optionee will recognize no taxable income at the time of exercise of an
incentive stock option. If the optionee makes no disposition of the acquired
shares within two years after the date of grant of the incentive stock option,
or within one year after the exercise of such option, the employee will
recognize no taxable income and any gain or loss that is realized on a
subsequent disposition of such shares will be treated as long-term capital gain
or loss. As to options exercised, the excess, if any, of the fair market value
of the shares on the date of exercise over the option price will be an item of
tax preference for purposes of computing the alternative minimum tax.
If the foregoing holding period requirements are not satisfied, the optionee
will realize (i) ordinary income for federal income tax purposes in the year of
disposition in an amount equal to the lesser of (a) the excess, if any, of the
fair market value of the shares on the date of exercise over the option price
thereof, or (b) the excess, if any, of the selling price over the optionee's
adjusted basis of such shares (provided that the disposition is a sale or
exchange with respect to which a loss (if sustained) would be recognized by such
individual) and (ii) capital gain equal to the excess, if any, of the amount
realized upon the disposition of shares over the fair market value of such
shares on the date of exercise.
Employees, directors, officers, consultants, agents and independent
contractors of the Company will be required to include in their gross income in
the year of exercise of a non-qualified stock option the difference between the
fair market value on the exercise date of the shares transferred and the option
price.
The Company will be entitled (provided it complies with certain reporting
requirements with respect to the income received by the employee) to a deduction
for federal income tax purposes at the same time and in the same amount as the
optionee is considered to be in receipt of compensation income in connection
with the exercise of non-qualified stock options or, in the case of an incentive
stock option, a disqualifying disposition of shares received upon exercise
thereof. If the holding period requirements outlined above are met, no deduction
will be available to the Company in connection with an incentive stock option.
Under the Revenue Reconciliation Act of 1993, the Company may not be able to
deduct compensation to certain employees to the extent compensation exceeds one
million dollars per tax year. Covered employees include the chief executive
officer and the four other highest compensated officers of the Company for that
tax year. Certain performance-based compensation including stock options are
exempt provided that, among other things, the stock options are granted by a
compensation committee of the Board of Directors which is comprised solely of
two or more outside directors and the plan under which the options are granted
is approved by stockholders. The Plan will not qualify as performance-based
compensation.
STOCKHOLDER VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote is
required for approval of the Plan. If such stockholder approval is not obtained,
then the Plan will not be adopted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE COMPANY'S
1998 STOCK OPTION AND AWARD PLAN, WHICH IS DESIGNATED AS PROPOSAL 6 ON THE
ENCLOSED PROXY CARD.
18
PROPOSAL 7
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has appointed Arthur Andersen LLP as
independent accountants for the fiscal year ended May 31, 1999 and to render
other professional services as required. Arthur Andersen LLP served as the
Company's independent accountants for the fiscal year ended May 31, 1998.
The appointment of Arthur Andersen LLP is being submitted to stockholders
for ratification.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting, where they will have the opportunity to make a statement if they desire
to do so, and are expected to be available to respond to appropriate questions.
STOCKHOLDER VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote is
required to ratify the appointment of public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF ARTHUR
ANDERSEN LLP AS INDEPENDENT AUDITORS OF THE COMPANY, WHICH IS DESIGNATED AS
PROPOSAL 7 ON THE ENCLOSED PROXY CARD.
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 2000
Stockholder proposals intended to be considered for inclusion in the proxy
statement for presentation at the Company's 2000 Annual Meeting of Stockholders
must be received at the Company's offices at 201 Ann Street, Hartford,
Connecticut 06103, no later than 120 days prior to the Company's next Annual
Meeting, for inclusion in the Company's proxy statement and form of proxy
relating to such meeting. All proposals must comply with applicable Securities
and Exchange Commission rules and regulations.
OTHER MATTERS
The Board of Directors is not aware of any other matter other than those set
forth in this proxy statement that will be presented for action at the meeting.
If other matters properly come before the meeting, the persons named as proxies
intend to vote the shares they represent in accordance with their best judgment
in the interest of the Company.
THE COMPANY UNDERTAKES TO PROVIDE ITS STOCKHOLDERS WITHOUT CHARGE A COPY OF
THE COMPANY'S REGISTRATION STATEMENT ON FORM 10-SB, AS AMENDED, INCLUDING THE
FINANCIAL STATEMENTS AND SCHEDULES FILED THEREWITH. WRITTEN REQUESTS FOR SUCH
REPORT SHOULD BE ADDRESSED TO THE OFFICE OF THE SECRETARY, MDI ENTERTAINMENT,
INC., 201 ANN STREET, HARTFORD, CONNECTICUT 06103.
19
ANNEX A
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is twenty-five million (25,000,000), $.001 par value per
share, all of which shall be designated "common stock".*
* Note: If Proposal 3 is also adopted, the amendment would be as set forth in
Annex B.
A-1
ANNEX B
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is thirty million (30,000,000), $.001 par value per share, of
which five million (5,000,000) shall be designated "preferred stock" and
twenty-five million (25,000,000) shall be designated "common stock".*
Authority is hereby expressly granted to the Board of Directors of the
Corporation from time to time to issue the preferred stock as preferred stock of
any series and, in connection with the creation of each such series, to fix by
the resolution or resolutions providing for the issue of shares thereof, the
number of shares of such series, and the designations, relative rights,
preferences, and limitations, of such series, to the full extent now or
hereafter permitted by the laws of the State of Delaware.
Note: If Proposal 2 is not also adopted, the reference herein to thirty million
(30,000,000) would be changed to two hundred five million (205,000,000)
and the reference to twenty-five million (25,000,000) would be changed to
two hundred million (200,000,000).
B-1
ANNEX C
EIGHTH: 1. To the extent permitted by Delaware law from time to time in
effect and subject to the provisions of paragraph (2) of this Article, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
2. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
3. To the extent that a present and former director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (1) and (2) of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
4. Any indemnification under paragraphs (1) and (2) of this Article (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in said paragraphs (1) and
(2). Such determination shall be made, with respect to a person who is a
director or officer at the time of such determination, (i) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) by a committee of such directors designated
by majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (iv) by the stockholders.
5. Expenses (including attorneys' fees) incurred by an officer or director
in defending a civil, criminal, administrative or investigative action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article. Such expenses (including attorneys' fees)
C-1
incurred by former directors and officers or other employees and agents shall be
so paid upon such terms and conditions, if any, as the Corporation deems
appropriate.
6. The indemnification and advancement of expenses provided by, or granted
pursuant to, the other paragraphs of this Article shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses shall be entitled under any by-law, agreement, vote of the stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
7. The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of the Delaware General Corporation Law.
8. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
9. Each person who serves as a director, officer, employee or agent of the
Corporation or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise while this Article EIGHTH is in effect shall be deemed
to be doing so in reliance on the provisions of this Article EIGHTH, and neither
the amendment or repeal of this Article EIGHTH, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
EIGHTH, shall apply to or have any effect on the indemnification of such
director, officer, employee or agent occurring prior to such amendment, repeal,
or adoption of an inconsistent provision.
C-2
ANNEX D
MDI ENTERTAINMENT, INC.
1998 STOCK OPTION AND AWARD PLAN
APPROVED AND ADOPTED BY THE BOARD OF DIRECTORS ON SEPTEMBER 22, 1998
SECTION 1. PURPOSE. The purpose of the MDI Entertainment, Inc. 1998 Stock
Option and Award Plan (the "Plan") is to provide a means whereby directors and
selected employees, officers, agents, consultants, and independent contractors
of MDI Entertainment, Inc., a Delaware corporation (the "Company"), or of any
parent or subsidiary (as defined in subsection 5.5 hereof and referred to
hereinafter as "Affiliates") thereof, may be granted incentive stock options
and/or nonqualified stock options to purchase shares of common stock, $.001 par
value ("Common Stock") and/or restricted stock awards in order to attract and
retain the services or advice of such directors, employees, officers, agents,
consultants, and independent contractors and to provide additional incentive for
such persons to exert maximum efforts for the success of the Company and its
Affiliates by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION. Subject to Section 2.3 hereof, the Plan shall
be administered by the Board of Directors of the Company (the "Board") or, in
the event the Board shall appoint and/or authorize a committee of two or more
members of the Board to administer the Plan, by such committee (the "Stock
Option and Award Committee"). The administrator of the Plan shall hereinafter be
referred to as the "Plan Administrator".
The foregoing notwithstanding, with respect to grants to be made to
directors: (a) the Plan Administrator shall be constituted so as to meet the
requirements of Section 16(b) of the Exchange Act and Rule 16b-3 thereunder,
each as amended from time to time, or (b) if the Plan Administrator cannot be so
constituted, no options or awards shall be granted under the Plan to any
directors.
2.1 PROCEDURES. The Board shall designate one of the members of the Plan
Administrator as chairman. The Plan Administrator may hold meetings at such
times and places as it shall determine. The acts of a majority of the members of
the Plan Administrator present at meetings at which a quorum exists, or acts
approved in writing by all Plan Administrator members, shall be valid acts of
the Plan Administrator.
2.2 RESPONSIBILITIES. Except for the terms and conditions explicitly set
forth herein, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options and stock awards to
be granted under the Plan, including, without limitation, selection of whether
an option will be an incentive stock option or a nonqualified stock option,
selection of restrictions to be placed on awarded stock (if any), selection of
the individuals to be granted options and/or awards, the number of shares to be
subject to each option and/or stock award, the option exercise price per share,
the purchase price and/or repurchase price of restricted stock (if any), the
timing of grants and all other terms and conditions of the options and stock
awards. Grants under the Plan need not be identical in any respect, even when
made simultaneously. The Plan Administrator may also establish, amend, and
revoke rules and regulations for the administration of the Plan. The
interpretation and construction by the Plan Administrator of any terms or
provisions of the Plan or any option or stock award issued hereunder, or of any
rule or regulation promulgated in connection herewith, shall be conclusive and
binding on all interested parties, so long as such interpretation and
construction with respect to incentive stock options corresponds to the
requirements of Internal Revenue Code of 1986, as amended (the "Code") Section
422, the regulations thereunder, and any amendments thereto. The Plan
Administrator shall not be personally liable for any action made in good faith
with respect to the Plan or any option or stock award granted thereunder.
2.3 RULE 16b-3 AND SECTION 16(b) COMPLIANCE; BIFURCATION OF PLAN. It is
the intention of the Company that the Plan comply in all respects with Rule
16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act") to the
extent applicable, and in all events the Plan shall be construed in favor of its
meeting the requirements of Rule 16b-3. If any Plan provision is later found not
to be in compliance with
D-1
such Rule, such provision shall be deemed null and void. Notwithstanding
anything in the Plan to the contrary, the Board, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit, or condition the use of any
provision of the Plan to participants who are officers and directors or other
persons subject to Section 16(b) of the Exchange Act without so restricting,
limiting, or conditioning the Plan with respect to other participants.
SECTION 3. STOCK SUBJECT TO THE PLAN. The stock subject to this Plan shall
be the Common Stock, presently authorized but unissued or subsequently acquired
by the Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be awarded as a stock award and to be
delivered upon the exercise of all options granted under the Plan shall not
exceed in the aggregate 800,000 shares as such Common Stock was constituted on
the date the Plan was adopted by the Board. If any stock award shall be
forfeited to or repurchased by the Company or if any option granted under the
Plan shall expire, be surrendered, exchanged for another option, cancelled, or
terminated for any reason without having been exercised in full, the forfeit or
repurchased shares subject to such stock award or the unpurchased shares subject
to such option, as the case may be, shall thereupon again be available for
purposes of the Plan, including for replacement options or awards which may be
granted in exchange for such forfeit or repurchased stock awards or surrendered,
cancelled, or terminated options.
SECTION 4. ELIGIBILITY. An incentive stock option may be granted only to
any individual who, at the time the option is granted, is an employee of the
Company or any Affiliate thereof. A nonqualified stock option or stock award may
be granted to any director, employee, officer, agent, consultant, or independent
contractor of the Company or any Affiliate thereof, whether an individual or an
entity (each, a "Plan Participant").
A director shall in no event be eligible for the benefits of the Plan unless
at the time discretion is exercised in the selection of a director as a person
to whom options may be granted, or in the determination of the number of shares
which may be covered by options granted to the director, the Plan complies with
the requirements of Rule 16b-3 under the Exchange Act.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS AND AWARDS. Options and awards
granted under the Plan shall be evidenced by written agreements which shall
contain such terms, conditions, limitations, and restrictions as the Plan
Administrator shall deem advisable and which are not inconsistent with the Plan.
No Plan participant may receive more than an aggregate of 250,000 shares of
Common Stock by grant of options and/or stock awards under the Plan.
Notwithstanding the foregoing, options and awards shall include or incorporate
by reference the following terms and conditions:
5.1 OPTIONS
5.1.1 NUMBER OF SHARES AND EXERCISE PRICE.
(a) Upon first election or appointment to the Board, each non-employee
director will be granted a non-qualified option to purchase 150,000 shares of
Common Stock at the fair market value of the Common Stock on the date of such
election or appointment, with such option to vest in equal installments over a
three-year period, with the first installment vesting one year after the date of
such election or appointment; and
(b) Except as provided by subsection (a) hereof, the maximum number of
shares that may be purchased pursuant to the exercise of each option, and the
price per share at which such option is exercisable (the "exercise price"),
shall be as established by the Plan Administrator; provided, that the Plan
Administrator shall act in good faith to establish the exercise price which
shall be not less than 100% of the fair market value per share of the Common
Stock at the time of grant of the option with respect to incentive stock
options; and provided, further, that, with respect to incentive stock options
granted to greater than ten percent stockholders, the exercise price shall be as
required by Section 6 hereof.
D-2
5.1.2 TERM AND MATURITY. Subject to the restrictions contained in Section
6 hereof with respect to granting stock options to greater than ten percent
stockholders, the term of each stock option (subject to earlier termination upon
the occurrence of certain events as provided herein) shall be as established by
the Plan Administrator and, if not so established, shall be ten years from the
date of its grant, but in no event shall the term of any incentive stock option
exceed a ten-year period. To ensure that the Company or Affiliate will achieve
the purpose and receive the benefits contemplated in the Plan, any option or
stock award granted to any Plan Participant hereunder shall, unless the
condition of this sentence is waived or modified in the agreement evidencing the
option or by resolution adopted by the Plan Administrator, be exercisable or
shall, in the case of awards, be vested and not subject to forfeiture or
repurchase, according to the following schedule:
PERIOD OF PLAN PARTICIPANT'S
CONTINUOUS RELATIONSHIP
WITH THE COMPANY OR PORTION OF TOTAL OPTION
AFFILIATE FROM THE DATE WHICH IS EXERCISABLE OR
THE OPTION IS GRANTED AWARD WHICH IS VESTED
- ------------------------------------------------------------------------------------------- -----------------------
1 year..................................................................................... 33%
2 years.................................................................................... 67%
3 years.................................................................................... 100%
5.1.3 EXERCISE. Subject to the vesting schedule described in subsection
5.2 hereof, each option may be exercised in whole or in part; provided, that
only whole shares may be issued pursuant to the exercise of any option. Subject
to any other terms and conditions herein, the Plan Administrator may provide
that an option may not be exercised in whole or in part for a stated period or
periods of time during which such option is outstanding; provided, that the Plan
Administrator may rescind, modify, or waive any such limitation (including by
the acceleration of the vesting schedule upon a change in control of the
Company) at any time and from time to time after the grant date thereof. During
a Plan Participant's lifetime, any incentive stock options granted under the
Plan are personal to such Plan Participant and are exercisable solely by such
Plan Participant. Options shall be exercised by delivery to the Company of
notice of the number of shares with respect to which the option is exercised,
together with payment of the exercise price in accordance with Section 5.1.4
hereof.
5.1.4 PAYMENT OF EXERCISE PRICE. Payment of the option exercise price
shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's
check, or personal check (unless at the time of exercise the Plan Administrator
in a particular case determines not to accept a personal check) for shares of
Common Stock being purchased.
The Plan Administrator can determine in its sole discretion at the time the
option is granted in the case of incentive stock options, or at any time before
exercise in the case of nonqualified stock options, that additional forms of
payment will be permitted. To the extent permitted by the Plan Administrator and
applicable laws and regulations (including, without limitation, federal tax and
securities laws and regulations and state corporate law), an option may be
exercised by:
(a) delivery of shares of Common Stock of the Company held by a Plan
Participant having a fair market value equal to the exercise price, such
fair market value to be determined in good faith by the Plan Administrator;
(b) delivery of a properly executed Notice of Exercise, together with
irrevocable instructions to a broker, all in accordance with the regulations
of the Federal Reserve Board, to promptly deliver to the Company the amount
of sale or loan proceeds to pay the exercise price and any federal, state,
or local withholding tax obligations that may arise in connection with the
exercise;
(c) delivery of a properly executed Notice of Exercise, together with
instructions to the Company to withhold from the shares of Common Stock that
would otherwise be issued upon exercise that number of shares of Common
Stock having a fair market value equal to the option exercise price.
D-3
5.1.5 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all incentive
stock options granted under the terms of the Plan, to the extent that the
aggregate fair market value (determined at the time of the grant of the
incentive stock option) of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by the Plan
Participant during any calendar year (under the Plan and all other incentive
stock option plans of the Company, an Affiliate thereof or a predecessor
corporation) exceeds $100,000, such options shall be treated as nonqualified
stock options. The foregoing sentence shall not apply, and the limitation shall
be that provided by the Code or the Internal Revenue Service, as the case may
be, if such annual limit is changed or eliminated by (a) amendment of the Code
or (b) issuance by the Internal Revenue Service of (i) a Revenue ruling, (ii) a
Private Letter ruling to any of the Company, any Plan Participant, or any
legatee, personal representative, or distributee of any Plan Participant, or
(iii) regulations.
5.1.6 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE.
5.1.6.1 EXERCISE OF OPTIONS UNDER SECTIONS 5.1.4(a) AND (c). The value of
Common Stock received by the Plan Participant from an exercise under Sections
5.1.4(a) and 5.1(c) hereof shall be the fair market value as determined by the
Plan Administrator, provided, that if the Common Stock is traded in a public
market, such valuation shall be the average of the high and low trading prices
or bid and asked prices, as applicable, of the Common Stock for the date of
receipt by the Company of the Plan Participant's delivery of shares under
Section 5.1.4(a) hereof or delivery of the Notice of Exercise under Section
5.1.4(c) hereof, determined as of the trading day immediately preceding such
date (or, if no sale of shares is reported for such trading day, on the next
preceding day on which any sale shall have been reported).
5.1.6.2 EXERCISE OF OPTION UNDER SECTION 5.1.4(b). The value of Common
Stock received by the Plan Participant from an exercise under Section 5.1.4(b)
hereof shall equal the sales price received for such shares.
5.2. STOCK AWARDS.
5.2.1 NUMBER OF SHARES AND PRICE. The number of shares to be transferred
or sold by the Company to a Plan Participant shall be determined by the Plan
Administrator. The Plan Administrator shall determine the price, if any, at
which shares of restricted stock shall be sold to a Plan Participant, which may
vary from time to time and among Plan Participants and which may be below the
fair market value of such shares of Common Stock at the date of such sale. The
payment for such shares (if any) shall be in cash, bank certified or cashier's
check, or personal check (unless at the time of grant the Plan Administrator
determines not to accept a personal check or determines to accept some other
form of payment). The Plan Administrator may condition the effectiveness of any
grant upon the recipient's making satisfactory provisions for any federal, state
or local withholding tax obligations that may arise in connection with the grant
of the award or its vesting.
5.2.2 RESTRICTIONS. All shares representing stock awards transferred or
sold hereunder shall be subject to such restrictions as the Plan Administrator
may determine, including, without limitation any of the following:
(a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of such stock, such prohibition to lapse at such
time or times as the Plan Administrator shall determine (whether in annual
or more frequent installments, at the time of the death, disability or
retirement of the holder of such shares, or otherwise);
(b) a requirement that the holder of shares of restricted stock forfeit,
or (in the case of shares sold to a Plan Participant) resell back to the
Company at his or her cost, all or a part of such shares in the event of
termination of his or her employment during any period in which such shares
are subject to restrictions;
(c) such other conditions or restrictions as the Plan Administrator may
deem advisable.
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5.2.3 ESCROW. In order to enforce the restrictions imposed by the Plan
Administrator pursuant to Section 5.2.2, the Plan Participant receiving
restricted stock shall enter into an agreement with the Company setting forth
the conditions of the grant. Shares of restricted stock shall be registered in
the name of the Plan Participant and deposited, together with a stock power
endorsed in blank, with the Company. Each such certificate shall bear a legend
in substantially the following form:
The transferability of this certificate and the shares of Common Stock
represented by it are subject to terms and conditions (including conditions of
forfeiture) contained in the 1998 Stock Option and Award Plan of MDI
Entertainment, Inc., and an agreement entered into between the registered owner
and MDI Entertainment, Inc. A copy of the Plan and the Agreement is on file in
the office of the Secretary of MDI Entertainment, Inc.
5.2.4 END OF RESTRICTIONS. Subject to Section 8, at the end of any time
period during which the shares of restricted stock are subject to forfeiture and
restrictions on transfer, such shares will be delivered free of all restrictions
to the Plan Participant or to the Plan Participant's legal representative,
beneficiary or heir.
5.3 WITHHOLDING TAX REQUIREMENT. The Company or any Affiliate thereof
shall have the right to retain and withhold from any payment of cash or Common
Stock under the Plan the amount of taxes required by any government to be
withheld or otherwise deducted and paid with respect to such payment. No option
may be exercised unless and until arrangements satisfactory to the Company, in
its sole discretion, to pay such withholding taxes are made. At its discretion,
the Company may require a Plan Participant to reimburse the Company for any such
taxes required to be withheld by the Company and withhold any distribution in
whole or in part until the Company is so reimbursed. In lieu thereof, the
Company shall have the right to withhold from any other cash amounts due or to
become due from the Company to the Plan Participant an amount equal to such
taxes or retain and withhold a number of shares having a market value not less
than the amount of such taxes required to be withheld by the Company to
reimburse the Company for any such taxes and cancel (in whole or in part) any
such shares of Common Stock so withheld. If required by Section 16(b) of the
Exchange Act, the election to pay withholding taxes by delivery of shares of
Common Stock held by any person who at the time of exercise is subject to
Section 16(b) of the Exchange Act shall be made either six months prior to the
date the option exercise becomes taxable or at such other times as the Company
may determine as necessary to comply with Section 16(b) of the Exchange Act.
Although the Company may, in its discretion, accept Common Stock as payment of
withholding taxes, the Company shall not be obligated to do so.
5.5 NONTRANSFERABILITY.
(A) OPTION. Options granted under the Plan and the rights and privileges
conferred hereby may not be transferred, assigned, pledged, or hypothecated in
any manner (whether by operation of law or otherwise) other than by will or by
the applicable laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in Section 414(p) of the Code, or Title I of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall not be subject to execution, attachment, or similar
process. Any attempt to transfer, assign, pledge, hypothecate, or otherwise
dispose of any option under the Plan or of any right or privilege conferred
hereby, contrary to the Code or to the provisions of the Plan, or the sale or
levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void ab initio. The designation by a Plan
Participant of a beneficiary does not, in and of itself, constitute an
impermissible transfer under this subsection 5.6.1.
(B) STOCK UNDERLYING OPTIONS. The Plan Administrator may provide in the
agreement granting the option that (a) the Plan Participant may not transfer or
otherwise dispose of shares acquired upon exercise of an option without first
offering such shares to the Company for purchase on the same terms and
conditions as those offered to the proposed transferee or (b) upon termination
of employment of a Plan Participant the Company shall have a six-month right of
repurchase as to the shares acquired upon exercise, which right of repurchase
shall allow for a maximum purchase price equal to the fair market value
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of the shares on the termination date. The foregoing rights of the Company shall
be assignable by the Company upon reasonable written notice to the Plan
Participant.
(C) STOCK AWARDS. Subject to the restrictions imposed by the Plan
Administrator under Section 5.2.2 and the agreement entered into by the Plan
Participant and the Company, a Plan Participant receiving an award of stock may
sell, transfer, pledge or otherwise encumber such shares received under this
Plan.
5.6 TERMINATION OF RELATIONSHIP. If the Plan Participant's relationship
with the Company or any Affiliate thereof ceases for any reason other than
termination for cause, death, or total disability, and unless by its terms the
option sooner terminates or expires, then the Plan Participant may exercise, for
a three-month period, that portion of the Plan Participant's option which is
exercisable at the time of such cessation, but the Plan Participant's option
shall terminate at the end of the three month period following such cessation as
to all shares for which it has not theretofore been exercised, unless, in the
case of a nonqualified stock option, such provision is waived in the agreement
evidencing the option or by resolution adopted by the Plan Administrator within
90 days of such cessation. If, in the case of an incentive stock option, a Plan
Participant's relationship with the Company or Affiliate thereof changes from
employee to nonemployee (i.e., from employee to a position such as a
consultant), such change shall constitute a termination of a Plan Participant's
employment with the Company or Affiliate and the Plan Participant's incentive
stock option shall terminate in accordance with this subsection 5.6. If, in the
case of a restricted stock award, the Plan Participant's relationship with the
Company or any Affiliate thereof ceases for any reason and unless by its terms
the period during which shares of restricted stock were subject to forfeiture or
restrictions on transfer has expired, then the Plan Participant will be required
to resell back to the Company at his or her cost, or forfeit the shares
remaining subject to such forfeiture or restrictions.
If a Plan Participant is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Plan Participant shall thereupon have
no right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for dishonesty, conviction or confession of a crime
punishable by law (except minor violations), fraud, misconduct, or disclosure of
confidential information. If a Plan Participant's relationship with the Company
or any Affiliate thereof is suspended pending an investigation of whether or not
the Plan Participant shall be terminated for cause, all Plan Participant's
rights under any option granted hereunder and the vesting of any restricted
stock award likewise shall be suspended during the period of investigation.
If a Plan Participant's relationship with the Company or any Affiliate
thereof ceases because of a total disability, the Plan Participant's option
shall not terminate or, in the case of an incentive stock option, cease to be
treated as an incentive stock option until the end of the 12-month period
following such cessation (unless by its terms it sooner terminates and expires).
Likewise, unless otherwise determined by the Plan Administrator, a prohibition
against the sale, transfer, pledge or other encumbrance of shares of restricted
stock awarded pursuant to this Plan, will not lapse by reason of the Plan
Participant's disability until the end of the 12-month period following the
cessation of the Plan Participant's relationship with the Company or any
Affiliate thereof and, unless the Plan Administrator otherwise determines, the
Plan Participant shall not continue to vest in any restricted stock award during
the period of disability. As used in the Plan, the term "total disability"
refers to a mental or physical impairment of the Plan Participant which is
expected to result in death or which has lasted or is, in the opinion of the
Company and two independent physicians, expected to last for a continuous period
of 12 months or more and which causes or is, in such opinion, expected to cause
the Plan Participant to be unable to perform his or her duties for the Company
and to be engaged in any substantial gainful activity. Total disability shall be
deemed to have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total disability to the
Plan Administrator.
For purposes of this subsection 5.6, a transfer of relationship between or
among the Company and/or any Affiliate thereof shall not be deemed to constitute
a cessation of relationship with the Company or any
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of its Affiliates. For purposes of this subsection 5.6, with respect to
incentive stock options and stock awards, employment shall be deemed to continue
while the Plan Participant is on military leave, sick leave, or other bona fide
leave of absence (as determined by the Plan Administrator). The foregoing
notwithstanding, employment shall not be deemed to continue beyond the first 90
days of such leave, unless the Plan Participant's reemployment rights are
guaranteed by statute or by contract.
As used herein, the term "Affiliate" shall be defined as follows: (a) when
referring to a subsidiary corporation, "Affiliate" shall mean any corporation
(other than the Company) in an unbroken chain of corporations ending with the
Company if, at the time of the granting of the option, the stock possessing 50%
or more of the total combined voting power of all classes of stock of each of
the corporations other than the Company is owned by one of the other
corporations in such chain; and (b) when referring to a parent corporation,
"Affiliate" shall mean any corporation in an unbroken chain of corporations
ending with the Company if, at the time of the granting of the option, each of
the corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
5.7 DEATH OF PLAN PARTICIPANT. If a Plan Participant dies while he or she
has a relationship with the Company or any Affiliate thereof or within the
three-month period (or 12-month period in the case of totally disabled Plan
Participants) following cessation of such relationship, (i) any option held by
such Plan Participant, to the extent that the Plan Participant would have been
entitled to exercise such option, may be exercised within one year after his or
her death by the personal representative of his or her estate or by the person
or persons to whom the Plan Participant's rights under the option shall pass by
will or by the applicable laws of descent and distribution, and (ii) any stock
awarded under this Plan, to the extent that it has vested and the restrictions
against transfer have expired, shall be delivered to the Plan Participant's
legal representative, beneficiary or heir, free of all restrictions, unless
otherwise determined by the Plan Administrator.
5.8 STATUS OF STOCKHOLDER. Neither the Plan Participant nor any party to
which the Plan Participant's rights and privileges under an option may pass
shall be, or have any of the rights or privileges of, a stockholder of the
Company with respect to any of the shares issuable upon the exercise of any
option granted under the Plan unless and until such option has been exercised.
Subject to the terms and conditions of the Plan, each Plan Participant receiving
restricted stock shall have all the rights of a stockholder with respect to
shares of stock during any period in which such shares are subject to forfeiture
and restrictions on transfer, including without limitation, the right to vote
such shares. Dividends paid in cash or property other than Common Stock with
respect to shares of restricted stock shall be paid to the Plan Participant
currently.
5.9 CONTINUATION OF EMPLOYMENT. Nothing in the Plan or in any option or
stock award granted pursuant to the Plan shall confer upon any Plan Participant
any right to continue in the employ of the Company or of an Affiliate thereof,
or to interfere in any way with the right of the Company or of any such
Affiliate to terminate his or her employment or other relationship with the
Company at any time.
5.10 MODIFICATION AND AMENDMENT OF OPTION OR AWARD. Subject to the
requirements of Section 422 of the Code with respect to incentive stock options
and to the terms and conditions and within the limitations of the Plan,
including, without limitation, Section 9 hereof, the Plan Administrator may
modify or amend outstanding options and stock awards granted under the Plan. The
modification or amendment of an outstanding option or stock award shall not,
without the consent of the Plan Participant, impair or diminish any of his or
her rights or any of the obligations of the Company under such option or award.
Except as otherwise provided herein, no outstanding option shall be terminated
without the consent of the Plan Participant. Unless the Plan Participant agrees
otherwise, any changes or adjustments made to outstanding incentive stock
options or awards granted under the Plan shall be made in such a manner so as
not to constitute a "modification" as defined in Section 424(h) of the Code and
so as not to cause any
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incentive stock option issued hereunder to fail to continue to qualify as an
incentive stock option as defined in Section 422(b) of the Code.
SECTION 6. GREATER THAN TEN PERCENT STOCKHOLDERS.
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If incentive stock
options are granted under the Plan to employees who, at the time of such grant,
own greater than ten percent of the total combined voting power of all classes
of stock of the Company or any Affiliate thereof, the term of such incentive
stock options shall not exceed five years and the exercise price shall be not
less than 110% of the fair market value of the Common Stock at the time of grant
of the incentive stock option. This provision shall control notwithstanding any
contrary terms contained in an option agreement or any other document. The term
and exercise price limitations of this provision shall be amended to conform to
any change required by a change in the Code or by ruling or pronouncement of the
Internal Revenue Service.
6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in determining stock
ownership, an employee shall be deemed to own the stock owned, directly or
indirectly, by or for his or her brothers, sisters, spouse, ancestors, and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership estate, or trust shall be deemed to be owned
proportionately by or for its stockholders, partners, or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion of
the option or warrant which is unexercised shall not be counted in determining
stock ownership. For purposes of this Section 6, stock owned by an employee
shall include all stock owned by him or her which is actually issued and
outstanding immediately before the grant of the incentive stock option to the
employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate
number and class of shares for which options and stock awards may be granted
under the Plan, the number and class of shares covered by each outstanding
option and stock award, and the exercise price, purchase price or repurchase
price (if any) per share thereof (but not the total price), and each such option
and stock award, shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company resulting
from a split or consolidation of shares or any like capital adjustment, or the
payment of any stock dividend.
7.1. EFFECT OF LIQUIDATION, REORGANIZATION, OR CHANGE IN CONTROL.
7.1.1 CASH, STOCK, OR OTHER PROPERTY FOR STOCK. Except as provided in
subsection 7.1.2 hereof, upon a merger (other than a merger of the Company in
which the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
reorganization (other than mere reincorporation or creation of a holding
company), or liquidation of the Company (each, an "event"), as a result of which
the stockholders of the Company receive cash, stock, or other property in
exchange for, or in connection with, their shares of Common Stock, (i) any
option granted hereunder shall terminate, but the time during which such option
may be exercised shall be accelerated as follows: the Plan Participant shall
have the right immediately prior to any such event to exercise such Plan
Participant's option in whole or in part whether or not the vesting requirements
set forth in the option agreement have been satisfied and (ii) the restrictions
on all shares of restricted stock awarded under this Plan shall lapse
immediately.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR EXCHANGE STOCK. If the
stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
or reorganization (other than mere reincorporation or creation of a holding
company), all options granted hereunder shall be converted into options to
purchase shares of Exchange Stock unless the
D-8
Company and corporation issuing the Exchange Stock, in their sole discretion,
determine that any or all such options granted hereunder shall not be converted
into options to purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of subsection 7.1.1 hereof. The amount and price
of converted options shall be determined by adjusting the amount and price of
the options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock receive in
such merger, consolidation, acquisition, separation, or reorganization. Unless
the Board determines otherwise, the converted options shall be fully vested
whether or not the vesting requirements set forth in the option agreement have
been satisfied.
7.2 FRACTIONAL SHARES. In the event of any adjustment in the number of
shares covered by an option or stock award, any fractional shares resulting from
such adjustment shall be disregarded and each such option or stock award shall
cover only the number of full shares resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL. Except as otherwise required for
the Plan to qualify for the exemption afforded by Rule 16b-3 under the Exchange
Act, all adjustments under this Section 7 shall be made by the Board, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding, and conclusive. Unless a Plan Participant agrees
otherwise, any change or adjustment to an incentive stock option shall be made
in such a manner so as not to constitute a "modification" as defined in Section
424(h) of the Code and so as not to cause the incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Section 422(b) of the Code.
SECTION 8. SECURITIES LAW COMPLIANCE. Shares shall not be issued with
respect to an option or stock award granted under the Plan unless the grant of
the stock award or 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, any applicable state securities laws, the
Securities Act of 1933, as amended (the "Act"), the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance, including,
without limitation, the availability of an exemption from registration for the
issuance and sale of any shares hereunder. Inability of the Company to obtain
from any regulatory body having jurisdiction, the authority deemed by the
Company's counsel to be necessary for the lawful issuance and sale of any shares
hereunder or the unavailability of an exemption from registration for the
issuance and sale of any shares hereunder shall relieve the Company of any
liability in respect of the nonissuance or sale of such shares as to which such
requisite authority shall not have been obtained.
As a condition to the exercise of an option or the award of any stock, if,
in the opinion of counsel for the Company, assurances are required by any
relevant provision of the aforementioned laws, the Company may require the Plan
Participant to give written assurances satisfactory to the Company at the time
of any such exercise or grant as to each or both of the following: (a) the Plan
Participant's knowledge and experience in financial and business matters (and/or
their employment of a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters)
and that such Plan Participant is capable of evaluating, either alone or with
the purchaser representative, the merits and risks of exercising the option or
acquiring the stock subject to the award and/or (b) that the shares are being
purchased only for investment and without any present intention to sell or
distribute such shares. The foregoing requirements shall be inoperative if the
issuance of the shares upon the exercise of the option or grant of stock award
has been registered under a then currently effective registration statement
under the Act.
At the option of the Company, a stop-transfer order against any shares may
be placed on the official stock books and records of the Company, and a legend
indicating that the stock may not be pledged, sold, or otherwise transferred
unless an opinion of counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped
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on stock certificates in order to assure exemption from registration. The Plan
Administrator may also require such other action or agreement by the Plan
Participants as may from time to time be necessary to comply with the federal
and state securities laws or the rules of any national securities exchange or
inter-dealer quotation system on which the Common Stock is traded. NONE OF THE
ABOVE SHALL BE CONSTRUED TO IMPLY AN OBLIGATION ON THE PART OF THE COMPANY TO
UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options or stock awards granted hereunder be listed on a national
securities exchange or on the NASDAQ National Market, all stock issued hereunder
if not previously listed on such exchange or market shall, if required by the
rules of such exchange or market, be authorized by that exchange or market for
listing thereon prior to the issuance thereof.
SECTION 9. USE OF PROCEEDS. The proceeds received by the Company from the
sale of shares pursuant to the exercise of options or sale of stock granted
hereunder shall constitute general funds of the Company.
SECTION 10. AMENDMENT AND TERMINATION.
10.1 BOARD ACTION. The Board may at any time suspend, amend, or terminate
the Plan, provided, that no amendment shall be made without stockholder approval
within 12 months before or after adoption of the Plan if such approval is
necessary to comply with any applicable tax or regulatory requirement, including
any such approval as may be necessary to satisfy the requirements for exemptive
relief under Rule 16b-3 of the Exchange Act or any successor provision. Rights
and obligations under any option or award granted before amendment of the Plan
shall not be altered or impaired by any amendment of the Plan unless the Company
requests the consent of the person to whom the option or award was granted and
such person consents in writing thereto.
10.2 AUTOMATIC TERMINATION. Unless sooner terminated by the Board, the
Plan shall terminate ten years from the earlier of (a) the date on which the
Plan is adopted by the Board or (b) the date on which the Plan is approved by
the stockholders of the Company. No option or award may be granted after such
termination or during any suspension of the Plan. The amendment or termination
of the Plan shall not, without the consent of the Plan Participant, alter or
impair any rights or obligations under any option or award theretofore granted
under the Plan.
SECTION 11. EFFECTIVENESS OF THE PLAN. The Plan shall become effective
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock at any time
within 12 months after the adoption of the Plan by the Board.
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PLEASE SIGN EXACTLY AS YOUR NAME APPEARS AND RETURN THIS PROXY IMMEDIATELY IN
THE ENCLOSED STAMPED SELF-ADDRESSED ENVELOPE.
MDI ENTERTAINMENT, INC.
ANNUAL MEETING OF STOCKHOLDERS FEBRUARY 9, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder in MDI Entertainment, Inc. ("Company") hereby
constitutes and appoints Steven M. Saferin and Kenneth M. Przysiecki, and each
of them, his true and lawful attorneys and proxies, with full power of
substitution in and for each of them, to vote all shares of the Company which
the undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held at the offices of Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 25th Floor,
551 Fifth Avenue, New York, New York, on February 9, 1999, 10:00 a.m., Eastern
Standard Time, or at any postponement or adjournment thereof, on any and all of
the proposals contained in the Notice of Annual Meeting of Stockholders, with
all the powers the undersigned would possess if present personally at said
meeting, or at any postponement or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE NOMINEES LISTED ON THE REVERSE SIDE AND FOR THE APPROVAL OF PROPOSALS 2,
3, 4, 5, 6 AND 7.
(CONTINUED AND TO BE SIGNED AND DATED ON THE OTHER SIDE)
The Directors recommend a vote FOR Proposals 2, 3, 4, 5, 6 and 7.
Please mark your votes as
------------------------------------------------ /X/ this example
COMMON
1. Election of Directors For all nominees WITHHOLD
/ / / /
listed (except as AUTHORITY
marked in the to vote for
contrary, see all nominees
instruction below) listed at left
Steven M. Saferin, Robert J. Wussler, Kenneth M. Przysiecki,
Todd P. Leavitt, S. David Fineman
INSTRUCTION: To withhold authority to vote for any individual nominee, line through the name of the nominee above.
2. Proposal to approve an amendment to the Company's Certificate of Incorporation, FOR AGAINST ABSTAIN
to decrease the authorized shares of common stock. / / / / / /
3. Proposal to approve an amendment to the Company's Certificate of Incorporation, FOR AGAINST ABSTAIN
to create a series of preferred stock. / / / / / /
4. Proposal to approve an amendment to the Company's Certificate of Incorporation, FOR AGAINST ABSTAIN
to add indemnification provisions. / / / / / /
5. Proposal to approve a reverse stock split of the Company's Common Stock. FOR AGAINST ABSTAIN
/ / / / / /
6. Proposal to approve the MDI Entertainment, Inc. 1998 Stock Option and Award FOR AGAINST ABSTAIN
Plan. / / / / / /
7. Proposal to ratify Arthur Andersen LLP as independent auditors. FOR AGAINST ABSTAIN
/ / / / / /
The above named proxies are granted the authority, in their discretion, to act
upon such other matters as may properly come before the meeting or any
postponement or adjournment thereof.
Dated __________________________________, 1999
Signature(s) _________________________________
Signature(s) _________________________________