SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant[X]
Filed by a Party other than the Registrant
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material under Rule 14a-12
HUNGARIAN TELEPHONE AND CABLE CORP.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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Fee paid previously with preliminary materials:
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[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration No.
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(3) Filing party:
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(4) Date filed:
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HUNGARIAN TELEPHONE 32 Center Street
AND CABLE CORP. Darien, CT 06820
Dear Stockholder: April 9, 2002
On behalf of the Board of Directors, we cordially invite you to attend the
Annual Meeting of Stockholders of Hungarian Telephone and Cable Corp. (the
"Company") to be held at 10:00 a.m. local time, on May 22, 2002 at the New York
Marriott East Side Hotel, 525 Lexington Avenue, New York, New York 10017.
In addition to the election of directors and the ratification of the
appointment of auditors, the holders of Common Stock of the Company will
consider and vote upon a proposal at the Annual Meeting to amend the Company's
1992 Incentive Stock Option Plan.
Your Board of Directors has unanimously concluded that each of the
proposals is in the best interests of the Company and its stockholders.
Accordingly, the Board recommends a vote "FOR" the election of the nominees
named herein as directors, the ratification of the appointment of auditors and
the amendment of the Stock Option Plan.
The attached Proxy Statement more fully describes the matters to be voted
upon at the Annual Meeting and also includes information concerning the Company.
We urge you to read carefully the information contained in the Proxy Statement.
We hope that you will be able to attend the Annual Meeting. If you cannot
attend, your shares of Common Stock can be represented by completing, signing
and dating the enclosed proxy, and returning it in the envelope provided (which
requires no postage if mailed in the United States). You may, of course,
withdraw your proxy if you attend the Annual Meeting and choose to vote in
person.
Sincerely,
/s/ Daryl A. Ferguson /s/ Torben V. Holm
Daryl A. Ferguson Torben V. Holm
Chairman of the Board Chairman of the Board
HUNGARIAN TELEPHONE AND CABLE CORP.
32 Center Street
Darien, Connecticut 06820
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 2002
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Hungarian Telephone and Cable Corp., a Delaware corporation (the
"Company"), will be held at the New York Marriott East Side Hotel, 525 Lexington
Avenue, New York, New York 10017, on May 22, 2002, at 10:00 a.m., local time,
for the following purposes:
1. To elect seven directors of the Company to serve until the 2003 Annual
Meeting of Stockholders or until their successors have been duly
elected and qualified
2. To vote upon a proposal to amend the Company's 1992 Incentive Stock
Option Plan, as amended, to extend the termination date of the plan as
so amended from April 30, 2003 to April 30, 2008 and rename the plan
the "2002 Incentive Stock Option Plan"
3. To ratify the appointment of KPMG Hungaria Kft. as auditors of the
Company for the fiscal year ending December 31, 2002 and
to transact such other business as may properly come before the Meeting and any
adjournment or postponement thereof. The Board of Director is not aware of any
other business to come before the Meeting.
The Board of Directors has fixed April 5, 2002 as the record date for
determining the stockholders entitled to notice of, and to vote at, the Meeting
and any adjournment or postponement thereof. A complete list of stockholders of
record entitled to vote at the Meeting will be maintained in the offices of the
Company's stock transfer agent, Continental Stock Transfer & Trust Company, 17
Battery Place South, 8/th/ Floor, New York, NY 10004, for ten days prior to the
Meeting.
Whether or not you plan to attend the Meeting in person, please mark,
execute, date and return the enclosed proxy promptly in the envelope provided.
Should you attend the Meeting in person you may, if you wish, withdraw your
proxy and vote your shares in person.
By Order of the Board of Directors,
/s/ Peter T. Noone
Peter T. Noone
Secretary
Darien, Connecticut
April 9, 2002
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A PRE-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
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HUNGARIAN TELEPHONE AND CABLE CORP.
PROXY STATEMENT
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TABLE OF CONTENTS
Page
----
INTRODUCTION ............................................................... 1
Voting Rights and Proxy Information ............................... 1
Vote Required for Approval ........................................ 2
Voting Securities ................................................. 2
Stock Ownership of Certain Beneficial Owners ...................... 3
Stock Ownership of Management ..................................... 4
I. ELECTION OF DIRECTORS .................................................. 5
General ........................................................... 5
Current Directors and Nominees for Director ....................... 5
Committees and Meetings of the Board of Directors ................. 7
Report of the Audit Committee ..................................... 9
Compensation Committee Report on Executive Compensation ........... 10
Standard Remuneration of Directors and Other Arrangements ......... 12
Director Stock Option Plan ........................................ 12
Executive Compensation ............................................ 13
Employment Agreements ............................................. 14
Compensation Committee Interlocks and Insider Participation ....... 15
Certain Relationships and Related Transactions .................... 16
Indebtedness of Management ........................................ 16
Section 16(a) Beneficial Ownership Reporting Compliance ........... 16
Stock Performance Graph ........................................... 16
II. PROPOSAL TO AMEND THE COMPANY'S 1992 INCENTIVE
OPTION PLAN TO EXTEND THE TERMINATION DATE AND RENAME THE PLAN ....... 17
Background of Proposed Amendment .................................. 17
Description of the Stock Option Plan .............................. 18
Benefits Under Stock Option Plan .................................. 21
Certain Interests of Directors and Officers ....................... 23
III. RATIFICATION OF THE APPOINTMENT OF AUDITORS .......................... 24
Audit Fees ........................................................ 24
Financial Information Systems Design and Implementation Fees ...... 24
All Other Fees .................................................... 24
General ........................................................... 25
STOCKHOLDER PROPOSALS ...................................................... 25
OTHER BUSINESS ............................................................. 25
EXPENSES OF SOLICITATION ................................................... 26
HUNGARIAN TELEPHONE AND CABLE CORP.
32 Center Street
Darien, Connecticut 06820
April 9, 2002
PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 22, 2002
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Hungarian Telephone and Cable
Corp. (the "Company") to be used at the Annual Meeting of Stockholders of the
Company, to be held at 10:00 a.m. local time, on May 22, 2002 at the New York
Marriott East Side Hotel, 525 Lexington Avenue, New York, New York 10017, or at
any adjournment or postponement thereof (the "Meeting"). This Proxy Statement
and the accompanying Notice of Annual Meeting of Stockholders and form of proxy
are first being sent or given to stockholders on or about April 10, 2002.
At the Meeting, the stockholders of the Company are being asked to consider
and vote upon: (i) the election of seven directors of the Company to serve until
the 2003 Annual Meeting of Stockholders or until their successors are duly
elected and qualified; (ii) a proposal to amend the Company's 1992 Incentive
Stock Option Plan, as amended (the "Stock Option Plan"), to extend the
termination date of the plan as so amended from April 30, 2003 to April 30, 2008
and rename the plan the "2002 Incentive Stock Option Plan"; and (iii) the
ratification of the appointment of KPMG Hungaria Kft. as auditors of the Company
for the fiscal year ending December 31, 2002.
Voting Rights and Proxy Information
All shares of common stock, par value $.001 per share, of the Company (the
"Common Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. If no instructions are
indicated, properly executed proxies will be voted for election of all nominees
for director named below, for the approval of the proposal regarding the Stock
Option Plan and for the ratification of the appointment of auditors. The Company
does not know of any matters, other than as described in the Notice of Annual
Meeting, that are to come before the Meeting. If any other matters are properly
presented at the Meeting for action, the persons named in the enclosed form of
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with their best judgment. Proxies should not be sent by the
stockholder to the Company, but to Continental Stock Transfer & Trust Company,
the Company's Registrar and Transfer Agent, at 17 Battery Place South,
8th Floor, New York, New York 10004. A pre-addressed, postage-paid envelope is
provided for this purpose.
A proxy delivered pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked by (i) filing with the Secretary of
the Company at or before the Meeting a written notice of revocation bearing a
later date than the proxy, (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Secretary of the Company at or before
the Meeting, or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and
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of itself constitute revocation of a proxy). Any written notice revoking a proxy
should be delivered to Peter T. Noone, Secretary, Hungarian Telephone and Cable
Corp., 32 Center Street, Darien, Connecticut 06820.
Vote Required for Approval
The presence, in person or by proxy, of a majority of the shares of Common
Stock entitled to vote is required to constitute a quorum for the transaction of
business at the Meeting. The election of directors requires the affirmative vote
of a plurality of the shares of Common Stock voting in person or by proxy at the
Meeting. Thus, abstentions and proxies returned by brokers as "non-votes" on
behalf of shares held in "street name" will have no effect on the outcome of the
election of directors. The affirmative vote of a majority of the shares present
in person or by proxy and voted on such matter at the Meeting is required for
approval of the proposal to amend the Stock Option Plan. Accordingly,
abstentions will have the same effect as a vote against such matter and proxies
returned by brokers as "non-votes" will not affect the outcome of such vote.
Proxies submitted which contain abstentions or broker "non-votes" will be deemed
present at the Meeting in determining the presence of a quorum.
Your Board of Directors has unanimously approved each of the proposals set
forth herein. Accordingly, the Board recommends a vote FOR the election of the
nominees named herein as directors, the proposal to amend the Stock Option Plan
and the ratification of the appointment of auditors.
Voting Securities
April 5, 2002 has been set as the record date (the "Record Date") for
determining stockholders entitled to notice of, and to vote at, the Meeting. As
of the close of business on the Record Date, there were outstanding 12,103,180
shares of Common Stock. Each holder thereof is entitled to one vote per share.
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Stock Ownership of Certain Beneficial Owners
The following table sets forth, as of April 5, 2002, certain information as
to those persons who were known by management to be beneficial owners of more
than 5% of the Common Stock.
Shares
Beneficially Percent of
Name and Address of Beneficial Owner Owned (1) Class (1)
------------------------------------ ------------ ----------
CU CapitalCorp. 2,605,908(2) 21.0%
c/o Citizens Communications Company
High Ridge Park
Stamford, Connecticut 06905
Danish Investment Fund for Central 1,285,714 10.6%
and Eastern Europe
4, Bremerholm
DK 1069 Copenhagen K, Denmark
Postabank Rt. 2,428,572 20.1%
Jozsef nador ter 1
H-1920 Budapest, Hungary
TDC A/S 2,579,588 21.3%
Larslejsstraede 5
0900 Copenhagen C, Denmark
(1) "Shares Beneficially Owned" includes shares held directly as well as shares
which such entity may have the right to acquire within 60 days of April 5,
2002. "Percent of Class" is calculated by dividing the "Shares Beneficially
Owned" by such entity by the shares of Common Stock outstanding as of April
5, 2002 plus only those shares which such entity may have the right to
acquire within 60 days of April 5, 2002.
(2) Includes 300,000 shares of Common Stock which are issuable upon the
conversion by CU CapitalCorp. of its 30,000 shares of the Company's Series
A Preferred Stock.
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Stock Ownership of Management
The following table sets forth, as of April 5, 2002, certain information as
to the shares of Common Stock beneficially owned by an executive officer, and
certain officers and employees of the Company, and as to the shares of Common
Stock beneficially owned by all directors and executive officers of the Company
as a group.
Shares
Beneficially Percent of
Name and Address of Beneficial Owner Owned (1) Class (1)
------------------------------------ ------------- ------------
Current Officers and Employees
Ole Bertram 300,000(2) 2.4
Gary Carpenter -- --
Ole Finderup 5,000(3) *
William T. McGann 37,200(4) *
Peter T. Noone 82,600(5) *
Directors and Executive Officers 402,697(6) 3.2
as a Group (7 persons)
__________________
* Less than one percent
(1) "Shares Beneficially Owned" includes shares held directly, as well as
shares which such persons have the right to acquire within 60 days of April
5, 2002 and shares held by certain members of such persons' families, over
which such persons may be deemed to have sole or shared voting power or
investment power. "Percent of Class" is calculated by dividing the "Shares
Beneficially Owned" by the individual (or group) by the shares of Common
Stock outstanding as of April 5, 2002 plus only those shares which the
individual (or group) has the right to acquire within 60 days of April 5,
2002.
(2) Consists of 100,000 shares subject to options presently exercisable at
$4.125 per share, 100,000 shares subject to options presently exercisable
at $5.93 per share and 100,000 shares subject to options presently
exercisable at $4.86 per share granted pursuant to Mr. Bertram's employment
agreement. See "Election of Directors - Employment Agreements."
(3) Consists of 5,000 shares subject to options presently exercisable at $4.86
per share. See "Election of Directors - Employment Agreements."
(4) Includes 1,000 shares subject to options presently exercisable at $5.81 per
share, 5,000 shares subject to options presently exercisable at $5.93 per
share, 10,000 shares subject to options presently exercisable at $4.86 per
share and 20,000 shares subject to options presently exercisable at $4.72
per share. See "Election of Directors - Employment Agreements."
(5) Includes 15,000 shares subject to options presently exercisable at $11.69
per share, 2,500 shares subject to options presently exercisable at $8.00
per share, 15,000 shares subject to options presently exercisable at $4.625
per share, 15,000 shares subject to options presently exercisable at $5.93
per share, 15,000 shares subject to options presently exercisable at $4.86
per share, and 20,000 shares subject to options presently exercisable at
$4.72 per share granted pursuant to Mr. Noone's employment agreement. See
"Election of Directors - Employment Agreements."
(6) Does not include shares reported to be beneficially owned by CU
CapitalCorp. Leonard Tow, a director of the Company, serves as a director
and executive officer of both the parent company and an affiliate of CU
CapitalCorp. Daryl A. Ferguson, a director of the Company, serves as a
consultant to the parent company
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of CU CapitalCorp. Does not include shares reported to be beneficially
owned by TDC A/S. Thomas Gelting and Torben V. Holm, directors of the
Company, serve as officers of TDC A/S. See "- Stock Ownership of Certain
Beneficial Owners."
I. ELECTION OF DIRECTORS
General
Pursuant to the Company's By-laws, directors are elected to serve for
a one-year term or until their respective successors have been elected and
qualified. Six of the nominees are incumbent directors who were elected at
the last annual meeting of stockholders and one nominee is an incumbent
director who was elected by the Board in February 2002 to fill a vacancy. It
is intended that the proxies solicited on behalf of the Board of Directors
(other than proxies in which the vote is withheld as to one or more
nominees) will be voted at the Meeting for the election of the nominees
identified below. If any nominee is unable to serve, the shares represented
by all valid proxies will be voted for the election of such substitute as
the Board of Directors may recommend. At this time, the Board of Directors
knows of no reason why any of the nominees might be unable to serve, if
elected. Except as described below, there are no arrangements or
understandings between any director or nominee and any other person pursuant
to which such director or nominee was selected.
Current Directors and Nominees for Director
The table below sets forth certain information, as of April 5, 2002,
regarding the Company's current Board of Directors and nominees for election
to the Board of Directors, including beneficial ownership of Common Stock.
Position(s) Held Director Shares Percent
Name Age in the Company Since Beneficially Owned (1) of Class (1)
---- --- -------------- ------------- ---------------------- ------------
Current Directors who are Nominees for Election
Ole Bertram .......... 66 Director, President and August 1997 300,000(2) 2.4
Chief Executive Officer
Daryl A. Ferguson .... 63 Director March 1998 15,413(3) *
Thomas Gelting ....... 43 Director February 2002 1,284(4) *
Torben V. Holm ....... 51 Director March 1999 10,000(4) *
John B. Ryan. ........ 71 Director September 1992 36,000(5) *
William E. Starkey ... 66 Director July 1996 30,000(6) *
Leonard Tow .......... 73 Director August 1997 10,000(7) *
_______________
* Less than one percent.
(1) "Shares Beneficially Owned" includes shares held directly, as well as
shares which such persons have the right to acquire within 60 days of
April 5, 2002 and shares held by certain members of such persons'
families, over which such persons may be deemed to have sole or shared
voting power or investment power.
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"Percent of Class" is calculated by dividing the "Shares Beneficially
Owned" by the individual by the shares of Common Stock outstanding as of
April 5, 2002 plus only those shares which the individual has the right to
acquire within 60 days of April 5, 2002.
(2) Consists of 100,000 shares subject to options presently exercisable at
$4.125 per share, 100,000 shares subject to options presently exercisable
at $5.93 per share, and 100,000 shares subject to options presently
exercisable at $4.86 per share granted pursuant to Mr. Bertram's employment
agreement. See " - Employment Agreements."
(3) Includes 5,000 shares subject to options presently exercisable at $6.21 per
share and 5,000 shares subject to options exercisable within 60 days at
$6.49 per share granted under the Non-Employee Director Stock Option Plan.
Does not include shares reported to be beneficially owned by CU
CapitalCorp. See "Introduction - Stock Ownership of Certain Beneficial
Owners." Mr. Ferguson is a consultant to Citizens Communications Company,
which is the parent company of CU CapitalCorp.
(4) Does not include shares reported to be beneficially owned by TDC A/S. See
"Introduction - Stock Ownership of Certain Beneficial Owners." Messrs.
Gelting and Holm are currently officers of TDC A/S. Mr. Gelting's shares
consist of 1,284 shares subject to options exercisable within 60 days at
$4.56 per share and Mr. Holm's shares consist of 5,000 shares subject to
options presently exercisable at $6.21 per share and 5,000 shares subject
to options exercisable within 60 days at $6.49 per share, both granted
under the Non-Employee Director Stock Option Plan.
(5) Includes 10,000 shares subject to options presently exercisable at $9.44
per share, 5,000 shares subject to options presently exercisable at $6.78
per share, 5,000 shares subject to options presently exercisable at $6.00
per share, 5,000 shares subject to options presently exercisable at $6.21
per share and 5,000 shares subject to options exercisable within 60 days at
$6.49 per share granted under the Non-Employee Director Stock Option Plan.
Also includes 5,000 shares subject to options, presently exercisable at
$9.44 per share, granted under the 1992 Incentive Stock Option Plan, as
amended.
(6) Consists of 10,000 shares subject to options presently exercisable at $9.44
per share, 5,000 shares subject to options presently exercisable at $6.78
per share, 5,000 shares subject to options presently exercisable at $6.00
per share, 5,000 shares subject to options presently exercisable at $6.21
per share and 5,000 shares subject to options exercisable within 60 days at
$6.49 per share granted under the Non-Employee Director Stock Option Plan.
(7) Consists of 5,000 shares subject to options presently exercisable at $6.21
per share and 5,000 shares subject to options exercisable within 60 days at
$6.49 per share granted under the Non-Employee Director Stock Option Plan.
Does not include shares reported to be beneficially owned by CU
CapitalCorp. See "Introduction - Stock Ownership of Certain Beneficial
Owners." Mr. Tow is currently an executive officer and director of Citizens
Communications Company, which is the parent company of CU CapitalCorp.
Ole Bertram. Mr. Bertram was appointed as the Company's President and
Chief Executive Officer effective January 1, 1999. Prior to joining the Company,
Mr. Bertram was the Senior Vice President of Tele Danmark International since
June 1997. Prior to that, Mr. Bertram was Technical Director of Tele Danmark
International from May 1995 to June 1997, and Technical Director and Vice
President of the Copenhagen Telephone Company from 1988 to May 1995.
Daryl A. Ferguson. Mr. Ferguson has been associated with Citizens
Communications Company ("Citizens") since 1989 where he was President and Chief
Operating Officer from 1990 to 1999. Mr. Ferguson retired as an executive
officer of Citizens in 1999 and now serves as a consultant to Citizens. Pursuant
to an agreement with Citizens, the Company is required, under certain
conditions, to nominate for election to the Board one person designated by
Citizens. See "Introduction - Stock Ownership of Certain Beneficial Owners."
Thomas Gelting. Mr. Gelting is currently a Vice President in the
Mergers and Acquisitions department of TDC A/S (formerly known as Tele Danmark
A/S), a position he has held since 2001.
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Mr. Gelting has been with TDC since 1993 which has included various positions
within the Treasury Group. His prior position before joining the M&A group was
as Vice President, Treasurer. Prior to joining TDC, Mr. Gelting was with the
Danish Government, which included positions with the Central Bank of Denmark and
the Ministry of Finance. Pursuant to an agreement with TDC, the Company is
required, under certain conditions, to nominate for election to the Board one
person designated by TDC. See "Introduction - Stock Ownership of Certain
Beneficial Owners."
Torben V. Holm. Mr. Holm is the head of TDC's Mergers and Acquisitions
department. From 1994 to 2000 Mr. Holm was a Senior Vice President of Tele
Danmark International (part of TDC). Mr. Holm is a member of the boards of
several communications companies in which TDC holds investments. Pursuant to an
agreement with TDC, the Company is required, under certain conditions, to
nominate for election to the Board one person designated by TDC. See
"Introduction - Stock Ownership of Certain Beneficial Owners."
John B. Ryan. Mr. Ryan has been a financial consultant since 1988. From
1984 through 1987 he was a Senior Vice President and member of the Executive
Committee of Josephthal & Co., Inc., a member of the New York Stock Exchange.
From 1967 to 1984, he was a General Partner, Director of Compliance and a member
of the Executive Committee of Herzfeld & Stern, a member of the New York Stock
Exchange. He is a member of the Arbitration Panel of the New York Stock
Exchange, the National Association of Securities Dealers and the American
Arbitration Association.
William E. Starkey. Mr. Starkey is currently a consultant. He was with GTE
Corporation from 1964 to 1993, when he retired as a Senior Executive. While at
GTE, he held various posts involving operations, marketing and customer service,
regulatory, human resources, information systems, management and planning. He
was the Chairman of the Tampa Chamber of Commerce in 1990 and the Chairman of
Enterprise Corporation from 1994 to 1996 (a private non-profit organization,
with over 60 employees providing management, technical and financial assistance
to small- and medium-sized companies).
Leonard Tow. Mr. Tow has been the Chairman and Chief Executive Officer of
Citizens Communications Company since 1990, where he served as Chief Financial
Officer from 1991 to 1997. He was Chief Executive Officer and a Director of
Century Communications Corp., a cable television company, since its organization
in 1973 to October 1999, and Chairman of the Board from 1989 to 1999 and Chief
Financial Officer from 1973 to 1996. He is Chairman of the Board of Electric
Lightwave, Inc. and a Director of the United States Telephone Association.
Pursuant to an agreement with Citizens, the Company is required, under certain
conditions, to nominate for election to the Board one person designated by
Citizens. See "Introduction - Stock Ownership of Certain Beneficial Owners."
Committees and Meetings of the Board of Directors
During the Company's fiscal year ended December 31, 2001, the Board of
Directors held six meetings. Each of the incumbent directors attended at least
75% of the aggregate of the meetings of the Board of Directors that were held
during the 2001 fiscal year and the meetings of each committee on which he
served that were held during the 2001 fiscal year while he was serving as a
member of such committee.
The Company has standing Compensation-Stock Option, Audit and Executive
Committees. The full Board of Directors acts as a nominating committee for the
annual selection of its nominees for
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election of directors. While the Board of Directors will consider nominees
recommended by stockholders, it has not actively solicited such nominations.
Such recommendations about potential nominees, together with appropriate
biographical information, should be submitted to the Secretary of the Company at
least 120 days prior to the annual meeting, which is customarily held in the 3rd
or 4th week of May each year.
The Executive Committee consists of Ole Bertram, Daryl A. Ferguson and
Torben V. Holm. The committee was formed on May 25, 2000. Its duties include
providing strategic policy and operational oversight for the Company. During the
fiscal year ended December 31, 2001, the Executive Committee held three
meetings.
Since May 25, 2000 the Compensation - Stock Option Committee (the
"Compensation Committee") has consisted of John B. Ryan, William E. Starkey
(Chairman) and Leonard Tow. The function of the Compensation Committee is to
administer the 1992 Incentive Stock Option Plan and the Director Stock Option
Plan, and negotiate and determine the compensation of executive officers. The
Compensation Committee held two meetings during the fiscal year ended December
31, 2001. See "- Compensation Committee Report on Executive Compensation."
From December 2000 to February 18, 2002 the Audit Committee consisted of
Soren Eriksen (of TDC), John B. Ryan (Chairman), and William E. Starkey. Thomas
Gelting replaced Soren Eriksen as a representative of TDC on the Company's Board
and the Audit Committee on February 18, 2002. The Company deems the Audit
Committee members as "independent" pursuant to Section 121(a) of the American
Stock Exchange's listing standards. The Audit Committee's duties include
recommending to the Board of Directors the appointment of independent auditors,
reviewing their charges for services, reviewing the independence of the
auditors, reviewing the scope and results of the audits performed, reviewing the
adequacy and operation of the Company's financial reporting and internal
auditing, and performing such other duties or functions with respect to the
Company's accounting, financial and operating controls as deemed appropriate by
it or the Board of Directors. During 2000, the Audit Committee adopted a written
charter, which approval was ratified by the Company's Board of Directors. During
the fiscal year ended December 31, 2001 the Audit Committee held two meetings.
See "- Report of the Audit Committee."
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Report of the Audit Committee
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein.
During the fiscal year ending December 31, 2000, the Audit Committee of the
Board of Directors developed and approved a charter for the Committee, which was
approved and ratified by the full Board of Directors on March 23, 2001.
As provided in the charter of the Audit Committee, the Audit Committee's
responsibilities include the following areas:
. the adequacy of the Company's internal controls and financial
reporting process and the reliability of the Company's financial
statements;
. the independence and performance of the Company's independent
auditors; and
. the Company's compliance with legal and regulatory requirements.
The Company has implemented procedures to ensure that during the course of
each fiscal year it devotes the attention that it deems necessary or appropriate
to each of the matters addressed in the Audit Committee's charter. To carry out
its responsibilities, the Audit Committee met two times during fiscal 2001.
We meet with management periodically to consider the adequacy of the
Company's internal controls and the objectivity of its financial reporting. We
also discussed these matters with the Company's independent auditors and with
appropriate Company financial personnel.
We regularly meet with the independent auditors who have unrestricted
access to the Audit Committee.
We also recommend to the Board the appointment of the independent auditors
and review periodically their fees, performance and independence from
management.
The Directors who serve on the Audit Committee are all "Independent" for
purposes of the American Stock Exchange listing standards. That is, the Board of
Directors has determined that none of us has a relationship to Hungarian
Telephone and Cable Corp. that may interfere with our independence from
Hungarian Telephone and Cable Corp. and its management.
Management has primary responsibility for the Company's financial
statements and the overall reporting process, including the Company's system of
internal controls.
The independent auditors audit the annual financial statements prepared by
management, express an opinion as to whether those financial statements fairly
present the financial position, results of operations and cash flows of the
Company in conformity with generally accepted
-9-
accounting principles and discuss with us any issues they believe should be
raised with us.
We reviewed the Company's audited financial statements and met with both
management and KPMG Hungaria Kft., the Company's independent auditors, to
discuss those financial statements. Management has represented to us that the
financial statements were prepared in accordance with generally accepted
accounting principles.
We have received from and discussed with KPMG Hungaria Kft. the written
disclosures and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees). These items relate to that
firm's independence from the Company. We also discussed with KPMG Hungaria Kft.
the matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
Finally, the Audit Committee continued to monitor the scope and adequacy of
the Company's accounting staff, including proposals for adequate staffing and to
strengthen internal procedures and controls where appropriate.
On the basis of these reviews and discussions, the Audit Committee
recommended to the Board of Directors that the Board approve the inclusion of
the Company's audited financial statements in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001, for filing with the
Securities and Exchange Commission.
Members of the Audit Committee
Thomas Gelting
John B. Ryan, Chairman
William E. Starkey
Compensation Committee Report on Executive Compensation
The following Report of the Compensation Committee and the performance
graph included elsewhere in this proxy statement do not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report or the performance graph by reference therein.
Since May 2000 the Compensation - Stock Option Committee has consisted of
John B. Ryan, William E. Starkey (Chairman) and Leonard Tow. The function of
this committee is to administer the 1992 Incentive Stock Option Plan and the
Director Stock Option Plan, and negotiate and determine the compensation of
executive officers. The Compensation-Stock Option Committee held two meetings
during the fiscal year ended December 31, 2001.
-10-
Executive Officer Compensation Policy
General. The Company's compensation policy is designed to motivate, reward
and retain the managerial and technical talent needed to achieve the Company's
business objectives. This policy provides for incentives to achieve short- and
long-term objectives and rewards exceptional performance and accomplishments
that contribute to the Company's business. Compensation arrangements for the
Company's executive officers have been designed to align such compensation with
the achievement of the Company's business objectives and growth strategy. The
Company has traditionally sought to achieve such alignment through employment
contracts providing for fixed-base salaries, cash bonuses and the grant of stock
options.
Employment Contracts. The Company has traditionally entered into an
employment agreement with an executive officer effective with the individual's
appointment to an executive position. Employment agreements for executive
officers, including the Chief Executive Officer, have been for terms from two to
four years, and provide for fixed annual salaries over their terms. Base
salaries are initially established through negotiations with the executive
officer during the hiring process. The Company has also granted options to its
executive officers in order to align the interests of such executives with those
of the shareholders of the Company generally.
Chief Executive Officer's Compensation. The Compensation Committee
negotiated a new three-year employment agreement with the Company's Chief
Executive Officer, Ole Bertram. The Compensation Committee provided Mr. Bertram
with a base salary based on comparable industry standards and a grant of options
also based on comparable industry standards. The options are intended to provide
Mr. Bertram with incentive to increase the Company's market value. The
employment agreement with Mr. Bertram also provides for a potential cash bonus
tied to certain Company objectives established by the Compensation Committee.
For the Company's performance in 2000, the Company awarded Mr. Bertram a cash
bonus of $78,300 in February 2001, which was based on the achievement of Company
objectives relating to revenues, operating income, line connections, capital
expenditures and debt refinancing. For the Company's performance in 2001, the
Company awarded Mr. Bertram a bonus of $95,000 in January 2002, which was based
on the achievement of Company objectives relating to revenues, operating income,
line connections, customer growth and an organizational restructuring. The
Company also agreed to award Mr. Bertram 25,000 shares of Common Stock provided
that Mr. Bertram maintains continuous employment with the Company through
December 31, 2003. The Company's current objectives for Mr. Bertram are tied to
its revenue growth, operating income, line connections, and strategic
initiatives.
For a description of certain provisions of the Company's employment
contracts with its executive officers, see "- Employment Agreements."
-11-
In 1993, Section 162(m) was added to the Internal Revenue Code of 1986, as
amended, the effect of which is to eliminate the deductibility of compensation
of over $1 million, with certain exceptions, paid to each of certain highly
compensated executive officers of publicly held corporations, such as the
Company. Section 162(m) applies to all remuneration (both cash and non-cash)
that would otherwise be deductible for tax years beginning on or after January
1, 1994, unless expressly excluded. Because the compensation of the Company's
current officers is well below the $1 million threshold, the Company has not yet
considered its policy regarding this provision.
Members of the Compensation-Stock Option Committee
John B. Ryan
William E. Starkey, Chairman
Leonard Tow
Standard Remuneration of Directors and Other Arrangements
In May 2000, the Board adopted the current compensation structure for its
non-employee directors pursuant to which the Co-Chairmen (Messrs. Ferguson and
Holm) are to be compensated with a fixed quarterly fee of $3,000, a per meeting
fee of $1,100 and $550 for meetings held via telephonic conference call. The
other directors will be compensated with a fixed quarterly fee of $2,500, a per
meeting fee of $800 and $400 for meetings held via telephonic conference call.
For committee meetings, the directors are paid $500 ($800 for the Chairman) for
attendance at meetings and $250 ($400 for the Chairman) for meetings held via
telephonic conference call. The Company also reimburses the directors for
out-of-pocket expenses.
Director Stock Option Plan
The Board adopted the Hungarian Telephone and Cable Corp. Non-Employee
Director Stock Option Plan (the "Director Stock Option Plan") to award options
to the Company's directors who are not officers or employees of the Company.
The Director Stock Option Plan has 250,000 shares of Common Stock available
for issuance pursuant to options to the eligible directors. The Compensation
Committee administers the Director Stock Option Plan. The options will have
ten-year terms and may not be transferred except for limited estate planning
purposes and by will or the laws of descent and distribution.
As of the date each year that any non-employee director is elected or
re-elected to serve as a director by the stockholders of the Company at the
Annual Meeting of Stockholders of the Company, each non-employee director is
automatically granted an option to purchase 5,000 shares of Common Stock with an
exercise price per share equal to the fair market value of a share of Common
Stock on the date of such grant. Each automatic grant of any such options vests
in the optionee, and thus become exercisable, at the earlier of (x) the date of
the next Annual Meeting of Stockholders of the Company, or (y) one year from the
date of such annual grant. On May 21, 2001, the Company granted each of Messrs.
Ferguson, Holm, Ryan, Starkey and Tow options to purchase 5,000 shares of Common
Stock, which options vest on May 20, 2002.
-12-
Executive Compensation
The following table sets forth certain information, for each of the
Company's last three fiscal years, with respect to compensation awarded to the
Company's Chief Executive Officer and each of certain current officers or
employees of the Company whose total annual salary and bonus exceeded $100,000
during the fiscal year ended December 31, 2001 (collectively, the "Named
Executives").
--------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term
SUMMARY COMPENSATION TABLE Compen-
-------------------------- sation
----------------------------------------------------------------------
OtherAnnual Securities All Other
Name and Principal Salary Compen-sation Underlying Compen-
Position Year ($)(1) Bonus ($) ($)(2) Options (#) Sation ($)(3)
--------------------------------------------------------------------------------------------------------------------
Ole Bertram 2001 250,000 78,300 36,000 100,000 30,000
President and Chief 2000 234,954 90,000 36,000 100,000 30,000
Executive Officer 1999 203,696 -- 36,000 100,000 30,000
--------------------------------------------------------------------------------------------------------------------
Peter T. Noone 2001 162,000 15,000 -- 15,000 --
General Counsel and Secretary 2000 150,000 24,675 -- 15,000 --
1999 123,375 24,675 -- 15,000 --
--------------------------------------------------------------------------------------------------------------------
Gary Carpenter 2001 164,771 10,000 36,000 -- --
Managing Director 2000 160,490 5,000 39,250 -- --
1999 87,925 3,000 108,894 -- --
--------------------------------------------------------------------------------------------------------------------
Ole Finderup 2001 115,623 15,000 -- 5,000 44,667
Technical Director 2000 136,057 8,000 -- -- 40,000
1999 46,667 -- -- -- 13,333
--------------------------------------------------------------------------------------------------------------------
William T. McGann 2001 98,571 40,000 36,000 10,000 43,774
Controller and Treasurer 2000 94,286 48,000 36,000 5,000 33,387
1999 89,292 6,000 57,645 -- 15,000
--------------------------------------------------------------------------------------------------------------------
(1) Consists of salaries paid pursuant to employment agreements. See "-
Employment Agreements."
(2) The amounts reported for Mr. Bertram's 1999, 2000 and 2001 "Other
Annual Compensation" consist of an annual housing allowance in the
amount of $36,000. The amounts reported for Mr. Carpenter's "Other
Annual Compensation" include: an annual housing allowance of $36,000
for 2001; housing and vacation allowances of $39,250 for 2000; housing
and vacation allowances of $36,420 and the reimbursement of certain
Hungarian taxes in the amount of $72,474 for 1999. The amounts
reported for Mr. McGann's "Other Annual Compensation" include: an
annual housing allowance of $36,000 for 2001, an annual housing
allowance of $36,000 for 2000; an annual housing allowance of $29,196
and the reimbursement of certain Hungarian taxes in the amount of
$28,449 for 1999.
(3) All amounts reported consist of Company contributions to certain
vested pension plans on behalf of such employees.
-13-
The following table sets forth certain information with respect to options
granted to the Named Executives during the fiscal year ended December 31, 2001
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term
---------------------------------------------------------------------------- ---------------------------------------
Number of Percent of Total
Securities Options Granted
Underlying to Employees in Exercise Expiration
Name Options Granted Fiscal Year Price($) Date 5% ($) 10% ($)
------------------ --------------- ----------------- --------- ------- ------- -------
Ole Bertram 100,000 76.9 4.86 1/1/06 134,273 296,708
Ole Finderup 5,000 3.8 4.86 1/1/06 6,714 14,835
William T. McGann 10,000 7.7 4.86 1/1/06 13,427 29,671
Peter T. Noone 15,000 11.6 4.86 1/1/06 20,141 44,506
The following table summarizes the exercise of stock options
during fiscal 2001 by the Named Executives and provides information as
to the unexercised stock options held by them at the end of the 2001
fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
---------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Acquired Options at Fiscal Year End at Fiscal Year End
Name on Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------------- ------------------------- -------------------------
Ole Bertram -- -- 300,000/-- 47,500/--
Ole Finderup -- -- 5,000/-- --/--
William T. McGann -- -- 16,000/-- --/--
Peter T. Noone -- -- 62,500/-- --/--
Employment Agreements
Ole Bertram - Mr. Bertram's current employment agreement provides for a
three-year term ending on December 31, 2003 with a current annual salary of
$260,000, an annual $30,000 Company contribution to a retirement account and a
$3,000 per month housing allowance. The agreement also provides for a potential
target cash bonus of $100,000 and an annual award of ten-year options to
purchase 100,000 shares of Common Stock. The cash bonus is tied to certain
corporate objectives set by the Compensation Committee. The options vest every
six months in 50,000 share increments. The employment agreement for Mr. Bertram
provides that if his employment is terminated by the Company other than for
cause, or if he suffers a demotion other than for cause or if there is a change
in control of the Company, Mr. Bertram has the right to terminate the agreement.
In the event of any such termination, Mr. Bertram would be entitled to receive
(i) six months' salary, (ii) payment of any
-14-
accrued entitlement to salary, expenses and allowances, and (iii) the
immediate vesting and release of any unvested options.
Gary Carpenter - Mr. Carpenter's employment agreement provides for a
two-year term with a current annual base salary of $164,771 and an annual
housing allowance of $36,000. Mr. Carpenter is eligible to receive an
annual bonus. If Mr. Carpenter's employment is terminated by the Company
without cause or if Mr. Carpenter terminates the agreement because he
suffers a demotion without cause, Mr. Carpenter is entitled to receive the
lesser of three months' salary and allowances or the remaining unpaid
salary and allowances under his employment agreement. If Mr. Carpenter
terminates his employment agreement due to a change in control of the
Company, he is entitled to receive the equivalent of five months' salary
and allowances.
Ole Finderup - Mr. Finderup's employment agreement provided for a
two-year term with a 2001 salary of $115,623 and a Company contribution of
$44,667 to a vested pension plan. If Mr. Finderup's employment was
terminated by the Company without cause or if Mr. Finderup terminated his
employment agreement due to a change in control of the Company or because
he suffered a demotion without cause, then Mr. Finderup was entitled to
receive the lesser of five months' salary or the remaining unpaid salary
under his employment agreement. Mr. Finderup left the employment of the
Company at the end of 2001 to return to Denmark, his home country.
William T. McGann - Mr. McGann's employment agreement provides for a
three-year term with a 2001 annual salary of $98,571, an annual Company
contribution of $43,774 to a vested pension plan and an annual housing
allowance of $36,000. If Mr. McGann's employment is terminated by the
Company without cause or if Mr. McGann terminates his employment agreement
because he suffers a demotion without cause, then Mr. McGann is entitled to
receive the lesser of six months' salary and allowances or the remaining
unpaid salary and allowances under his employment agreement. If Mr. McGann
terminates his employment agreement due to a change in control of the
Company, he is entitled to receive the equivalent of six months' salary and
allowances.
Peter T. Noone - Mr. Noone's current employment agreement provides for
a two-year term with a current annual base salary of $170,000. The
agreement also provides for a potential bonus and an annual award of
ten-year options to purchase 20,000 shares of Common Stock. If Mr. Noone's
employment is terminated by the Company without cause of if Mr. Noone
terminates the agreement due to a change in control of the Company or
because he suffers a demotion without cause, then Mr. Noone would be
entitled to receive (i) six months salary and allowances, (ii) all
restricted shares, whether vested or unvested as of the date of
termination, (iii) payment of any accrued entitlement to salary, expenses
and allowances, and (iv) the immediate vesting and release of any unvested
options.
Compensation Committee Interlocks and Insider Participation
Since May 2000 the Compensation - Stock Option Committee has consisted
of John B. Ryan, William E. Starkey (Chairman) and Leonard Tow. The
function of this committee is to administer the 1992 Incentive Stock Option
Plan and the Director Stock Option Plan, and negotiate and determine the
compensation of executive officers. The Compensation-Stock Option Committee
held two meetings during the fiscal year ended December 31, 2001. No
current or former members of the committee during such period were officers
of the Company or any of its subsidiaries. Mr. Tow is the Chairman of the
Board and an executive officer of Citizens. See "Introduction - Stock
Ownership of Certain
-15-
Beneficial Owners."
Certain Relationships and Related Transactions
The Company had no reportable relationships or transactions for the
fiscal year ending December 31, 2001.
Indebtedness of Management
No director, designated executive officer or nominee for election as a
director of the Company has been indebted to the Company or any of its
subsidiaries at any time during the last fiscal year in an amount in excess
of $60,000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, officers and beneficial owners of over
10% of the Common Stock to file reports of holdings and transactions in the
Common Stock. Based upon a review of the Forms 3, 4 and 5 required to be
filed by such directors, officers and beneficial owners pursuant to Section
16(a) for the Company's fiscal year ended December 31, 2001, the Company
has identified one untimely filed report. TDC A/S filed one Form 4 one day
late with respect to one transaction involving the purchase of 14,001
shares of Common Stock. The Company had not identified any transactions by
such persons that did not have the necessary report filed.
Stock Performance Graph
The line graph on the following page compares the cumulative total
stockholder return of the Company's Common Stock to the cumulative total
return of (i) the American Stock Exchange Market Index and (ii) a
telecommunications industry index, for the period commencing January 1,
1997 an ending December 31, 2001. The Common Stock was first listed for
quotation on the Nasdaq Small-Cap Market on December 28, 1992 and was
quoted on the Nasdaq National Market from December 8, 1994 through December
19, 1995. On December 20, 1995, the Common Stock began trading on the
American Stock Exchange. The graph assumes that $100 was invested on
January 1, 1997, with any dividends reinvested on the date paid. The graph
shows as of December 31/st/ for each of the five years the hypothetical
value of such initial $100 investment.
-16-
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
AMEX MARKET INDEX AND TELECOMMUNICATIONS INDUSTRY INDEX
[GRAPH]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Hungarian Telephone and $ 100.00 102.00 34.67 77.33 61.33 49.07
Cable Corp.
Telecommunications 100.00 129.62 197.34 300.66 163.81 112.46
Industry Index
Amex Market Index 100.00 120.33 118.69 147.98 146.16 139.43
The Board of Directors recommends that stockholders vote "FOR" the
election of the nominees named herein as directors
II. PROPOSAL TO AMEND THE COMPANY'S 1992 INCENTIVE STOCK OPTION PLAN TO
EXTEND THE TERMINATION DATE OF THE PLAN FROM APRIL 30, 2003 TO APRIL
30, 2008 AND RENAME THE PLAN THE "2002 INCENTIVE STOCK OPTION PLAN"
Background of Proposed Amendment
The Board of Directors recommends that shareholders approve an
amendment to the Company's 1992 Incentive Stock Option Plan, as amended
(the "Stock Option Plan") to extend the termination date of the plan as so
amended from April 30, 2003 to April 30, 2008 and rename the plan the "2002
Incentive Stock Option Plan."
The Stock Option Plan plays an important role in the Company's efforts
to attract and retain employees of outstanding ability, and to align the
interests of employees with those of the shareholders through increased
employee ownership of the Company. In order to continue to provide the
appropriate equity incentives to employees in the future, the Board of
Directors has unanimously approved an amendment to the Stock Option Plan to
extend its term for five years and rename the Stock Option Plan, the "2002
Incentive Stock Option Plan." The amendment must be approved by a vote of
the holders of a majority of the shares present in person, or represented
by proxy, and voted on this item at the Meeting. In the event shareholders
approval is not obtained, the Company will not extend the plan's term, but
awards may continue to be made under the terms of the plan as currently in
effect.
-17-
The purpose of the plan is to provide long-term incentives and rewards
to employees of the Company and its affiliates, to assist the Company in
attracting and retaining individuals with experience and/or ability on a
basis competitive with industry practices and to associate the interest of
these individuals with those of the Company's shareholders. The following
is a summary of the principal features of the plan.
Description of the Stock Option Plan
The following description of the Stock Option Plan does not purport to
be complete and is qualified in its entirety by reference to the full text
of the Stock Option Plan, which may be obtained by any stockholder of the
Company by contacting Hungarian Telephone and Cable Corp., Attn: Peter T.
Noone, Secretary, 32 Center Street, Darien, CT 06820.
Purpose. The purpose of the Stock Option Plan is to provide an
incentive to employees of the Company (including directors and officers of
the Company), to encourage proprietary interest in the Company, to
encourage employees to remain in the employ of the Company and to attract
to the Company individuals of experience and ability to serve as employees,
directors and consultants.
Shares Subject to the Stock Option Plan. The maximum number of shares
of Common Stock as to which options may be granted under the Stock Option
Plan (subject to adjustment as described below) presently is 1,250,000
shares. Any shares subject to an option which for any reason expires or
terminates unexercised may again be the subject of another option granted
under the Stock Option Plan. As of the Record Date, options with respect to
833,490 shares of Common Stock have been granted and are either still
outstanding or have been exercised under the Stock Option Plan. The
remaining 416,510 shares of Common Stock in the Stock Option Plan are
subject to future grants of Options.
Administration. The Stock Option Plan presently is administered by the
Compensation Committee of the Board of Directors. The Compensation
Committee shall from time to time, at its discretion, make determinations
with respect to individuals who shall be granted options (Incentive Stock
Options or Non-Qualified Stock Options, which may be referred to
collectively as "Options"), the number of shares subject to Options and the
designations of such Options as Incentive Stock Options (an option
described in Section 422(b) of the Internal Revenue Code of 1986, as
amended, and also known as a "Qualified Option") or Non-Statutory Stock
Options (an option not described in Section 422(b) or 423(b) of the
Internal Revenue Code of 1986, as amended, and also known as a
"Non-Qualified Option"). Notwithstanding such designations, to the extent
that the aggregate fair market value of the shares with respect to which
Options designated as Incentive Stock Options are exercisable for the first
time by any optionee during any calendar year exceeds $100,000, such
Options shall be treated as Non-Qualified Options. The Compensation
Committee determines vesting requirements and other conditions of such
awards, interprets the Stock Option Plan, and makes all other decisions
relating to the operation of the Stock Option Plan. The Compensation
Committee has granted the Company's Chief Executive Officer the authority
to make a limited amount of annual Option grants at his discretion to
employees of the Company.
Eligibility. All key employees, directors (whether or not they are
employees of the Company), and consultants (individually, an "Optionee",
and together, the "Optionees") of the Company or any of its subsidiaries
who perform services of special importance to the management, operation and
development of the business of the Company as the Compensation Committee
may select presently are
-18-
eligible to receive Options under the Stock Option Plan. As of the April 5,
2002, there were approximately 640 persons in total eligible to participate
in the Stock Option Plan including directors (7), executive officers (1)
and officers (10).
Option Contracts. Each grant of an Option is evidenced by a written
contract between the Company and the Optionee receiving the grant,
containing terms and conditions not inconsistent with the Stock Option
Plan. Each Optionee shall agree to remain in the employ of, and to render
to, the Company his or her services for a period of one (1) year from the
date of the granting of any Option, but such agreement shall not impose
upon the Company any obligation to retain the Optionee for any period of
time.
Terms and Conditions of Options. Options may be granted for terms
determined by the Committee; provided, however, that no Option shall be
exercisable after the expiration of 10 years from the date of grant; and
provided further that the exercise period for an Incentive Stock Option may
not exceed 5 years if the option holder owns (or is deemed to own) stock
representing more than 10% of the voting power of the Company. In the case
of an Incentive Stock Option, the per share exercise price shall be no less
than 100% of the fair market value per share on the date of grant, except
that, if granted to an employee who, at the time of the grant of such
Incentive Stock Option, owns (or is deemed to own) stock representing more
than 10% of the voting power of all classes of stock of the Company or any
parent or subsidiary, the per share exercise price shall be no less than
110% of the fair market value per share on the date of grant. In the case
of a Non-Qualified Option, the per share exercise price may be less than,
equal to, or greater than the fair market value per share on the date of
grant, as determined by the Compensation Committee.
The consideration to be paid for shares to be issued upon exercise of
an Option shall be United States dollars; provided, however, that, with the
consent of the Compensation Committee, the purchase price may be paid by
the surrender of shares of Common Stock in good form for transfer owned by
the person exercising the Option and having a fair market value on the date
of exercise equal to the purchase price or in any combination of cash and
shares, so long as the total of the cash so paid and the fair market value
of the shares surrendered equals the purchase price. No shares shall be
issued pursuant to the exercise of an option until full payment therefor
has been made.
Options may not be transferred except for limited estate planning
purposes (in the case of Non-Qualified Options) and by will or by the laws
of descent and distribution, and may be exercised during the Optionee's
lifetime only by him or his legal representatives or permitted transferee
(in the case of Non-Qualified Options). With respect to an Option granted
to an employee, if the employment of such employee is terminated for any
reason other than death, the Option may be exercised, to the extent
exercisable by the holder at the time of termination of employment, within
the earlier of (x) the original expiration date of the Option or (y) three
months following termination in the case of a Qualified Option and eighteen
months following termination in the case of a Non-Qualified Option (twelve
months if termination was due to disability in the case of a Qualified
Option). In the case of death of the Optionee while employed or following
the termination of employment, his executor or administrator of his estate
or permitted transferee may exercise the Option, to the extent exercisable
on the date of death, within twelve months of the death (subject to certain
restrictions).
-19-
Adjustment in Event of Capital Changes. Subject to any required action
by the Company's stockholders, the number of shares covered by the Stock
Option Plan, the number of shares covered by each outstanding Option, and
the exercise price thereof shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of the Common Stock, stock
split, or the payment of a stock dividend.
Subject to any required action by the Company's stockholders, if the
Company shall be the surviving corporation in any merger or consolidation,
each outstanding Option shall pertain and apply to the securities to which
a holder of the number of shares subject to the Option would have been
entitled. A dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation shall
cause each outstanding Option to terminate, unless the agreement of merger
or consolidation shall otherwise provide; provided that each Optionee shall
in such event, if a period of one year from the date of the grant of the
Option shall have elapsed, have the right immediately prior to such
dissolution or liquidation, or merger or consolidation in which the Company
is not the surviving corporation, to exercise the Option in whole or in
part, subject to limitations on exercise under the Stock Option Plan.
In the event of a change in the Common Stock as presently constituted,
which is limited to a change of all of its authorized shares with par value
into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Stock Option Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the
Compensation Committee, whose determination in that respect shall be final,
binding and conclusive.
Duration and Amendments of the Stock Option Plan. Options may be
granted pursuant to the Stock Option Plan until the termination of the
Stock Option Plan on April 30, 2003. The Board of Directors may at any
time, with respect to any shares of Common Stock not yet subject to an
outstanding Option and subject to applicable law, suspend, terminate or
amend the Stock Option Plan in any respect; provided, however, that,
without the approval of the Company's stockholders, no amendment may be
made which would (a) increase the number of shares available for grant
pursuant to Options (except the anti-dilution adjustments described above),
(b) materially increase benefits accruing to participants under the Stock
Option Plan or (c) change the eligibility requirements for participating in
the Stock Option Plan.
Federal Income Tax Treatment. The following is a general summary of
the federal income tax consequences under current tax law of Incentive
Stock Options and Non-Qualified Options. It does not purport to cover all
of the special rules, including the exercise of an option with previously
acquired shares, or the state or local income or other tax consequences
inherent in the ownership and exercise of stock options and the ownership
and disposition of the underlying shares.
An Optionee will not generally recognize taxable income for federal
income tax purposes upon the grant of an Incentive Stock Option or a
Non-Qualified Option and the Company obtains no deduction from the grant of
such Options.
In the case of an Incentive Stock Option, no taxable income is
recognized upon exercise of the Incentive Stock Option and the Company will
not be entitled to a tax deduction by reason of such
-20-
exercise; provided that, the holder is still employed by the Company (or
terminated employment no longer than three months before the exercise
date). Additional exceptions to this exercise timing requirement apply upon
the death or disability of the Optionee. If the Optionee disposes of the
shares acquired pursuant to the exercise of an Incentive Stock Option more
than two years after the date of grant and more than one year after the
exercise, the Optionee will recognize long-term capital gain or loss in the
amount of the difference between the amount realized on the sale and the
exercise price for such shares and the Company will not be entitled to a
deduction. Generally, upon a sale or disposition of the shares prior to the
foregoing holding requirements (referred to as a "disqualifying
disposition"), the Optionee will recognize ordinary compensation income,
and the Company will receive a corresponding deduction, equal to the lesser
of (i) the excess of the fair market value of the shares on the date of
transfer to the Optionee over the exercise price, or (ii) the excess of the
amount realized on the disposition over the exercise price. Any remaining
gain or loss on the disposition will generally be taxed as a capital gain
or loss.
Upon the exercise of a Non-Qualified Option, the amount by which the
fair market value of the shares on the date of exercise exceeds the
exercise price will generally be taxed to the Optionee as ordinary
compensation income. The Company will generally be entitled to a deduction
in the same amount provided that it satisfies certain requirements relating
to the terms of the Option and makes all required wage withholdings on the
compensation element attributable to the exercise. In general, the
Optionee's tax basis in the shares acquired by exercising a Non-Qualified
Option is equal to the fair market value of such shares on the date of
exercise. The holding period for the shares for capital gains purposes will
commence on the day the option is exercised. Upon a subsequent sale of any
such shares in a taxable transaction, the Optionee will generally realize
capital gain or loss in an amount equal to the difference between his or
her basis in the shares and the sale price.
In addition to the federal income tax consequences described above, an
Optionee may be subject to the alternative minimum tax, which is payable to
the extent it exceeds the Optionee's regular tax. For this purpose, upon
the exercise of an Incentive Stock Option, the excess of the fair market
value of the shares over the exercise price therefor is an adjustment which
increases alternative minimum taxable income. In addition, the Optionee's
basis in such shares is increased by such amount for purposes of computing
the gain or loss on the disposition of the shares for alternative minimum
purposes. If an Optionee is required to pay an alternative minimum tax, the
amount of such tax which is attributable to deferral preferences (including
the incentive stock option adjustment) is allowed as a credit against the
Optionee's regular tax liability in subsequent years. To the extent the
credit is not used, it is carried forward.
To the extent required by applicable federal, state, local or foreign
law, the recipient of any payment or distribution under the Stock Option
Plan will make arrangements satisfactory to the Company for the
satisfaction of any withholding tax obligations that arise by reason of
such payment or distribution. The Company will not be required to make such
payment or distribution until such obligations are satisfied.
Benefits Under Stock Option Plan
The benefits to be awarded to and received by the employees, directors
and consultants of the Company under the Stock Option Plan, as proposed to
be amended, in the future are not presently determinable with certainty.
The Company does have certain contractual obligations which may require the
granting of options in the future. See "Election of Directors - Employment
Agreements."
-21-
There would have been no additional benefits received by the
employees, directors and consultants of the Company for the last completed
fiscal year if the Stock Option Plan, as proposed to be amended, had been
in effect. During the fiscal year ended December 31, 2001, stock options
were granted to the Company's "named executives" as set forth in the table
captioned "Option Grants in Last Fiscal Year" above, which constituted the
only options granted under the Stock Option Plan for the fiscal year ended
December 31, 2001.
The table below sets forth the number of shares subject to options
granted, if any, under the Stock Option Plan from the inception of the
Stock Option Plan through April 5, 2002 to: (i) the Named Executives; (ii)
each nominee for election as a director; (iii) all current executive
officers as a group; (iv) all current directors who are not executive
officers as a group; (v) all employees and consultants who are not
executive officers, as a group; and (vi) each person who received 5% of
such options.
Number of Shares
Name Title Subject to Options
---- ----- ------------------
Ole Bertram President and Chief Executive Officer
and Director 400,000
Francis Busacca Former Deputy Chief Executive Officer 59,990(1)
Frank R. Cohen Former Director, Secretary, Treasurer and
Chief Financial Officer 36,000(2)
Ole Finderup Former Technical Director 5,000
Robert Genova Former Chairman of the Board, President and
Chief Executive Officer 96,500(3)
Peter E. Klenner Former Director and Former President, Chief
Executive Office and Chief Financial Officer 97,500(4)
William McGann Controller and Treasurer 36,000
James G. Morrison Former President and Chief Executive Officer
and Director 82,500 (5)
Andrew E. Nicholson Former Senior Vice President 65,000(6)
Peter T. Noone General Counsel 82,500
Donald K. Roberton Former Vice Chairman and Director 200,000(7)
(continued on next page)
-22-
Number of Shares
Name Title Subject to Options
---- ----- ------------------
(continued)
John B. Ryan Director 15,000(8)
Current executive officers as a group (1 person) 400,000
Current directors who are not executive officers as a group (6 persons) 15,000(9)
Employees and consultants who are not executive officers as a group (3 persons) 118,500
---------------------------------------------------------------------------------------------
(1) Mr. Busacca's option to purchase 20,000 shares of Common Stock expired
unexercised.
(2) Mr. Cohen exercised an option to purchase 5,000 shares of Common
Stock. Mr. Cohen's option to purchase 31,000 shares of Common Stock
expired unexercised.
(3) Mr. Genova exercised an option to purchase 50,000 shares of Common
Stock. Mr. Genova's option to purchase 46,500 shares of Common Stock
expired unexercised.
(4) Mr. Klenner exercised all of his options.
(5) Mr. Morrison's option to purchase 30,000 shares of Common Stock
expired unexercised.
(6) Mr. Nicholson exercised options to purchase 30,600 shares of Common
Stock. Mr. Nicholson's option to purchase 20,000 shares of Common
Stock expired unexercised.
(7) Mr. Roberton's option to purchase 200,000 shares of Common Stock
expired unexercised.
(8) Mr. Ryan exercised an option to purchase 5,000 shares of Common Stock.
Mr. Ryan had an option to purchase 5,000 shares of Common Stock which
expired unexercised.
(9) An option to purchase 5,000 shares of Common Stock was exercised. An
option to purchase 5,000 shares of Common Stock expired unexercised.
All shares currently subject to Options, as well as any additional
shares that may become subject to future Options, under the Stock Option
Plan are comprised of authorized but unissued shares of Common Stock.
Accordingly, the exercise of any such Options and the issuance of shares
pursuant thereto will have the effect of diluting the interests of existing
stockholders to the extent of such issuance.
On April 5, 2002, the closing price for the Common Stock as reported
by the American Stock Exchange was $5.20.
Certain Interests of Directors and Officers
In considering the recommendation of the Board of Directors with
respect to the extension of the term and renaming the Stock Option Plan,
stockholders should be aware that the members of the Board of Directors and
officers of the Company have certain interests which may present them with
conflicts of interest in connection with such proposal. As discussed above,
all current directors and officers of the Company are eligible to
participate in the Stock Option Plan.
The Board of Directors recognizes that approval of the proposal to
extend the term of the Stock Option Plan may benefit such individual
directors and officers of the Company and their successors, but it believes
that approval of the extension of the term of the Stock Option Plan will
strengthen the Company's ability to continue to attract, motivate and
retain certain qualified employees, directors and
-23-
consultants. Furthermore, the Board of Directors believes that such approval
will advance the interests of the Company and its stockholders by encouraging
key employees, directors and consultants to make significant contributions to
the long-term success of the Company. The Board of Directors believes that the
extension of the term of the Stock Option Plan and the renaming of such plan is
in the best interests of the Company and its stockholders, and therefore,
unanimously recommends a vote FOR the approval of the proposal to extend the
termination date of the plan as amended from April 30, 2003 to April 30, 2008
and rename the plan the "2002 Incentive Stock Option Plan." In considering the
foregoing recommendation of the Board of Directors, stockholders should be aware
that the current members of the Board of Directors own as of April 5, 2002, in
the aggregate, approximately 3.2% of the shares of the Company's issued and
outstanding Common Stock, assuming full exercise of options and warrants
exercisable by them within 60 days of the Record Date.
The Board of Directors recommends that stockholders vote "FOR" approval of
an amendment to the Company's 1992 Incentive Stock Option Plan, as amended, to
extend the termination date of the plan as so amended from April 30, 2003 to
April 30, 2008 and rename the plan the "2002 Incentive Stock Option Plan."
III. RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors, on the recommendation of the Audit Committee, has
reappointed the firm of KPMG Hungaria Kft. ("KPMG") as independent auditors of
the Company for the fiscal year ending December 31, 2002, subject to the
ratification of the appointment by the Company's stockholders. The following
summarizes the fees paid to KPMG for services rendered during fiscal 2001.
Audit Fees
KPMG billed the Company approximately $265,000 in the aggregate for
professional services rendered for the audit of the Company's annual financial
statements for the fiscal year ended December 31, 2001 and the reviews of the
Company's quarterly financial statements for the fiscal year ended December 31,
2001.
Financial Information Systems Design and Implementation Fees
KPMG did not perform any services for the Company in connection with any of
the Company's information systems, local area networks or the Company's computer
hardware or software systems.
All Other Fees
Other than the audit fees described above, KPMG billed the Company
approximately $164,000 in the aggregate for services performed during the fiscal
year ended December 31, 2001 relating generally to advice on various U.S. and
Hungarian accounting and taxation issues, assistance in the preparation of
certain individual Hungarian income tax returns, and tax and accounting
assistance with the Company's merger of its Hungarian subsidiaries.
The Audit Committee of the Company's Board of Directors has considered
whether the rendering of such non-auditing services by KPMG is compatible with
KPMG's independence.
-24-
General
A representative of KPMG Hungaria Kft. is expected to attend the Meeting to
respond to appropriate questions and will have an opportunity to make a
statement if he or she so desires.
The Board of Directors recommends that stockholders vote "FOR" the
ratification of the appointment of KPMG Hungaria Kft. as auditors of the Company
for the fiscal year ending December 31, 2002.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, some
stockholder proposals may be eligible for inclusion in the Company's 2003 Proxy
Statement for the Company's Annual Meeting of Stockholders to be held in 2003.
Any such stockholder proposals must be submitted in writing to the Secretary of
the Company no later than December 20, 2002. A shareholder proposal for the
Company's 2003 Annual Meeting of Stockholders which is submitted outside the
processes of Rule 14a-8 is considered untimely if the Company did not have
notice of such proposal at least 45 days before the date on which the Company
first mailed its proxy materials for the prior year's annual meeting of
stockholders. For the Company's 2003 Annual Meeting of Stockholders, such date
is February 25, 2003. Stockholders interested in submitting such a proposal are
advised to contact knowledgeable counsel with regard to the detailed
requirements of applicable securities laws. The submission of a stockholder
proposal does not guarantee that it will be included in the Company's Proxy
Statement.
OTHER BUSINESS
The Board of Directors is not aware of any matter other than the matters
described above to be presented for action at the Meeting. However, if any other
proper items of business should come before the Meeting, it is the intention of
the person or persons acting under the enclosed form of proxy to vote in
accordance with their best judgment on such matters.
-25-
EXPENSES OF SOLICITATION
The Company will pay the expenses of this proxy solicitation. In addition
to solicitation by mail, some of the officers and regular employees of the
Company may solicit proxies personally or by telephone. The Company will request
brokers and other fiduciaries to forward proxy soliciting material to the
beneficial owners of shares which are held of record by them, and the Company
may reimburse them for certain reasonable out-of-pocket expenses incurred by
them in connection therewith.
By Order of the Board of Directors,
/s/ Daryl A. Ferguson /s/ Torben V. Holm
Daryl A. Ferguson Torben V. Holm
Chairman of the Board Chairman of the Board
April 9, 2002
Darien, CT
-26-
Appendix A
PROXY PROXY
HUNGARIAN TELEPHONE AND CABLE CORP.
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 22, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints DARYL A.
FERGUSON and PETER T. NOONE, and each of them, with full power of substitution
in each, as proxies for the undersigned, to represent the undersigned and to
vote all the shares of Common Stock of the Company which the undersigned would
be entitled to vote, as fully as the undersigned could vote and act if
personally present, at the Annual Meeting of Stockholders (the "Meeting") to be
held on May 22, 2002, at 10:00 a.m. local time, at the New York Marriott East
Side Hotel, 525 Lexington Avenue, New York, New York 10017, or at any
adjournment or postponement thereof.
Should the undersigned be present and elect to vote at the Meeting or at any
adjournments or postponements thereof, and after notification to the Secretary
of the Company at the Meeting of the stockholder's decision to terminate this
proxy, then the power of such attorneys or proxies shall be deemed terminated
and of no further force and effect. This proxy may also be revoked by filing a
written notice of revocation with the Secretary of the Company or by duly
executing a proxy bearing a later date.
The Board of Directors recommends a vote "FOR" all nominees for director, the
amendment to the Stock Option Plan, and the ratification of the appointment of
KPMG Hungaria Kft. To vote in accordance with the Board's recommendations, just
sign on the reverse side; no boxes need to be marked. The shares represented by
this proxy will be voted as directed by the stockholder, but if no instructions
are specified as to any item or all items on a properly executed proxy, this
proxy will be voted, with respect to such item(s), as follows: for the election
of the Board nominees and for the listed proposals. If any other business is
presented at the Meeting, this proxy will be voted by those named in this proxy
in their best judgment. At the present time, the Board of Directors knows of no
other business to be presented at the Meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
1. The election as directors of all nominees listed below to serve until the
2003 Annual Meeting of Stockholders or until their successors have been duly
elected and qualified;
INSTRUCTION: To withhold your vote for one or more individual nominees, mark
"FOR ALL EXCEPT" and strike a line through the name(s) of such person(s) in
the list below.
OLE BERTRAM, DARYL A. FERGUSON, THOMAS GELTING, TORBEN V. HOLM, JOHN B. RYAN,
WILLIAM E. STARKEY, LEONARD TOW
[_] VOTE FOR ALL NOMINEES [_] WITHHOLD FOR ALL NOMINEES [_] FOR ALL EXCEPT
2. To amend the Company's 1992 Incentive Stock Option Plan, as amended, to
extend the termination date of the plan as so amended from April 30, 2003 to
April 30, 2008 and rename the plan the "2002 Incentive Stock Option Plan";
[_] FOR [_] AGAINST [_] ABSTAIN
3. Ratification of the appointment of KPMG Hungaria Kft. as auditors of the
Company for the fiscal year ending December 31, 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
The undersigned acknowledges receipt from the Company, prior to the execution
of this proxy, of the Notice of Annual Meeting and accompanying Proxy Statement
relating to the Meeting and an Annual Report to Stockholders for the fiscal
year ended December 31, 2001.
DATED: _____ , 2002
--------------------------
Signature
--------------------------
Signature
Please mark, date and
sign as your name(s)
appear(s) to the left and
return in the enclosed
envelope. If acting as an
executor, administrator,
trustee, guardian, etc.,
you should so indicate
when signing. If the
signer is a corporation,
please sign the full
corporate name, by duly
authorized officer. If
shares are held jointly,
each shareholder named
should sign.
Appendix B
HUNGARIAN TELEPHONE AND CABLE CORP.
1992 INCENTIVE STOCK OPTION PLAN, AS AMENDED AS OF MAY 21, 2001
1. Purpose. The purpose of the 1992 Incentive Stock Option Plan of
-------
Hungarian Telephone and Cable Corp. (the "Corporation") is to provide incentive
to employees of the Corporation, to encourage employee proprietary interest in
the Corporation, to encourage employees to remain in the employ of the
Corporation, and to attract to the Corporation individuals of experience and
ability to serve as employees, directors and consultants.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986 as amended
from time to time.
(c) "Common Stock" shall mean the $.001 par value Common stock of the
Corporation.
(d) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 4 of the Plan.
(e) "Corporation" shall mean Hungarian Telephone and Cable Corp., a
Delaware corporation, its parent or any of its subsidiaries.
(f) "Disability" shall mean the condition of an Employee who is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months.
(g) "Employee" shall mean an individual (who may be an officer or a
director) employed by the Corporation (within the meaning of the Code
section 3401 and the regulations thereunder).
(h) "Exercise Price" shall mean the price per Share of Common Stock,
determined by the Committee, at which an Option may be exercised.
(i) "Fair Market Value" of a share of Common Stock on any day shall
mean the average of the daily closing prices for the prior twenty (20)
trading days of a share of the Company's Common Stock on the American Stock
Exchange, or, if the shares are not listed or admitted to trading on such
Exchange, on the principal
United States securities exchange or on the NASDAQ/NMS on which the shares are
listed or admitted to trading, or if the shares are not listed or admitted to
trading on any such exchange or on the NASDAQ/NMS, the mean between the closing
high bid and low asked quotations with respect to a share on such dates on the
National Association of Securities Dealers, Inc. Automated Quotations System, or
any similar system then in use, or if no such quotations are available, the fair
market value on such date of a share as the Committee shall determine.
(j) "Incentive Stock Option" shall mean an Option described in Code
section 422(b).
(k) "Nonstatutory Stock Option" or a "Non-Qualified Stock Option"
shall mean an Option not described in Code sections 422(b) or 423(b).
(l) "Option" shall mean a stock option granted pursuant to the Plan.
(m) "Purchase Price" shall mean the Exercise Price times the number of
whole Shares with respect to which an Option is exercised.
(n) "Optionee" shall mean an Employee to whom an option has been
granted.
(o) "Plan" shall mean this Hungarian Telephone and Cable Corp. 1992
Incentive Stock Option Plan.
(p) "Share" shall mean one Share of Common Stock, adjusted in
accordance with Section 10 of the Plan (if applicable).
(q) "Subsidiary" shall mean those subsidiaries of the Corporation as
defined in section 424(f) of the code.
3. Effective Date. This Plan was approved by the Board and Shareholders
--------------
effective April 30, 1992.
4. Administration. The Plan shall be administered by the Board of
--------------
Directors or by the Stock Option Committee (the `Committee") appointed by the
Board, consisting of not less than two members thereof. The Board may from time
to time remove members from, or add members to, the Committee. Vacancies on the
Committee, however caused, shall be filled by the Board.
The Committee shall hold meetings at such times and places as it may
determine. Acts of a majority of the Committee at which a quorum is present, or
acts reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. The Committee shall from
time to time at its discretion make determinations with respect to Employees who
shall be granted Options, the number
2
of Shares to be optioned to each and the designation of such Options as
Incentive Stock Options or Nonstatutory Stock Options.
The interpretation and construction by the Committee of any provisions
of the Plan or of any Option granted thereunder shall be final. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted thereunder.
5. Eligibility. Optionees shall be such key Employees (who may be
-----------
officers, whether or not they are directors), or directors or consultants of the
Corporation who perform services of special importance to the management,
operation and development of the business of the Corporation as the Committee
shall select, but subject to the terms and conditions set forth below.
(a) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designations, to the extent that the aggregate fair
market value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company) exceeds $100,000,
such Options shall be treated as Non-Qualified Stock Options.
(b) For purposes of Section 5(a), Options shall be taken into account
in the order in which they were granted, and the fair market value of the
Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) Nothing in the Plan or any Option granted hereunder shall confer
upon any Optionee any right with respect to continuation of employment with
the Company, nor shall it interfere in any way with the Optionee's right or
the Company's right to terminate the employment relationship at any time,
with or without cause.
6. Stock. The stock subject to Options granted under the Plan shall be
-----
Shares of the Corporation's authorized but unissued or reacquired Common Stock.
The aggregate number of Shares which may be issued under Options exercised under
this Plan shall not exceed 1,250,000. The number of Shares subject to Options
outstanding under the Plan at any time may not exceed the number of Shares
remaining available for issuance under the Plan. In the event that any Option
outstanding under the Plan expires for any reason or is terminated, the Shares
allocable to the unexercised portion of such Option may again be subjected to an
Option under the Plan.
The limitations established by this Section 6 shall be subject to
adjustment upon the occurrence of the events specified and in the manner
provided in Section 10 hereof.
3
7. Terms and Conditions of Options. Options granted pursuant to the
-------------------------------
Plan shall be evidenced by written agreements in such form as the Committee
shall from time to time determine, which agreements shall comply with and be
subject to the following terms and conditions:
(a) Date of Grant. Each option shall specify its effective date (the
"date of grant"), which shall be the date specified by the Board or the
Committee, as the case may be, in its action relating to the grant of the
Option.
(b) Optionee's Agreement. Each Optionee shall agree to remain in the
employ of and to render to the Corporation his or her services for a period
of one (1) year from the date of the granting of the Option, but such
agreement shall not impose upon the Corporation any obligation to retain
the Optionee in their employ for any period.
(c) Number of Shares. Each Option shall state the number of Shares
to which it pertains and shall provide for the adjustment thereof in
accordance with the provisions of Section 10 hereof.
(d) Exercise Price and Consideration.
(i) The per Share exercise price under each Option shall be
such price as is determined by the Board, subject to the following:
a) In the case of an Incentive Stock Option
i) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the fair market value per share on the
date of grant.
ii) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the fair market value per Share
on the date of grant.
b) In the case of a Non-Qualified Stock Option the per Share
exercise price may be less than, equal to, or greater than the fair
market value per Share on the date of grant.
(ii) The fair market value per Share shall be the average of the
daily closing prices for the prior twenty (20) trading days of a
share of the Company's Common Stock on the American Stock Exchange,
or, if the shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange or on
the NASDAQ/NMS on
4
which the shares are listed or admitted to trading, or if the shares are
not listed or admitted to trading on any such exchange or on the
NASDAQ/NMS, the mean between the closing high bid and low asked quotations
with respect to a share on such dates on the National Association of
Securities Dealers, Inc. Automated Quotations System, or any similar system
then in use, or if no such quotations are available, the fair market value
on such date of a share as the Committee shall determine.
(e) Medium and Time Payment. The Purchase Price shall be payable in full in
United States dollars upon the exercise of the Option; provided, however, that,
with the consent of the Committee, the Purchase Price may be paid by the
surrender of Shares in good form for transfer, owned by the person exercising
the option and having a Fair Market Value on the date of exercise equal to the
Purchase Price or in any combination of cash and Shares, so long as the total of
the cash so paid and the Fair Market Value of the Shares surrendered equals the
Purchase Price. No Share shall be issued until full payment therefore has been
made.
(f) Term and Exercise of Options; Nontransferability of Options. Each
Option shall state the time or times when it becomes exercisable. No option
shall be exercisable after the expiration of ten (10) years from the date it is
granted. During the lifetime of the Optionee, an Incentive Stock Option shall be
exercisable only by the Optionee and shall not be assignable or transferable. In
the event of the Optionee's death, no Incentive Stock Option shall be
transferable by the Optionee otherwise than by will or the laws of descent and
distribution. No Non-Qualified Option granted under the Plan shall be
transferable other than by will or the laws of descent or distribution except
pursuant to a domestic relations order as defined by the Internal Revenue Code
or Title I of the Employee Retirement Income Security Act ("ERISA") or the rules
thereunder and except that, with the consent of the Committee acting in its sole
discretion, an Optionee may transfer (a "Family Member Transfer") a
Non-Qualified Option to (i) a member of the Optionee's immediate family (which
for the purposes of the Plan shall have the same meaning as defined in Rule
16a-1 promulgated under the Securities Exchange Act); (ii) a trust (the "Family
Trust") the beneficiaries of which consist exclusively of members of the
Optionee's immediate family; and (iii) a partnership, limited partnership or
other limited liability entity ("Family Entity") the members of which consist
exclusively of members of the Optionee's immediate family or a Family Trust;
provided that no consideration is paid for the transfer and that each Family
Transferee execute an instrument agreeing to be bound by the provisions of the
Plan and the restrictions as to the transferability of the Non-Qualified Option.
During the lifetime of an Optionee, a Non-Qualified Option shall be exercisable
only by the Optionee or his or her Family Transferee. A ("Family Transferee") is
a transferee that is a Family Trust, Family Entity or a member of the immediate
family of an Optionee.
5
(g) Termination of Employment Except Death. In the event that an Optionee
shall cease to be employed by the Corporation for any reason other than his or
her death, such Optionee (or permitted Family Transferee in the case of a
Non-Qualified Option) shall have the right, subject to the restrictions of
Subsection (f) hereof, to exercise the Option at any time within the earlier of
(x) the original expiration date of the Option or (y) three (3) months after
such termination of employment in the case of an Incentive Stock Option and
eighteen (18) months after such termination of employment in the case of a
Nonstatutory or Non-Qualified Stock Option, (twelve (12) months if termination
was due to Disability in the case of an Incentive Stock Option), to the extent
that, on the day preceding the date of termination of employment, the Optionee's
right to exercise such Option had accrued pursuant to the terms of the option
agreement pursuant to which such Option was granted, and had not previously been
exercised.
For this purpose, the employment relationship will be treated as continuing
intact while the Optionee is on military leave, sick leave or other bona fide
leave of absence (to be determined in the sole discretion of the Committee, in
accordance with rules and regulations construing Code section 422(a)(2)).
Notwithstanding the foregoing, in the case of an Incentive Stock Option,
employment shall not be deemed to continue beyond the ninetieth (90th) day after
the Optionee ceased active employment, unless the Optionee's reemployment rights
are guaranteed by statute or by contract.
(h) Death if Optionee. If the Optionee shall die while in the employ of the
Corporation and shall not have fully exercised the Option, an Option may be
exercised in full, subject to the restrictions of Subsection (f) hereof, to the
extent it had not previously been exercised, at any time within twelve (12)
months after the Optionee's death, by the executors or administrators of his or
her estate or by any person or persons who shall have acquired the Option
directly from the Optionee by bequest or inheritance or by a permitted Family
Transferee (in the case of a Non-Qualified Option).
If the Optionee shall die following the termination of his employment with
the Company and such death shall occur prior to the earlier of (x) the original
expiration date of the option or (y) three (3) months following the termination
of employment in the case of an Incentive Stock Option, and (18) months
following the termination of employment in the case of a Nonstatutory or
Non-Qualified Stock Option, and such Option shall not have been fully exercised,
an Option may be exercised (subject to the limitations on exercisability set
forth in Subsection (f) hereof) to the extent that, at the date of termination
of employment, the Optionee's right to exercise such Option had accrued pursuant
to the terms of the applicable option agreement and had not previously been
exercised, at any time within twelve (12) months after the Optionee's death, by
the executors or administrators of the Optionee's estate or by any person or
persons who shall have acquired the Option
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directly from the Optionee by bequest or inheritance or by a permitted
Family Transferee (in the case of a Non-Qualified Option).
(i) Rights as a Stockholder. An Optionee or a permitted
transferee of an Optionee shall have no rights as a stockholder with
respect to any Shares covered by his or her Option until the date of the
issuance of a stock certificate for such shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued,
except as provided in Section 10.
(j) Modification, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of the Plan, the
Committee may modify, extend or renew outstanding Options granted under
the Plan, or accept the exchange of outstanding Options (to the extent
not theretofore exercised and subject to the provisions of paragraph
7(d) above) for the granting of new Options in substitution therefor.
Notwithstanding the foregoing, however, no modification of an Option
shall, without the consent of the optionee, alter or impair any rights
or obligations under any Option theretofore granted under the Plan.
(k) Other Provisions. The option agreements authorized under the
Plan shall contain such other provisions not inconsistent with the terms
of the Plan, including, without limitation, restrictions upon the
exercise of the Option, as the Committee shall deem advisable.
8. Limitation on Annual Awards.
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General Rule. Each Option shall be designated in the written
option agreement as either an Incentive Stock Option or a Non-Qualified Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate fair market value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company) exceeds
$100,000, such Options shall be treated as Non-Qualified Stock Options.
9. Term of Plan. Options may be granted pursuant to the Plan until
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the termination of the Plan on April 30, 2003.
10. Recapitalization. Subject to any required action by the
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stockholders, the number of Shares covered by this Plan as provided in Section
6, the number of Shares covered by each outstanding Option, and the Exercise
Price thereof shall be proportionately adjusted for any increase or decrease in
the number of issued Shares resulting from a subdivision or consolidation of
Shares, stock split, or the payment of a stock dividend.
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Subject to any required action by the stockholders, if the
Corporation shall be the surviving corporation in any merger or consolidation,
each outstanding Option shall pertain and apply to the securities to which a
holder of the number of Shares subject to the Option would have been entitled. A
dissolution or liquidation of the Corporation or a merger or consolidation in
which the Corporation is not the surviving corporation shall cause each
outstanding Option to terminate, unless the agreement of merger or consolidation
shall otherwise provide, provided that each Optionee shall in such event, if a
period of one (1) year from the date of the grant of the Option shall have
elapsed, have the right immediately prior to such dissolution or liquidation, or
merger or consolidation in which the Corporation is not the surviving
corporation, to exercise the Option in whole or in part, subject to limitations
on exercisability under Section 7(k) hereof.
In the event of a change in the Common Stock as presently
constituted, which is limited to a change of all of its authorized shares with
par value into the same number of shares with a different par value or without
par value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments related to stock or
securities of the Corporation, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
Except as hereinbefore expressly provided in this Section 10,
the Optionee shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, stock split, or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class or by reason of any dissolution, liquidation, merger, or consolidation
or spin-off of assets or stock of another corporation, and any issue by the
Corporation of shares of stock of any class or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares subject to
the Option.
The grant of an Option pursuant to the Plan shall not affect in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
11. Securities Law Requirements. No Shares shall be issued upon the
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exercise of any Option unless and until the Corporation has determined that: (i)
it and the Optionee have taken all actions required to register the Shares under
the Securities Act of 1933 or perfect an exemption from the registration
requirements thereof; (ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and (iii) any
other applicable provision of state or Federal Law has been satisfied.
12. Amendment of the Plan. The Board may, insofar as permitted by
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law, from time to time, with respect to any Shares at the time not subject to
Options, suspend or
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discontinue the Plan or revise or amend it in any respect
whatsoever except that, without approval of the stockholders, no such revision
or amendment shall:
(a) Increase the number of Shares issuable pursuant to the Plan; or
(b) Change the requirements as to eligibility for participation in
the Plan.
(c) Materially increase benefits accruing to participants under the
Plan.
13. Application of Funds. The proceeds received by the Corporation from
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the sale of Common Stock pursuant to the exercise of an Option will be used for
general corporate purposes.
14. No Obligation to Exercise Option. The granting of an Option shall
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impose no obligation upon the Optionee to exercise such Option.
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