GUM TECH INTERNATIONAL, INC.
4205 North 7th Avenue
Phoenix, AZ 85013
PROXY STATEMENT AND
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 13, 1997
To the shareholders of Gum Tech International, Inc.:
The Annual Meeting of the shareholders of Gum Tech International, Inc. (the
"Company") will be held at the Company's manufacturing facility, 246 East
Watkins Street, Phoenix, Arizona 85004, at 10:00 A.M. on June 13, 1997, or at
any adjournment or postponement thereof, for the following purposes:
1. To elect six directors of the Company.
2. To approve an increase in the number of shares reserved for issuance
under the Company's 1995 Stock Option Plan from 1,200,000 shares to
2,000,000 shares.
3. To transact such other business as may properly come before the
meeting.
Details relating to the above matters are set forth in the attached Proxy
Statement. All shareholders of record of the Company as of the close of business
on April 23, 1997 will be entitled to notice of and to vote at such meeting or
at any adjournment or postponement thereof.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. IF YOU DO NOT
PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY. A REPLY CARD IS ENCLOSED FOR YOUR CONVENIENCE. THE GIVING OF A
PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Jeffrey L. Bouchy
Secretary
April 25, 1997
<PAGE>
PROXY STATEMENT
GUM TECH INTERNATIONAL, INC.
4205 North 7th Avenue
Phoenix, AZ 85013
Telephone: (602) 277-0606
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 13, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Gum Tech International, Inc. (the
"Company"), a Utah corporation, of no par value Common Stock ("Common Stock") to
be voted at the Annual Meeting of Shareholders of the Company ("Annual Meeting")
to be held at 10:00 A.M. on June 13, 1997, or at any adjournment or postponement
thereof. The Company anticipates that this Proxy Statement and the accompanying
form of proxy will be first mailed or given to all shareholders of the Company
on or about April 25, 1997. The shares represented by all proxies that are
properly executed and submitted will be voted at the meeting in accordance with
the instructions indicated thereon. Unless otherwise directed, votes will be
cast for the election of the nominees for directors hereinafter named and for
the proposed increase in Common Stock reserved for issuance under the 1995 Stock
Option Plan. The holders of a majority of the shares represented at the Annual
Meeting in person or by proxy will be required to approve all proposed matters.
Any shareholders giving a proxy may revoke it at any time before it is
exercised by delivering written notice of such revocation to the Company, by
substituting a new proxy executed at a later date, or by requesting, in person,
at the Annual Meeting, that the proxy be returned.
All of the expenses involved in preparing, assembling and mailing this
Proxy Statement and the materials enclosed herewith and all costs of soliciting
proxies will be paid by the Company. In addition to the solicitation by mail,
proxies may be solicited by officers and regular employees of the Company by
telephone, telegraph or personal interview. Such persons will receive no
compensation for their services other than their regular salaries. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of the
shares held of record by such persons, and the Company may reimburse such
persons for reasonable out of pocket expenses incurred by them in so doing.
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
The close of business on April 23, 1997 has been fixed by the Board of
Directors of the Company as the record date (the "record date") for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting. On the record date, there were outstanding 4,948,740 shares of Common
Stock, each share of which entitles the holder thereof to one vote on each
matter which may come before the Annual Meeting. Cumulative voting for directors
is not permitted.
<PAGE>
A majority of the issued and outstanding shares entitled to vote,
represented at the meeting in person or by proxy, constitutes a quorum at any
shareholders' meeting.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information concerning the holdings of
Common Stock by each person who, as of the date of this Report, holds of record
or is known by the Company to hold beneficially or of record, more than 5% of
the Company's Common Stock, by each director, and by all directors and executive
officers as a group. All shares are owned beneficially and of record. The
address of all persons (unless otherwise noted in the footnotes below) is in
care of the Company at 4205 North 7th Avenue, Phoenix, Arizona 85013.
<TABLE>
<CAPTION>
Amount of Percent of
Name Ownership Class
- ---- --------- -----
<S> <C> <C>
Gerald N. Kern(1) 300,000 5.7
Richard Ratcliff(2) 468,000 8.6
Gary S. Kehoe(3) 290,000 5.6
Jeffrey L. Bouchy(4) 102,000 2.0
Gregory W. Gossett 265,000 5.4
William G. Meris(5) 20,000 .4
Richard Bernstein(6) 30,000 .6
Riverlux Trust REG(7) 645,265 13.0
Karl B. Berger(8) 450,000 8.8
Bruce Jorgenson(9) 250,000 5.1
Robert J. Kwait(10) 20,000 .4
Lester Goldstein(11) 50,000 1.0
All officers and directors as
a group (9 persons)
(1)(2)(3)(4)(5)(6)(10)(11) 1,280,000 20.7
- ----------
</TABLE>
(1) Includes options to purchase 50,000 shares at $6.00 per share until August
1999 and 250,000 shares at $6.125 per share until December 1999. Does not
include an option to purchase 50,000 shares from Mr. Ratcliff at $6.00 per
share. See "Certain Transactions."
(2) Includes options held by Mr. Ratcliff and members of his family to purchase
up to 468,000 shares at $1.50 per share until March 1998. Includes an
option held by Mr. Kern to purchase 50,000 shares from Mr. Ratcliff at
$6.00 per share. See "Certain Transactions."
(3) Includes warrants to purchase 100,000 shares at $2.00 per share in
perpetuity and options to purchase 50,000 shares at $2.00 per share until
June 1998 and 100,000 shares at $6.125 at any time until December 1999.
(4) Includes options to purchase 20,000 shares at $2.00 per share until June
1998, 20,000 shares at $2.00 per share until October 1998 and 60,000 shares
at $6.125 per share until December 1999.
2
<PAGE>
(5) Includes options to purchase 20,000 shares at $6.125 per share until August
1999.
(6) Represents options to purchase 30,000 at $6.125 per share until December
1999.
(7) Riverlux Trust REG, whose address is Baahofstrasse 23, CH 6301, Zug,
Switzerland, is a Liechtenstein company wholly owned and controlled by
Willy P. Verhaegen, Hans P. Bruellman and Doris Moeckli.
(8) Includes warrants to purchase 150,000 shares at $2.00 per share exercisable
in perpetuity. Mr. Berger's address is 97 Patterson Road, Joliet, Illinois
60434.
(9) Dr. Jorgenson's address is 1580 Antelope Drive, #100, Layton, Utah 84041.
(10) Includes options to purchase 20,000 shares at $6.375 per share until
January 2000.
(11) Represents options to purchase 50,000 shares at $6.125 per share until
December 1999.
ELECTION OF DIRECTORS
At the Annual Meeting, the shareholders will elect six directors of the
Company. Cumulative voting is not permitted for the election of directors. In
the absence of instructions to the contrary, the person named in the
accompanying proxy will vote in favor of the election of each of the persons
named below as the Company's nominees for directors of the Company. All of the
nominees are presently members of the Board of Directors. Each of the nominees
has consented to be named herein and to serve if elected. It is not anticipated
that any nominee will become unable or unwilling to accept nomination or
election, but if such should occur, the person named in the proxy intends to
vote for the election in his stead of such person as the Board of Directors of
the Company may recommend.
The following table sets forth certain information regarding each nominee
and each executive officer of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard Ratcliff(1)(2) 62 Chairman of the Board of Directors and Senior Vice
President
Gerald N. Kern(1)(2) 59 Chief Executive Officer, President and Director
Lester Goldstein 52 Executive Vice President of Operations
Gary S. Kehoe 38 Chief Operating Officer and Director
Richard Bernstein 36 Vice President of Marketing and Director
Roy Kaplan 62 Vice President of Sales
Jeffrey L. Bouchy 31 Secretary, Treasurer and Chief Financial Officer
William G. Meris(1) 31 Director
Robert J. Kwait(2) 61 Director
- ----------
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Stock Option Plan/Compensation Committee.
Directors hold office for a period of one year from their election at the
annual meeting of stockholders or until their successors are duly elected and
qualified. Officers of the Company are elected by, and serve at the discretion
of, the Board of Directors. In August 1996 and May 1996, respectively, Messrs.
Earl K. Manhold III and Robert H. Wood resigned as directors and in August 1996,
Mr. Meris was elected a director. In August 1996, (i) Mr. Ratcliff resigned as
3
<PAGE>
the Company's Chief Executive Officer and was appointed its Chairman and Senior
Vice President, (ii) John E. Epert resigned as President of the Company and was
appointed its Vice Chairman and Executive Vice President and (iii) Gerald N.
Kern was appointed Chief Executive Officer, President and a director. On
December 5, 1996, Mr. Epert and Gregory W. Gossett resigned as officers and
directors and Robert J. Kwait was appointed as a director. Woodrow C. Monte
resigned as a director in October 1996.
Background
The following is a summary of the business experience, for at least the
last five years, of each executive officer and director of the Company:
Richard Ratcliff became Chief Executive Officer and a director of the
Company in March 1995. Mr. Ratcliff was the co-founder with Mr. Epert and an
executive officer of Food For Health Co., Inc., a health food distributor, from
1971 until he sold the company with Mr. Epert in 1991. From 1991 until he became
Chief Executive Officer of the Company in March 1995, he was a passive investor
for his own account. Since 1991, he has also been President of Niche, Inc., a
privately-held company through which he provides consulting services on matters
relating to the natural food industry. Mr. Ratcliff is also (i) a director of
First Community Financial Corp., an asset-based lender, and (ii) was formerly a
director of Interhealth Nutritionals, Inc., a privately-held producer of health
food ingredients, including ingredients used by the Company in one of its
chewing gum products. See "Certain Transactions." Mr. Ratcliff resigned as the
Company's Chief Executive Officer in August 1996 and is currently Chairman of
the Board of Directors and Senior Vice President of the Company. He devotes such
time as is necessary to the Company's affairs.
Gerald N. Kern became the Company's Chief Executive Officer, President and
a director in August 1996. From 1983 to 1994, he was President and Chief
Operating Officer of Meditech Pharmaceuticals, Inc., a manufacturer of
proprietary drugs. From August 1994 until August 1996, he was President of Aura
Interactive, a manufacturer of interactive consumer products. Prior to serving
at Meditech, Mr. Kern was the Executive Vice President and Chief Operating
Officer of Max Factor, one of the world's largest cosmetics companies, from 1977
to 1980. Mr. Kern was a division President and corporate Vice President for
International Playtex from 1967 to 1977.
Lester Goldstein was employed by Aura Systems from 1992 until he joined the
Company in November 1996 as an associate division manager, Vice President of
Consumer Products and ultimately Executive Vice President of Operations. From
1989 to 1992, he was employed by TRW and from 1981 to 1989 by Rockwell
International. Mr. Goldstein earned a B.A. degree from Hofstra University, and
an M.S. and Ph.D degree in Physics from Polytechnic Institute of Brooklyn.
4
<PAGE>
Gary S. Kehoe was employed by LifeSavers Company, a division of Nabisco
Food Group, Inc., in various capacities from 1976 until he joined the Company in
June 1995 as its Chief Operating Officer and a director. As a Senior Food
Technologist for LifeSavers, Inc., Mr. Kehoe developed six bubble gum flavors
and was listed as an inventor or co-inventor on 12 U.S. chewing gum patents
filed by Lifesavers, Inc.
Richard Bernstein joined the Company in January 1996 as its Vice President
of Marketing. Since 1991, he has also been President, a director and principal
stockholder of Bernstein Bros. Marketing Corporation (doing business as National
Distributing). National Distributing markets retail consumer products including
the Company's ChromaTrim and CitrusSlim chewing gum products. See "Certain
Transactions." Mr. Bernstein graduated from the University of Southern
California in 1981 with a Bachelor of Science degree and became a director of
the Company in April 1995. He devotes such time as is necessary to the Company's
affairs.
Roy Kaplan was the President of Mayday, Inc., a manufacturer of motion
sickness products from 1989 to 1997. From 1984 to 1989, he was Vice President
and General Sales Manager of Mass Industries. He joined the Company in January
1997.
Jeffrey L. Bouchy earned his Bachelor of Science degree in Accounting from
Arizona State University in 1989 and his Master of Science degree in Sports
Management from West Virginia University in 1992. From 1992 to 1993, he was
assistant to the Director of Finance at the Charlotte Coliseum, a sports and
events facility in Charlotte, North Carolina. From 1993 until 1994, he was
President of Southwest Food Services, Inc., a privately-held fast food franchise
based in Phoenix, Arizona. From 1994 until he joined the Company in May 1995 as
its Chief Financial Officer, he was a production manager at Fun Tees, Inc., a
privately-held apparel manufacturer.
William G. Meris was employed by Prudential Securities, Inc. from 1987
until 1994, first as an intern in the Corporate Finance Department, and then as
a retail stockbroker from 1989 until April 1994. Subsequently, he was employed
as a retail stockbroker by Franklin-Lord, Inc. from May 1994 to August 1994.
From October 1994 until March 1995, Mr. Meris was a co-owner of Cyberia, Inc., a
virtual reality entertainment firm. From January 1995 until June 1995, he was
also a co-manager of Meris Financial, Inc., a private investment and consulting
company. Since June 1995, Mr. Meris has been President of WGM Corporation, which
acts as the General Partner of The Monolith Fund, a private investment limited
partnership. He is also a director of Interhealth Nutritionals, Inc. and the
Chief Executive Officer of the Orlando Predators, Inc. He earned a Bachelor of
Science degree in Business Administration from Arizona State University.
Robert J. Kwait has been the President and controlling stockholder of
Robert J. Kwait & Associates, Inc. ("RJK") since 1981. RJK develops store brands
for retailers and contract manufacturers and has specialized in introducing
store brands for feminine hygiene, adult incontinence, sun care, vitamins,
diagnostics, infant products and over-the-counter cold remedies to drug store
chains. RJK serves as a manufacturing consultant and as a sales representative.
5
<PAGE>
As a manufacturing consultant, RJK assists manufacturers in product development,
pricing strategies, packaging issues, marketing programs and retail trade
relations. As a sales representative, RJK introduces new products, develops
packaging, creates customer marketing programs for individual retailers and
provides retailers with industry updates including key market trends. Mr. Kwait
earned a Bachelor of Arts degree from Boston University and a Juris Doctorate
degree from Case Western Reserve University Law School.
Information With Respect to Delinquent Filers
Three of the Company's directors (Messrs. Epert, Bernstein and Gossett)
inadvertently failed to file one Form 4 each during the calendar year ended
December 31, 1996. Messrs. Epert and Bernstein subsequently filed a Form 5
reporting the Form 4 transaction.
Significant Employee
Richard A. Sigtermans was Manager of Quality Control and Information
Systems for the Company from October 1995 until his promotion to Production
Manager in September 1996. In such capacity, Mr. Sigtermans is responsible for
chewing gum production and also administers the Company's management information
and quality assurance departments. From 1991 to 1993, he was employed by
Lifesavers Company, a division of Nabisco Food Group, Inc., in its new product
development group. From 1993 until he joined the Company in October 1995, he was
employed by Compac Corporation, a division of TriMas Corporation, first as its
Quality Project Coordinator and then as its Computer Operations Supervisor. Mr.
Sigtermans graduated from GMI Engineering & Management Institute with a Bachelor
of Science degree in 1991.
Executive Compensation
None of the Company's executive officers or directors currently receive
compensation in excess of $100,000 per year except Mr. Kern, Mr. Goldstein and
Mr. Kaplan. See below.
On August 21, 1996, the Company entered into an employment agreement with
Mr. Kern through December 31, 1997 extendable at the Company's option for an
additional one year. Under the employment agreement, Mr. Kern receives a salary
of $150,000 per year (with annual increases of $50,000 beginning in August
1997), was granted an option to purchase 50,000 shares of the Company's Common
Stock at $6.00 per share under the 1995 Stock Option Plan and was advanced a
loan of $66,000 from the Company. Mr. Kern will receive a bonus equal to 5% of
the Company's after tax net income for the year ending December 31, 1997, if his
employment is extended for the 1998 calendar year. In December 1996, the Company
extended Mr. Kern's employment agreement and his stock options for three
additional years through December 31, 2000.
6
<PAGE>
On September 1, 1996, the Company entered into an employment agreement with
Mr. Goldstein, the Company's Vice President of Operations, terminable upon 30
days notice by either party. The employment agreement provides for a salary of
$120,000 annually through December 31, 1997 and $145,000 annually for the year
ending December 31, 1998. Mr. Goldstein will also receive a bonus equal to 1% of
the Company's after tax net income for the years ended December 31, 1997 and
1998, prorated if his employment is terminated prior to end of either calendar
year.
On January 1, 1997, Roy Kaplan, a Vice President of the Company, entered
into an employment agreement with the Company for the same employment term and
providing for the same salary and bonus as Mr. Goldstein.
The following table discloses certain compensation paid to the Company's
executive officers for the years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
------------------- -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name
and
Prin- Other All
cipal Annual Restricted Other
Posi- Compen- Stock Options/ LTIP Compen-
tion Year Salary($) Bonus($) sation($) Award(s)($) SARS(#) Payouts($) sation($)
- ---- ---- --------- -------- --------- ----------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gregory W.
Gossett, 1994 26,460 0 0 0 0 0 0
President 1995 0 0 31,000(1) 0 0 0 0
Richard
Ratcliff,
Chief
Executive 1995 27,500 0 0 0 520,000(2) 0 0
Officer 1996 54,000 0 0 0 0 0 0
Gerald N.
Kern,
Chief
Executive
Director 1996 56,250 0 0 0 300,000(3) 0 0
- ----------
</TABLE>
(1) Represents consulting fees paid by the Company.
(2) Represents options to purchase up to 520,000 shares at $1.50 per share
until March 1998.
(3) Represents options to purchase 50,000 shares at $6.00 per share until
August 1999 and 250,000 at $6.125 per share until December 1999.
7
<PAGE>
Option Grants in Last Year and Stock Option Grant
The following table provides information on option grants during the
year ended December 31, 1996 to the named executive officers:
<TABLE>
<CAPTION>
% of Total
Options Granted
Options to Employees Exercise Expiration
Name Granted in the Year Price Date
---- ------- --------------- -------- ----------
<S> <C> <C> <C> <C>
Gerald N. Kern 50,000(1) 7.2% $6.00(1) August 1999(1)
Gerald N. Kern 250,000 35.7% $6.13(1) December1999(1)
</TABLE>
(1) See footnote (1) to the Summary Compensation Table.
Aggregate Option Exercise in Last Year and Year-End Option Values
The following table provides information on the value of the named
executive officer's unexercised options at December 31, 1996. An aggregate of
132,000 shares of Common Stock were acquired upon exercise of options during the
year ended December 31, 1996.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-The-Money Options
Options at Year End (1) at Year End (1)
----------------------- ---------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard Ratcliff 468,000 0 $2,164,500 0
Gerald N. Kern 300,000 0 $ 6,250 0
</TABLE>
(1) Based upon a price of $6.125 per share on December 31, 1996.
The Company's nonsalaried directors receive reimbursement for out-of-pocket
expenses incurred in attending Board of Directors' meetings and have been
granted stock options under the Company's 1995 Stock Option Plan.
Proposal to Increase Shares Reserved Under the Company's 1995 Stock Option Plan
In March 1995, the Company adopted a stock option plan (the "Plan") which
provides for the grant of options intended to qualify as "incentive stock
options" and "nonqualified stock options" within the meaning of Section 422 of
the United States Internal Revenue Code of 1986 (the "Code"). Incentive stock
options are issuable only to eligible officers, directors, key employees and
consultants of the Company.
The Plan is administered by the Compensation Committee of the Board of
Directors which is comprised of a majority of nonemployee directors. At December
31, 1996, the Company had reserved 1,200,000 shares of Common Stock for issuance
under the Plan and proposes to increase the number of shares reserved for
8
<PAGE>
issuance under the Plan to 2,000,000 shares. Under the Plan, the Board of
Directors determines which individuals shall receive options, the time period
during which the options may be partially or fully exercised, the number of
shares of Common Stock that may be purchased under each option and the option
price.
The per share exercise price of the Common Stock may not be less than the
fair market value of the Common Stock on the date the option is granted. No
person who owns, directly or indirectly, at the time of the granting of an
incentive stock option, more than 10% of the total combined voting power of all
classes of stock of the Company is eligible to receive incentive stock options
under the Plan unless the option price is at least 110% of the fair market value
of the Common Stock subject to the option on the date of grant.
No options may be transferred by an optionee other than by will or the laws
of descent and distribution, and during the lifetime of an optionee, the option
may only be exercisable by the optionee. Options may be exercised only during
the time the option holder is an employee of the Company or within 90 days of
termination of such employment if a Registration Statement on Form S-8 ("S-8")
covering the underlying shares was effective as of the date of termination of
employment. If an S-8 covering the underlying shares was not effective on the
date of termination, then the employee has one year following termination to
exercise the options. If an employee is terminated for cause, any unexercised
options will be cancelled as of the date of such termination. Options under the
Plan must be granted within three years from the effective date of the Plan and
the exercise date of an option cannot be later than three years from the date of
grant. Any options that expire unexercised or that terminate upon an optionee's
ceasing to be employed by the Company become available once again for issuance.
Shares issued upon exercise of an option will rank equally with other shares
then outstanding.
As of February 28, 1997, 1,228,000 unexercised options had been granted
under the Plan to executive officers and directors and were currently
outstanding. The per share exercise prices represented the fair market value of
the Company's Common Stock at the date such options were granted, based on prior
sales of the Company's Common Stock. The table below sets forth the total number
of options issued to each executive officer and director of the Company and the
exercise price. Messrs. Kehoe's and Bouchy's options are exercisable until June
1, 1998. All other options are exercisable at various times through January 2000
unless earlier exercisability is required due to termination by the option
9
<PAGE>
holder of his or her relationship with the Company. To date, a total of 132,000
stock options have been exercised.
<TABLE>
<CAPTION>
Total Number of
Name of Executive Options Outstanding Exercise Price
----------------- ------------------- --------------
<S> <C> <C>
John E. Epert 20,000 $1.80
Richard Ratcliff 468,000 1.50
Gary S. Kehoe 150,000 2.00 to $6.125
Jeffrey L. Bouchy 100,000 2.00 to $6.125
Robert H. Wood 20,000 2.00
William G. Meris 20,000 6.125
Gerald N. Kern 300,000 6.00 to $6.125
Lester Goldstein 50,000 6.125
Robert J. Kwait 20,000 6.375
Richard Bernstein 30,000 6.125
Roy Kaplan 50,000 6.125
----------
TOTAL 1,228,000
==========
</TABLE>
In addition to the above options issued to executive officers and
directors, 202,500 options have been issued to employees ranging in exercise
price from $6.125 to $6.375 per share.
The Company has agreed to issue 100,000 options outside the Plan to two
persons (50,000 options exercisable at $4.50 per share and 50,000 options
exercisable at $5.00 per share) for investment banking consulting services.
The Company's Board of Directors recommends that the shareholders approve
the proposal to increase the number of shares reserved for issuance under the
Plan to 2,000,000 shares. The Board of Directors believes that options issuable
under the Plan assist the Company in hiring and retaining officers, directors,
key employees and consultants by providing an additional financial incentive to
such individuals.
CERTAIN TRANSACTIONS
The Company was incorporated on February 4, 1991. Between the date of
incorporation and November 1994, the Company issued an aggregate of 2,500,000
shares of its Common Stock to officers, directors and business associates for an
aggregate of $29,000, or $.012 per share.
In November 1994, Gregory W. Gossett, the Company's founder, President and
majority stockholder, sold 1,550,000 shares of his Common Stock in the Company
to Dale Holdings, LDC ("Dale") for $750,000, or $.48 per share. On the same
date, the Company sold an additional 516,740 shares to Dale for $250,000, or
$.48 per share. Accordingly, as of November 1994, Dale was the majority
stockholder of the Company, owning an aggregate of 2,066,740 shares, or 68.5% of
10
<PAGE>
the Company's then outstanding Common Stock. At that time (and until December
1995) Dale was owned 51% by Riverlux Trust REG, a Liechtenstein company, and 49%
by Brett Bouchy. In January 1995 Dale purchased 24,850 shares from Miguel
Paloma, a nonaffiliated stockholder of the Company.
In February 1995, Dale sold an aggregate of 367,150 shares of Common Stock
of the Company held by it to a group of investors for $560,000, or $1.53 per
share. After paying commissions of $56,000, Dale loaned the remaining $504,000
to the Company, evidenced by a promissory note bearing interest at 8% per annum,
which was paid in full with proceeds of the Company's initial public offering
("IPO") in April 1996. Proceeds of the loan were used by the Company to (i)
purchase inventory, (ii) provide Mr. Ratcliff with the $100,000 loan required
under his employment agreement, (iii) pay cash dividends to the Company's
stockholders aggregating $37,449, (iv) repay a stockholder loan in the amount of
$43,000, (v) pay legal and accounting fees and (v) satisfy working capital
needs, including the purchase of inventory.
In May 1995, the Company sold 420,000 shares of its Common Stock to a group
of non-affiliated investors for $1.80 per share. At the same time, Dale also
sold 420,000 shares of the Company's Common Stock owned by it for $1.80 per
share to a group of investors.
In June 1995, Dale loaned the Company $346,000 evidenced by a promissory
note bearing interest at 8% per annum due the earlier of June 19, 1997, or the
closing date of the Offering. This second Dale loan resulted from the
aforementioned sale by Dale in May 1995 of 420,000 shares of the Company's
Common Stock at $1.80 per share. The two loans from Dale which aggregate
$850,000 were collateralized by all of the Company's accounts receivable,
inventory and equipment (subordinated to a Textron Financial Corporation
equipment lease) and were repaid in full from the proceeds of the IPO.
In April and October 1995, the Company issued 40,000 and 100,000 stock
options respectively to Meris Financial Incorporated ("Meris") for consulting
services rendered to the Company including services rendered in connection with
the Offering. The options were exercisable at $6.00 per share and were to expire
three years from the date of issuance. In March 1996, at the Company's request,
Meris agreed to cancel its options in order to assist the Company in compliance
with certain NASD rules which limit the number of options and warrants issuable
in connection with a public offering.
In October 1995, the Company borrowed $1,550,000 from a group of four
lenders (the "1995 Bridge Loan"). As additional compensation for the 1995 Bridge
Loan, the Company issued an aggregate of 465,000 common stock purchase warrants
to the lenders, each such warrant exercisable to purchase one share of the
Company's Common Stock at $2.00 per share exercisable in perpetuity. The Bridge
Loan bore interest at 8% per annum and was repaid in full from proceeds of the
IPO. The Bridge Loan lenders included Brett Bouchy, a former principal
stockholder of the Company (who received 165,000 warrants), and Robert H. Wood,
a former director of the Company (who received 75,000 warrants). In March 1996,
Brett Bouchy sold 100,000 warrants to Gary S. Kehoe and 65,000 warrants to
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Robert H. Wood, a former officer and director of the Company, for $5.00 per
warrant. The purchase price was paid by the issuance of promissory notes by
Messrs. Kehoe and Wood to Mr. Bouchy bearing interest at 9% per annum. The
warrants are not collateral for the promissory notes. The promissory notes are
due the earlier of (i) six months after the warrants are exercised or (ii) if
during the period commencing from April 24, 1997 until April 24, 2000 the
closing price of the Company's Common Stock on NASDAQ is $10.00 or more per
share for five consecutive trading days then the promissory notes are due six
months from the last such trading day. If neither event occurs, the promissory
notes becomes void and of no value on April 24, 1999 and the warrants remain the
property of Messrs. Kehoe and Wood. Under no circumstances will the warrants
become returnable to Mr. Bouchy.
In December 1995, Dale dissolved and issued 51% and 49% respectively of its
Common Stock in the Company and its loans receivable due from the Company to
Riverlux Trust REG and Brett Bouchy. Riverlux Trust REG and Brett Bouchy
received 665,265 shares and 639,175 shares, respectively, of Dale's
stockholdings in the Company and $433,500 and $416,500, respectively, of Dale's
loans receivable from the Company. The loans were repaid in full out of proceeds
of the IPO. Subsequently, Riverlux Trust REG and Mr. Bouchy each sold 20,000
shares of the Company's Common Stock to Mr. Kehoe for $2.00 per share.
In January 1996, the Company repurchased from Brett Bouchy, the remaining
619,175 shares of the Company's Common Stock owned by him for $4.50 per share
resulting in a gain to Mr. Bouchy of $2,489,083. In order to fund the repurchase
and retirement of such shares, the Company sold in a January 1996 private
placement of its Common Stock an aggregate of 619,175 shares for $4.50 per share
after payment of commissions.
In January 1996, the Company entered into a two-year distribution agreement
with Bernstein Bros. Marketing Corporation (doing business as National
Distributing) (a company in which Richard Bernstein, an officer and director of
the Company, is President, a director and a principal stockholder) pursuant to
which the Company agreed to sell to National Distributing at fixed product
prices on a non-exclusive basis ChromaTrim and CitrusSlim chewing gum for
distribution by National Distributing solely to non-chain convenience stores,
grocery stores, drugstores and other similar retail food stores. There are no
minimum sales requirements imposed under the agreement. The Company considers
the product prices offered to National Distributing under the agreement to be
fair, reasonable and consistent with product prices which would be offered to
unaffiliated distributors. Sales by National Distributing of ChromaTrim chewing
gum under a prior distribution agreement with the Company accounted for 42.8%
and 14.1% of the Company's total sales for the years ended December 31, 1995 and
1996 respectively.
In January 1996, the Company entered into a two-year distribution agreement
with Universal Merchants, Inc. ("UMI") (a company in which Mr. Bernstein was
formerly a principal stockholder) pursuant to which the Company agreed to sell
to UMI at fixed product prices on a non-exclusive basis ChromaTrim and
CitrusSlim chewing gum for distribution by UMI solely in the United States
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through direct response television infomercial advertising. There are no minimum
sales requirements imposed under the agreement. The Company considers the
product prices offered to UMI under the agreement to be fair, reasonable and
consistent with product prices which would be offered to unaffiliated
distributors. Sales by UMI of ChromaTrim chewing gum under a prior distribution
agreement with the Company accounted for 26.7% and 2.8% of the Company's total
sales for the years ended December 31, 1995 and 1996, respectively. In December
1994, the Company loaned National Distributing $100,000 bearing interest at 8%
per annum. The loan was repaid with $3,000 interest in March 1995.
In January 1996, Earl K. Manhold III, a former director of the Company,
exercised options to purchase 60,000 shares of the Company's Common Stock at
$2.00 per share and sold such shares to John E. Epert, the Company's then
Chairman for the same price per share.
The Company purchases ingredients used in its gum products from Interhealth
Nutritionals, Inc., ("Interhealth"), a company in which Mr. Ratcliff was
formerly a member of the Board of Directors. The Company did not pay a different
price for the ingredient during the time Mr. Ratcliff was a member of
Interhealth's Board of Directors and the Company believes that the price it has
paid and currently pays for the ingredient is fair, reasonable and consistent
with prices charged by unaffiliated suppliers.
In January and August 1996, as a part of their employment, the Company
loaned Messrs. Epert and Kern $150,000 and $66,000, respectively.
In August 1996, Mr. Ratcliff granted Mr. Kern the option to purchase up to
50,000 shares of the Company's Common Stock held or purchasable by Mr. Ratcliff
for $6.00 per share at any time between February 1, 1998 and February 28, 1998
so long as Mr. Kern is employed by the Company at that time.
The Company believes that the terms of all agreements described above which
involve the Company's officers, directors, principal stockholders or affiliates
are fair, reasonable and consistent with terms that the Company could obtain
from unaffiliated third parties. All future agreements with officers, directors,
principal stockholders and affiliates will be approved by a majority of the
Company's disinterested directors.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Angell & Deering conducted the audit of the Company's financial statements
for the year ended December 31, 1996. It is the Company's understanding that
this firm is obligated to maintain audit independence as prescribed by the
accounting profession and certain requirements of the Securities and Exchange
Commission. As a result, the directors of the Company do not specifically
approve, in advance, non-audit services provided by the firm, nor do they
consider the effect, if any, of such services on audit independence.
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PROPOSALS OF SHAREHOLDERS FOR PRESENTATION
AT NEXT ANNUAL MEETING OF SHAREHOLDERS
Any shareholders of record of the Company who desires to submit a proper
proposal for inclusion in the proxy materials relating to the next annual
meeting of shareholders must do so in writing and it must be received at the
Company's principal executive offices prior to the Company's fiscal year end.
The proponent must be a record or beneficial shareholder entitled to vote at the
next annual meeting of shareholders on the proposal and must continue to own the
securities through the date on which the meeting is held.
OTHER BUSINESS
Management of the Company is not aware of any other matters which are to be
presented to the Annual Meeting, nor has it been advised that other persons will
present any such matters. However, if other matters properly come before the
meeting, the individual named in the accompanying proxy shall vote on such
matters in accordance with his best judgment.
The above notice and Proxy Statement are sent by order of the Board of
Directors.
Jeffrey L. Bouchy
Secretary
April 25, 1997
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
GUM TECH INTERNATIONAL, INC.
TO BE HELD JUNE 13, 1997
The undersigned hereby appoints Gerald N. Kern as the lawful agent and
Proxy of the undersigned (with all the powers the undersigned would possess if
personally present, including full power of substitution), and hereby authorizes
him to represent and to vote, as designated below, all the shares of Common
Stock of Gum Tech International, Inc. held of record by the undersigned on April
23, 1997, at the Annual Meeting of Shareholders to be held June 13, 1997, or any
adjournment or postponement thereof.
1. ELECTION OF DIRECTORS
FOR all nominees listed below (except as WITHHOLD AUTHORITY to vote for
marked to the contrary below) all nominees listed below.
Richard Ratcliff ------ Richard Bernstein ------
Gerald N. Kern ------ William G. Meris ------
Gary S. Kehoe ------ Robert J. Kwait ------
INSTRUCTIONS: To withhold authority to vote for any nominee, mark the space
after the nominee's name as listed above.
2. To approve an increase in the number of shares reserved for issuance
under the Company's 1995 Stock Option Plan from 1,200,000 shares to 2,000,000
shares.
FOR AGAINST WITHHOLD VOTE
----- ----- -----
3. In his discretion, the Proxy is authorized to vote upon any matters
which may properly come before the Annual Meeting, or any adjournment or
postponement thereof.
It is understood that when properly executed, this proxy will be voted in
the manner directed herein by the undersigned shareholder. WHERE NO CHOICE IS
SPECIFIED BY THE SHAREHOLDER THE PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS NAMED IN ITEM (1) ABOVE AND FOR THE PROPOSAL SET FORTH IN ITEM 2,
ABOVE.
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and confirms all that said Proxy may do by virtue hereof.
<PAGE>
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated:
------------------------------- ----------------------------------------
Signature
PLEASE MARK, SIGN, DATE
AND RETURN THE PROXY
CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. ----------------------------------------
Signature, if held jointly
PLEASE CHECK THIS BOX IF YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING OF
SHAREHOLDERS.
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