PHLO CORPORATION
475 PARK AVENUE SOUTH, 7TH FLOOR
NEW YORK, NEW YORK 10016
INFORMATION STATEMENT
General
Phlo Corporation (the "Company") is mailing this information statement on
or about ____________, 2000 to holders of record as of ___________, 2000 of the
Company's common stock, par value $.0001 per share. The Company is furnishing
you with this information statement in connection with the taking of action by
written consent of the holders of a majority of the outstanding shares of the
Company's common stock approving an amendment to the Company's Certificate of
Incorporation (the "Amendment") that will:
1. Increase the authorized shares of common stock of the Company from
25,000,000 shares to 250,000,000 shares; and
2. Add a new Article Twelfth that will provide that "The Board of Directors
of the Corporation shall have the authority to fix by resolution the voting
rights and the designations, preferences and relative, participating, option or
other special rights, and the qualifications or restrictions of one or more
classes or series of stock, to create one or more series within a class, and to
specify the number of shares of any such series. The Board of Directors of the
Corporation shall have the authority to create additional classes and series of
the Common Stock and the Preferred Stock without the approval of the
shareholders of the Corporation with the limitation that such creation or
designation shall not materially adversely affect the rights, preferences,
privileges or restrictions pertaining to the Common Stock and/or the Preferred
Stock, as the case may be."
The Company is not asking you for a proxy or consent, and you are requested
not to send a proxy or consent.
Dissenters' Rights of Appraisal
Under the Delaware General Corporation Law, neither the approval nor the
filing of the Amendment, as described above, requires the Company to provide
dissenting stockholders with a right of appraisal, and the Company will not
provide stockholders with that right.
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Voting Securities and Principal Holders
As of August 31, 2000, there were outstanding 24,755,503 shares of common
stock held of record by approximately 2,000 stockholders. Each share of common
stock is entitled to one vote. James B. Hovis, Anne P. Hovis and Edward J.
Mathias have consented in writing to the Amendment. These stockholders hold, in
the aggregate, 14,844,455 shares, or 59.96% of the issued and outstanding
shares, of common stock and collectively have sufficient voting power to approve
the Amendment. Therefore, no other stockholder consents are required to approve
the Amendment, the Company is not soliciting any other stockholder consents, and
no stockholders' meeting is being held in connection with these actions.
The following table sets forth, as of August 31, 2000, information about
the beneficial ownership of common stock by (a) each person or entity known by
the Company to be the beneficial owner of 5% or more of such shares, (b) each
named executive officer, as defined in Item 402(a) (2) of SEC Regulation S-B,
(c) each of the Company's directors, and (d) all executive officers and
directors as a group.
<TABLE>
<CAPTION>
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Name and Address of Beneficial Owner Shares of Common Stock Percentage (%) of Common
(1) Owned Stock (2)
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<S> <C> <C>
James B. Hovis 8,795,260 (3) 35.53%
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Anne P. Hovis 8,761,380 (4) 35.39%
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Edward J. Mathias 6,083,075 (5) 24.57%
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Robert J. Sipper 6,245,426 (6) 20.15%
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Allen G. Hoube, Jr. 439,188 1.77%
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Gary Otterbach 165,481 0.67%
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All executive officers and directors
as a group (five persons) 15,645,355 50.47%
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</TABLE>
(1) The address of each stockholder shown in this table, except as otherwise
indicated, is c/o Phlo Corporation, 475 Park Avenue South, 7th Floor, New
York, New York 10016
(2) Based upon 24,755,503 shares of common stock outstanding as of August 31,
2000, and warrants and options to purchase shares of common stock
exercisable by the listed individuals which are outstanding as of August
31, 2000.
(3) Includes 5,745,349 shares as to which Mr. Hovis has sole voting power,
3,016,031 shares as to which he shares the power to dispose with his wife,
Anne P. Hovis, and an aggregate of 33,380 shares as to which Mr. Hovis has
indirect beneficial ownership as trustee for his sons under the Uniform
Gift to Minors Act of the Commonwealth of Virginia.
(4) Includes 3,016,031 shares as to which Mrs. Hovis has sole voting power and
5,745,349 shares as to which she shares the power to dispose with her
husband, James B. Hovis.
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<PAGE>
(5) Mr. Mathias' address is c/o The Carlyle Group, 1001 Pennsylvania Avenue,
N.W., Washington, D.C. 20004-2505.
(6) Includes options issued in December 1998 to purchase 425,000 shares of
common stock, exercisable at $.05 per share, options issued in January 1998
to purchase 200,000 shares of common stock, exercisable at $0.16 per share,
options issued in September 1997 to purchase 100,000 shares of common
stock, exercisable at $0.50 per share, options issued in June 1997 to
purchase 100,000 shares of common stock, exercisable at $0.875 per share,
and a warrant issued in June 1999 to purchase 5,420,426 shares of common
stock at an exercise price of $0.12 per share.
The Amendment
Authorization or Issuance of Securities Otherwise Than for Exchange for
Outstanding Securities. The Amendment will increase the authorized number of
shares of the Company's common stock from 25,000,000 to 250,000,000. Holders of
the Company's common stock have no pre-emptive rights to acquire or subscribe to
any additional shares of stock.
The purpose of authorizing additional shares of common stock is (a) to
provide the Company with the ability to fulfill all of its obligations to issue
common and preferred stock and to reserve adequate common stock to provide for
the exercise of all outstanding options and warrants and (b) to provide the
Company with the ability to use capital stock in the future for business
purposes.
The Company's Certificate of Incorporation currently authorizes the
issuance of 25,000,000 shares of common stock. As of the date hereof, there are
24,755,503 shares of common stock issued and outstanding.
In late 1998, the Company agreed to acquire at least 80% of the capital
stock of a private company, X-Treem Products Corporation ("X-Treem"), through an
exchange of stock with the shareholders of X-Treem (the "Stock Exchange
Transaction"). Approximately 96% of the holders of capital stock of X-Treem
elected to participate in the Stock Exchange Transaction by tendering their
shares of X-Treem stock to the Company. The Stock Exchange Transaction agreement
provided for an initial exchange of the Company's shares for a portion of the
total number of X-Treem shares to be exchanged, followed by a reverse stock
split which, in turn, would be followed by a final exchange of the Company's
shares for the balance of the X-Treem shares to be exchanged as adjusted for the
reverse split. In April, 1999, the Stock Exchange Transaction agreement was
amended to eliminate the reverse-split. As a result, the Company was not able to
complete the final exchange of its shares for the balance of the X-Treem shares
to be exchanged under the amended agreement because the Company did not have
enough authorized shares to do so. The Company remains obligated to issue to
X-Treem shareholders who elected to participate in the Stock Exchange
Transaction an aggregate of 941,160 shares of common stock and 1,112,010 shares
of Series C Preferred Stock pursuant to the Stock Exchange Transaction
agreement, as amended.
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<PAGE>
In connection with the Stock Exchange Transaction, in December 1998, by
unanimous written consent of the directors of the Company, the membership of the
Board of Directors was increased from three (3) to a maximum of eight (8)
directors, and three members of X-Treem's management were added to the Board of
Directors. These actions resulted in the Company having a board of directors
consisting of six persons. Also in connection with the Stock Exchange
Transaction, the Company received more than $400,000 in badly needed financing
and entered into an agreement to license its first patent-pending technology for
use in its products. The Company's pre-transaction management had not otherwise
been able to attract the financing necessary to continue the Company's
operations and did not have the contacts in the scientific community to obtain
the licensing opportunity. Such contacts have resulted in the Company's being
able to introduce its first beverage product containing a proprietary technology
into the marketplace and in the acquisition of other patented and patent-pending
technologies.
In order to obtain necessary funding for the Company's operations,
including product development and technology acquisition, the Company has made
private placements of its equity securities, consisting of a combination of
common and preferred stock, which obligate the Company to issue an aggregate of
3,244,888 additional shares of common stock and 1,592,909 shares of Series C
Preferred Stock. The Company also has outstanding options and warrants for the
purchase of its common stock. As of July 31, 2000, the Company had outstanding
options for the purchase of an aggregate of 2,438,333 shares of common stock and
warrants for the purchase of an aggregate of 8,827,928 shares of common stock.
In addition to allowing the Company to meet its existing obligations to
issue stock described above, the increase in authorized shares will provide the
Company with the flexibility of using its common stock for business, incentive,
and funding purposes in the future. For example, the Company may use the
additional shares for, among other things, raising funds, establishing strategic
relationships with other companies, expanding its business or product lines
through the acquisition of other businesses or products, and providing equity
incentives to employees, officers or directors.
Authorization of "Blank Check" Authority for Board of Directors. The
Amendment will include the addition of an Article Twelfth, which will provide
that "The Board of Directors of the Corporation shall have the authority to fix
by resolution the voting rights and the designations, preferences and relative,
participating, option or other special rights, and the qualifications or
restrictions of one or more classes or series of stock, to create one or more
series within a class, and to specify the number of shares of any such series.
The Board of Directors of the Corporation shall have the authority to create
additional classes and series of the Common Stock and the Preferred Stock
without the approval of the shareholders of the Corporation with the limitation
that such creation or designation shall not materially adversely affect the
rights, preferences, privileges or restrictions pertaining to the Common Stock
and/or the Preferred Stock, as the case may be."
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<PAGE>
The purpose of providing the board of directors with this authority is to
allow the board the flexibility to create classes and series of stock to meet
its business needs without the delay and expense involved in obtaining
stockholder approval for each class and series of stock to be created.
It is anticipated that upon the effectiveness of the amendment, the board
will authorize the creation of Series C Preferred Stock and authorize the
issuance of 1,112,010 shares of Series C Preferred Stock. It is anticipated that
the terms of the Series C Preferred Stock will be as follows. The holders of the
Series C Preferred Stock will have the right to convert their shares of Series C
Preferred Stock into shares of common stock at any time after the earlier to
occur of (i) September 30, 2001 or (ii) six months after the closing of a
secondary public offering of the Company's stock resulting in gross proceeds to
the Company of not less than $10,000,000. Each share of Series C Preferred Stock
will be convertible into the Company's common stock based on a defined formula,
with the initial conversion rate being equal to 100 shares of common stock for
each share of Series C Preferred Stock. Each holder of Series C Preferred Stock
will be entitled to cast one vote for each share of common stock into which such
holder's Series C Preferred Stock is convertible. The holders of the Series C
Preferred Stock will not have any right to dividends, however, no dividends will
be paid to holders of common stock unless simultaneously therewith dividends are
paid to holders of the Series C Preferred Stock based on the number of shares of
common stock into which their holdings are convertible. The holders of the
Series C Preferred Stock will have a liquidation preference equal to $0.01 per
share of Series C Preferred Stock plus accrued but unpaid dividends, if any.
Effects of Amendment on Existing Stockholders. The newly authorized shares
of common stock will be issuable, and any class or series of preferred stock may
be created and issued, at any time and from time to time by action of the board
of directors without further authorization from the Company's stockholders,
except as required by applicable law or rules and regulations, to any persons
and for any consideration (but not less than par value) that the board of
directors determines. Holders of the Company's common stock have no preemptive
rights to acquire or subscribe to any additional shares of common stock.
Issuance of additional shares of common stock, directly or upon exercise of
warrants or options or upon conversion of convertible preferred stock, including
those shares of stock which the Company is currently obligated to issue, will
have a dilutive effect on existing stockholders. The issuance of the Series C
Preferred Stock will have no immediate dilutive effect as holders thereof will
not have the right to convert their shares of Series C Preferred Stock to shares
of common stock until a future date, as set forth above. In addition, the
issuance of additional shares of common stock may have a depressive effect on
the market price of the Company's securities. An increase in the number of
issued and outstanding shares of voting common stock and/or the creation and
issuance of voting preferred stock would also have a dilutive effect on the
voting power of the existing outstanding common stock. Finally, the issuance of
additional shares of common stock or securities convertible into shares of
common stock at prices below the current market price would also have a dilutive
effect on stockholders' equity.
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<PAGE>
Required Vote
The adoption of the Amendment requires the affirmative vote of not less
than a majority of the votes entitled to be cast by all shares of common stock
issued and outstanding. As discussed above, stockholders holding a majority of
the outstanding shares of common stock entitled to vote on this matter have
approved the Amendment.
Interest of Certain Persons in Matters to be Acted Upon.
In connection with the Stock Exchange Transaction, the Company is obligated
to issue shares of common stock and Series C Preferred Stock to those officers
and directors of the Company who participated in the Stock Exchange Transaction
by tendering their shares of stock of X-Treem to the Company, but who, like
other participants of the Stock Exchange Transaction, have not yet received all
of their shares of the capital stock of the Company in consideration therefor.
In addition, the Company has the obligation to reserve shares of common stock
for their issuance (i) upon the exercise of the warrant issued to Robert J.
Sipper in connection with the Stock Exchange Transaction and (ii) upon the
exercise of options issued to Robert J. Sipper prior to the Stock Exchange
Transaction.
Financial and Other Information.
The information contained in Part II, Item 6 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Item 7 -
"Financial Statements and Footnotes" of the Company's Form 10-KSB for the fiscal
year ended March 31, 2000, and the information contained in Part I, Item 1 -
"Financial Statements" and Item 2 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the Company's Form 10-QSB for
the fiscal quarter ended June 30, 2000, are incorporated in this information
statement by reference. Copies of the Form 10-KSB and Form 10-QSB are enclosed
with this information statement.
By Order of the Board of Directors
/s/James B. Hovis
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James B. Hovis
President and Chief Executive Officer
___________, 2000
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