<PAGE>
================================================================================
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 Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PROLONG INTERNATIONAL CORPORATION
(Name of Registrant as Specified In Its Charter)
N/A
(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 by written preliminary materials.
[_] 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 Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PROLONG INTERNATIONAL CORPORATION
6 THOMAS
IRVINE, CALIFORNIA 92618
May 15, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Prolong International Corporation (the "Company") to be
held at 6:00 P.M. on Monday, June 15, 1998, at the Atrium Hotel (formerly the
Airporter), located at 18700 MacArthur Blvd., Irvine, California 92612.
At the Annual Meeting you will be asked to elect four directors of the
Company and to approve the appointment of Deloitte & Touche, LLP as the
Company's independent public accountants for the fiscal year ending December
31, 1998. These matters are described in detail in the accompanying Notice of
Annual Meeting and Proxy Statement. In addition, we will be pleased to report
on the affairs of the Company and a discussion period will be provided for
questions and comments of general interest to stockholders.
We look forward to greeting personally those stockholders who are able to be
present at the Annual Meeting. However, whether or not you plan to be with us
at the Annual Meeting, it is important that your shares be represented.
Accordingly, you are requested to sign and date the enclosed proxy and mail it
in the envelope provided at your earliest convenience.
Very truly yours,
/s/ ELTON ALDERMAN
Elton Alderman
President, Chief Executive Officer and
Chairman of the Board of Directors
<PAGE>
PROLONG INTERNATIONAL CORPORATION
6 THOMAS
IRVINE, CALIFORNIA 92618
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 1998
----------------
TO THE STOCKHOLDERS OF PROLONG INTERNATIONAL CORPORATION:
The 1998 Annual Meeting of Stockholders (the "Annual Meeting") of Prolong
International Corporation (the "Company"), will be held at 6:00 P.M. on
Monday, June 15, 1998, at the Atrium Hotel (formerly the Airporter), located
at 18700 MacArthur Blvd., Irvine, California 92612, for the following purposes
as more fully described in the accompanying Proxy Statement:
1. To elect the following four (4) nominees to serve as directors for the
respective periods indicated below:
Class I: Melanie A. McCaffery, to serve until the Annual Meeting in
1999.
Class II: Tom T. Kubota, to serve until the Annual Meeting in 2000.
Class III: Elton Alderman and Thomas C. Billstein, to serve until the
Annual Meeting in 2001.
2. To ratify the appointment of Deloitte & Touche, LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998; and
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Stockholders of record at the close of business on April 20, 1998 will be
entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. All stockholders are cordially invited to attend the
Annual Meeting in person. Stockholders who are unable to attend the Annual
Meeting in person are requested to complete and date the enclosed form of
proxy and return it promptly in the envelope provided. No postage is required
if mailed in the United States. Stockholders who attend the Annual Meeting in
person may revoke their proxy and vote their shares in person. Stockholders
attending the meeting whose shares are held in the name of a broker or other
nominee who desire to vote their shares at the meeting should bring with them
a proxy or letter from that firm confirming their ownership of shares.
By Order of the Board of Directors
/s/ THOMAS C. BILLSTEIN
Thomas C. Billstein
Secretary
Irvine, California
May 15, 1998
PLEASE SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
<PAGE>
PROLONG INTERNATIONAL CORPORATION
6 THOMAS
IRVINE, CALIFORNIA 92618
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 1998
This Proxy Statement is furnished to the holders of Common Stock, par value
$.001 per share (the "Common Stock"), of Prolong International Corporation
(the "Company") in connection with the solicitation by the Board of Directors
of the Company of the enclosed proxy for use at the Annual Meeting of
Stockholders to be held on Monday, June 15, 1998 (the "Annual Meeting"), or at
any adjournment thereof. The purposes of the Annual Meeting and the matters to
be acted upon are set forth in the accompanying Notice of Annual Meeting of
Stockholders. As of the date of this Proxy Statement, the Board of Directors
is not aware of any other matters which will come before the Annual Meeting.
However, if any other matters properly come before the Annual Meeting, the
persons named as proxies will vote on them in accordance with their best
judgment.
Proxies for use at the Annual Meeting are being solicited by the Board of
Directors of the Company. Proxies will be mailed to stockholders on or about
May 15, 1998 and will be solicited chiefly by mail. The Company will make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to the beneficial owners of
Common Stock and will reimburse them for their reasonable expenses in so
doing. Should it appear desirable to do so in order to ensure adequate
representation of shares at the Annual Meeting, officers, agents and employees
of the Company may communicate with stockholders, banks, brokerage houses and
others by telephone, facsimile or in person to request that proxies be
furnished. All expenses incurred in connection with this solicitation will be
borne by the Company. The Company has no present plans to hire special
employees or paid solicitors to assist in obtaining proxies, but reserves the
option of doing so if it should appear that a quorum at the Annual Meeting
otherwise might not be obtained.
REVOCABILITY AND VOTING OF PROXY
A proxy for use at the Annual Meeting and a return envelope for the proxy
are enclosed. Any stockholder who gives a proxy may revoke it at any time
before it is voted by delivering to the Secretary of the Company a written
notice of revocation or a duly executed proxy bearing a later date. Attendance
and voting at the Annual Meeting in and of itself will not constitute a valid
revocation of a proxy. All proxies properly executed and returned will be
voted in accordance with the instructions specified thereon. If no
instructions are given, proxies will be voted FOR approval of Proposals Nos. 1
and 2 as set forth in the accompanying Notice of Annual Meeting of
Stockholders.
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on April 20, 1998 are
entitled to notice of and to vote at the Annual Meeting or at any adjournment
thereof. On April 20, 1998, there were 25,464,500 shares of Common Stock
outstanding; each such share is entitled to one vote on each of the matters to
be presented at the Annual Meeting. The holders of a majority of the
outstanding shares of Common Stock, present in person or by proxy and entitled
to vote, will constitute a quorum at the Annual Meeting.
Proxies marked "withheld" as to any director nominee or "abstain" as to a
particular proposal and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum. "Broker non-votes" are shares
held by brokers or nominees which are present in person or represented by
proxy, but which are not voted on a particular matter because instructions
have not been received from the beneficial owner. The effect of proxies marked
"withheld" as to any director nominee or "abstain" as to a particular proposal
and broker non-votes on Proposals Nos. 1 and 2 is discussed under each
respective Proposal.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of April 20, 1998 by (i) each stockholder who is
known by the Company to own beneficially more than five percent of the
Company's outstanding Common Stock, (ii) each director and nominee for
director of the Company, (iii) each of the Company's executive officers named
in the Summary Compensation Table (see "Executive Compensation") and (iv) by
all executive officers and directors of the Company as a group. The
information as to each person or entity has been furnished by such person or
group.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF SHARES BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED(1) CLASS
---------------- ------------------- ----------
<S> <C> <C>
Elton Alderman............................ 3,995,600(2) 15.6%
6 Thomas
Irvine, California 92618
Carol A. Auld............................. 3,744,999(3) 14.7%
6 Thomas
Irvine, California 92618
Tom T. Kubota............................. 1,830,000(4) 7.2%
6 Thomas
Irvine, California 92618
Thomas C. Billstein....................... 1,481,600(5) 5.8%
6 Thomas
Irvine, California 92618
Melanie A. McCaffery...................... 5,000(6) *
6 Thomas
Irvine, California 92618
Nicholas M. Rosier........................ 14,000(7) *
6 Thomas
Irvine, California 92618
All officers and directors as a group (5
persons) (8)............................. 7,326,200(9) 28.6%
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership as reported in the table above has been determined
in accordance with Rule 13d-3 promulgated under the Securities Exchange
Act of 1934. Shares of Common Stock subject to options currently
exercisable, or exercisable within 60 days of April 20, 1998, are deemed
outstanding for computing the percentage of the person holding such
options but are not deemed outstanding for computing the percentage of
any other person. Except as indicated by footnote and subject to
community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Includes 100,000 shares of Common Stock subject to options exercisable
within 60 days of April 20, 1998.
(3) Carol Auld obtained beneficial ownership of 3,744,999 shares following
the death of her husband, Edwin C. Auld Jr., on February 8, 1996 and as a
result of the subsequent settlement of his estate.
(4) Includes 40,000 shares of Common Stock subject to options exercisable
within 60 days of April 20 1998.
(5) Includes 40,000 shares of Common Stock subject to options exercisable
within 60 days of April 20, 1998.
(6) Consists of shares subject to options exercisable within 60 days of April
20, 1998.
(7) Includes 4,000 shares of Common Stock subject to options exercisable
within 60 days of April 20, 1998.
(8) Includes shares held by Messrs. Alderman, Kubota, Billstein and Rosier
and Ms. McCaffery who collectively served as the Company's directors and
executive officers as of April 20, 1998.
(9) Includes 189,000 shares of Common Stock subject to options exercisable
within 60 days of April 20, 1998.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
In April 1998, the Company's Board of Directors amended the Company's Bylaws
(the "Bylaws") to provide that the members of the Company's Board of Directors
be divided into three classes serving staggered three-year terms, designated
Class I, Class II and Class III, respectively. Nevada law requires that at
least one-fourth (1/4) of the Board of Directors be elected annually.
Accordingly, Class I directors hold office for an initial term expiring at the
Annual Meeting in 1999. Class II directors hold office for an initial term
expiring at the Annual Meeting in 2000. Class III directors hold office for an
initial term expiring at the Annual Meeting in 2001. At each Annual Meeting
held thereafter, directors shall be elected for a three-year term to succeed
the directors of the class whose terms then expire.
Pursuant to Nevada law and the Company's Bylaws, the number of directors
constituting each class shall be fixed from time to time by a resolution duly
adopted by the Board of Directors. The Company's Bylaws provide that the
aggregate number of directors shall be no less than three nor more than nine.
Currently, the Board of Directors has authorized two directors in each class
for a total of six directors. At the 1998 Annual Meeting, one Class I
director, one Class II director and two Class III directors will be elected to
hold office for their respective initial terms. The vacant Class I and Class
II directorships will be filled by the Board of Directors at a later date to
serve the balance of such class' respective term.
Unless otherwise instructed, the proxy holders named in the enclosed proxy
will vote the proxies received by them for the four (4) nominees named below.
All of the nominees presently are directors of the Company.
The nominees have indicated that they are willing and able to serve as
directors if elected. If any nominee becomes unavailable for any reason before
the election, the enclosed proxy will be voted for the election of such
substitute nominee or nominees, if any, as shall be designated by the Board of
Directors. The Board of Directors has no reason to believe that any of the
nominees will be unavailable to serve.
The names and certain information concerning the four (4) nominees for
election as directors are set forth below. THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.
DIRECTORS
The nominees, their ages, the year in which each first became a director of
the Company and their principal occupations or employment during the past five
years are as follows:
CLASS I
(Director nominated for office with a term expiring in 1999)
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
---- --- --------------
<S> <C> <C>
Melanie A. McCaffery................................... 44 1997
</TABLE>
Melanie A. McCaffery has served as a director of both the Company and PSL
since June 1997. Mrs. McCaffery, a certified public accountant, is the
President of McCaffery & Associates, a financial and accounting firm which she
founded in October 1995. From October 1988 through September 1995,
Mrs. McCaffery was a Partner with the international accounting firm of Coopers
& Lybrand L.L.P. From 1978 through October 1988, Mrs. McCaffery served as a
staff member at Coopers & Lybrand L.L.P. Mrs. McCaffery serves on the board of
directors of Boyds Wheels, Inc. a publicly-traded company. Mrs. McCaffery
received a Bachelor's degree in political science from the University of
California, Los Angeles, in 1975 and a Master's in Business Administration
from the University of Southern California in 1978.
3
<PAGE>
CLASS II
(Director nominated for office with a term expiring in 2000)
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
---- --- --------------
<S> <C> <C>
Tom T. Kubota.......................................... 58 1995
</TABLE>
Tom T. Kubota has served as a director of the Company since the
Reorganization in June 1995. Between June 1995 and April 1997, Mr. Kubota
served as the Company's Vice President, Finance. In June 1997, Mr. Kubota was
promoted to Vice President, Investor Relations. From October 1993 to the
present, Mr. Kubota has also served as a director of PSL. Prior to joining
PSL, Mr. Kubota served as an independent consultant for EPL Pro-Long, Inc.,
from March 1992 to October 1993. Since the date of Mr. Kubota's employment
with the Company and PSL, respectively, he has served as an independent
consultant to each entity. Mr. Kubota is also a vice president and director of
GenCell, Inc. and a senior vice president and director of Steriodogenesis
Inhibitors International, both of which are publicly-traded companies.
CLASS III
(Directors nominated for office with terms expiring in 2001)
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
---- --- --------------
<S> <C> <C>
Elton Alderman......................................... 59 1995
Thomas C. Billstein.................................... 45 1995
</TABLE>
Elton Alderman has served as the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since the Reorganization
in June 1995. From October 1993 to the present, Mr. Alderman has also served
as a director, President and Chief Executive Officer of PSL, the Company's
wholly-owned operating subsidiary. Prior to joining PSL, Mr. Alderman served
as the President and Chief Executive Officer of EPL Pro-Long, Inc., the holder
of the patent for the AFMT formula, from July 1988 until October 1993.
Thomas C. Billstein has served as a director of the Company since the
Reorganization in June 1995. Mr. Billstein has also served as the Company's
Vice President and Secretary since February 1996. From October 1993 to the
present, Mr. Billstein has also served as a director of PSL, and has served as
PSL's Secretary since February 1996. Prior to joining PSL, Mr. Billstein
served as an independent financial and legal consultant to EPL Pro-Long, Inc.
from August 1992 until October 1993. From November 1991 to August 1992, Mr.
Billstein provided independent financial and legal consulting services to
various small companies located in Southern California. Since commencing his
employment with the Company and PSL, Mr. Billstein has served as an
independent financial and legal consultant to those entities as well. Mr.
Billstein holds a Bachelor of Science Degree in Business Administration with
an emphasis in Finance-Investments from California State University Long
Beach. He attended Whittier College School of Law, was awarded the American
Jurisprudence Award for Agency Law, and graduated with a Juris Doctorate
degree in 1978. Mr. Billstein is a member of the State Bar of California.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held seven (7) meetings during the
fiscal year ended December 31, 1997. Each incumbent director attended at least
seventy-five percent (75%) of the aggregate of the number of meetings of the
Board.
During the year ended December 31, 1997, the Company did not have a
compensation committee or any other board committee that performed equivalent
functions. However, during such year, all of the members of the Board of
Directors determined executive officer compensation but did not participate in
proceedings or decisions of the Board of Directors regarding their respective
compensation. Effective January 1998, the Board of Directors appointed a
Compensation Committee comprised of Mrs. McCaffery and Mr. Billstein. Assuming
the reelection of Mrs. McCaffery and Mr. Billstein at the annual meeting, the
composition of the Compensation
4
<PAGE>
Committee of the Board of Directors shall remain the same. The functions of
the Compensation Committee include reviewing and approving executive
compensation policies and practices, reviewing salaries and bonuses for
certain officers of the Company, administering the Company's 1997 Stock
Incentive Plan, subject to the provisions set forth in such plan, and
considering such other matters as may be referred to the Compensation
Committee by the Board of Directors from time to time.
During the year ended December 31, 1997, the Company did not have an audit
committee or any other board committee that performed equivalent functions.
Effective January 1998, the Board of Directors appointed an Audit Committee
comprised of Mrs. McCaffery. Assuming the reelection of Mrs. McCaffery at the
annual meeting, the composition of the Audit Committee of the Board of
Directors shall remain the same. The functions of the Audit Committee include
recommending to the Board of Directors the retention of the independent
auditors, reviewing the scope of the annual audit undertaken by the Company's
independent auditors and the progress and results of their work, and reviewing
the financial statements of the Company and its internal accounting and
auditing procedures.
During the year ended December 31, 1997, the Company did not have a
nominating committee or any other board committee that performed equivalent
functions. Effective January 1998, the Board of Directors appointed a
Nominating Committee comprised of Messrs. Alderman and Kubota. Assuming the
reelection of Messrs. Alderman and Kubota at the annual meeting, the
composition of the Nominating Committee of the Board of Directors shall remain
the same. The principal function of the Nominating Committee is identifying
and screening candidates for membership on the Company's Board of Directors.
Stockholders may recommend nominees for election as directors by writing to
the Chief Executive Officer of the Company.
DIRECTORS' COMPENSATION
The Company's directors do not receive cash compensation for attendance at
Board of Directors or committee meetings, but may be reimbursed for certain
expenses in connection with attendance at Board of Directors and committee
meetings.
VOTE REQUIRED
The four nominees receiving the highest number of affirmative votes of the
shares present in person or represented by proxy and entitled to vote for
them, a quorum being present, shall be elected as directors. Only votes cast
"FOR" a nominee will be counted, except that the accompanying proxy will be
voted for all nominees in the absence of instructions to the contrary. Broker
non-votes and proxies marked "withheld" as to one or more nominees will result
in the respective nominees receiving fewer votes. However, the number of votes
otherwise received by the nominee will not be reduced by such action.
5
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of
the Company's executive officers as of April 20, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Elton Alderman..................... 59 President and Chief Executive Officer
Thomas C. Billstein................ 45 Vice-President and Secretary
Tom T. Kubota...................... 58 Vice President, Investor Relations
Nicholas M. Rosier................. 52 Chief Financial Officer
</TABLE>
A biographical summary regarding Messrs. Alderman, Billstein and Kubota has
been presented earlier.
Nicholas M. Rosier has served as Controller of PSL since March 1997 and was
promoted to Chief Financial Officer of the Company and PSL, effective July
1997. For the four year period prior to his joining PSL, Mr. Rosier was the
Controller and Financial Accounting Manager of two divisions for DePUY, Inc.,
a major public manufacturing company in the global orthopaedic industry. Prior
to that position Mr. Rosier was the Controller/Director of Finance for
thirteen years for Adams Rite Manufacturing Company, a privately owned
manufacturer of locks and automotive equipment. He holds a Bachelor's degree
in accounting and finance from H.B.S. in Holland.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid in the years ended
December 31, 1997, 1996 and 1995 to the Company's Chief Executive Officer and
the Company's other executive officers (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG TERM COMPENSATION
------------------ ------------------------
RESTRICTED ALL OTHER
NAME AND STOCK OPTION COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($)/(1)/ GRANTS(#) SATION($)
------------------ ---- --------- -------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Elton Alderman.......... 1995 -- -- -- -- 61,250
President and Chief 1996 93,337 45,419/(2)/ -- -- --
Executive Officer 1997 134,000 90,000/(3)//(4)/ -- 500,000 --
Thomas C. Billstein..... 1995 -- -- -- -- 53,008
Vice-President and 1996 90,256 36,850/(2)/ -- -- --
Secretary 1997 120,000 60,000/(3)//(5)/ -- 200,000 --
Nicholas M. Rosier...... 1995 -- -- -- -- --
Chief Financial Officer 1996 -- -- -- -- --
1997 61,993 20,000/(6)/ -- 20,000 --
Tom T. Kubota........... 1995 -- -- -- -- 65,250
Vice President Investor 1996 90,000 -- 62,500 -- 118,500
Relations 1997 61,393 45,000/(3)/ -- 200,000 35,000/(7)/
</TABLE>
- --------
(1) At December 31, 1997, the above-named individuals collectively held
approximately 7,159,200 shares of Common Stock with a value of
$14,103,624 in the aggregate, based on the closing share price of $1.97
per share on such date.
(2) Represents an amount paid to the named individual in 1997 for his
performance in 1996.
(3) Represents an amount paid to the named individual in 1998 for his
performance in 1997.
6
<PAGE>
(4) In addition to the foregoing amount, Mr. Alderman received advances from
the Company on his annual bonus in the amount of $107,477. It is intended
that the Company will offset such advances against bonuses to be paid to
Mr. Alderman in fiscal 1998 and fiscal 1999.
(5) In addition to the foregoing amount, Mr. Billstein received advances from
the Company on his annual bonus in the amount of $80,890. It is intended
that the Company will offset such advances against bonuses to be paid to
Mr. Billstein in fiscal 1998 and fiscal 1999.
(6) Includes $12,500 paid to Mr. Rosier in 1998 for his performance in 1997.
(7) Represents fees paid to Mr. Kubota in his capacity as an independent
consultant to the Company prior to June 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted to the Named Executive
Officers during fiscal 1997:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
TOTAL STOCK PRICE
OPTIONS GRANTED APPRECIATION FOR
NUMBER OF TO EMPLOYEES IN EXERCISE OR OPTION TERM/(3)/
SECURITIES UNDERLYING FISCAL BASE PRICE EXPIRATION -------------------
NAME OPTIONS GRANTED (#) YEAR/(1)/ ($/SH) DATE/(2)/ 5%($) 10%($)
---- --------------------- --------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Elton Alderman.......... 500,000 45.4% $2.00 6/4/2007 $628,894 $1,593,742
Thomas C. Billstein..... 200,000 18.1% $2.00 6/4/2007 $251,557 $ 637,497
Nicholas M. Rosier...... 20,000 1.8% $2.00 6/4/2007 $ 25,156 $ 63,750
Tom T. Kubota........... 200,000 18.1% $2.00 6/4/2007 $251,557 $ 637,497
</TABLE>
- --------
(1) Options to purchase an aggregate of 1,102,188 shares of Common Stock were
granted to employees, including the Named Executive Officers, during the
year ended December 31, 1997.
(2) The Option granted has a term of ten years, subject to earlier
termination on certain events related to termination of employment or
service to the Company.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years). It is calculated by assuming that
the stock price appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. No gain to the option holder is possible unless the stock price
increases over the option term.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regarding option
exercises during the fiscal year ended December 31, 1997 by each of the Named
Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
VALUE FISCAL YEAR-END (#) FISCAL YEAR END($)/(1)/
SHARES ACQUIRED REALIZED ------------------------- -------------------------
NAME ON EXERCISE # ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Elton Alderman.......... 0 0 0 500,000 0 0
Thomas C. Billstein..... 0 0 0 200,000 0 0
Nicholas M. Rosier...... 0 0 0 20,000 0 0
Tom T. Kubota........... 0 0 0 200,000 0 0
</TABLE>
- --------
(1) Value is based on the average of the high and low bid price for the
Common Stock as reported on the system of the National Association of
Securities Dealers, Inc., known as the OTC Bulletin Board on December 31,
1997 (the "Fair Market Value") minus the exercise price or base price of
"in-the-money" options. The Fair Market Value of the Common Stock as of
December 31, 1997 was $1.97 per share.
7
<PAGE>
STOCK OPTION AND PURCHASE PLANS
1997 Stock Incentive Plan
The Company's 1997 Stock Incentive Plan (the "Plan") was adopted by the
Company's stockholders and the Board of Directors in June 1997. The Plan
provides for the granting of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonqualified stock options and restricted stock. The Plan has authorized for
issuance up to 2,500,000 shares of Common Stock. Under the Plan, shares of
Common Stock may be granted to directors, officers, employees, consultants and
other service providers of the Company, except that incentive stock options
may not be granted to non-employee directors. The Plan is administered by the
Board of Directors or a committee appointed by the Board of Directors (the
"Committee"), which has sole discretion and authority, consistent with the
provisions of the Plan, to determine which eligible participants will receive
options, the time when options will be granted, the terms of options granted
and the number of shares which will be subject to options granted under the
Plan. Presently, the Compensation Committee administers the Plan. As of
December 31, 1997, there were 1,355,378 options outstanding under the Plan at
a weighted average exercise price of $2.10 per share. Officers and directors
hold options to purchase 945,000 shares of Common Stock, none of which were
exercisable as of December 31, 1997. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the
assets of the Company, all outstanding unvested options of the Plan shall be
accelerated.
The exercise price under the Plan is determined by the Board of Directors,
provided that, generally in the case of an incentive stock option, the
exercise price shall be equal to the fair market value of the Common Stock as
of the date of grant, as determined by the Board of Directors. In the case of
an incentive stock option granted to an optionee who owns more than 10% of the
voting power of all classes of stock of the Company or any parent or
subsidiary of the Company (a "10% Holder"), the exercise price may be no less
than 110% of the fair market value of the Common Stock on the date the option
is granted. The Board of Directors has the authority to determine the time or
times at which options granted under the Plan become exercisable, provided
that incentive options must expire no later than ten years from the date of
grant, or five years in the case of a 10% Holder. Options are not assignable
and are nontransferable, other than upon death by will and the laws of descent
and distribution, and generally may be exercised only by an employee while
employed by the Company or within 30 days after termination of employment.
In the event of a "change in control" of the Company, all outstanding
options and rights to purchase Common Stock will become fully vested and
immediately exercisable. A change in control means generally (i) the
acquisition by a person or group of more than 50% of the outstanding
securities of the Company, (ii) a merger or consolidation in which the Company
is not the survivor, (iii) the sale or disposition of substantially all of the
assets of the Company, (iv) a liquidation or dissolution of the Company, or
(v) a reverse merger in which more than 50% of the combined voting power of
the Company's outstanding securities are transferred.
The Board of Directors may, in its discretion, amend or terminate the 1997
Stock Incentive Plan. However, no amendment or termination may adversely
affect a participant's rights as to prior grants. The Plan shall terminate in
any event in June 2007.
EMPLOYMENT AGREEMENTS
The Company does not have employment agreements with any of its executive
officers. Prior to December 31, 1997, compensation of the executive officers
was evaluated, from time to time, by the Board of Directors and increased or
decreased based on each officer's performance generally as well as specified
criteria related to each officer's performance of his duties. Currently,
compensation of the executive officers is evaluated by the Compensation
Committee based on similar criteria.
8
<PAGE>
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
During the year ended December 31, 1997, the Company did not have a
compensation committee or any other board committee that performed equivalent
functions. However, during such year, all of the members of the Board of
Directors determined executive officer compensation but did not participate in
proceedings or decisions of the Board of Directors regarding their respective
compensation. Effective January 1998, the Board of Directors appointed a
Compensation Committee comprised of Mrs. McCaffery and Mr. Billstein.
GENERAL COMPENSATION POLICY
The Company's compensation policy is designed to attract and retain
qualified key executives critical to the Company's success and to provide such
executives with performance-based incentives tied to the achievement of
Company milestones. One of the Board of Directors' primary objectives is to
have a substantial portion of each executive officer's total compensation
contingent upon the Company's performance as well as upon the individual's
contribution to the Company's success as measured by his personal performance.
Accordingly, each executive officer's compensation package is comprised
primarily of three elements: (i) base salary which reflects individual
performance and expertise and is designed to be competitive with salary levels
in the industry; (ii) variable performance awards payable in cash and tied to
the Company's achievement of certain goals; and (iii) long-term stock-based
incentive awards which strengthen the mutuality of interests between the
executive officers and the Company's stockholders.
FACTORS
The principal factors which the Board of Directors considered in
establishing the components of each executive officer's compensation package
for the 1997 fiscal year are summarized below. However, the Compensation
Committee may in its discretion apply different factors, particularly
different measures of financial performance, in setting executive compensation
in future fiscal years.
BASE SALARY
The base salary levels for the executive officers were established by the
Board of Directors for the 1997 fiscal year on the basis of the following
factors: personal performance, the estimated salary levels in effect for
similar positions at a select group of companies with which the Company
competes for executive talent, and internal comparability considerations.
Although the Board of Directors reviewed various compensation surveys, the
Board of Directors did not rely upon any specific survey for comparative
compensation purposes. Instead, the Board of Directors made its decisions as
to the appropriate market level of base salary for each executive officer on
the basis of its understanding of the salary levels in effect for similar
positions at those companies with which the Company competes for executive
talent. Base salaries will be reviewed by the Compensation Committee on an
annual basis, and adjustments will be made in accordance with the factors
indicated above.
ANNUAL INCENTIVE COMPENSATION
Executive officers have an opportunity to earn annual incentives based upon
performance targets. The Board of Directors may also award bonuses in cases
where such performance targets are not met if it determines that the
circumstances warrant such action. For fiscal year 1997, the performance
targets for the executive officers included revenues, pre-tax profits and
earnings per share. The weight given to each factor varied from individual to
individual. Additionally, each executive officer has a discretionary portion
of the annual incentive linked to achievement of non-financial goals, which
differ depending upon the responsibilities of the executive officer in
question.
LONG-TERM INCENTIVE COMPENSATION
The 1997 Stock Incentive Plan also provides the Board of Directors with the
ability to align the interests of the executive officer with those of the
stockholders and provide each individual with a significant incentive to
9
<PAGE>
manage the Company from the perspective of an owner with an equity stake in
the business. The number of shares subject to each option grant is based upon
the executive officer's tenure, level of responsibility and relative position
in the Company. Stock options totaling 1,102,188 shares were granted to
employees, including the executive officers, during 1997. The exercise price
for the stock options is the fair market value of the stock on the date of the
grant. Options generally vest at a rate of 20% per year starting on the
anniversary date of the option grant and are contingent upon the officer's
continued employment with the Company. Accordingly, the option will provide a
return to the executive officer only if he or she remains in the Company's
employ and the market price of the Company's Common Stock appreciates over the
option term.
CEO COMPENSATION
The Chief Executive Officer participates in the compensation program
discussed above. The Board of Directors set the base salary for Mr. Elton
Alderman, the Company's Chief Executive Officer for the 1997 fiscal year, at a
level which is designed to provide him with a salary competitive with salaries
paid to chief executive officers of similarly-sized companies in the industry
and commensurate with Mr. Alderman's experience. The Board of Directors
awarded an incentive payment totaling $90,000 based upon the fact that the
Company had achieved records sales and profitability levels and that Mr.
Alderman had achieved certain non-financial goals determined by the Board of
Directors prior to the beginning of the year. Mr. Alderman also received
option grants totaling 500,000 shares as long-term incentive compensation.
Respectfully submitted,
Elton Alderman, Chairman
Thomas C. Billstein
Tom T. Kubota
Melanie A. McCaffery
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1997, the Company did not have a
compensation committee or any other board committee that performed equivalent
functions. However, during such year, all of the members of the Board of
Directors determined executive officer compensation but did not participate in
proceedings or decisions of the Board of Directors regarding their respective
compensation. Messrs. Alderman, Billstein, Kubota and Rosier all serve
concurrently as officers and/or directors of both the Company and its wholly-
owned operating subsidiary, Prolong Super Lubricants, Inc., a Nevada
corporation ("PSL").
CERTAIN TRANSACTIONS
In January 1997, Prolong Acquisition Corporation, a Delaware corporation
("PAC") owned by Elton Alderman and Thomas C. Billstein, acquired the
International Hot Rod Association, a sanctioning body for certain motorsports
competitions commonly known as drag races. Following the acquisition, PAC was
renamed the International Hot Rod Association, Inc. (the "IHRA"). It was
contemplated that the Company or PSL would purchase an equity interest in the
IHRA. In February 1997, the Board of Directors formally considered purchasing
an equity interest in the IHRA but determined not to make such an investment
at that time. The proposed terms were substantially the same as those terms at
which Messrs. Alderman and Billstein made the acquisition. Messrs. Alderman
and Billstein abstained from voting on such proposed transaction.
Currently, the Company is a party to a sponsorship agreement with the IHRA.
During 1997, the Company paid the IHRA $50,000 for sponsorship of the Prolong
Super Lubricants Spring Nationals in Bristol, Tennessee and $35,000 for
sponsorship of the Prolong Super Lubricants--Ohio Lottery World Nationals in
Norwalk, Ohio. In addition to the above contemplated transaction with the
IHRA, as of March 31, 1998, the Company has advanced the IHRA approximately
$280,000 in the aggregate as a prepayment for sponsorship and title rights of
nationally televised national events to occur in 1998 and 1999.
10
<PAGE>
From the date of the Reorganization and continuing to June 1997, Tom Kubota
has served as an independent consultant for the Company. In the fiscal year
ended December 31, 1997, the Company paid $35,000 to Mr. Kubota for consulting
services.
Messrs. Alderman, Billstein, Rosier and Kubota all hold concurrent positions
as officers and/or directors of both the Company and PSL.
From January 1996 and continuing through the present, Melanie McCaffery has
served as an independent consultant for the Company. In the fiscal year ended
December 31, 1997, the Company paid approximately $73,000 to Mrs. McCaffery
for consulting services.
Other than the related transactions disclosed above, the Company is not
aware of any transactions or proposed transactions to which the Company or PSL
was or is to be a party, in which any director, executive officer, nominee for
election as a director, security holder or any member of the immediate family
of the persons named above had or is to have a direct or indirect material
interest.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon its review of the copies of Forms 3 and 4 and amendments
thereto furnished to the Company, or written representations that no annual
Form 5 reports were required, the Company believes that all filing
requirements under Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") applicable to its directors, officers and any
persons holding ten percent (10%) or more of the Company's Common Stock were
made with respect to the Company's fiscal year ended December 31, 1997.
11
<PAGE>
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative stockholder return
on the Company's Common Stock with the cumulative total return of the Russell
2000 Index and an industry peer group identified by the Company (the "Peer
Group Index"). The Peer Group Index consists of WD-40 Company and Wynn's
International, Inc. The Peer Group Index returns consist of the weighted
returns of each component issuer according to such issuer's respective stock
market capitalization at the beginning of each period for which a return is
indicated.
The graph assumes an investment of $100 in the Company's Common Stock on
September 3, 1997, the date on which the Company's Common Stock was first
registered under the Exchange Act, and an investment in each of the Russell
2000 Index and the Peer Group Index of $100 on September 3, 1997. The graph
covers the period from September 3, 1997 through the fiscal year ended December
31, 1997.
The calculation of cumulative stockholder return for the Russell 2000 Index
and the Peer Group Index includes reinvestment of dividends. The calculation of
cumulative stockholder return on the Company's Common Stock does not include
reinvestment of dividends because the Company did not pay dividends during the
measurement period. The performance shown is not necessarily an indicator of
future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG PROLONG INTERNATIONAL CORPORATION,
THE RUSSELL 2000 INDEX AND
THE PEER GROUP INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
PROLONG
INTERNATIONAL RUSSELL PEER GROUP
Measurement Period CORP. 2000 INDEX INDEX
- --------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Measurement Pt-09/03/97 $100.00 $100.00 $100.00
09/30/97 $ 90.91 $107.32 $106.34
10/31/97 $ 78.55 $102.60 $105.52
11/30/97 $ 72.73 $101.94 $ 99.87
12/31/97 $ 81.82 $103.72 $102.87
</TABLE>
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THE COMPANY'S PREVIOUS
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE BOARD OF DIRECTORS
REPORT ON EXECUTIVE COMPENSATION AND THE STOCK PERFORMANCE GRAPH SHALL NOT BE
INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
12
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche, LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1998, and recommends that stockholders vote for
ratification of such appointment. In determining whether the proposal has been
approved, abstentions will be counted as votes against the proposal and broker
non-votes will not be counted as votes for or against the proposal or as votes
present and voting on the proposal. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Deloitte & Touche, LLP has audited the Company's financial statements
annually since its fiscal year ended December 31, 1996. Its representatives
are expected to be present at the meeting with the opportunity to make a
statement if they desire to do so and are expected to be available to respond
to appropriate questions.
CHANGES IN ACCOUNTANTS
The Company's financial statements for the years ended December 31, 1995 and
1994 were audited by Corbin & Wertz, independent accountants. In February
1997, the Company dismissed Corbin & Wertz and engaged Deloitte & Touche, LLP
as its independent accountants. The change in the Company's independent
accountants was the result of a mutual agreement between the Company and
Corbin & Wertz. There were no disagreements with Corbin & Wertz on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure during such period, which disagreements, if not
resolved to the satisfaction of Corbin & Wertz, would have caused it to make a
reference to the subject matter of the disagreements in connection with its
reports.
The decision to engage Deloitte & Touche, LLP was approved by the Board of
Directors of the Company.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the 1999 Annual
Meeting of Stockholders and presentation in the Company's Proxy Statement with
respect to such meeting should arrange for such proposal to be delivered to
the Company at its principal place of business no later than January 16, 1999
in order to be considered for inclusion in the Company's proxy statement
relating to that meeting. Matters pertaining to such proposals, including the
number and length thereof, eligibility of persons entitled to have such
proposals included and other aspects are regulated by the Securities Exchange
Act of 1934, Rules and Regulations of the Securities and Exchange Commission
and other laws and regulations to which interested persons should refer.
OTHER MATTERS
The Company has enclosed with this Proxy Statement a copy of the Annual
Report to Stockholders for the year ended December 31, 1997.
Management is not aware of any other matters to come before the meeting. If
any other matter not mentioned in this Proxy Statement is brought before the
meeting, the proxy holders named in the enclosed Proxy will have discretionary
authority to vote all proxies with respect thereto in accordance with their
judgment.
Stockholders who do not expect to attend in person are urged to promptly
execute and return the enclosed Proxy.
By Order of the Board of Directors
/s/ THOMAS C. BILLSTEIN
Thomas C. Billstein
Secretary
Irvine, California
May 15, 1998
13
<PAGE>
PROXY
PROLONG INTERNATIONAL CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF THE STOCKHOLDERS--JUNE 15, 1998
The undersigned hereby nominates, constitutes and appoints Elton Alderman and
Nicholas M. Rosier, and each of them individually, the attorney, agent and
proxy of the undersigned, with full power of substitution, to vote all stock of
PROLONG INTERNATIONAL CORPORATION which the undersigned is entitled to
represent and vote at the 1998 Annual Meeting of Stockholders of the Company to
be held at the Atrium Hotel (formerly the Airporter), located at 18700
MacArthur Blvd., Irvine, California 92612, on June 15, 1998, at 6:00 P.M., and
at any and all adjournments or postponements thereof, as fully as if the
undersigned were present and voting at the meeting, as follows:
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1 AND 2
1. Election of Directors
[_] FOR [_] WITHHOLD AUTHORITY
all nominees listed belowto vote for all nominees listed below
(except as marked to the contrary below)
Election of the following nominees as directors:
Class I: Melanie A. McCaffery
-------
Class II: Tom T. Kubota
--------
Class III: Elton Alderman and Thomas C. Billstein
---------
(INSTRUCTIONS: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. Ratification of Deloitte & Touche, LLP as independent auditors:
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, on such other business as may properly come before
the meeting or any adjournment thereof.
IMPORTANT--PLEASE SIGN AND DATE AND RETURN PROMPTLY
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. WHERE NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED "FOR" THE
ELECTION OF THE DIRECTORS NAMED ON THE REVERSE SIDE OF THIS PROXY AND "FOR"
RATIFICATION OF DELOITTE & TOUCHE, LLP AS INDEPENDENT AUDITORS.
Date ____, 1998
----------------------
(Signature of
stockholder)
Please sign your name exactly as it
appears hereon. Executors,
administrators, guardians, officers
of corporations and others signing
in a fiduciary capacity should
state their full titles as such.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
