<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
[X] Definitive Proxy Statement Commission Only (as Permitted by
[_] Definitive Additional Materials Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
PROLONG INTERNATIONAL CORPORATION
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------
(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):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------
[_] Fee paid previously with 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:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PROLONG INTERNATIONAL CORPORATION
6 Thomas
Irvine, California 92618
May 14, 1999
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 10:00 A.M. on Wednesday, June 16, 1999, 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 two 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, 1999. 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 on June 16, 1999
----------------
TO THE STOCKHOLDERS OF PROLONG INTERNATIONAL CORPORATION:
The 1999 Annual Meeting of Stockholders (the "Annual Meeting") of Prolong
International Corporation (the "Company"), will be held at 10:00 A.M. on
Wednesday, June 16, 1999, 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 two (2) Class I directors to serve until the 2002 Annual
Meeting of Stockholders;
(2) To ratify the appointment of Deloitte & Touche, LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999; 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, 1999 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 14, 1999
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 on June 16, 1999
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 Wednesday, June 16, 1999 (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 14, 1999 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, 1999 are
entitled to notice of and to vote at the Annual Meeting or at any adjournment
thereof. On April 20, 1999, there were 28,445,835 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
<PAGE>
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.
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, 1999 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(1) Owned(2) Class
------------------- ------------------- ----------
<S> <C> <C>
Elton Alderman............................ 4,096,600(3) 14.3%
Carol A. Auld............................. 3,744,999(4) 13.2%
EPL Pro-Long, Inc. ....................... 2,981,035 10.5%
245 Fischer Avenue, Suite A-1
Costa Mesa, California 92626
Tom T. Kubota............................. 1,870,000(5) 6.6%
Thomas C. Billstein....................... 1,521,600(6) 5.3%
Nicholas M. Rosier........................ 18,000(7) *
Bruce F. Barnes........................... 11,500 *
Melanie A. McCaffery...................... 10,000(8) *
William J. Howell......................... 1,000 *
All officers and directors as a group
(5 persons) (9).......................... 7,516,200(10) 26.1%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, the address of such beneficial owner is the
Company's principal executive offices, 6 Thomas, Irvine, California
92618.
(2) 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, 1999, 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.
(3) Includes 200,000 shares of Common Stock subject to options exercisable
within 60 days of April 20, 1999.
(4) 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.
(5) Includes 80,000 shares of Common Stock subject to options exercisable
within 60 days of April 20, 1999.
(6) Includes 80,000 shares of Common Stock subject to options exercisable
within 60 days of April 20, 1999.
(7) Includes 8,000 shares of Common Stock subject to options exercisable
within 60 days of April 20, 1999.
(8) Consists of shares subject to options exercisable within 60 days of
April 20, 1999.
(9) Includes shares held by Messrs. Alderman, Kubota, Billstein, and Rosier
and Mrs. McCaffery who collectively served as the Company's directors
and executive officers as of April 20, 1999.
(10) Includes 378,000 shares of Common Stock subject to options exercisable
within 60 days of April 20, 1999.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Restated Bylaws (the "Bylaws") 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. At each Annual Meeting, 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,
or a total of six directors. At the 1999 Annual Meeting, two Class I directors
will be elected to hold office for a three-year term expiring at the 2002
Annual Meeting. Melanie A. McCaffery has informed the Company that she will
retire from the Board of Directors upon expiration of her term at the 1999
Annual Meeting and will not stand for re-election to the Board of Directors.
The vacant Class II directorship will be filled by the Board of Directors at a
later date to serve the balance of such class' term.
Unless otherwise instructed, the proxy holders named in the enclosed proxy
will vote the proxies received by them for the two (2) nominees named below.
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 BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH OF
THE NOMINEES NAMED BELOW.
Class I
(Directors nominated for office with terms expiring in 2002)
<TABLE>
<CAPTION>
Name Age Director Since
---- --- --------------
<S> <C> <C>
William J. Howell..................................... 56 Nominee
Bruce F. Barnes....................................... 64 Nominee
</TABLE>
William J. Howell is an attorney who practices business law in San Diego,
California. Mr Howell's practice primarily focuses on providing consumer and
small business financial services in the areas of bankruptcy, reorganization
and other workouts. Mr. Howell received a Bachelors degree in comparative
literature from California State University, Long Beach in 1970 and a Juris
Doctorate degree in 1976 from the University of San Diego, School of Law. Mr.
Howell is a member of the State Bar of California.
Bruce F. Barnes currently serves as the President of Barnes Curci Marketing,
Inc., a sports marketing firm that Mr. Barnes founded in 1974. Between 1969
and 1974, Mr Barnes held the position of Vice President at Sports Headliners,
a sports marketing firm located in Indianapolis, Indiana. Prior to 1969, Mr.
Barnes was a Sales Manager of the Dayton Division of Firestone Tire & Rubber
Company. Mr. Barnes received a Bachelors degree in business administration
from the University of Southern California in 1959.
3
<PAGE>
Biographical Information For Directors Continuing In Office
Set forth below is biographical information for each of the other directors
of the Company whose present terms of office will continue after the 1999
Annual Meeting.
Class II
(Director continuing in office with a term expiring in 2000)
<TABLE>
<CAPTION>
Name Age Director Since
---- --- --------------
<S> <C> <C>
Tom T. Kubota.......................................... 59 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. Since December 1998,
Mr. Kubota has served as a director of Prolong International Holdings Ltd. and
Prolong International Ltd. Prior to joining PSL, Mr. Kubota served as an
independent consultant for EPL Pro-Long, Inc., from March 1992 to October
1993. Prior to the date of Mr. Kubota's employment with the Company and PSL,
respectively, he 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 continuing in office with terms expiring in 2001)
<TABLE>
<CAPTION>
Name Age Director Since
---- --- --------------
<S> <C> <C>
Elton Alderman......................................... 60 1995
Thomas C. Billstein.................................... 46 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. Since December 1998, Mr. Alderman has served as a director of
Prolong International Holdings Ltd. and Prolong International Ltd. 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. Since December 1998, Mr. Billstein has served as
a director of Prolong International Holdings Ltd. and Prolong International
Ltd. 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. Prior to commencing his employment with the
Company and PSL, Mr. Billstein 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 six (6) meetings during the
fiscal year ended December 31, 1998. The Board has an Audit Committee, a
Compensation Committee and a Nominating committee.
4
<PAGE>
The Audit Committee meets with the Company's independent auditors to prepare
for and to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained;
and receives and considers the auditor's comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. During 1998, the Audit Committee consisted solely of Mrs.
McCaffery. Assuming the election of Mr. Howell and Mr. Barnes, the composition
of the Audit Committee of the Board of Directors will be Mr. Howell, Mr.
Barnes and Mr. Billstein. Mr. Howell and Mr. Barnes are not employees of the
Company. The Audit Committee met two (2) times during 1998 to discuss the
annual audit with the Company's independent auditors.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants
under the Company's stock option plan and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board
may delegate. During 1998, the Compensation Committee consisted of Mr.
Billstein and Mrs. McCaffery. Assuming the election of Mr. Howell and Mr.
Barnes, the composition of the Compensation Committee of the Board of
Directors will be Mr. Howell, Mr. Barnes and Mr. Billstein. The Compensation
Committee met two (2) times during 1998.
The Nominating Committee identifies and screens candidates for membership on
the Company's Board of Directors. The Nominating Committee is composed of Mr.
Alderman and Mr. Kubota. The Nominating Committee met two (2) times during
1998.
During the fiscal year ended December 31, 1998, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the
committees on which he or she served, held during the period for which he or
she was a director or committee member, respectively.
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 two 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, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Elton Alderman.............. 60 President and Chief Executive Officer
Thomas C. Billstein......... 46 Vice President and Secretary
Tom T. Kubota............... 59 Vice President, Investor Relations
Nicholas M. Rosier.......... 53 Chief Financial Officer
</TABLE>
A biographical summary regarding Messrs. Alderman, Billstein and Kubota has
been presented earlier.
Nicholas M. Rosier has served as Chief Financial Officer of the Company and
PSL since July 1997. From March 1997 through June 1997, Mr. Rosier served as
the Controller of PSL. 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 orthopedic
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 Bachelors
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, 1998, 1997 and 1996 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
-------------------- ---------------------------
Name and Restricted Stock Option All Other
Principal Position Year Salary ($) Bonus ($) Awards ($)(/1/) Grants (#) Compensation ($)
------------------ ---- ---------- --------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Elton Alderman.......... 1996 93,337 45,419(/2/) -- -- --
President and Chief 1997 134,000 90,000(/3/)(/5/) -- 500,000 --
Executive Officer 1998 161,144 60,000(/4/) -- -- --
Thomas C. Billstein .... 1996 90,256 36,850(/2/) -- -- --
Vice-President and 1997 120,000 60,000(/3/)(/6/) -- 200,000 --
Secretary 1998 131,491 30,000(/4/) -- -- --
Nicholas M. Rosier ..... 1996 -- -- -- -- --
Chief Financial Officer 1997 61,993 20,000(/7/) -- 20,000 --
1998 77,648 12,500(/4/) -- -- --
Tom T. Kubota .......... 1996 90,000 -- 62,500 -- 118,500
Vice President Investor 1997 61,393 45,000(/3/) -- 200,000 35,000(/8/)
Relations 1998 89,975 20,000(/4/) -- -- --
</TABLE>
- --------
(1) At December 31, 1998, the above-named individuals collectively held
approximately 7,138,200 shares of Common Stock with a value of $10,279,008
in the aggregate, based on the closing share price of $1.44 per share on
such date.
(2) Represents an amount paid to the named individual in 1997 for his
performance in 1996.
6
<PAGE>
(3) Represents an amount paid to the named individual in 1998 for his
performance in 1997.
(4) Represents an amount paid to the named individual in 1999 for his
performance in 1998.
(5) In addition to the foregoing amount, Mr. Alderman received advances from
the Company on his annual bonus in the amount of $81,365. The balance of
such advances outstanding as of April 20, 1999 was $61,429. It is intended
that Mr. Alderman will reimburse the Company in quarterly payments during
1999. Any remaining advance will be offset against bonuses to be paid in
fiscal 2000.
(6) In addition to the foregoing amount, Mr. Billstein received advances from
the Company on his annual bonus in the amount of $129,550. The balance of
such advances outstanding as of April 20, 1999 was $97,580. It is intended
that Mr. Billstein will reimburse the Company in quarterly payments during
1999. Any remaining advance will be offset against bonuses to be paid in
fiscal 2000.
(7) Includes $12,500 paid to Mr. Rosier in 1998 for his performance in 1997.
(8) Represents fees paid to Mr. Kubota in his capacity as an independent
consultant to the Company prior to June 1997.
Option Grants in Last Fiscal Year
There were no stock options granted to the Named Executive Officers during
the fiscal year ended December 31, 1998.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain information regarding option
exercises during the fiscal year ended December 31, 1998 by each of the Named
Executive Officers:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-The-Money Options
Unexercised Options at at Fiscal Year
Shares Value Fiscal Year-End (#) End ($)(/1/)
Acquired on Realized ------------------------- -------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Elton Alderman.......... 0 0 100,000 400,000 0 0
Thomas C. Billstein..... 0 0 40,000 160,000 0 0
Nicholas M. Rosier...... 0 0 4,000 16,000 0 0
Tom T. Kubota........... 0 0 40,000 160,000 0 0
</TABLE>
- --------
(1) Value is based on the closing sales price for the Common Stock as reported
on the American Stock Exchange on December 31, 1998 (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, 1998 was
$1.44 per share.
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
7
<PAGE>
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, 1998, there were 1,405,244 options outstanding under
the Plan at a weighted average exercise price of $2.07 per share. Officers and
directors hold options to purchase 1,045,000 shares of Common Stock, 209,000
of which were exercisable as of December 31, 1998. 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. The compensation of the executive officers is evaluated, from time
to time, by the Compensation Committee and approved 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.
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of Mrs.
McCaffery and Mr. Billstein. The following report on executive compensation is
furnished by the Compensation Committee for the year ended December 31, 1998.
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 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 Compensation Committee and the Board of
Directors considered in establishing the components of each executive
officer's compensation package for the 1998 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 recommended by the
Compensation Committee and established by the Board of Directors for the 1998
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 Compensation Committee reviewed
various compensation surveys, the Compensation Committee did not rely upon any
specific survey for comparative compensation purposes. Instead, the
Compensation Committee 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 Compensation Committee 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 1998, 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 Compensation Committee with
the ability to align the interests of the executive officer with those of the
stockholders and provide each individual with a significant
9
<PAGE>
incentive to 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 160,000 shares
were granted to employees and consultants, none of which were granted to the
executive officers, during 1998. 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 Compensation Committee set the base salary for Mr. Elton
Alderman, the Company's Chief Executive Officer for the 1998 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 Compensation Committee
awarded an incentive payment totaling $60,000 based upon the fact that the
Company had achieved record sales and that Mr. Alderman had achieved certain
non-financial goals determined by the Compensation Committee prior to the
beginning of the year. Mr. Alderman did not receive any option grants during
the year ended December 31, 1998.
Respectfully submitted,
Thomas C. Billstein
Melanie A. McCaffery
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1998, the Compensation Committee was
comprised of one (1) director who was neither an officer nor an employee, Mrs.
McCaffery, and one (1) director, Mr. Billstein, who is the Company's Vice
President and Secretary. As discussed more fully in the sections entitled
"EXECUTIVE COMPENSATION" and "CERTAIN TRANSACTIONS", Mr. Billstein has
outstanding advances from the Company in the amount of $97,580 as of April 20,
1999. Additionally, Mr. Billstein serves concurrently as an officer and
director of both the Company and PSL.
10
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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 its wholly-owned operating subsidiary,
Prolong Super Lubricants, Inc., a Nevada corporation ("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. During 1998, Messrs. Alderman and Billstein sold a
portion of their ownership interest in the IHRA and in January 1999, they sold
their remaining ownership interest.
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, the Company had advanced the IHRA approximately $280,000 in the
aggregate as a prepayment for sponsorship and title rights of nationally
televised national events. During 1998, $117,428 of the advance was applied to
national event sponsorships and advertising resulting in a remaining advance
balance of $162,572 at December 31, 1998 to be used for similar activities in
1999 and 2000.
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, 1998, the Company paid approximately $114,000 to Mrs. McCaffery
for consulting services.
Messrs. Alderman and Billstein have outstanding balances from the Company as
of April 20, 1999 in the amounts of $61,429 and $97,580, respectively, for
advances against annual bonuses. It is intended that such advances will be
repaid to the Company in quarterly payments during 1999. Any remaining balance
on such advances will be offset against bonuses to be paid in fiscal 2000.
The Company is a party to three agreements with Barnes Curci Marketing, Inc.
("BCM"), which serves as a representative for both Al Unser and Norris Racing,
Inc. Mr. Barnes currently serves as the President of BCM. BCM receives a
commission from its clients based on revenues generated by such agreements.
During fiscal 1998, the Company paid approximately $280,000 to Mr. Unser and
Norris Racing, Inc. under such agreements.
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, 1998.
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, 1998.
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.
[GRAPH OF COMPARISON OF CUMULATIVE TOTAL RETURN APPEARS HERE]
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
_____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
COMPANY / INDEX / MARKET 9/03/1997 9/30/1997 12/31/1997 3/31/1998 6/30/1998 9/30/1998 12/31/1998
PROLONG INTERNATIONAL CP 100.00 90.91 81.82 115.91 106.91 59.27 52.36
Customer Selected Stock List 100.00 106.34 102.88 109.73 96.14 89.48 107.34
Russell 2000 Index 100.00 107.32 103.32 114.16 108.83 86.91 100.82
</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 Report of the
Compensation Committee of the Board of Directors 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, 1999, 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.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the 2000 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 14, 2000
in order to be considered for inclusion in the Company's proxy statement
relating to the 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.
On May 21, 1998, the Securities and Exchange Commission adopted an amendment
to Rule 14a-4, as promulgated under the Securities and Exchange Act of 1934,
as amended. The amendment to Rule 14a-4(c)(1) governs the Company's use of its
discretionary proxy voting authority with respect to a stockholder proposal
which is not addressed in the Company's proxy statement. The new amendment
provides that if a proponent of a proposal fails to notify the Company at
least 45 days prior to the month and day of mailing of the prior year's proxy
statement, then the Company will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussion
of the matter in the proxy statement.
With respect to the Company's 2000 Annual Meeting of Stockholders, if the
Company is not provided notice of a stockholder proposal, which the
stockholder has not previously sought to include in the Company's proxy
statement, by March 30, 2000, the Company will be allowed to use its voting
authority as outlined.
OTHER MATTERS
The Company has enclosed with this Proxy Statement a copy of the Annual
Report to Stockholders for the year ended December 31, 1998.
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.
13
<PAGE>
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 14, 1999
14
<PAGE>
PROXY
PROLONG INTERNATIONAL CORPORATION
Proxy Solicited by the Board of Directors
Annual Meeting of the Stockholders--June 16, 1999
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 1999 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 16, 1999, at 10:00 A.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
<TABLE>
<S> <C>
1. Election of Directors
[_] FOR [_] WITHHOLD AUTHORITY
all nominees listed below to vote for all nominees listed below
(except as marked to the contrary below)
Election of the following two (2) nominees to serve as Class I
directors:
William J. Howell
Bruce F. Barnes
-------------------------------------
</TABLE>
(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 ____, 1999
----------------------
(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.
