PRELIMINARY
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TURBODYNE TECHNOLOGIES INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 12, 2000
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TO OUR STOCKHOLDERS:
Notice is hereby given that the 2000 annual meeting (the "Meeting") of the
stockholders of Turbodyne Technologies Inc. ("Turbodyne" or the "Company") will
be held at the Miramar Hotel located at 1555 S. Jameson Lane, Montecito,
California 93108, on Friday, May 12, 2000 at 1:30 p.m., Pacific Daylight Time,
for the following purposes:
1. Election of Directors. To elect two Class II directors and three Class
III directors to hold office until the annual meetings of stockholders
to be held in 2002 and 2003, respectively, and until their respective
successors have been elected and qualified;
2. Approval of Stock Incentive Plan. To approve the Company's 2000 Stock
Incentive Plan;
3. Increase in Authorized Common Stock. To amend Article IV of the
Company's Certificate of Incorporation to increase its authorized
shares of Common Stock from 60,000,000 to 99,000,000;
4. Ratification of Appointment of Independent Auditors. To ratify the
appointment of McGowan Gunterman PC as the Company's independent
certified public accountants for the year ending December 31, 2000;
and
5. Other Business. To transact such other business as properly may come
before the Meeting or any adjournments or postponements thereof.
Only stockholders of record of the Common Stock of the Company at the
close of business on March 31, 2000 (the "Stockholders") are entitled to notice
of and to vote at the Meeting and at any adjournments or postponements thereof.
The Proxy Statement which accompanies this Notice contains additional
information regarding the proposals to be considered at the Meeting, and
Stockholders are encouraged to read it in its entirety.
As set forth in the enclosed Proxy Statement, proxies are being solicited
by and on behalf of the Board of Directors of the Company. All proposals set
forth above are proposals of the Company. It is expected that these materials
first will be mailed to Stockholders on or about April 17, 2000.
By Order of the Board Of Directors
TURBODYNE TECHNOLOGIES INC.
Joseph D. Castano,
Secretary
Carpinteria, California
April 14, 2000
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE.
IF YOU DO ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN
PERSON. THE PROXY MAY BE REVOKED AT ANY TIME BEFORE ITS EXERCISE.
<PAGE>
PRELIMINARY
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TURBODYNE TECHNOLOGIES INC.
6155 Carpinteria Avenue
Carpinteria, California 93013
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 12, 2000
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GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Turbodyne Technologies Inc., a Delaware
corporation (the "Company"), for use at the 2000 annual meeting of stockholders
of the Company (the "Meeting") to be held at the Miramar Hotel located at 1555
S. Jameson Lane, Montecito, California, on Friday, May 12, 2000 at 1:30 p.m.,
Pacific Daylight Time, and at any adjournments or postponements thereof, for the
purposes set forth herein and in the attached Notice of Annual Meeting of
Stockholders. Accompanying this Proxy Statement is a proxy card (the "Proxy"),
which you may use to indicate your vote on the proposals described in this Proxy
Statement. Only stockholders of record (the "Stockholders") on March 21, 2000
(the "Record Date") are entitled to notice of and to vote in person or by proxy
at the Meeting and any adjournments or postponements thereof.
Matters to be Considered
The matters to be considered and voted upon at the Meeting will be:
1. Election of Directors. To elect two Class II directors and three
Class III directors to hold office until the annual meetings of
stockholders to be held in 2002 and 2003, respectively, and until
their respective successors have been elected and qualified. The
following persons are the Board of Directors' nominees for Class II
directors:
Daniel Geronazzo
Dr. Frederich Goes
The following persons are the Board of Directors' nominees for Class
III directors:
Wendell R. Anderson
Dr. Sadnyappa Durairaj
Dr. Peter Hofbauer
2. Approval of Stock Incentive Plan. To approve the Company's 2000
Stock Incentive Plan;
3. Increase in Authorized Common Stock. To amend Article IV of the
Company's Certificate of Incorporation to increase its authorized
shares of Common Stock from 60,000,000 to 99,000,000;
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<PAGE>
4. Ratification of Appointment of Independent Auditors. To ratify
the appointment of McGowan Gunterman PC as the Company's
independent certified public accountants for the year ended
December 31, 2000; and
5. Other Business. To transact such other business as properly may
come before the Meeting or at any adjournments or postponements
thereof.
Cost of Solicitation of Proxies
This Proxy solicitation is made by the Board of Directors of the Company,
and the Company will bear the costs of this solicitation, including the expense
of preparing, assembling, printing and mailing this Proxy Statement and any
other material used in this solicitation of Proxies. The solicitation of Proxies
will be made by mail and may be supplemented by telephone or other personal
contact to be made without special compensation by regular officers and
employees of the Company. If it should appear desirable to do so to ensure
adequate representation at the Meeting, officers and regular employees may
communicate with Stockholders, banks, brokerage houses, custodians, nominees and
others, by telephone, facsimile transmissions, telegraph, or in person to
request that Proxies be furnished. The Company will reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding proxy materials to their principals. The total estimated
cost of the solicitation of Proxies is $11,200.
Outstanding Securities and Voting Rights; Revocability of Proxies
The authorized capital of the Company consists of 60,000,000 shares of
common stock ("Common Stock"), of which 51,149,216 shares were issued and
outstanding on the Record Date. A majority of the outstanding shares of the
Common Stock constitutes a quorum for the conduct of business at the Meeting.
Abstentions will be treated as shares present and entitled to vote for purposes
of determining the presence of a quorum.
Each Stockholder is entitled to one vote, in person or by proxy, for each
share of Common Stock standing in his or her name on the books of the Company as
of the Record Date on any matter submitted to the Stockholders.
The Company's Certificate of Incorporation does not authorize cumulative
voting. In the election of directors, the candidates receiving the highest
number of votes will be elected. Each other proposal described herein requires
the affirmative vote of a majority of the outstanding shares of Common Stock
present in person or represented by proxy and entitled to vote at the Meeting.
Abstentions and broker non-votes will be included in the number of shares
present at the Meeting for the purpose of determining the presence of a quorum.
Abstentions will be counted toward the number of votes cast on proposals
submitted to the Stockholders and will have the effect of a negative vote, while
broker non-votes will not be counted as votes cast for or against such matters.
Of the shares of Common Stock outstanding on the Record Date, 6,358,790
shares of Common Stock (or approximately 11.67% of the issued and outstanding
shares of Common Stock) were owned by directors and executive officers of the
Company. Such persons have informed the Company that they will vote "FOR" the
election of the nominees to the Board of Directors identified herein, "FOR" the
approval of the Stock Incentive Plan, "FOR" the increase in the authorized
Common Stock and "FOR the ratification of the appointment of McGowan Gunterman
PC as the Company's independent auditors, all as described herein.
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A Proxy for use at the Meeting is enclosed. The Proxy must be signed and
dated by you or your authorized representative or agent. Telegraphed, cabled or
telecopied Proxies are also valid. You may revoke a Proxy at any time before it
is exercised at the Meeting by submitting a written revocation to the Secretary
of the Company or a duly executed Proxy bearing a later date or by voting in
person at the Meeting. Peter Hofbauer and Joseph D. Castano, the designated
proxyholders (the "Proxyholders"), are members of the Company's management.
If you hold Common Stock in "street name" and you fail to instruct your
broker or nominee as to how to vote for such Common Stock, your broker or
nominee may, in its discretion, vote such Common Stock "FOR" the election of the
Board of Directors' nominees and "FOR" the ratification of the appointment of
McGowan Gunterman PC as the Company's independent auditors. If, however, you
fail to instruct your broker or nominee as to how to vote such Common Stock,
your broker or nominee may not, pursuant to applicable stock exchange rules,
vote such Common Stock with respect to the proposal to approve the Stock
Incentive Plan or increase the authorized Common Stock.
Unless revoked, the shares of Common Stock represented by Proxies will be
voted in accordance with the instructions given thereon. In the absence of any
instruction in the Proxy, such shares of Common Stock will be voted "FOR" the
election of the Board of Directors' nominees, "FOR" the approval of the Stock
Incentive Plan, "FOR" the increase in the authorized Common Stock and "FOR" the
ratification of the appointment of McGowan Gunterman PC as the Company's
independent auditors.
Recently, the Securities and Exchange Commission (the "SEC") amended its
rule governing a company's ability to use discretionary proxy authority with
respect to stockholder proposals which were not submitted by the stockholders in
time to be included in the proxy statement. As a result of that rule change, in
the event a stockholder proposal was not submitted to the Company prior to April
12, 2000, the enclosed Proxy will confer authority on the Proxyholders to vote
the shares in accordance with their best judgment and discretion if the proposal
is presented at the Meeting. As of the date hereof, no stockholder proposal has
been submitted to the Company, and management is not aware of any other matters
to be presented for action at the Meeting. However, if any other matters
properly come before the Meeting, the Proxies solicited hereby will be voted by
the Proxyholders in accordance with the recommendations of the Board of
Directors. Such authorization includes authority to appoint a substitute nominee
for any Board of Directors' nominee identified herein where death, illness or
other circumstance arises which prevents such nominee from serving in such
position and to vote such Proxy for such substitute nominee.
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Security Ownership of Principal Stockholders and Management
The following table sets forth as of March 31, 2000 certain information
relating to the ownership of the Common Stock by (i) each person known by the
Company to be the beneficial owner of more than five percent of the outstanding
shares of the Common Stock, (ii) each of the Company's directors, (iii) each of
the Named Executive Officers, and (iv) all of the Company's executive officers
and directors as a group. Except as may be indicated in the footnotes to the
table and subject to applicable community property laws, each such person has
the sole voting and investment power with respect to the shares of Common Stock
owned. The address of each person listed is in care of the Company, 6155
Carpinteria Avenue, Carpinteria, CA 93013, unless otherwise set forth below such
person's name.
Number of Shares of
Common Stock Beneficially
Name and Address Owned(1) Percent(1)
---------------- ------------------------- ----------
Edward M. Halimi(2) 3,450,000 6.74%
Leon Nowek(3) 1,100,000 2.15
Dr. Peter Hofbauer(4) 150,000 *
Gerhard Delf(5) 200,000 *
Wendell R. Anderson(6) 200,000 *
Dr. Sadayappa Durairaj(7) 884,325 1.73
Daniel Geronazzo(8) 115,000 *
Robert Taylor(9) 32,000 *
Peter Kitzinski(10) 127,465 *
Duane Rosenheim(11) 100,000 *
Director and executive officers as a 6,358,790 12.43
group (10 persons)
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)
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* less than 1%
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, a persons shares the power to vote
or the power to dispose of the shares). In addition, shares are deemed to
be beneficially owned by a person if the person has the right to acquire
the shares (for example, upon exercise of an option) within 60 days of the
date as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of Common Stock actually outstanding at
March 31, 2000.
(2) Consists of (a) 3,250,000 escrow shares of Common Stock, which will be
released upon achievement of certain financial goals, held in the name of
March Technologies Inc., a private company controlled by Mr. Halimi and
(b) 200,000 shares of Common Stock reserved for issuance upon exercise of
stock options which become exercisable on or before May 30, 2000.
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(3) Consists of (a) 900,000 escrow shares of Common Stock, which will be
released upon achievement of certain financial goals, held in the name of
L.N. Family Holdings, Inc., a company controlled by Mr. Nowek and (b)
200,000 shares of Common Stock reserved for issuance upon exercise of
stock options which become exercisable on or before May 30, 2000.
(4) Consists of 150,000 shares of Common Stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2000.
(5) Includes 200,000 shares of Common Stock reserved for issuance upon
exercise of stock options which become exercisable on or before May 30,
2000.
(6) Includes 200,000 shares of Common Stock reserved for issuance upon
exercise of stock options which become exercisable on or before May 30,
2000.
(7) Consists of 200,000 shares of Common Stock reserved for issuance upon
exercise of stock options which become exercisable on or before May 30,
2000.
(8) Includes 100,000 shares of Common Stock reserved for issuance upon
exercise of stock options which become exercisable on or before May 30,
2000.
(9) Includes 30,000 shares of Common Stock reserved for issuance upon
exercise of stock options held by certain executive officers of the
Company which become exercisable on or before May 30, 2000.
(10) Includes 125,000 shares of Common Stock reserved for issuance upon
exercise of stock options which become exercisable on or before May 30,
2000.
(11) Includes 100,000 shares of Common Stock reserved for issuance upon
exercise of stock options which become exercisable on or before May 30,
2000.
PROPOSAL 1
ELECTION OF DIRECTORS
Directors and Executive Officers
The Certificate of Incorporation of the Company provides that the number
of directors of the Company shall be fixed from time to time by the Board of
Directors, but shall not be less than two nor more than twelve. The Board of
Directors has fixed the number of directors at seven. The Certificate of
Incorporation also provides that the Board of Directors shall be divided into
three classes which are elected for staggered three-year terms. The term of each
class expires at the annual meeting of stockholders in the year 2001 (Class I),
the year 1999 (Class II) and the year 2000 (Class III).
The Company did not hold an annual meeting of stockholders in 1999.
Accordingly, the members of both Class II and Class III will be elected at the
Meeting, to serve until the annual meeting of stockholders to be held in 2002
and 2003, respectively, and until their successors have been elected and
qualified.
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Unless otherwise instructed, the Proxyholders will vote the Proxies
received by them for the nominees named below. If any nominee is unable or
unwilling to serve as a director at the time of the Meeting or any postponement
or adjournment thereof, the Proxies will be voted for such other nominee(s) as
shall be designated by the current Board of Directors to fill any vacancy. The
Company has no reason to believe that any nominee will be unable or unwilling to
serve if elected as a director. The two nominees for election as Class II
directors and the two nominees for election as Class III directors at the
Meeting who receive the highest number of affirmative votes will be elected.
The Board of Directors Unanimously Recommends a Vote "FOR" the Election of the
Nominees Listed Below.
The Board of Directors proposes the election of the following nominees as
Class II directors:
Daniel Geronazzo
Dr. Frederich Goes
The Board of Directors proposes the election of the following nominees as
Class III directors:
Wendell R. Anderson
Dr. Sadayappa Durairaj
Dr. Peter Hofbauer
None of the directors, nominees for director or executive officers were
selected pursuant to any arrangement or understanding, other than with the
directors and executive officers of the Company acting within their capacity as
such. There are no family relationships among directors or executive officers of
the Company and, except as set forth below, as of the date hereof, no
directorships are held by any director in a company which has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or subject to the requirements of Section
15(d) of the Exchange Act or any company registered as an investment company
under the Investment Company Act of 1940. Officers serve at the discretion of
the Board of Directors.
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The following table sets forth certain information with respect to the
nominees, continuing directors and executive officers of the Company as of the
Record Date:
<TABLE>
<CAPTION>
Year First
Elected or
Appointed
Name Age Director Position
---- --- ---------- --------
<S> <C> <C> <C>
Class I Directors
(Terms to expire in 2001)
Peter Kitzinski(4) 32 1999 Vice President Corporate Finance Europe, General
Manager of Turbodyne Europe GmbH and Director
Robert Taylor (2)(4)(5) 60 1996 Director
Class II Directors
(Terms to expire in 2002)
Daniel Geronazzo(1)(2)(3)(5) 69 1995 Director
Dr. Fredrich Goes 68 1999 Director
Class III Directors
(Terms to expire in 2003)
Wendell R. Anderson (1)(3)(4)(5) 66 1995 Director
Dr. Sadayappa Durairaj(5) 56 1996 Director
Dr. Peter Hofbauer(4) 59 1999 Chairman of the Board and Director
Executive Officer
Gerhard E. Delf 61 1999 President and Chief Executive Officer
Joseph D. Castano 39 1999 Chief Financial Officer and Secretary
Duane Rosenheim 67 1998 Chief Operating Officer
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</TABLE>
(1) Member of the Stock Option Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Executive Committee
(5) Member of the Special Committee
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Wendell R. Anderson is a director of the Company. Mr. Anderson is an
attorney with the firm of Larkin, Hoffman, Daly and Lindgren Ltd. of
Bloomington, Minnesota and has been practicing law since 1963. Mr. Anderson has
held several positions of public office. From 1959 to 1963 Mr. Anderson was a
state representative from Minnesota and served as state senator from 1963 to
1971. In 1971, Mr. Anderson was elected as Governor of the State of Minnesota.
In 1977, Mr. Anderson became a United States Senator from the State of
Minnesota. He held office for a period of two years. During his term, he served
on various committees including the environment and public works committee, the
budget committee, the natural resources committee and the armed services
committee. Mr. Anderson serves as a director of FingerHut Companies Inc., a
database marketing company listed on the New York Stock Exchange which sells a
broad range of products through catalogs, direct marketing and the Internet,
National City Bancorp, a Nasdaq listed company, and ECOS Group, Inc., a company
listed on the OTC Bulletin Board and involved in waste management services. In
December of 1999 he was named one of Minnesota"s most influential people of the
20th century by the Minneapolis Star Tribune. He also serves as Honorary Consul
General for Sweden in Minnesota.
Dr. Sadayappa Durairaj is a director of the Company. Mr. Durairaj is a
cardiologist and businessman based in California. He obtained his medical degree
from Madural Medical College in India in 1966 and has been certified by both the
American Board of Internal Medicine and the Canadian Board of Internal Medicine
and Cardiology. Since 1994, he has served as the President and Chief Executive
Officer of the Pacifica Hospital and Sierra Medical Clinic. Dr. Durairaj also
serves as associate Clinical Professor of Medicine at the University of Southern
California. Dr. Durairaj was Chairman and founder of Pacific Baja Holdings which
was acquired by the Company effective July 2, 1996. Dr. Durairaj is also
Chairman of Brentwood Bank (California) and VSK Ferro Alloys (India).
Daniel Geronazzo is a director of the Company. Mr. Geronazzo was an
attorney in private practice located in the Province of British Columbia for the
past 35 years and has practiced as a sole practitioner since 1991. Mr. Geronazzo
specializes in corporate, real estate and financial law. Mr. Geronazzo has a
Bachelor's degree in Business Administration from Washington State University
and an LLB degree from the University of British Columbia.
Dr.-Ing. Friedrich Goes was employed by Volkswagen AG for 32 years. He
worked in the Research and Development Divisions in Germany, the United States
and Spain, from 1969 to 1994 he served as General Manager for Passenger Car Test
& Development and Corporate Engineering Planning. For eight years he was a
member of the Board of Directors and Executive Vice-President for Product
Engineering at Volkswagen/SEAT in Spain and Volkswagen of America. After
retiring from Volkswagen AG, Dr. Goes served for two years as a member of the
Board of Directors of Volkswagen AG. In addition, he was responsible for Product
Development and Engineering at EDAG, a leading German company for automobile
design and engineering. Since 1994, he has worked as an independent engineering
and management consultant with Arthur D. Little, Inc. holding he title as Senior
Advisor in automotive engineering. Dr. Goes holds a Doctorate in Mechanical
Engineering from the Technical University of Braunschweig, Germany.
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Edward M. Halimi served Chairman of the Board of Directors from inception
to October 1999. Mr. Halimi served as President and Chief Executive Officer of
the Company from October 18, 1993 to March 11, 1998. Mr. Halimi developed a
patented technology (the "Turbodyne Technology") designed to optimize air flow
to internal combustion engines resulting in efficient fuel combustion in both
diesel and gasoline engines and to reduce the production and emission of harmful
pollutants. The Company has incorporated the Turbodyne Technology into its two
primary products. Mr. Halimi spent 11 years working with FerroPlast Corporation,
an international company specializing in the engineering and manufacture of
diesel engines, pumps, electric motors and farm equipment. As a Vice-President
at Ferro Plast Corporation, Mr. Halimi worked in the engineering and
manufacturing divisions in the Middle East and Europe and was responsible for
the home building and housing operations in the United States. From 1988 to
1991, Mr. Halimi was the President and Chief Executive Officer of Technodyne
Corporation, a manufacturer of heat management and temperature control units and
since 1989 has served as Chief Executive Officer of Biosonics Corporation, a
research and development company in the fields of ultrasonics, vibration control
and semi-conductor research and electronics.
Dr.-Ing. Peter Hofbauer was elected as Chairman of the Board in October
1999. From July to October 22 1999, he served as Chief Executive Officer and
from January 1998 to July 1999, he served as General Director, Technology of
Turbodyne Europe. From January 1998 to the present, Dr. Hofbauer has served as
President of the Propulsion Research Institute. From October 1990 to December
1997, he served as a member of the management board with Viessmann Werke GmbH &
Co., Allendorf, Germany. From October 1978 to September 1987, Dr. Hofbauer
served as Head of Engines and Transmissions Development for Volkswagen AG,
Wolfsburg, Germany. He had joined Volkswagen AG in 1967. Dr. Hofbauer holds a
Master of Science in Mechanical Engineering from the Technical University in
Vienna, Austria, and a Doctorate in Mechanical Engineering from the RWTH Aachen,
Germany. Dr. Hofbauer was appointed as Honorary Professor in 1985 by the
Minister for Science and Art of Lower Saxonia, Germany.
Peter Kitzinski has served as Vice President Corporate Finance Europe of
Turbodyne Technologies Inc. and as General Manager of Turbodyne Europe GmbH
since 1997. Prior to joining the Company in 1997, Mr. Kitzinski worked in
Germany in the investment banking industry. He holds degrees in Economics and in
Business Administration from the University of Muenster and the University of
Wuerzburg, Germany. Mr. Kitzinski joined Turbodyne in 1997.
Robert F. Taylor is a Chartered Accountant and is a member of the
Institute of Chartered Accountants of Alberta, Canada. In 1996 he retired from
Shell Canada Products ("Shell") where he had been President since 1993. Mr.
Taylor served with Shell in various capacities from 1967 in Calgary, Toronto and
London, England where he worked with Shell International Petroleum Company as
Area Coordinator for West and East Africa. He has been a director of the Company
since 1996 and from January to June of 1997 he served as Chief Operating Officer
of the Company. Mr. Taylor is currently a director of Pembina Pipeline
Corporation, a publicly owned Income Fund, and McTay Holdings Limited, a private
company. Mr. Taylor is a trustee of the United Kingdom Fund of The Duke of
Edinburgh's Commonwealth Study Conference. He was recently honored by the Queen
who appointed him a Lieutenant of the Royal Victorian Order.
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<PAGE>
Gerhard E. Delf was appointed as President and Chief Executive Officer of
the Company on October 22, 1999. Prior to being appointed Chief Executive
Officer of the Company, Mr. Delf served as Executive Vice President of
DynachargerTM OEM Programs. Prior to joining the Company, Mr. Delf was employed
by Volkswagen AG and Volkswagen of America for 20 years, where for the last 12
years he held the position of Chief Engineer for Powertrain and Emissions. He
was responsible for product engineering and introduction to production for
gasoline and diesel engines, manual and automotive transmissions, and engine and
transmission controls. Prior to this, Mr. Delf was Manager for United States
Emission Certification and Principal Engineer for electronic fuel injection and
US emission controls. Additionally, Mr. Delf has been an advisor to the United
States National Research Council on Combustion Engine Technology and Energy
Utilization and served as a member of the Motor Vehicle Council of the Society
of Automotive Engineers. He has also been an expert advisor for the United
States Senate, the California Energy Commission, the United States Environmental
Protection Agency, and the California Air Resources Board, on proposed emissions
and fuel economy regulations, as well as advanced engine technologies. Mr. Delf
joined Turbodyne in 1998.
Joseph D. Castano was appointed as Chief Financial Officer of the Company
on September 28, 1999 and Secretary of the Company on October, 22 1999. Mr.
Castano was appointed Secretary of Turbodyne Systems, Inc. on November 26, 1999.
Prior to joining the Company, Mr. Castano was Chief Financial Officer and Chief
Operating Officer of SurgiNet, LLC a healthcare provider company, from 1996 to
September 1999. From January 1991 to February 1996, he was an Administrator with
UCLA. From May 1989 to January 1991, Mr. Castano served as a Regional Manager of
Xerox Credit Corporation. From September 1984 to April 1989, he was a Vice
President with Nationwide Lease Associates, an asset based finance organization.
Mr. Castano started his business career with J. Henry Schroeder Bank in August
1982. Mr. Castano is a graduate of the Wharton School of Business at the
University of Pennsylvania. He will be awarded a Masters of Business
Administration from Pepperdine University in April 2000. Mr. Castano is a
candidate for Fellow of the American College of Medical Practice Executives and
a member of the Financial Executives Institute.
Duane Rosenheim was appointed Chief Operating Officer of the Company in
June 1998. Prior thereto, and for the past six years, Mr. Rosenheim was an
independent consultant working primarily with the Company to develop its
prototype product which has been incorporated into the TurbopacTM and
DynachargerTM products. From 1960 to 1992, Mr. Rosenheim served in several
positions at the Delco Electronics Division of General Motors Corporation,
including Quality Engineering Manager and Manager of the Quality, Manufacturing
and Operations Administration Departments.
Board Meetings and Committees
The Board of Directors has an Audit Committee, a Compensation Committee, a
Stock Option Committee, an Executive Committee and a Special Committee.
The Audit Committee currently consists of Messrs. Geronazzo and Taylor.
The Audit Committee recommends the engagement of the Company's independent
public accountants, reviews the scope of the audit to be conducted by such
independent public accountants, and meets with the independent public
accountants and the Chief Financial Officer of the Company to review matters
relating to the Company's financial statements, the Company's accounting
principles and its system of internal accounting controls, and reports its
recommendations as to the approval of the financial statements of the Company to
the Board of Directors. Four meetings of the Audit Committee were held during
the year ended December 31, 1999.
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The Compensation Committee currently consists of Messrs. Geronazzo and
Anderson. The Compensation Committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation. Five
meetings of the Compensation Committee were held during the year ended December
31, 1999.
The Stock Option Committee currently consists of Messrs. Geronazzo and
Anderson. The Stock Option Committee is responsible for administering the
Company's stock option and executive incentive compensation plans. Five meetings
of the Stock Option Committee were held during the year ended December 31, 1999.
The Executive Committee currently consists of Messrs. Taylor,
Kitzinski, Hofbauer and Anderson. Subject to limitations contained in
applicable law, the Executive Committee has been granted all of the authority
of the Board of Directors.
The Special Committee was formed in February 1999 to investigate
allegations of the National Association of Securities Dealers and EASDAQ
concerning the accuracy of the Company's press releases and currently consists
of Messrs. Taylor, Durairaj, Anderson and Geronazzo. Three meetings of the
Special Committee were held during the year ended December 31, 1999.
The Board of Directors held thirteen meetings and acted by written consent
on eight occasions during fiscal 1999. No director attended less than 75% of all
the meetings of the Board of Directors and those committees on which he served
in fiscal 1999.
Compensation of Directors
Directors are reimbursed for reasonable out-of-pocket expenses in
connection with attendance at Board of Director and Committee meetings, and are
periodically granted options to purchase shares of the Common Stock of the
Company at the discretion of the Stock Option Committee. During 1999, Mr.
Geronozzo was reimbursed $15,225 in housing costs and received director's fees
of $3,099, and three directors were provided with cars. Directors are not
otherwise provided any remuneration for their services as directors of the
Company.
Compensation Committee Interlocks and Insider Participation
The Company has no interlocking relationships involving any of its
Compensation Committee or Stock Option Committee members which would be required
by the SEC to be reported in this Report, and no officer or employee of the
Company currently serves on its Compensation Committee.
Joint Report of the Compensation Committee and the Stock Option Committee on
Executive Compensation
The Report of the Compensation Committee and the Stock Option Committee of
the Board of Directors shall not be deemed filed under the Securities Act of
1993 (the "Securities Act") or under the Securities Exchange Act of 1934 (the
"Exchange Act").
-11-
<PAGE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation Committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation. The
Stock Option Committee is responsible for administering the Company's stock
option and executive compensation plans. Following review and approval by the
Compensation Committee, all determinations pertaining to executive compensation,
other than stock awards, are submitted to the full Board of Directors.
Compensation Philosophy. The Company's executive compensation program is
designed to (1) provide levels of compensation that integrate pay and incentive
plans with the Company's strategic goals, so as to align the interests of
executive management with the long-term interests of the Company's stockholders,
(2) attract, motivate and retain executives of outstanding abilities and
experience capable of achieving the strategic business goals of the Company, (3)
recognize outstanding individual contributions, and (4) provide compensation
opportunities which are competitive to those offered by other companies of
similar size and performance. To achieve these goals, the Company's executive
compensation program consists of three main elements: (i) base salary, (ii)
annual cash bonus and (iii) long-term incentives. Each element of compensation
has an integral role in the total executive compensation program.
Base Salary. Base salaries are negotiated at the commencement of an
executive's employment with the Company, or upon renewal of his or her
employment agreement, and are designed to reflect the position, duties and
responsibilities of each executive officer, the cost of living in the area in
which the officer is located and the market for base salaries of similarly
situated executives at other companies engaged in businesses similar to that of
the Company.
Messrs. Halimi and Nowek, the former President, Chief Executive Officer
and Chairman of the Board and the former Chief Financial Officer, Secretary and
Vice Chairman of the Board, respectively, each is a party to an employment
agreement dated August 1, 1997, as amended on January 27, 1998 (as amended, the
"Employment Agreements"), among such officer, the Company and Turbodyne Systems,
Inc. ("Turbodyne Systems") pursuant to which these officers are paid annual base
salaries equal to $180,000 and $162,000, respectively. The Company currently is
accruing but not paying such amounts and is negotiating severance agreements
with Messrs. Halimi and Nowek.
Mr. Delf, the President and Chief Executive Officer of the Company, is a
party to an employment agreement dated December 1, 1998 between himself and the
Company pursuant to which Mr. Delf is paid an annual base salary equal to
$180,000 for his position as Executive Vice President of DynachargerTM OEM
Programs. The Company is currently negotiating a new agreement with Mr. Delf.
Annual Cash Bonuses. Executive officers are eligible for annual incentive
bonuses in amounts determined at the discretion of the Board of Directors. The
Board considers an award of an annual bonus subjectively, taking into account
factors such as the financial performance of the Company, increases in
stockholder value, the achievement of corporate goals and individual
performance.
Pursuant to their respective Employment Agreement, each of Messrs. Halimi
and Nowek is entitled to an annual cash bonus of up to 150% of such officer's
respective base salary based on the consolidated net operating income (before
taxes) of the Company, Turbodyne Systems or Pacific Baja, whichever is greater.
For fiscal 1999, neither Mr. Halimi nor Mr. Nowek received a cash bonus.
-12-
<PAGE>
Pursuant to his Employment Agreement, Mr. Delf received an annual cash
bonus of $15,000 for fiscal 1999.
The Company also provides to its employees (including Mr. Halimi and Mr.
Nowek and the other officers) medical insurance and other customary employee
benefits.
Long-Term Incentives. The Company provides its executive officers with
long-term incentive compensation through grants of options under the Company's
1998 Stock Incentive Plan, and if approved by the stockholders, under the 2000
Stock Incentive Plan. The Stock Option Committee currently is responsible for
selecting the individuals to whom grants of options should be made, the timing
of grants, the determination of the per share exercise price and the number of
shares subject to each option. The Stock Option Committee believes that stock
options provide the Company's executive officers with the opportunity to
purchase and maintain an equity interest in the Company and to share in the
appreciation of the value of the Common Stock. The Stock Option Committee
believes that stock options directly motivate an executive to maximize long-term
stockholder value. The options incorporate vesting periods in order to encourage
key employees to continue in the employ of the Company. All options granted to
officers in fiscal 1999 were granted at a discount to fair market value of the
Company's Common Stock on the date of grant. The Board of Directors considers
the grant of each option subjectively, considering factors such as the
individual performance of executive officers and competitive compensation
packages in the industry.
Omnibus Budget Reconciliation Act Implications for Executive Compensation.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
places a limit of $1,000,000 on the amount of compensation that may be deducted
by the Company in any year with respect to each of the Company's five most
highly paid executive officers. Certain "performance-based" compensation that
has been approved by the Company's stockholders is not subject to the deduction
limit. The 2000 Stock Incentive Plan is intended to qualify so that awards under
the plan constitute performance-based compensation not subject to Section 162(m)
of the Code.
All compensation paid to the Company's employees in fiscal 1999 will be
fully deductible. With respect to compensation to be paid to the Company's
executive officers in 2000 and in future years, in certain instances such
compensation may exceed $1,000,000. However, in order to maintain flexibility in
compensating executive officers in a manner designed to promote varying
corporate goals, the Compensation Committee may approve compensation that is not
deductible.
Summary. The Compensation Committee and the Stock Option Committee believe
that the executive compensation philosophy of paying the Company's executive
officers by means of base salaries, annual cash bonuses and long-term
incentives, as described in this report, serves the interests of the Company and
its stockholders.
STOCK OPTION COMMITTEE COMPENSATION COMMITTEE
Wendell R. Anderson Wendell R. Anderson
Daniel Geronazzo Daniel Geronazzo
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<PAGE>
Executive Compensation
The following table sets forth, as to the Chief Executive Officer and as
to each of the other four most highly compensated officers whose compensation
exceeded $100,000 during the last fiscal year (the "Named Executive Officers"),
information concerning all cash and non-cash compensation awarded, earned or
paid for services to the Company in all capacities for each of the three years
ended December 31, 1997, 1998 and 1999.
SUMMARY COMPENSATION TABLE
Annual Compensation
---------------------------
Securities
Underlying
Options/ All Other
Name and Position(1) Year Salary ($) Bonus ($) SARs(#) Compensation($)
- -------------------- ---- ---------- --------- -------- ------------
Dr. Peter Hofbauer(2) 1999 $180,000 - 150,000 -
Chairman of the Board 1998 $180,000 $180,000 - -
Edward M. Halimi(3) 1999 $180,000 - 200,000 -
1998 180,000 62,000 200,000 -
1997 60,000 - - -
Leon E. Nowek(4) 1999 $162,000 - 200,000 -
1998 162,000 145,800 200,000 -
1997 162,000 -
Gerhard E. Delf(5) 1999 $180,000 15,000 200,000 -
Chief Executive Officer
Walter F. Ware(6) 1999 $180,000 - 200,000 -
1998 $ 60,000 - 150,000 -
1997 - -
- -------------
(1) For a description of the employment agreements between certain officers
and the Company, see "--Employment Agreements," below.
(2) Mr. Hofbauer was appointed Chairman of the Board in October 1999. From
July to October 1999, he served as Chief Executive Officer and from
January 1998 to July 1999, he served as General Director, Technology of
Turbodyne Europe.
(3) Mr. Halimi served as Chairman of the Board from inception to October 1999
and as President and Chief Executive Officer from October 1993 to March
1998.
(4) Mr. Nowek served as Secretary of the Company from June 1995 to June 1999,
as Chief Financial Officer from June 1995 to February 1998 and as Vice
Chairman of the Board from February 1998 to October 1999.
(5) Mr. Delf was appointed Chief Executive Officer in October 1999.
(6) Mr. Ware served as Chief Operating Officer of the Company from
October 1997 to March 1998 and as Chief Executive Officer and President
from March 1998 to July 1999.
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<PAGE>
Stock Option Grants
The following table sets forth certain information regarding the grant of
stock options made during the fiscal year ended December 31, 1999 to the Named
Executive Officers. No stock appreciation rights were granted to any Named
Executive Officers during fiscal 1999.
<TABLE>
OPTION/SAR GRANTS IN FISCAL YEAR 1999
Individual Grants
<CAPTION>
Potential Realizable Value
Percent of at Assumed Rates of Stock
Number of Total Price Appreciation for
Securities Options/SARs Option Term(4)
Underlying Granted To Exercise --------------
Options/SARs Employees In or Base Expiration
Name of Officer Granted (1) Fiscal Year(2) Price(3) Date 5% 10%
- --------------- ------------ -------------- -------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edward M. Halimi 200,000 3.32% $2.35 March 11, 2003 $1,241,000 $1,640,100
Leon E. Nowek 200,000 3.32% $2.35 March 11, 2003 1,241,000 1,640,100
Walter F. Ware 200,000 3.32% $2.35 March 11, 2003 1,241,000 1,640,100
Dr. Peter Hofbauer 150,000 2.49% $5.25 March 11, 2003 0 0
Gerhard E. Delf 200,000 3.32% $1.91 March 11, 2003 $60,900 63,945
- ----------
</TABLE>
(1) These options are immediately exercisable upon grant.
(2) Options covering an aggregate of 6,018,798 shares were granted to
eligible persons during the fiscal year ended December 31, 1999.
(3) The exercise price and tax withholding obligations related to exercise
may be paid by delivery of already owned shares, subject to certain
conditions.
(4) The Potential Realizable Value is the product of (a) the difference
between (i) the product of the last reported sale price per share at the
date of grant and the sum of (A) 1 plus (B) the assumed rate of
appreciation of the Common Stock compounded annually over the term of the
option and (ii) the per share exercise price of the option and (b) the
number of shares of Common Stock underlying the option at December 31,
1999. These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises are dependent on a variety
of factors, including market conditions and the price performance of the
Common Stock. There can be no assurance that the rate of appreciation
presented in this table can be achieved.
Option Exercises and Holdings
The following table sets forth, for each of the Named Executive Officers,
certain information regarding the exercise of stock options during the fiscal
year ended December 31, 1999, the number of shares of Common Stock issuable upon
the exercise of stock options held at fiscal year end and the value of options
held at fiscal year end based upon the last reported sales price of the Common
Stock on Easdaq on December 31, 1999 ($2.20).
-15-
<PAGE>
Employee Incentive Plan
On September 11, 1998 the stockholders approved the Company's 1998 Stock
Incentive Plan (the "1998 Plan). The 1998 Plan is identical in terms and
conditions to the 2000 Incentive Plan described in Proposal 2 herein, except for
the 1998 Plan limits the maximum number of shares with respect to which options
may be granted to a single participant to 200,000 whereas the 2000 Plan allows
for a maximum number of 500,000 shares with respect to which options may be
grated to a single participant.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Securities Value of Unexercised in-the-
Underlying Unexercised Money Options at
Shares Options at December 31, 1999 December 31, 1999
Acquired ---------------------------- ----------------------------
on Value
Name of Officer Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward M. Halimi - - 200,000 - - -
Leon E. Nowek - - 200,000 - - -
Walter F. Ware - - 350,000 - - -
Dr. Peter Hofbauer - - 150,000 - - -
Gerhard E. Delf - - 200,000 - 19,333 38,667
- ---------------
</TABLE>
(1) The value of unexercised "in-the-money" options is the difference between
the last reported sale price of the Common Stock on December 31, 1999
($2.20 per share) and the exercise price of the option, multiplied by the
number of shares subject to the option.
Employment Agreements
Edward M. Halimi and Leon E. Nowek each is a party to an employment
agreement dated August 1, 1997, as amended on January 27, 1998, (respectively,
the "Halimi Agreement" and the "Nowek Agreement" and together the "Employment
Agreements") between such officer, the Company and Turbodyne Systems. Mr. Halimi
served as Chairman of the Board from inception to October 1999 and as Chief
Executive Officer and President from October 1993 to March 1998. Mr. Nowek
served as the Secretary of the Company from June 1995 to June 1999, as Chief
Financial Officer from June 1995 to February 1998 and as Vice Chairman of the
Board from February 1998 to October 1999. Pursuant to the terms of the
Employment Agreements, Mr. Halimi and Mr. Nowek are paid an annual salary of
$180,000 and $162,000, respectively, and are entitled to annual cash bonuses of
up to 150% of their respective base salaries based on the consolidated net
operating income (before taxes) of the Company, Turbodyne Systems or Pacific
Baja, whichever is greater. Pursuant to the terms of Mr. Nowek's Employment
Agreement, the Company loaned $225,000 to Mr. Nowek in connection with the
purchase of his home. Such loan bears no interest and is repayable on the
earlier to occur of the sale of Mr. Nowek's home or the termination of Mr.
Nowak's employment. Each Employment Agreement also provides that in each year of
-16-
<PAGE>
the term of the Employment Agreement, the Company shall grant to the officer
options to purchase 200,000 shares of Common Stock in accordance with the
Company's stock option plan then in effect. Each officer and the members of
their respective families are entitled to participate in any life and disability
insurance, pension dental, medical, pharmaceutical, hospitalization, health
insurance and any other employee benefit programs as may be provided from time
to time by the Company. Each Employment Agreement is for a ten year term and
will renew for successive one year periods unless one party to the Employment
Agreement provides written notice of its election not to renew at least 30 days
prior to the expiration of the initial term or any successive one year terms.
Each officer may terminate his Employment Agreement at any time upon three
months prior written notice of his intention to so terminate. In the event that
either officer is terminated by the Company without "cause," as defined in the
Employment Agreement, he is entitled to receive the compensation that otherwise
would have been payable to him from the date of termination to the expiration
date of the then current term.
The Company currently is accruing but not paying all amounts payable under
the Halimi Agreement and the Nowek Agreement and is negotiating severance
agreements with Messrs. Halimi and Nowek.
On July 1, 1999 Dr. Peter Hofbauer entered into an employment agreement
with the Company (the "Hofbauer Agreement"). Dr. Hofbauer served as Chairman of
the Board from October 1999 to the present, as Chief Executive Officer from July
to October 1999 and as General Director, Technology of Turbodyne Europe from
January 1998 to July 1999. Pursuant to the terms of the Hofbauer Agreement, Dr.
Hofbauer was paid an annual salary of $180,000 in his capacity as Chief
Executive Officer (in his capacity as General Director, Dr. Hofbauer was also
paid an annual salary of $180,000). In his current capacity as Chairman, Mr.
Hofbauer is paid an annual salary of $55,000. Dr. Hofbauer is also President of
Propulsion Research Institute, an independent research organization and has
contractual relationships, including job titles, with FEV, an organization that
designs and develops internal combustion engines and is a supplier of advanced
test and instrumentation systems for the automotive industry. The Hofbauer
Agreement grants options to purchase 200,000 shares of Common Stock to Dr.
Hofbauer in accordance with the Company's stock option plan then effect. The
Hofbauer Agreement was for a five-year term. Dr. Hofbauer was entitled to
terminate the Hofbauer Agreement at any time upon one month's prior written
notice of his intent to so terminate. In the event that Dr. Hofbauer was
terminated without "cause" as defined in the Hofbauer Agreement, he was entitled
to receive six (6) months salary.
Gerhard Delf is a party to an employment agreement dated December 1, 1998
between himself and the Company (the "Delf Agreement"). Gerhard Delf initially
was employed as Executive Vice President of Dynacharger" OEM Programs from
December 1, 1998 to October 22, 1999. Effective October 22, 1999, Mr. Delf was
appointed Chief Executive Officer. Pursuant to the terms of the Delf Agreement,
Mr. Delf is paid an annual salary of $180,000, an annual allowance of $36,000
for living expenses and a bonus of $15,000. The Delf Agreement grants options to
purchase 200,000 shares of Common Stock to Mr. Delf in accordance with the
Company's stock option plan then in effect. The Agreement is for a five-year
term. Delf may terminate the Delf Agreement at any time upon three month's prior
written notice of his intent to so terminate. In the event that Mr. Delf is
terminated without "cause" as defined in the Delf Agreement, he is entitled to
receive twelve (12) months salary. The Company currently is negotiating a new
employment agreement with Mr. Delf.
-17-
<PAGE>
Performance Graph
The following graph sets forth the yearly percentage change in cumulative
total stockholder return of the Company's Common Stock during the period from
April 25, 1994 to December 31, 1999, compared with (i) the cumulative total
return of the Easdaq market index and (ii) the cumulative total return of the
Standard & Poors Automotive Parts & Equipment Index. The Common Stock was listed
on the Vancouver Stock Exchange from April 25, 1994 to March 26, 1997 was listed
for quotation on the Nasdaq Small Cap Market from March 27, 1997 to January 20,
1999 and was listed on Easdaq from July 1999 to the present. The trading values
identified for the Company in the comparison reflect the price of the Common
Stock on the Vancouver Stock Exchange from April 25, 1994 through March 26, 1997
(which were in Canadian dollars) and on the Easdaq Stock Market from March 27,
1997 through December 31, 1999 (which were in U.S. dollars). The comparison
assumes $100 was invested on April 25, 1994 in the Common Stock and in each of
the foregoing indices and the reinvestment of dividends through December 31,
1999. The stock price performance on the following graph is not necessarily
indicative of future stock price performance.
<TABLE>
Total Return To Shareholder's
(Dividends reinvested monthly)
<CAPTION>
ANNUAL RETURN PERCENTAGE
Years Ending
- -----------------------------------------------------------------------------------------------------------
Company / Index Dec95 Dec96 Dec97 Dec98 Dec99
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TURBODYNE TECHNOLOGIES INC 1292.31 121.82 -51.74 19.35 -58.92
NASDAQ US INDEX 41.33 -12.95 -0.41 15.00 28.21
AUTO PARTS&EQUIPMENT-500 23.63 12.20 25.07 13.22 -23.12
INDEXED RETURNS
Years Ending
- -----------------------------------------------------------------------------------------------------------
Base
Period
Company / Index Dec94 Dec95 Dec96 Dec97 Dec98 Dec99
- -----------------------------------------------------------------------------------------------------------
TURBODYNE TECHNOLOGIES INC 100 1392.31 3088.46 1490.38 1778.85 730.77
NASDAQ US INDEX 100 141.33 123.04 122.53 140.91 180.66
AUTO PARTS&EQUIPMENT-500 100 123.63 138.72 173.49 196.43 151.01
</TABLE>
Certain Relationships and Related Transactions
Turbodyne Systems subleases its Carpenteria facility from American
Appliance, Inc., a private company controlled by Mr. Halimi, a member of the
Board of Directors of the Company. The lease is on a month to month basis and
the monthly rent is equal to $28,224.
-18-
<PAGE>
Pacific Baja leased one of its facilities in Ensenada from Baja Pacific
Properties, a company in which Dr. Sadayappa Durairaj, a director of the
Company, owned approximately 19% of the outstanding shares. The lease was for a
ten year term, expiring in September 2005 and the monthly rent was equal to
$15,000.
Pursuant to the terms of the Employment Agreement between the Company and
Leon Nowek, the Company loaned $225,000 to Mr. Nowek in connection with the
purchase of his home. The loan bears no interest and is repayable on the earlier
to occur of the sale of Mr. Nowek's home or the termination of the Employment
Agreement. At March 31, 2000, there was $225,000 outstanding under this loan.
The Company has loaned $250,000 to Walter Ware, the former President and
Chief Executive Officer of the Company, in connection with the purchase of his
home. The loan bears no interest and is repayable on the earlier to occur of the
sale of Mr. Ware's home or the termination of Mr. Ware's employment with the
Company. At March 31, 2000, there was $237,500 outstanding under this loan.
The Company has advanced an aggregate of $167,608 to Edward M. Halimi and
an additional $88,214 to Leon Nowek. These advances are against salaries and
bonuses, bear no interest are unsecured and are payable on demand by the
Company.
See Executive Compensation " Employment Agreements" for a description of
employment agreements between the Company and certain of its officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the executive officers, directors and persons who own more than ten percent of a
registered class of equity securities to file reports of ownership and changes
in ownership with the SEC. Executive officers, directors and greater-than-ten
percent stockholders are required by SEC regulations to furnish us with all
Section 16(a) forms they file. Based solely on our review of the copies of the
forms received by us and written representations from certain reporting persons
that they have complied with the relevant filing requirements, we believe that,
during the year ended December 31, 1999, all of the executive officers,
directors and greater-than-ten percent stockholders of the Company complied with
all Section 16(a) filing requirements other than: Dr. Sadayappa Durairaj, a
member of the Company's Board of Directors, who filed a Form 5 reporting the
acquisition of 10,325 shares of Common stock in transactions which were
reportable on a Form 4 and Dr. Peter Hofbauer and Dr. Fredrich Goes who are
currently late in filing Form 5s.
PROPOSAL 2
PROPOSAL TO APPROVE THE 2000 STOCK INCENTIVE PLAN
General
The proposed Turbodyne Technologies Inc. 2000 Stock Incentive Plan (the
"Plan") was unanimously adopted by the Board of Directors in August 1999,
subject to the approval of the Plan by the Company's stockholders. Each
executive officer, other employee, non-employee director or consultant of the
Company or any of its subsidiaries is eligible to be considered for the grant of
-19-
<PAGE>
awards under the Plan. A maximum of 4,800,000 shares of Common Stock may be
issued pursuant to awards granted under the Plan, subject to certain adjustments
to prevent dilution. Any shares of Common Stock subject to an award which for
any reason expires or terminates unexercised are again available for issuance
under the Plan. As of March 31, 2000, no awards had been granted under the 2000
Plan.
Summary of the 2000 Plan
The following is a summary of the principal features of the Plan, a copy
of which is attached as Annex "A" to this Proxy Statement. This summary of the
Plan is not intended to be complete and reference should be made to Annex "A" to
this Proxy Statement for the complete text of the Plan.
Purpose. The purpose of the Plan is to advance the interests of the
Company and its stockholders by strengthening the Company's ability to obtain
and retain the services of the types of employees, consultants, officers and
directors who will contribute to the Company's long term success and to provide
incentives which are linked directly to increases in stock value which will
inure to the benefit of all stockholders of the Company.
Administration. The Plan will be administered by the Company's Board of
Directors or by a committee of two or more non-employee directors appointed by
the Board of Directors (the "Administrator"). Subject to the provisions of the
Plan, the Administrator will have full and final authority to select the
executives and other employees to whom awards will be granted thereunder, to
grant the awards and to determine the terms and conditions of the awards and the
number of shares to be issued pursuant thereto.
Awards. The Plan authorizes the Administrator to enter into any type of
arrangement with an eligible participant that, by its terms, involves or might
involve the issuance of (1) shares of Common Stock, (2) an option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to the Common Stock, or (3) any other
security or benefit with a value derived from the value of the Common Stock. The
maximum number of shares of Common Stock with respect to which options or rights
may be granted under the Plan to any participant is 500,000, subject to certain
adjustments to prevent dilution.
Awards under the Plan are not restricted to any specified form or
structure and may include arrangements such as sales, bonuses or other transfers
of stock, restricted stock, stock options, reload stock options, stock purchase
warrants, other rights to acquire stock or securities convertible into or
redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares. An award may consist of
one such arrangement or two or more such arrangements in tandem or in the
alternative. An award may provide for the issuance of Common Stock for any
lawful consideration, including services rendered or, to the extent permitted by
applicable state law, to be rendered. Currently, Delaware law does not permit
the issuance of common stock for services to be rendered. An award granted under
the Plan may include a provision conditioning or accelerating the receipt of
benefits, either automatically or in the discretion of the Administrator, upon
the occurrence of specified events, including a change of control of the
-20-
<PAGE>
Company, an acquisition of a specified percentage of the voting power of the
Company or a dissolution, liquidation, merger, reclassification, sale of
substantially all of the property and assets of the Company or other significant
corporate transaction. Any stock option granted to an employee may be an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended, or a nonqualified stock option.
Consideration. An award under the Plan may permit the recipient to pay all
or part of the purchase price of the shares or other property issuable pursuant
to the award, or to pay all or part of the recipient's tax withholding
obligations with respect to such issuance, by delivering previously owned shares
of capital stock of the Company or other property, or by reducing the amount of
shares or other property otherwise issuable pursuant to the award. If an award
granted under the Plan permitted the recipient to pay for the shares issuable
pursuant thereto with previously owned shares, the award may grant the recipient
the right to "pyramid" his or her previously owned shares, i.e., to exercise the
award in successive transactions, starting with a relatively small number of
shares and, by a series of exercises using shares acquired from each transaction
to pay the purchase price of the shares acquired in the following transaction,
to exercise the award for a larger number of shares with no more investment than
the original share or shares delivered.
Amendments. The Administrator may amend the Plan at any time and in any
manner, subject to the following: (1) no recipient of any award may, without his
or her consent, be deprived thereof or of any of his or her rights thereunder or
with respect thereto as a result of such amendment or termination; and (2) if
any rule or regulation promulgated by the SEC, the Internal Revenue Service or
any national securities exchange or quotation system upon which any of the
Company's securities are listed requires that any such amendment be approved by
the Company's stockholders, then such amendment will not be effective until it
has been approved by the Company's stockholders. The Plan shall terminate on the
tenth anniversary of the date the Plan is approved by the stockholders unless
sooner terminated by action of the Board of Directors.
Termination of Awards. All awards granted under the Plan expire ten years
from the date of grant, or such shorter period as is determined by the
Administrator. No option is exercisable by any person after such expiration. If
an award expires, terminates or is canceled, the shares of Common Stock not
purchased thereunder shall again be available for issuance under the Plan.
Form S-8 Registration. The Company intends to file a registration
statement under the Securities Act of 1933, as amended, to register the
4,800,000 shares of Common Stock reserved for issuance under the Plan. Such
registration statement is expected to be filed shortly following the approval of
the 2000 Plan by the stockholders and will become effective immediately upon
filing with the SEC. Shares issued under the Plan after the effective date of
such registration statement generally will be available for sale to the public
without restriction, except for shares issued to affiliates of the Company,
which will remain subject to the volume and manner of sale limitations of Rule
144.
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<PAGE>
Effect of Section 16(b) of the Exchange Act
The acquisition and disposition of Common Stock by officers, directors and
greater-than-ten percent stockholders of the Company ("Insiders") pursuant to
awards granted to them under the Plan may be subject to Section 16(b) of the
Exchange Act. Pursuant to Section 16(b), a purchase of Common Stock by an
Insider within six months before or after a sale of Common Stock by the Insider
could result in recovery by the Company of all or a portion of any amount by
which the sale proceeds exceeds the purchase price. Insiders are required to
file reports of changes in beneficial ownership under Section 16(a) of the
Exchange Act upon acquisitions and dispositions of shares. Rule 16b-3 provides
an exemption from Section 16(b) liability for certain transactions pursuant to
certain employee benefit plans. The Plan is designed to comply with Rule 16b-3.
Omnibus Budget Reconciliation Act Implications for Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), places a limit of $1,000,000 on the amount of compensation that may be
deducted by the Company in any year with respect to each of the Company's five
most highly paid executive officers. Certain "performance-based" compensation
that has been approved by the Company's stockholders is not subject to the
deduction limit. The Plan is intended to qualify as performance-based
compensation which is not subject to the $1,000,000 limitation of Section 162(m)
of the Code. In order for the Plan to qualify as performance-based compensation
under Section 162(m) and, therefore, be exempt from the $1,000,000 limitation,
the Plan must be approved by the Company's stockholders.
Recommendation And Required Vote
The Board of Directors has unanimously approved the Plan. Stockholder
approval of the Plan requires the affirmative vote of a majority of the shares
of the Company's Common Stock present or represented and entitled to vote on
this matter at the Meeting. An abstention will be counted toward the number of
votes cast and will have the same effect as a vote against the proposal. A
broker non-vote, however, will not be treated as a vote cast for or against
approval of the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE 1999 STOCK INCENTIVE PLAN.
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PROPOSAL 3
INCREASE IN AUTHORIZED COMMON STOCK
The Board of Directors has unanimously approved, and recommends that the
stockholders consider and approve, an amendment (the "Amendment") to Article IV
of the Company's Certificate of Incorporation (the "Certificate"), pursuant to
which the authorized number of shares of Common Stock would be increased from
60,000,000 shares to 99,000,000 shares.
Purpose and Effects of the Amendment
As of March 31, 2000, there were 51,149,216 shares of Common Stock issued
and outstanding and 6,023,798 shares were reserved in the aggregate for issuance
pursuant to the Company's existing stock incentive plan.
The Board of Directors believes that the flexibility provided by the
Amendment to permit the Company to issue or reserve additional Common Stock, in
the discretion of the Board of Directors, without the delay or expense of a
special meeting of stockholders, is in the best interest of the Company and its
stockholders. Shares of Common Stock may be used for general corporate purposes,
including stock splits and stock dividends, acquisitions, public offerings,
stock option and other employee benefit plans. The Company has no present plans,
arrangements, commitments or understandings with respect to the issuance of any
of the additional shares of Common Stock that would be authorized by adoption of
the Amendment.
Pursuant to the Certificate, stockholders of the Company have no
preemptive rights with respect to the additional shares of Common Stock being
authorized. The Certificate does not require further approval of stockholders
prior to the issuance of any additional shares of Common Stock.
The issuance of any additional shares of Common Stock may have the effect
of diluting the percentage of stock ownership, book value per share and voting
rights of the present holders of the Common Stock. The Amendment also may have
the effect of discouraging attempts to take over control of the Company, as
additional shares of Common Stock could be issued to dilute the stock ownership
and voting power of, or increase the cost to, a party seeking to obtain control
of the Company. The Amendment is not being proposed in response to any known
effort or threat to acquire control of the Company and is not part of a plan by
management to adopt a series of amendments to the Certificate and Bylaws having
an anti-takeover effect.
Amendment
The following resolution will be submitted to stockholders for their
approval:
RESOLVED, that the third sentence of ARTICLE IV of the Certificate of
Incorporation of the Company be amended to read in its entirety as follows:
"The number of shares of Preferred Stock authorized to be issued
is 1,000,000 and the number of shares of Common Stock authorized
to be issued is 99,000,000."
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<PAGE>
Vote Required
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock is required to approve the Amendment. Abstentions and
broker non-votes will be included in the number of shares present at the Meeting
for the purpose of determining the presence of a quorum. Abstentions will be
counted toward the number of votes cast on proposals submitted to Stockholders
and will have the effect of a negative vote, while broker non-votes will not be
counted as votes cast for or against the Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE INCREASE IN AUTHORIZED
COMMON STOCK.
PROPOSAL 4
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP resigned as independent public accountants of the
Company for the year ended December 31, 1999. The Board of Directors has
appointed McGowan Gunterman PC as the Company's certified public accountants for
the fiscal year ending December 31, 2000. McGowan Gunterman PC was retained
effective January 12, 2000 for the examination of the consolidated financial
statements of the Company for the fiscal year ended December 31, 1999.
Representatives of McGowan Gunterman PC will be invited to be present at the
Meeting, will have the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions from shareholders.
Stockholders are being asked to ratify the appointment of McGowan
Gunterman PC as the Company's independent public accountants for the fiscal year
ending December 31, 2000. Ratification of the proposal requires the affirmative
vote of a majority of the shares of Common Stock represented and voting at the
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF McGOWAN GUNTERMAN PC AS THE INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS OF THE COMPANY.
STOCKHOLDER PROPOSALS
Under certain circumstances, stockholders are entitled to present
proposals at stockholders meetings. Any such proposal to be included in the
proxy statement for the Company's 2001 annual meeting of stockholders must be
submitted by a stockholder prior to April 12, 2000, in a form that complies with
applicable regulations. Recently, the SEC amended its rule governing a company's
ability to use discretionary proxy authority with respect to stockholder
proposals which were not submitted by the stockholders in time to be included in
the proxy statement. As a result of that rule change, in the event a stockholder
proposal is not submitted to the Company prior to April 12, 2000, the proxies
solicited by the Board of Directors for the 2001 annual meeting of the
stockholders will confer authority on the holders of the proxy to vote the
shares in accordance with their best judgment and discretion if the proposal is
presented at the 2001 annual meeting of stockholders without any discussion of
the proposal in the proxy statement for such meeting.
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<PAGE>
ANNUAL REPORT ON FORM 10-K
The Company's annual report to stockholders for the fiscal year ended
December 31, 1999 accompanies or has preceded this Proxy Statement. The annual
report contains consolidated financial statements of the Company and its
subsidiaries and the report thereon of McGowan Gunterman PC, the Company's
independent auditors.
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WHICH HAS BEEN FILED WITH THE
SEC FOR THE YEAR ENDED DECEMBER 31, 1999, WILL BE MADE AVAILABLE TO STOCKHOLDERS
WITHOUT CHARGE UPON WRITTEN REQUEST TO TURBODYNE TECHNOLOGIES INC., CHIEF
FINANCIAL OFFICER, 6155 CARPINTERIA AVENUE, CARPINTERIA, CA 93013.
OTHER BUSINESS
Management knows of no business which will be presented for consideration
at the Meeting other than as stated in the Notice of Meeting. If, however, other
matters are properly brought before the Meeting, it is the intention of the
Proxyholders to vote the shares represented by the Proxies on such matters in
accordance with the recommendation of the Board of Directors and authority to do
so is included in the Proxy.
By Order of the Board of Directors
TURBODYNE TECHNOLOGIES, INC.
Joseph D. Castano,
Secretary
Carpinteria, California
April 14, 2000
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<PAGE>
TURBODYNE TECHNOLOGIES INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned, a stockholder of TURBODYNE TECHNOLOGIES INC., a Delaware
corporation, (the "Company"), hereby appoints Dr. Peter Hofbauer and Joseph D.
Castano, and each of them, the proxies of the undersigned, each with full power
of substitution, to attend, vote and act for the undersigned at the annual
meeting of the stockholders of the Company, to be held on May 12, 2000, and any
postponements or adjournments thereof, and in connection herewith, to vote and
represent all of the shares of the Company which the undersigned would be
entitled to vote, as follows:
1. ELECTION OF DIRECTORS.
[ ] For all nominees listed (except [ ] WITHHOLD AUTHORITY to vote
as indicated to the contrary) for all nominees listed
below.
(Instructions: To withhold authority to vote for any nominee,
line through or otherwise strike out his name below)
Dr. Fredrich Goes Wendell R. Andersen
Daniel Geronazzo Dr. Sadayappa Durairaj
Dr. Peter Hofbauer
2. APPROVAL OF THE 2000 STOCK INCENTIVE PLAN.
____ FOR ____ AGAINST ____ ABSTAIN
3. INCREASE AUTHORIZED SHARES OF COMMON STOCK.
____ FOR ____ AGAINST ____ ABSTAIN
4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.
____ FOR ____ AGAINST ____ ABSTAIN
5. OTHER BUSINESS.
____ FOR ____ AGAINST ____ ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Meeting, and
hereby ratifies and confirms all that said attorneys and proxies, and each of
them, may lawfully do by virtue hereof. With respect to matters not known at the
time of the solicitation hereof, said proxies are authorized to vote in
accordance with their best judgment.
This Proxy will be voted in accordance with the instructions set forth
above. This Proxy will be treated as a GRANT OF AUTHORITY TO VOTE FOR the
election of the Directors named, the approval of the 2000 Stock Incentive Plan,
the ratification of appointment of McGowan Gunterman PC as the Company's
independent auditors and as said proxies shall deem advisable on such other
business as may come before the Meeting, unless otherwise directed.
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<PAGE>
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated April 14, 2000 relating to the
Meeting.
Date: __________, 2000
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Signature(s) of Stockholder(s)
(See Instructions Below)
The signature(s) hereon should correspond
exactly with the name(s) of the
Stockholder(s) appearing on the Stock
Certificate. If stock is jointly held, all
joint owners should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as
such. If signer is a corporation, please
sign the full corporation name, and give
title of signing officer.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF TURBODYNE TECHNOLOGIES INC.
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