<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MARINE MANAGEMENT SYSTEMS, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:........
2) Aggregate number of securities to which transaction applies:...........
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:
4) Date Filed:
<PAGE> 2
MARINE MANAGEMENT SYSTEMS, INC.
470 WEST AVENUE
STAMFORD, CONNECTICUT 06902
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 7, 1998
To Our Stockholders:
The 1998 Annual Meeting of Stockholders of Marine Management Systems,
Inc. (the "Company") will be held at the offices of the Company, 470 West
Avenue, Stamford, Connecticut 06902 on Tuesday, July 7, 1998 at 11:00 a.m.
(local time) for the following purposes:
1. To elect the Board of Directors;
2. To approve the sale by the Company of $2 million in senior convertible
notes convertible into 2,000,000 shares of the Company's Common Stock;
3. To approve the adoption of an Amended and Restated Certificate of
Incorporation, which amends the Company's existing Amended and Restated
Certificate of Incorporation, as amended, to:
(a) increase the number of authorized shares of Common Stock from
9,000,000 shares to 25,000,000 shares;
(b) create and authorize the issuance of Series A Preferred Stock;
and
(c) empower the Board of Directors to confer the rights of
stockholders upon the holders of any bonds, notes, debentures
or other obligations of the Company;
4. To approve an amendment to the Company's 1996 Key Employees' Stock Plan
to increase the number of shares issuable under the plan to 450,000
shares;
5. To ratify the appointment by the Board of Directors of BDO Seidman, LLP
as the Company's independent certified public accountants for the
fiscal year ending December 31, 1998; and
6. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only stockholders of record at the close of business on June 1, 1998
are entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof.
By order of the Board of Directors,
Robert D. Ohmes
Secretary
Dated: June 9, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
ANY PERSON GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME PRIOR TO ITS
EXERCISE AND, IF PRESENT AT THE MEETING, MAY WITHDRAW IT AND VOTE IN PERSON.
<PAGE> 3
MARINE MANAGEMENT SYSTEMS, INC.
470 WEST AVENUE
STAMFORD, CONNECTICUT 06902
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 7, 1998
This Proxy Statement is being furnished to the stockholders of Marine
Management Systems, Inc. (the "Company") in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Annual Meeting
of Stockholders of the Company to be held on July 7, 1998, and any adjournments
or postponements thereof (the "1998 Annual Meeting"). This Proxy Statement, the
foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company's
1997 Annual Report to Stockholders are first being mailed or given to
stockholders on or about June 9, 1998.
PROXIES
A stockholder giving a proxy may revoke it at any time before it is
voted by executing and delivering to the Company another proxy bearing a later
date, by delivering a written notice to the Secretary of the Company stating
that the proxy is revoked, or by voting in person at the 1998 Annual Meeting.
Any properly executed proxy returned to the Company will be voted in accordance
with the instructions indicated thereon. If no instructions are indicated on the
proxy, the proxy will be voted for the election of the nominees for directors
named herein and in favor of the other proposals set forth in the Notice of
Annual Meeting.
VOTING SECURITIES
The record date for the determination of stockholders entitled to
notice of and to vote at the 1998 Annual Meeting was the close of business on
June 1, 1998 (the "Record Date"). On the Record Date, there were 4,421,120
shares of Common Stock, the Company's only voting securities, outstanding and
entitled to vote. Each share of Common Stock is entitled to one vote. The
presence, in person or by proxy, of the holders of a majority of the shares of
Common Stock entitled to be voted at the 1998 Annual Meeting is necessary to
constitute a quorum for the transaction of business. Abstentions and broker
non-votes will be included in the calculation of the number of votes represented
at the 1998 Annual Meeting for purposes of determining whether a quorum has been
achieved. Votes will be tabulated at the 1998 Annual Meeting by one or more
inspectors of election appointed by the Board of Directors.
<PAGE> 4
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of the
Record Date, by: (i) each person known by the Company to own beneficially more
than five percent of the outstanding Common Stock of the Company; (ii) each
director and nominee for director of the Company; (iii) each executive officer
of the Company named in the Summary Compensation Table on page 5; and (iv) all
directors and executive officers of the Company as a group. Except as otherwise
indicated, all shares are owned directly. 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.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER (1) SHARES BENEFICIALLY OWNED PERCENT OF CLASS
---------------------------------------- ------------------------- ----------------
<S> <C> <C>
Eugene D. Story............................. 887,883(2) 20.0%
Wechsler & Co., Inc......................... 700,000(3) 13.7%
105 South Bedford Road
Suite 310
Mount Kisco, NY 10549
Sperry Marine Inc........................... 625,000(4) 13.2%
1070 Seminole Trail
Charlottesville, VA 22901
Robert D. Ohmes............................. 492,649(5) 11.1%
Scott R. Ohmes.............................. 313,830(6) 7.0%
41 Briar Oak Drive
Weston, CT 06883
Connecticut Innovations, Inc................ 277,777 6.3%
999 West Street
Rocky Hill, CT 06067
COMSAT Mobile Investments, Inc.............. 265,537 6.0%
6560 Rock Spring Drive
Bethesda, MD 20817
Lyman C. Hamilton, Jr....................... 72,074 1.6%
Michael P. Barney........................... 18,518(7) *
Arie Slot................................... - -
Donald R. Yearwood.......................... - -
Alan K. Greene.............................. - -
All directors and executive officers as a
group (9 persons)........................... 1,589,512(8) 35.4%
</TABLE>
- ------------
* Less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
the Company, 470 West Avenue, Stamford, CT 06902.
(2) Includes 19,259 shares issuable upon the exercise of currently
exercisable warrants.
(3) Consists of 700,000 shares issuable upon the conversion of a
convertible note.
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<PAGE> 5
(4) Includes 325,000 shares issuable upon the exercise of currently
exercisable warrants.
(5) Includes 3,703 shares owned by Evelyn Ohmes, Robert D. Ohmes' wife, and
19,259 shares issuable upon the exercise of currently exercisable
warrants. Mr. Ohmes disclaims beneficial ownership of the shares owned
by his wife.
(6) Includes 37,037 shares issuable upon the exercise of currently
exercisable warrants.
(7) Consists of 18,518 shares issuable upon the exercise of currently
exercisable warrants.
(8) Includes 67,406 shares issuable to executive officers upon the exercise
of currently exercisable warrants.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors and persons who
beneficially own more than ten percent of the Company's Common Stock to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and to furnish the Company with copies of all such forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during the fiscal year ended December 31, 1997, all such reports were
timely filed.
1. ELECTION OF DIRECTORS
The Board of Directors has nominated each of the nominees set forth
below as a director of the Company to serve until the next annual meeting of the
stockholders and until his successor is elected and qualified or until his
earlier resignation or removal. Each nominee is currently a director of the
Company. All of the nominees have indicated a willingness to serve as directors,
but if for any reason any nominee should be unavailable to serve as a director
at the time of the 1998 Annual Meeting, a contingency which the Board of
Directors does not expect, a different person designated by the Board of
Directors may be nominated in his stead.
If a quorum of the holders of Common Stock is present at the 1998
Annual Meeting, the election of directors will require the affirmative vote of a
plurality of the shares of Common Stock present in person or represented by
proxy and entitled to vote. Abstentions by holders of such shares and broker
non-votes with respect to the election of directors will be included in
determining the presence of such quorum but will not be included in determining
whether nominees have received the vote of such plurality.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR SUCH NOMINEES.
The following sets forth the name and age of each nominee and the
positions and offices held by him, his principal occupation and business
experience during the past five years and the year of the commencement of his
term as a director of the Company.
EUGENE D. STORY, age 70, a founder of the Company, has served as
Chairman of the Board of Directors of the Company since December 1997 and as a
director since 1969. From 1970 to December 1997, Mr. Story served as President
and Chief Executive Officer of the Company. Mr. Story has over 40 years of
experience in the shipping business. His past positions include Manager of
Project Development and Design in the Marine Transportation Department for Mobil
Oil Corporation, President of Stal-Laval Turbine Company, Supervisor of Marine
Construction for California-Texas Oil Corporation and Naval Architect at Gibbs
and Cox, Inc.
MICHAEL P. BARNEY, age 45, has served as President and Chief Executive
Officer of the Company since December 1997 and as a director since May 1996.
From May to December 1997, Mr. Barney served as Chief Operating Officer of the
Company. From December 1996 to May 1997, Mr. Barney was Vice President -
Corporate Development and Marketing of the Company, and from July 1995 through
November 1996, he served as Vice President - Corporate Development. From March
1990 to May 1995, Mr. Barney was General Manager of Administration at Seer
Technologies, Inc., a high technology software/consulting firm. From June 1986
to February 1990, Mr. Barney was Vice President of Information Services as First
Boston Corporation.
3
<PAGE> 6
ROBERT D. OHMES, age 62, a founder of the Company, has served as
Executive Vice President and Chief Financial Officer of the Company since 1974
and as a director since 1969. His past positions have included Vice President of
W.R. Grace, Director of Business Development of Olin Corporation, Director of
Investment Analysis at ITT Corporation and attorney for the marine law division
of Mobil Oil Corporation.
LYMAN C. HAMILTON, JR., age 71, has served as a director of the Company
since January 1990. Mr. Hamilton is currently an investment manager. From
October 1994 to May 1995, he served as Chief Executive Officer of InterDigital
Communications Corporation, a specialized communications corporation.
Previously, he served as Chairman of Alpine PolyVision, Inc., a flat panel
display manufacturer, during 1993, and as President and Chief Executive Officer
from January 1991 to December 1992. He was Chairman and President of Imperial
Corporation of America, a financial services company, from July 1989 to February
1990, and Chairman and President of Tamco Enterprises, Inc., a private
investment company, from November 1979 to January 1989. Mr. Hamilton was
employed by ITT Corporation from 1962 until 1979 in a number of executive
positions, including as President and Chief Operating Officer during 1977 and as
President and Chief Executive Officer from 1978 until 1979. Mr. Hamilton is also
a director of ScanOptics, Inc.
DONALD R. YEARWOOD, age 59, has served as a director of the Company
since January 1998. Mr Yearwood has been a principal in Sanborn Yearwood &
Associates, a provider of management, advisory and implementation services in
the trade, transportation and insurance industries, since June 1996, and the
Chairman of Shoreline Mutual (Bermuda), a mutual insurance company, since its
inception in May 1995. From June 1992 to December 1996, Mr. Yearwood was
Chairman and Chief Executive Officer of Attransco, Inc., a tanker and dry bulk
shipping company, and served as Senior Vice President of American Trading and
Production Corp., an oil and gas producer, from May 1989 to May 1992.
Previously, he held various management or engineering positions with the
American Trading Group of Companies, Inter-Maritime Management, the McMullen
Group of Companies and M. Rosenblatt & Son, Inc.
ALAN K. GREENE, age 58, has served as a director of the Company since
February 1998. Mr. Greene retired from the Corporate Finance Group of Price
Waterhouse LLP as a Partner in 1995 after serving his professional career with
Price Waterhouse LLP in various high level positions including Corporate Finance
Beratung GmbH, National Director Tax Services-Mergers and Acquisitions and
others. Mr. Greene currently serves on the boards of directors of Connecticut
Innovations, Inc. ("CII"), the Eli Whitney Investment Advisory Committee and
Science Park Development Corporation, and on the advisory boards of the
Mezzanine Capital Advisory Board of the Connecticut Development Authority and
the Eli Whitney Investment Advisory Committee of CII, and serves as Chairman of
Connecticut's Technology Advisory Board Finance Committee.
BOARD OF DIRECTORS COMMITTEES AND MEETINGS
The standing committees of the Board of Directors are the Audit
Committee and the Compensation Committee.
The Audit Committee is currently comprised of Lyman Hamilton
(Chairman), Alan Greene and Donald Yearwood. During 1997, the Audit Committee
consisted of Lyman Hamilton (Chairman), Donald Forster and Michael Hughes. The
Audit Committee oversees the Company's system of internal accounting controls,
recommends to the Board of Directors and the stockholders the appointment of a
firm of independent certified public accountants to conduct the annual audit of
the Company's financial statements, reviews the scope of the audit, reviews
reports from the independent certified public accountants, and makes such
recommendations to the Board of Directors in connection with the annual audit as
it deems appropriate. The Audit Committee met once during 1997.
The Compensation Committee is currently comprised of Alan Greene
(Chairman), Lyman Hamilton and Donald Yearwood. During 1997, the Compensation
Committee consisted of Donald Forster (Chairman), Lyman Hamilton and Michael
Hughes. The Compensation Committee reviews the compensation of officers of the
Company and the Company's compensation policies and practices. The Compensation
Committee also administers
4
<PAGE> 7
the 1996 Key Employees' Stock Plan, including recommending the grant of stock
options thereunder. The Compensation Committee met once during 1997.
The Board of Directors held seven meetings during 1997. Each director
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board of Directors and (ii) the total number of meetings held by all
committees of the Board on which such director served.
DIRECTOR COMPENSATION
The Company's directors do not receive any cash compensation for
service on the Board of Directors or any committee thereof, but are reimbursed
for expenses actually incurred in connection with attending meetings of the
Board of Directors and any committee thereof.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain information regarding the
compensation paid by the Company for the years ended December 31, 1997, 1996 and
1995 to each of the Company's executive officers whose total salary and bonus
exceeded $100,000 in 1997 (together, the "Named Executive Officers") for
services rendered in all capacities to the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------------------- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) SATION ($)(1)
- --------------------------- ---- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Eugene D. Story 1997 116,972 -- -- 2,729
Chairman of the Board 1996 107,000 -- -- 3,415
Former President and Chief 1995 96,000 -- -- 3,080
Executive Officer
Michael P. Barney 1997 97,824 -- 25,000 2,257
President and Chief Executive 1996 89,167 -- -- 3,121
Officer 1995 43,333 -- -- --
Robert D. Ohmes 1997 116,972 -- -- 2,729
Executive Vice President, Chief 1996 107,000 -- -- 3,415
Financial Officer and Secretary 1995 96,000 -- -- 3,020
Arie Slot (2) 1997 95,517 51,040 15,000 --
Former Vice President - Sales 1996 -- -- -- --
1995 -- -- -- --
</TABLE>
- ------------------
(1) Represents the Company's contribution under the Company's 401(k) plan.
(2) Mr. Slot joined the Company in January 1997.
6
<PAGE> 9
OPTION GRANTS
The following table sets forth certain information with respect to
stock options granted to the Named Executive Officers during the year ended
December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#)(1) IN 1997 ($/SH) DATE
- -------------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Eugene D. Story -- -- -- --
Michael P. Barney 25,000 17.3% 2.35 9/9/07
Robert D. Ohmes -- -- -- --
Arie Slot 15,000 10.4% 4.31 5/20/07
</TABLE>
- ------------------
(1) Options granted vest 25% per year on each of the first four anniversary
dates of the grant date.
STOCK OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option holdings
as of December 31, 1997 with respect to the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END (#) AT FY-END ($)
ON VALUE ---------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eugene D. Story - - - - - -
Michael P. Barney - - 0 25,000 0 0
Robert D. Ohmes - - - - - -
Arie Slot - - 0 15,000 0 0
</TABLE>
7
<PAGE> 10
MANAGEMENT WARRANTS
In April and June 1996, the Company issued to certain executive
officers of the Company and their affiliates warrants to purchase an aggregate
of 222,219 shares of Common Stock at a purchase price of $3.38 per share (the
"Management Warrants"). The Management Warrants are exercisable for a ten-year
period commencing on the date of grant. The following table sets forth certain
information regarding the Management Warrants issued in April and June 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME UNDERLYING WARRANTS EXPIRATION DATE
- ---- ------------------- ---------------
<S> <C> <C>
Eugene D. Story 19,259 6/3/06
Michael P. Barney 18,518 4/1/06
Robert D. Ohmes 19,259 6/3/06
Donald F. Logan 10,370 6/3/06
Mark E. Story 92,592 4/1/06
Mark E. Story 6,666 6/3/06
Robert F. Ohmes(1) 18,518 4/1/06
Scott R. Ohmes (1) 37,037 4/1/06
</TABLE>
- ------------------
(1) Robert F. Ohmes and Scott R. Ohmes are the sons of Robert D. Ohmes.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements, effective May 1, 1997,
with each of Eugene D. Story, Robert D. Ohmes and Michael P. Barney. The
agreements provide for an annual base of salary of $130,000 in the case of
Messrs. Story and Ohmes and $105,000 in the case of Mr. Barney, subject to
salary increases on an annual basis equal to the percentage increase, if any, in
the consumer price index for the Metropolitan New York area, and bonus as may be
determined by the Compensation Committee of the Board of Directors from time to
time, such bonus not to exceed 50% of the annual base salary then in effect. The
agreements expire on the earliest to occur of (i) May 1, 1999, (ii) the death of
the employee, and (iii) the termination of the employee for incapacity, upon
written notice from the Company and according to specified conditions, and are
subject to automatic renewal on an annual basis unless either party gives 90
days prior notice of termination with respect to any renewal. Under the terms of
the agreements, if the Company terminates the agreements at the end of any term
or terminates the employee for incapacity, the employee shall be entitled to
receive his annual base salary then in effect for a period of nine months after
termination in the case of Messrs. Story and Ohmes and for a period of six
months after termination in the case of Mr. Barney. The agreements restrict each
employee from competing with the Company during their term of the agreement and
for a period of one year following any termination of the agreement; provided
that if the agreements are terminated for any reason other than for cause, the
Company shall pay to each employee 60% of his annual base salary then in effect
for a period of two years following the termination in consideration of such
agreement not to compete. In the event the Company should seek to enforce such
non- competition provisions in court, a state court, may, in exercising its
discretionary authority, determine not to enforce, or to limit enforcement of,
such provisions against an employee.
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<PAGE> 11
CERTAIN TRANSACTIONS
On October 17, 1988, Christopher Story, the brother of Eugene D. Story,
then the President, Chief Executive Officer and a director of the Company and
currently the Chairman of the Board of the Company, loaned the Company $25,000
in exchange for a convertible subordinated note of the Company bearing interest
at 1% over prime and convertible into 10,018 shares of Common Stock. On June 30,
1996, Christopher Story exercised his right to convert such note into 10,018
shares of Common Stock.
On July 1, 1994, Eugene D. Story loaned the Company $300,000 and Robert
D. Ohmes, the Executive Vice President, Chief Financial Officer and a director
of the Company, loaned the Company $200,000. In exchange, the Company issued to
Eugene D. Story and Robert D. Ohmes notes bearing interest at 2% over prime.
These notes were subordinated to other indebtedness of the Company existing at
the time of the loans.
On July 28, 1994, Scott R. Ohmes, son of Robert D. Ohmes, loaned the
Company $70,000 in exchange for a ten-year convertible subordinated debenture
bearing interest at 8% and convertible into 259,259 shares of Common Stock. On
June 30, 1996, Scott Ohmes converted the subordinated note into 259,259 shares
of Common Stock. Over the period from November 1994 through December 1995, Scott
Ohmes made loans to the Company totaling $150,000, which the Company agreed to
repay with interest accruing at approximately 12%. On June 1, 1996, Scott Ohmes
exchanged the $150,000 of loans for 44,444 shares of Common Stock.
On January 3, 1995, Lyman C. Hamilton, Jr., a director of the Company,
exchanged two existing convertible subordinated notes in the amount of $50,000
(dated October 31, 1988) and $12,500 (dated April 1, 1989), including accrued
interest thereon, for a new convertible subordinated note bearing interest at
10% and convertible into 62,074 shares of Common Stock. On June 30, 1996, Mr.
Hamilton exercised his right to convert such note.
On December 5, 1995, Robert D. Ohmes loaned the Company $75,000, which
the Company agreed to repay with interest accruing at approximately 12%. On June
1, 1996, Robert D. Ohmes exchanged the $75,000 of loans for 22,222 shares of
Common Stock.
In April and June 1996, the Company issued to certain executive
officers Management Warrants to purchase an aggregate of 222,219 shares of
Common Stock at a purchase price of $3.38 per share. At the request of Robert D.
Ohmes, Management Warrants to purchase 55,555 shares issuable to him were issued
to his sons, Robert F. Ohmes and Scott R. Ohmes.
In May 1990, Eugene D. Story, Robert D. Ohmes and Donald F. Logan, Jr.,
a Senior Vice President of the Company, received 840, 793 and 466 shares
respectively, of the Company's 6% Non-Cumulative Preferred Stock, par value $100
per share, as part of their compensation for services rendered to the Company.
On June 1, 1996, Messrs. Story, Ohmes and Logan exchanged such shares of 6%
Non-Cumulative Preferred Stock for 25,337, 23,151 and 13,703 shares,
respectively, of Common Stock.
During the period from 1987 through 1994, the Company made loans to
Eugene D. Story, Robert D. Ohmes, Donald F. Logan, Jr. and Mark E. Story, the
son of Eugene D. Story and then a Vice President and director of the Company.
Interest accrued on such loans over the period at rates ranging from 6% to 10%.
The loans were repaid in full immediately prior to the initial public offering
in May 1997 through the return to the Company for cancellation of 27,085,
26,910, 14,627 and 9,145 shares of Common Stock by Eugene D. Story, Robert D.
Ohmes, Donald F. Logan, Jr. and Mark E. Story, respectively.
In March 1995, the Company obtained a $500,000 loan from CII, currently
a principal stockholder of the Company, bearing interest at the rate of 10% per
annum evidenced by a promissory note to CII (the "Senior Note"). In connection
with this loan, the Company issued warrants to CII to purchase an aggregate of
259,888 shares of its Common Stock at an initial exercise price of $2.31 per
share. In August 1996, the Company sold 7,500 shares of
9
<PAGE> 12
its Preferred Stock to CII in exchange for (i) CII's payment of $500,000 in
cash, (ii) the cancellation of $236,924 of the $473,848 principal amount of
indebtedness then outstanding under the Senior Note, and (iii) CII's
relinquishment of one-half of its warrants, leaving CII with warrants to
purchase 129,944 shares of Common Stock. Immediately prior to the consummation
of the Company's initial public offering, the 7,500 shares of Preferred Stock
held by CII were converted into an aggregate of 277,777 shares of Common Stock,
which shares are subject to piggyback registration rights. In addition, upon the
consummation of the initial public offering, the Company used proceeds from such
offering to repay the balance of the Senior Note ($236,924 plus approximately
$23,000 in accrued interest) and to redeem the remaining 129,944 warrants held
by CII (approximately $95,000).
In June 1996, Robert D. Ohmes acquired a $75,000 loan from a bank, the
proceeds of which he, in turn, loaned to the Company. Subsequently, in November
1996, such loans were amended to reflect the Company as the bank's borrower and
eliminated Mr. Ohmes as a lender.
On October 29, 1996, Lyman C. Hamilton, Jr., a trust for the benefit of
Donald F. Logan, Jr.'s mother, Christopher Story, and Tiffany Story, the niece
of Eugene D. Story, loaned the Company $100,000, $50,000, $5,000 and $5,000,
respectively. Each of these loans bore interest at 10% per annum and was paid by
the Company out of the proceeds from its initial public offering.
From September through December 1996, the Company borrowed $90,000 from
Scott R. Ohmes, $29,000 from Eugene D. Story, $10,000 from Robert D. Ohmes,
$15,000 from Mark E. Story and $22,000 from Donald F. Logan, Jr. All of such
indebtedness bears interest at the rate of 9% per annum and matures on December
2, 1998. In addition, all of such indebtedness is subordinated to all other
indebtedness of the Company except for an aggregate of $500,000 payable to
Eugene D. Story and Robert D. Ohmes.
In December 1996, the Company entered into a five-year marketing and
distribution agreement (the "Sperry Agreement") with Sperry Marine, Inc.
("Sperry"), a principal stockholder of the Company. In connection with the
Sperry Agreement, Sperry provided $500,000 in financing to the Company, which
financing consisted of a 9% promissory note of the Company in the principal
amount of $250,000, convertible into an aggregate of 100,000 shares of Common
Stock (the "Sperry Convertible Note"), a 9% promissory note of the Company in
the principal amount of $250,000 (the "Sperry Non-Convertible Note") and
warrants to purchase 125,000 shares of Common Stock at an exercise price of
$5.00 per share. Upon the consummation of the Company's initial public offering,
the Convertible Note was converted into 100,000 shares of Common Stock and the
Non-Convertible Note was paid out of the proceeds of the Company's initial
public offering. In addition, Sperry purchased 200,000 shares of Common Stock
and warrants to purchase 200,000 shares of Common Stock at an exercise price of
$5.50 per share in the Company's initial public offering.
In connection with the Company's bridge financing in January 1997,
Eugene D. Story and Robert D. Ohmes contributed 45,000 and 25,000 of their
shares of Common Stock, respectively, to the Company's treasury immediately
prior to the closing of such financing. Such 70,000 shares were then issued by
the Company to the investors in such financing. Subsequently, 20,000 shares were
returned to the Company's treasury by the investors.
2. SALE OF $2 MILLION IN CONVERTIBLE SENIOR NOTES
The Board of Directors has unanimously approved and recommended that
the stockholders of the Company consider and approve the sale by the Company of
up to $2 million aggregate principal amount of Senior Convertible Notes (the
"Notes") in a financing transaction (the "Financing"). The Notes would bear
interest at the rate of 10% per annum until such time as the Notes are paid in
full or converted into Common Stock as described below. If not paid or converted
earlier, the Notes would be due and payable on March 31, 2003. The Notes would
be convertible into shares of the Company's Common Stock at the rate of $1.00
face value of the Notes for each share of Common Stock, subject to adjustment
under certain circumstances.
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to enter into the Financing. The Company has
entered into a certain Bridge Note Purchase Agreement (the "Bridge Agreement")
dated April 8, 1998 by and between the Company and Wechsler & Co., Inc. (the
"Investor") pursuant
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to which the Investor has purchased from the Company a $700,000 principal amount
Senior Convertible Note due September 30, 1998 (the "Bridge Note"). The Bridge
Note is convertible into shares of the Company's Common Stock at the rate of
$1.00 face value of the Bridge Note for each share of Common Stock, subject to
adjustment under certain circumstances. Subject to certain conditions, including
the adoption of the Amended and Restated Certificate of Incorporation to be
voted upon by the stockholders of the Company at the 1998 Annual Meeting, the
Investor has agreed, together with one or more additional investors
(collectively, the "Financing Investors"), to enter into a Senior Convertible
Note Purchase Agreement (the "Financing Agreement") relating to the proposed
Financing. The Financing Agreement provides for the exchange of the Bridge Note
for Notes upon consummation of the Financing. The net proceeds from the
Financing will be used for general corporate and working capital purposes. If
the Financing is not approved by the stockholders of the Company, there can be
no assurance that an alternative source of financing will be available to the
Company on commercially reasonable terms, or at all. The failure to obtain such
financing would have a material adverse affect on the Company's business,
operating results and financial condition.
The rules of the Nasdaq SmallCap Market ("Nasdaq"), which lists the
Company's outstanding Common Stock, require stockholder approval of the
issuance, other than in a public offering, of common stock or securities
convertible into common stock if such common stock has or would have upon
issuance voting power equal to or in excess of 20% of the voting power
outstanding before such issuance. If all of the shares issuable upon conversion
of the Notes were outstanding on June 9, 1998, such shares would represent
approximately 45% of the voting power outstanding immediately prior to such
issuance.
The stockholders are being asked to approve the Financing in response
to the Nasdaq requirements. Approval by a majority of the votes cast on this
proposal in person or by proxy will be required to approve the Financing.
Abstentions and broker non-votes will not be counted in determining whether a
majority vote was obtained. If the required affirmative vote by the stockholders
is not obtained, the Notes will not be sold and the Bridge Note will remain
outstanding in accordance with its terms. Even if approved by the stockholders,
the Financing will not be consummated in the event that the stockholders do not
approve the adoption of the Amended and Restated Certificate of Incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THE FINANCING IS ADVISABLE AND IN
THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE FINANCING.
DESCRIPTION OF THE NOTES
The following description of the Notes and the Financing Agreement
summarizes the material terms of the Financing and is qualified in its entirety
by reference to the forms of the Notes and the Financing Agreement which are
available from the Company upon request.
General. Subject to certain conditions, including the approval of the
Financing by the stockholders of the Company, the Company will issue the Notes
to the Financing Investors upon payment therefor. The Notes will bear interest
at the rate of 10% per annum. Interest on the unpaid principal balance of the
Notes will be payable semi-annually commencing September 30, 1998 and on each
March 31 and September 30 thereafter, provided that, for all interest payments
through March 31, 2000, the Company, at its option, may elect to pay the
interest under the Notes by adding to the principal amount of the Notes such
interest which has not been paid in cash. The Notes are due and payable on March
31, 2003, subject to the right of the Company to prepay all or a portion of the
principal amount of the Notes, together with accrued interest, upon thirty days'
written notice to the holders of the Notes at any time following March 31, 2001.
No prepayment may be permitted unless, at the time of such prepayment, there is
registered with the Securities and Exchange Commission (the "Commission") for
sale by the holders of the Notes, shares of the Company's Common Stock
reflecting full conversion of the Notes. The holders shall be entitled to
convert the Notes at any time prior to the specified prepayment date.
Seniority. Payments of principal and interest in respect of the Notes
are senior to and prior in right of payment to all other indebtedness for
borrowed money of the Company, provided that they shall be pari passu with
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any borrowings by the Company from a recognized financial institution for
working capital in a principal amount not to exceed $500,000, provided further
that such borrowings may be secured by the assets of the Company on terms and
conditions reasonably acceptable to the holders of the Notes.
Conversion. The holder of any Note has the right, exercisable at any
time after six months following the date of initial issuance thereof and prior
to the receipt of payment in full of the principal and interest on such Note, to
convert all or a portion of the principal amount of the Note and accrued
interest thereon into shares of the Company's Common Stock at $1.00 per share,
subject to adjustment as described below (the "Conversion Price"). No fractional
shares will be issued upon conversion, but a cash payment will be made for any
fractional interest based on the then market value of the Common Stock.
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including (i) the issuance of additional shares of Common Stock
(or any security convertible into shares of Common Stock or any rights or
options to purchase shares of Common Stock) for a consideration per share less
than the Conversion Price in effect immediately prior to the issuance of such
additional shares, or for no consideration, (ii) the subdivision, consolidation
or reclassification of the outstanding shares of Common Stock, or (iii) the
declaration of a dividend upon the Common Stock payable otherwise than out of
earnings or earned surplus and otherwise than in Common Stock.
If the Company consolidates with or merges into another corporation or
sells all or substantially all of the assets of the Company for a consideration
consisting principally of securities, or if a person or group of related people
purchase 50% or more of the outstanding Common Stock pursuant to a tender offer
or otherwise, the holder of each Note will be entitled to receive, upon the
conversion of such Note, the securities or property to which a holder of the
number of shares of Common Stock then issuable upon the conversion of such Note
would have been entitled upon the consummation of such transaction.
Voting Rights. Subject to the approval of the adoption of the Amended
and Restated Certificate of Incorporation by the stockholders of the Company, as
long as any of the principal amount or accrued interest on the Notes are
outstanding, the holders of the Notes shall be entitled to vote on all matters
voted on by holders of Common Stock, voting together as a single class with
other shares entitled to vote at all meetings of the stockholders of the
Company. A holder of a Note will be entitled to cast the number of votes equal
to the number of votes which could be cast in such vote by a holder of the
shares of Common Stock into which a Note is convertible on the record date for
such vote.
Registration. Pursuant to the terms of Financing Agreement, the Company
will agree (i) to file no later than August 1, 1998 a shelf registration
statement with the Commission with respect to the resale of the shares of Common
Stock issuable upon conversion of the Notes, (ii) to use its best efforts to
cause such registration statement to become effective no later than 180 days
after the closing date of the Financing, and (iii) to maintain such registration
statement in effect for so long as the Financing Investors own any of the Notes
or any shares of Common Stock which they receive upon conversion of the Notes.
POSSIBLE DILUTIVE EFFECT
Conversion of the Notes into shares of Common Stock would result in an
increase in the number of shares of Common Stock outstanding. An issuance of
Common Stock at a price below the book value per share (for example, if the
Conversion Price of the Notes was below the book value per share at the time of
conversion) would have a dilutive effect on the book value of outstanding shares
of Common Stock. Such issuances may also have a dilutive effect on earnings per
share. The initial Conversion Price of the Notes is $1.00 per share. The book
value of the Common Stock as of March 31, 1998 was $0.44 per share and the
closing market price of the Common Stock on May 29, 1998 was $0.8125 per share.
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3. ADOPTION OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously approved and recommended that
the stockholders of the Company consider and approve a resolution authorizing
the Company to amend and restate the Company's Amended and Restated Certificate
of Incorporation, as amended (the "Certificate"). The amendments contained in
the Certificate as amended and restated (the "Amended and Restated Certificate")
would: (1) increase the number of authorized shares of Common Stock from
9,000,000 shares to 25,000,000 shares (the "Common Stock Amendment"); (2) create
and authorize the issuance of Series A Preferred Stock with terms as described
below (the "Preferred Stock Amendment"); and (3) empower the Board of Directors
to confer the rights of stockholders upon the holders of any bonds, notes,
debentures or other obligations of the Company (the "Debt Amendment," and,
together with the Common Stock Amendment and the Preferred Stock Amendment, the
"Amendments"). The affirmative vote of a majority of shares of Common Stock
outstanding as of the Record Date is required to approve and adopt the
Amendments. Accordingly, abstentions and broker non-votes with respect to the
Amendments will have the effect of votes against the Amendments.
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to amend and restate the Certificate to give effect
to the proposed Amendments. The Company has covenanted pursuant to the Bridge
Financing Agreement to use its best efforts to take all necessary or helpful
actions to secure a vote of the stockholders in favor of the Amendments.
Moreover, the Investor will have no obligation to consummate the Financing if
the Amendments are not adopted by the Company's stockholders, and there can be
no assurance that alternative sources of financing will be available to the
Company on commercially reasonable terms, or at all. If the Amended and Restated
Certificate is approved by the stockholders at the 1998 Annual Meeting, the
Amended and Restated Certificate will promptly be filed with the Secretary of
the State of Delaware, and will become effective immediately upon the filing
thereof. It is expected that such filing would take place immediately following
the 1998 Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THE ADOPTION OF THE AMENDED AND
RESTATED CERTIFICATE IS ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ADOPTION OF THE AMENDED AND
RESTATED CERTIFICATE.
The following constitutes a brief discussion of the material changes to
the Company's Certificate that would be effected by the adoption of the Amended
and Restated Certificate by the stockholders and is qualified in its entirety by
reference to the Amended and Restated Certificate, the full text of which is
attached hereto as Appendix A and is incorporated herein by reference. All
stockholders of the Company are urged to read Appendix A in its entirety.
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
The Amended and Restated Certificate provides for an increase in the
number of authorized shares of Common Stock from 9,000,000 shares to 25,000,000
shares. If the Amended and Restated Certificate is adopted by the stockholders,
the additional authorized shares of Common Stock will be available for issuance
from time to time for such purposes and consideration as the Board of Directors
may approve, and no further vote of the stockholders of the Company will be
sought unless such vote is required for a particular issuance by law or the
rules of any national securities exchange on which the Common Stock may then be
listed or Nasdaq, as the case may be. The proposed increase in the number of
authorized shares of Common Stock has been recommended by the Board of Directors
to assure that an adequate supply of authorized but unissued shares is available
for certain potential offerings, including the Financing, acquisitions and
financings and for general corporate needs. The Board of Directors considers the
proposed increase in the number of authorized shares desirable because it will
enable the Company to pursue opportunities which the Board of Directors believes
provide the Company with the potential for growth and profit. It will give the
Board of Directors the necessary flexibility to issue shares of Common Stock in
connection with stock dividends and stock splits, acquisitions, financings,
stock options and employee benefits, and for other general corporate purposes
without the expense and delay incident to obtaining stockholder approval at the
time of any such action. Stockholders do not have preemptive rights to purchase
additional shares of Common Stock.
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On the Record Date, there were 4,421,120 shares of Common Stock issued
and outstanding, approximately 2,230,605 shares of Common Stock were reserved
for issuance upon exercise of outstanding options and warrants and approximately
700,000 shares of Common Stock were reserved for issuance upon conversion of the
Bridge Note. In addition, if the Company completes the Financing, the Company
will reserve an additional 1,300,000 shares of Common Stock for issuance upon
conversion of the Notes.
Possible Anti-takeover Effect
Although the Board of Directors has no present intention of issuing
additional shares for such purposes, the proposed increase in the number of
authorized shares of Common Stock could enable the Board of Directors to issue
additional shares to render more difficult or discourage an attempt by another
person or entity to obtain control of the Company. The issuance of additional
shares of Common Stock in a public or private sale, merger or similar
transaction would increase the number of outstanding shares and thereby could
dilute the proportionate interest of a party attempting to gain control of the
Company. The Board of Directors and management have no knowledge of any current
efforts to obtain control of the Company, and the Common Stock Amendment is not
being proposed in response to any known takeover attempt.
SERIES A PREFERRED STOCK
The Amended and Restated Certificate would authorize the issuance of up
to 651 shares of the Company's Series A Cumulative Convertible Preferred Stock
(the "Series A Preferred Stock") with such powers, preferences, rights,
qualifications, limitations and restrictions as set forth therein and described
below. In connection with the Financing, and as a condition precedent thereto,
the Company and certain members of Management (the "Management Debtholders")
have agreed that upon adoption of the Amended and Restated Certificate, the
Management Debtholders will exchange an aggregate of $651,000 in principal
amount and accrued interest of the Company's Subordinated Notes (the "Management
Debt") for shares of Series A Preferred Stock. The Bridge Financing Agreement
provides that the Management Debt shall be exchanged for shares of Series A
Preferred Stock on the basis of $1,000 in principal amount and accrued interest
for each $1,000 in liquidation preference of the Series A Preferred Stock.
Pursuant to the Bridge Financing Agreement, such exchange shall occur no later
than five business days after approval of the Amended and Restated Certificate
by the stockholders. The following description of the Series A Preferred Stock
is qualified in its entirety by reference to Appendix A.
Number; Priority
The number of shares initially constituting the Series A Preferred
Stock shall be 651, which may be decreased by the Board of Directors without
further vote of the stockholders, provided that the number of shares may not be
decreased below the number of then outstanding shares of Series A Preferred
Stock. The Series A Preferred Stock shall, with respect to dividend rights and
rights on liquidation, dissolution or winding up, rank prior to the Company's
Common Stock.
Dividends and Distributions
The holders of shares of Series A Preferred Stock (the "Series A
Holders") are entitled to receive, in preference to the holders of shares of
Common Stock and of any shares of other capital stock of the Company ranking
junior to the Series A Preferred Stock (together with the Common Stock, "Junior
Stock"), cumulative cash dividends at an annual rate of 10% from and after the
date the shares of Series A Preferred Stock are issued. Dividends will be
computed on the basis of $1,000 per share, and shall accrue and be payable
quarterly, in arrears, on the last business day of March, June, September and
December in each year. Notwithstanding the foregoing, dividends shall be paid
only to the extent otherwise permissible under the Amended and Restated
Certificate and to the extent that the Company has sufficient surplus or net
profits available therefor in accordance with the Delaware General Corporation
Law (the "DGCL"). In the event that dividends remain unpaid, such accrued
dividends shall bear interest at an annual rate of 10%. The Series A Holders are
not entitled to receive any dividends or other distributions other than those
described herein.
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Voting Rights
The Series A Holders shall have the voting rights provided to such
holders under the DGCL. Pursuant to the DGCL, the Series A Holders will be
entitled to vote with respect to changes in the powers, preferences or rights of
the Series A Preferred Stock that would affect the Series A Holders adversely.
Restrictions on Actions of the Company
If and so long as there is any arrearage in the payment of dividends to
the Series A Holders, the Company may not declare or pay any dividend or other
distributions on Junior Stock, other than dividends or distributions payable in
shares of Junior Stock. Additionally, at such time as the Company has a class of
stock ranking on parity with the Series A Preferred Stock ("Parity Stock"), the
Company may not declare or pay any dividends or other distributions on such
Parity Stock other than dividends or distributions payable in shares of Junior
Stock or dividends or distributions paid ratably on the Series A Preferred Stock
and all such Parity Stock on which dividends are payable or in arrears, in
proportion to the total amounts to which the holders of all shares of the Series
A Preferred Stock and such Parity Stock are then entitled. In any event, the
Company may not declare, and the holders of shares of Junior Stock and Parity
Stock shall not be entitled to, dividends of any kind prior to the later of (i)
six years after issuance of the Series A Preferred Stock and (ii) twelve months
after all principal and interest on the Notes have been paid in full.
Additionally, if and so long as there is any arrearage in the payment
of dividends to the Series A Holders, the Company may not redeem, purchase or
otherwise acquire for consideration any shares of Junior Stock or Parity Stock.
Notwithstanding the foregoing, the Company may (i) redeem, purchase or otherwise
acquire shares of Junior Stock or Parity Stock in exchange for any shares of
Junior Stock; (ii) accept shares of Parity Stock or Junior Stock for conversion;
and (iii) redeem, purchase or otherwise acquire shares of any Parity Stock
pursuant to any mandatory redemption, put, sinking fund or other similar
obligation, pro rata with the Series A Preferred Stock in proportion to the
total amount then required to be applied by the Company to redeem, repurchase or
otherwise acquire shares of Series A Preferred Stock, if any such requirement
exists, and shares of such Parity Stock. Additionally, the Company may,
notwithstanding any arrearage in the payments of dividends to the Series A
Holders, redeem, purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock.
Conversion Rights
Each share of Series A Preferred Stock is convertible, at the option of
the holder, at any time after the later of (i) six years after issuance of the
Series A Preferred Stock and (ii) twelve months after all principal and interest
on the Notes have been paid in full, into such number of shares of Common Stock
as calculated by dividing $1,000 by the greater of (a) the average Current
Market Price (as defined in the Amended and Restated Certificate) of the Common
Stock for the ten Trading Days (as defined in the Amended and Restated
Certificate) preceding the date of conversion or (b) $1.00. Such conversion rate
is to be adjusted in the event of a stock dividend, recapitalization,
reorganization, merger, consolidation, subdivision, combination or
reclassification of shares of the Company's Common Stock as necessary to
preserve substantially the same rights as the Series A Holders had immediately
prior to the occurrence of such event. In the event of a merger of the Company
into another company in which the Company is not the surviving company, the
Series A Holders shall have the same rights as if they had converted their
Series A Shares immediately prior to such event.
Liquidation or Dissolution
In the event of a voluntary or involuntary liquidation or dissolution
of the Company, to the extent assets remain after payment to creditors in full
and before any distribution to holders of Junior Stock, the Series A Holders
will be entitled to receive a liquidation preference of $1,000 per share of
Series A Preferred Stock, plus an amount equal to all accrued but unpaid
dividends, plus any interest accrued thereon. The holders of Parity Stock will
not receive any distribution upon liquidation or dissolution unless the Series A
Holders have received distributions made ratably to the Series A Holders and the
holders of Parity Stock in proportion to the total
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amounts to which the holders of all such shares of Series A Preferred Stock and
Parity Stock would be entitled upon such liquidation or dissolution.
DEBTHOLDER RIGHTS
The Amended and Restated Certificate would empower the Board of
Directors, without the necessity of further action or authorization of the
Company's stockholders (unless required by the DGCL) or the rules and
regulations of any securities exchange or quotation system on which the
Company's securities are then traded or listed for quotation, respectively), to
confer upon the holders of any bonds, notes, debentures or other obligations of
the Company issued or to be issued (collectively, "Debtholders"), any of the
rights of a stockholder under the DGCL, by resolution of the Board of Directors
of the Company, as the Board of Directors determines to be advisable and in the
best interests of the Company. Such rights would include the right to vote in
respect of corporate affairs and the management of the Company.
The Bridge Note provides that upon approval of the Company's
stockholders of the Debt Amendment, the Investor shall be entitled to vote on
all matters voted on by holders of the Company's Common Stock, voting together
as a single class with other shares entitled to vote at all meetings of the
Company's stockholders, and shall be entitled to cast the number of votes equal
to the number of votes which could be cast in such vote by a holder of the
number of shares of Common Stock into which the Bridge Note is convertible on
the record date. Upon issuance in the Financing, the Notes would provide
substantially the same voting rights.
In order for the Company to fulfill its obligations to the Investor,
the Company is only obligated to provide the Investor and the Financing
Investors with the specific voting rights described above. Such obligations do
not require the Company to grant to its Board of Directors the power to grant
any other holders of the Company's indebtedness any or all of the rights of
stockholders. However, the Board of Directors believes that its ability to grant
Debtholders with any or all of the rights of Stockholders would increase the
Company's financial flexibility in obtaining additional sources of capital. The
Board of Directors believes that the complexity of modern business financing and
acquisition transactions requires greater flexibility in the Company's capital
structure than currently exists. The adoption of the Debt Amendment would enable
the Board of Directors, by resolution duly adopted, to confer upon the holders
of the Company's debt instruments all of the rights of a stockholder of the
Company, as determined by the Board of Directors from time to time without
further stockholder approval, for any proper corporate purpose. Such purpose
could include, without limitation, issuance in sales for cash as a means of
obtaining capital for use in the Company's business and operations, and issuance
as part or all of the consideration required to be paid by the Company for
acquisitions of other businesses or properties. The Company has no present
intention of pursuing any of these avenues. Moreover, other than the voting
powers being granted to the Investor and the Financing Investors, the Company
does not presently have any plans, agreements, understandings or arrangements
that will or could result in the granting to any Debtholder of any of the rights
of stockholders of the Company. As such, the Board of Directors believes that
the adoption of the Debtholder Amendment is in the best interests of the
Company.
If the Amended and Restated Certificate is adopted, the provisions of
the Debt Amendment could adversely affect the rights of the holders of the
Common Stock and the holders of any other equity securities of the Company which
the Company may issue in the future. Other than the effects of the voting rights
that would be conferred upon the Investor and the Financing Investors, if the
Debt Amendment takes effect, it is not possible to state the precise future
effects of this provision upon the rights of the holders of the Company's Common
Stock, or upon any holders of any other equity security of the Company which may
be issued in the future, until the Board of Directors confers any other such
rights upon the Debtholders. If the proposed Debt Amendment takes effect, the
immediate effect of the voting rights conferred upon the Investor would be the
dilution of the voting power of the Common Stock holders caused by the
Investor's voting rights. If the Financing is consummated, the voting rights of
the Financing Investors would further dilute the voting power of the Common
Stock holders. The future effects on the holders of the Company's Common Stock
in the event the Board of Directors confers rights of stockholders to any other
holders of the Company's debt instruments could include further dilution of the
voting power of the Common Stock.
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4. APPROVAL OF PROPOSED AMENDMENT TO 1996 KEY EMPLOYEES' STOCK PLAN
The Board of Directors has unanimously adopted and recommended that the
stockholders consider and approve an amendment to the Company's 1996 Key
Employees' Stock Plan, as amended (the "1996 Plan"), to increase the number of
shares of Common Stock reserved for issuance under the 1996 Plan to 450,000
shares (the "Plan Amendment").
As of the Record Date, and without giving effect to this proposed
increase in shares, a total of 225,040 shares have been reserved for issuance
under the 1996 Plan and a total of 49,654 shares were available for future grant
under the 1996 Plan. Approval by a majority of the votes cast on this proposal
in person or by proxy will be required to approve the proposed amendment to the
1996 Plan. Abstentions and broker non-votes will not be counted in determining
whether a majority vote was obtained.
The Board of Directors believes that the ability to attract, retain and
reward outstanding individuals as employees, directors and consultants is
critical to the long-term growth and profitability of the Company. The Plan
Amendment will further the 1996 Plan's design to provide incentives to certain
of those persons who contribute, and are expected to contribute, to the success
of the Company or its subsidiaries. The 1996 Plan, as proposed to be amended,
will provide a means of rewarding outstanding performance and will also promote
the achievement of long-term corporate goals by giving those persons a greater
proprietary interest in the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THE PLAN AMENDMENT IS ADVISABLE AND
IN THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE APPROVAL OF THE PLAN AMENDMENT.
The following constitutes a summary of the material features of the
1996 Plan.
NATURE AND PURPOSE
The stated purpose of the 1996 Plan is to secure for the Company and
any subsidiaries of the Company the benefits arising from capital stock
ownership by those key employees, directors, officers and consultants of the
Company and any subsidiaries who will be responsible for the Company's future
growth and continued success.
The 1996 Plan is designed to meet these objectives by granting stock
incentive awards to those persons whose performance or potential contribution
will benefit the Company. The 1996 Plan empowers the Company to grant to key
employees (including officers), directors and consultants of the Company and its
subsidiaries incentive and non-qualified stock options ("Options"), stock
appreciation rights ("SARs") and restricted stock awards ("Awards"). The 1996
Plan also empowers the Company to grant to eligible individuals any combination
of any or all of these Options, SARs and Awards, subject to certain limitations.
Persons to whom grants of Options, SARs and Awards are made are
sometimes referred to as "participants." References to "incentive stock options"
are to incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
DURATION
The 1996 Plan will terminate upon the earlier of (i) March 22, 2006 or
(ii) the date on which all shares available for issuance under the 1996 Plan
shall have been issued pursuant to Awards and the exercise or cancellation of
Options and SARs granted thereunder. Options, SARs and Awards outstanding on the
termination date of the 1996 Plan will continue to have full force and effect in
accordance with the provisions of the instruments evidencing the Options, SARs
and Awards. Pursuant to the 1996 Plan, the Board of Directors may modify or
amend the 1996 Plan from time to time or at any time without stockholder
approval. Any such modification or amendment of the 1996 Plan will not impair
the rights of any person with respect to any Option, SAR or Award previously
granted.
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ADMINISTRATION
The 1996 Plan may be administered by the Board of Directors of the
Company, or a Compensation Committee or other committee appointed by the Board
of Directors and consisting of at least two directors, whose construction and
interpretation of the terms and provisions of the 1996 Plan are final and
conclusive. The Board of Directors has delegated many of its powers under the
1996 Plan to the Company's Compensation Committee. Members of the Compensation
Committee serve at the discretion of the Board of Directors, and must be
"non-employee directors" as that term is used in Rule 16b-3 under the Securities
Exchange Act of 1934, as amended. The Compensation Committee may recommend to
the Board of Directors the grant of Options and SARs, issue shares upon exercise
of such Options and SAR, and may recommend to the Board of Directors the grant
of Awards, all as provided in the 1996 Plan. The Compensation Committee has the
authority, subject to the express provisions of the 1996 Plan, to construe the
1996 Plan and its related agreements, to prescribe, amend and rescind the rules
and regulations relating to the 1996 Plan, to determine the terms and provisions
of the respective Option, SAR and Award agreements, which need not be identical,
and to make all other determinations in the judgment of the Compensation
Committee necessary or desirable for the administration of the 1996 Plan.
SHARES SUBJECT TO THE 1996 PLAN
The stock to be offered under the 1996 Plan consists of shares of the
Company's Common Stock. The last sale price for the Company's Common Stock as
reported by Nasdaq on May 29, 1998 was $0.8125 per share. The maximum number of
shares of Common Stock which will be reserved for issuance, and in respect of
which Options, SARs and Awards may be granted pursuant to the provisions of the
1996 Plan as proposed to be amended shall not exceed 450,000 (subject to
adjustment for stock splits, stock dividends, recapitalizations and the like).
The shares may be either authorized and unissued shares, treasury shares or
shares purchased on the open market. If the Company reacquires unvested shares
issued pursuant to Awards under the 1996 Plan, or if an Option or SAR expires or
terminates without having been exercised in full, the reacquired or unexercised
shares will be available for subsequent grant under the 1996 Plan. Shares of
Common Stock issued pursuant to the 1996 Plan may be subject to such
restrictions on transfer, repurchase rights or other restrictions as may be
determined by the Compensation Committee.
ELIGIBILITY
All key employees (including officers) of the Company are eligible to
receive incentive stock options pursuant to the 1996 Plan. All key employees
(including officers), directors and consultants of the Company are eligible to
receive non-qualified options, SARs and Awards. As of May 31, 1998,
approximately 17 persons were eligible to participate in the 1996 Plan.
The selection of participants in, and the nature and size of grants
under, the 1996 Plan are within the discretion of the Compensation Committee,
subject to approval by the Board of Directors. The Board of Director's
designation of a participant in any year does not require the Board of Directors
to designate such person to receive a grant in any other year. The table below
shows the number of Options granted under the 1996 Plans to such persons or
groups listed in such table during 1997.
<TABLE>
<CAPTION>
NUMBERS OF OPTIONS GRANTED
NAME AND POSITION IN 1997(1)
----------------- --------------------------
<S> <C>
Eugene D. Story, Chairman of the Board
(Former President and Chief Executive Officer)............... -
Michael P. Barney, President and Chief Executive Officer.......... 25,000
Robert D. Ohmes, Executive Vice President, Chief Financial
Officer and Secretary........................................ -
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
NUMBERS OF OPTIONS GRANTED
NAME AND POSITION IN 1997(1)
----------------- --------------------------
<S> <C>
Arie Slot, Former Vice President-Sales............................ 15,000
All current executive officers as a group......................... 83,111
All current directors who are not executive officers
as a group........................................................ 20,000
All current employees, including all current officers
who are not executive officers, as a group........................ 37,275
</TABLE>
- ------------------
(1) All such options were non-qualified options and vest 25% per year on each of
the first four anniversary dates of the grant date. They were granted at
exercise prices ranging from $1.00 to $3.50, the fair market value of the
Company's Common Stock on the dates of grant. All such options expire ten years
from the respective dates of the grant.
OPTIONS AND SARS
Options
Options granted under the 1996 Plan may be in the form of incentive
stock options or non-qualified stock options. Options may be granted under the
1996 Plan on such terms and conditions not inconsistent with the provisions of
the 1996 Plan and in such form as the Board of Directors may from time to time
approve.
The Option exercise price per share of Common Stock purchasable under
an Option granted under the 1996 Plan shall be determined by the Board of
Directors at the time of grant. The exercise price of an incentive stock option,
however, shall not be less than the fair market value of Common Stock on the
date of grant or, in the case of an incentive stock option to be granted to a
participant owning stock having more than 10% of the total combined voting power
of all classes of stock of the Company or any subsidiary, the exercise price per
share shall be not less than 110% of the fair market value of such stock on the
date of grant. The exercise price of a non-qualified stock option shall not be
less than 50% of the fair market value of Common Stock on the date of grant.
The term of each Option granted under the 1996 Plan shall be fixed by
the Board of Directors; however, the term of any Option may not exceed ten years
from the date of grant, except that the term of any incentive stock option
granted to a participant owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary
may not exceed five years.
An Option granted under the 1996 Plan shall be exercisable at such time
or times and subject to such conditions as shall be determined by the Board of
Directors at the date of grant and as set forth in the instrument evidencing the
Option. With respect to incentive stock options, the aggregate fair market value
(determined as of the date of grant) of the number of shares with respect to
which such incentive stock options are exercisable for the first time by a
participant during any calendar year may not exceed $100,000 or such other limit
as may be established under Section 422 of the Code.
An Option granted under the 1996 Plan may be exercised as provided in
the instrument evidencing the option; however, no partial exercise of the Option
may be for less than ten shares. Payment of the exercise price may be made with
cash, with shares of Common Stock or with a combination of cash and stock. The
Compensation Committee may also permit participants to simultaneously exercise
options and sell the shares of Common Stock thereby acquired, pursuant to a
brokerage or similar arrangement, approved in advance by the Compensation
Committee, and to use the proceeds from such sale as payment of the purchase
price. The Compensation Committee may, in its discretion, accelerate the date of
exercise of any installments of any Options, provided that no acceleration will
be made that would violate the annual vesting limitation contained in Section
422(d) of the Code with respect to incentive stock options.
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<PAGE> 22
No shares of Common Stock will be issued under the 1996 Plan unless
counsel for the Company is satisfied that such issuance will be in compliance
with applicable federal and state securities laws or any applicable listing
requirements of any national securities exchange on which the Common Stock is
then listed. Any participant in the 1996 Plan may be required to represent and
agree in writing that the stock acquired by the participant is being acquired
for investment.
Stock Appreciation Rights
Under the 1996 Plan, an SAR may be granted in tandem with, in addition
to, or independent of any other grant. An SAR is the right to receive, without
payment, an amount equal to the excess, if any, of the fair market value of a
share of Common Stock on the date of exercise over the grant price of such
share, multiplied by the number of shares as to which the SARs shall have been
exercised. The Company will pay such amount to the holder in cash or in shares
of Common Stock or a combination thereof, as the Compensation Committee may
determine.
An SAR may be exercised by a participant in accordance with procedures
established by the Compensation Committee. The Compensation Committee may also
determine that an SAR shall be automatically exercised on one or more specified
dates.
Employment
An Option or SAR shall terminate if the participant ceases to be
employed by the Company or a subsidiary for any reason other than death, except
that the participant may (except as otherwise provided in the instrument
evidencing the Option or SAR) exercise within the three-month period following
termination of employment any unexpired portion of an Option or SAR that was
otherwise exercisable on the date of termination of employment. Except as
otherwise provided in the instrument evidencing the Option or SAR, if a
participant dies while an employee of the Company or a subsidiary, any Option or
SAR granted to such participant may be exercised by the participant's personal
representatives or heirs within six months of the participant's death to the
extent that the participant could have exercised the Option or SAR on the date
of his or her death.
Transferability
No Option or SAR granted under the 1996 Plan, and no right or interest
therein, is assignable or transferable by a participant except by will or the
laws of descent and distribution or, with respect to non-qualified stock options
and SARs, pursuant to a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act ("ERISA") or the
rules promulgated thereunder, or unless the participant's agreement granting
such non-qualified stock option or SAR provides otherwise.
AWARDS
The Board of Directors may grant a participant an Award of shares of
Common Stock, on such terms and conditions and subject to such restrictions as
the Board of Directors may determine. Such restrictions may include restrictions
on the pledging, sale, assignment, transfer or other disposition of such shares
and the requirement that the participant forfeit all or a portion of such shares
to the Company upon termination of employment. Each participant receiving an
Award may be required to enter into a stock restriction agreement with the
Company agreeing to such restrictions. Shares issued pursuant to an Award are
held by the participant as holder of record for all purposes, including voting
and receipt of dividends.
Transferability
Shares of Common Stock issued pursuant to an Award may not be sold,
assigned, transferred or otherwise disposed of, except, subject to the terms of
any stock restriction agreement, by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I of ERISA or the rules promulgated thereunder, or may not be pledged or
hypothecated as collateral for a loan, prior to the lapse of
20
<PAGE> 23
restrictions on such shares. Any attempt by the participant to dispose of or
encumber the shares issued pursuant to an Award prior to the lapse of
restrictions on such shares will cause the participant's interest in such shares
to terminate.
Employment
Except as otherwise provided in any stock restriction agreement, if
prior to the lapse of the restrictions on the stock the participant ceases to be
an employee of the Company or a subsidiary for any reason, all such shares which
remain subject to restrictions shall be forfeited to the Company.
CHANGE IN CONTROL
The 1996 Plan provides that if (i) the Company is merged or
consolidated with another corporation and the Company is not the surviving
corporation, (ii) the property or stock of the Company is acquired by any other
corporation, or (iii) the Company is reorganized or liquidated, then the Board
of Directors of the Company, or the board of directors of any corporation
assuming the obligations of the Company, will, as to outstanding Options, SARs
and Awards, (1) make appropriate provision for the protection of any such
outstanding Options, SARs and Awards by the substitution on an equitable basis
of appropriate stock of the Company or of the merged, consolidated or otherwise
reorganized corporation which will be issuable or exercisable in respect of the
shares of Common Stock, (2) upon written notice to the participants, provide
that all unexercised Options and SARs must be exercised within a specified
number of days of the date of such notice or such Options and SARs will be
terminated, or (3) upon written notice to the participants, provide that the
Company or the merged, consolidated or otherwise reorganized corporation shall
have the right, upon the effective date of any such merger, consolidation, sale
of assets or reorganization, to purchase all Options, SARs and Awards held by
each participant and unexercised as of that date for an amount and in the form
determined pursuant to the 1996 Plan.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code, and the existing regulations
thereunder, certain anticipated federal income tax consequences with respect to
the several types of grants are described below.
Grant of Options and SARs
A participant will not recognize any taxable income at the time an
Option or SAR is granted, and the Company will not be entitled to a federal
income tax deduction at that time.
Incentive Stock Options
No ordinary income will be recognized by a participant holding an
incentive stock option at the time of exercise. The excess of the fair market
value of the shares at the time of exercise over the aggregate option exercise
price will be an adjustment to alternative minimum taxable income for purposes
of the federal "alternative minimum tax" at the date of exercise. If the
participant holds the shares for the greater of two years after the date the
option was granted or one year after the acquisition of such shares, the
difference between the amount realized upon disposition of the shares and the
aggregate option exercise price will constitute a long-term capital gain or
loss, as the case may be, and the Company will not be entitled to a federal
income tax deduction. If the shares are disposed of in a sale, exchange or other
"disqualifying disposition" (including the use of the shares to exercise
subsequent options) within two years after the date of grant or within one year
after the date of exercise, the participant will realize taxable ordinary income
in an amount equal to the excess of the fair market value of the shares
purchased at the time of exercise over the aggregate option exercise price, and
the Company will usually be entitled to a federal income tax deduction equal to
such amount. In addition, the participant will have a taxable capital gain equal
to the difference, if any, between: (i) the amount realized upon disposition of
the shares, and (ii) the sum of the aggregate option exercise price plus the
amount of ordinary income on which the participant was taxed.
21
<PAGE> 24
Non-Qualified Stock Options
Taxable ordinary income will be recognized by the participant at the
time of exercise of a non-qualified stock option in an amount equal to the
excess of the fair market value of the shares purchased at the time of such
exercise over the aggregate option exercise price. The Company will usually be
entitled to a corresponding federal income tax deduction. At the time of a
subsequent sale of the shares, the participant will generally recognize a
taxable capital gain or loss based upon the difference between the aggregate
selling price of the shares and the aggregate fair market value of the shares at
the time of exercise.
Stock Appreciation Rights
Upon the exercise of an SAR, the participant will realize taxable
ordinary income on the amount of cash received and/or the then current fair
market value of the shares of Common Stock received, and the Company will
usually be entitled to a corresponding federal income tax deduction. The
participant's basis in any shares of Common Stock received will be equal to the
amount of ordinary income upon which the participant was taxed. Upon any
subsequent disposition, any gain or loss realized will be a capital gain or
loss.
Awards
Unless a participant makes the election described below, a participant
receiving a restricted Award will not recognize income, and the Company will not
be allowed a deduction, at the time of grant of such Award, assuming no portion
of the Award is vested at the time of grant. While the restrictions on the
shares are in effect, a participant will recognize compensation income equal to
the amount of the dividends received, and the Company will be allowed a
deduction in a like amount. When the restrictions on the shares are removed or
lapse, the fair market value of the shares on the date the restrictions are
removed or lapse in excess of the amount, if any, paid by the participant will
be ordinary income to the participant in the year in which such restrictions are
removed or lapse, and such amount will be allowed as a deduction for federal
income tax purposes to the Company. Upon disposition of the shares, the gain or
loss recognized by the participant shall be equal to the difference between the
amount realized on such disposition and the fair market value of the shares on
the date the restrictions were removed or lapsed. Such amount will be treated as
capital gain or loss, and the capital gain or loss will be short-term or
long-term depending upon the period of time the shares are held by the
participant following the removal or lapse of the restrictions. If the
restrictions do not lapse and the shares are forfeited by the participant and
thus returned to the Company, there will be no federal income tax consequences
to either the participant or the Company. If permitted by the Compensation
Committee, by properly filing an election pursuant to Section 83(b) of the Code
with the Internal Revenue Service within 30 days after the date of grant
(assuming that the date of grant is the date the participant acquires a
beneficial interest in the Award), a participant's ordinary income and
commencement of the holding period and the Company's deduction will be
determined as of the date of grant. In such a case, the amount of ordinary
income recognized by such a participant and deductible by the Company will be
equal to the fair market value of the shares as of the date of grant. If such
election is made and a participant thereafter forfeits his or her stock, no
refund or deduction will be allowed for the amount previously included in such
participant's income.
Special Rules
To the extent a participant pays all or part of the option exercise
price of a non-qualified stock option by tendering shares of Common Stock owned
by the participant, the tax consequences described above apply except that the
number of shares received upon such exercise which is equal to the number of
shares surrendered in payment of the option exercise price shall have the same
tax basis and holding period as the shares surrendered. The additional shares
received upon such exercise shall have a tax basis equal to the amount of
ordinary income recognized on such exercise and a holding period which commences
on the date of exercise. To preserve the Company's deductions with respect to
the non-qualified options and SARs, the Board of Directors may be required to
set the exercise or grant price for such non-qualified options and SARs at the
fair market value of a share of Common Stock on the date of grant.
22
<PAGE> 25
Withholding Taxes
Withholding taxes must be paid by the participant at the time of
exercise of any non-qualified stock option or SAR prior to the delivery of
shares. In respect of Awards, withholding taxes must be paid by the participant
when ordinary income to the participant is recognized for tax purposes.
General
Because the tax consequences to a participant may vary depending upon
the participant's individual situation, and because such tax consequences are
subject to change due to changes in tax laws or regulations, each participant
should consult his or her personal tax advisor regarding the federal, and any
state, local or foreign, tax consequences to the participant.
5. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected BDO Seidman, LLP as independent
certified public accountants to audit the consolidated financial statements of
the Company for the fiscal year ending December 31, 1998 and has determined that
it would be desirable to request that the stockholders ratify such selection.
The affirmative vote of a majority of the votes cast on this proposal in person
or by proxy is necessary for the ratification of the appointment by the Board of
Directors of BDO Seidman, LLP as independent certified public accountants. BDO
Seidman, LLP served as the Company's independent certified public accountants
for the fiscal year ended December 31, 1997 and has reported on the Company's
consolidated financial statements for such year. Representatives of BDO Seidman,
LLP are expected to be present at the 1998 Annual 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 stockholders.
While stockholder ratification is not required for the selection of BDO
Seidman, LLP since the Board of Directors has the responsibility for selecting
the Company's independent certified public accountants, the selection is being
submitted for ratification at the 1998 Annual Meeting with a view towards
soliciting the stockholders' opinions, which the Board of Directors will take
into consideration in future deliberations.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF BDO SEIDMAN,
LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1998.
OTHER BUSINESS
The Board of Directors knows of no other business to be brought before
the 1998 Annual Meeting. If, however, any other business should properly come
before the 1998 Annual Meeting, the persons named in the accompanying proxy will
vote the proxy as in their discretion they may deem appropriate, unless they are
directed by the proxy to do otherwise.
COST OF SOLICITING PROXIES
The cost of soliciting proxies will be paid by the Company. In addition
to the solicitation of proxies by mail, proxies may be solicited by personal
interview, telephone and similar means by directors, officers or regular
employees of the Company, none of whom will be specially compensated for such
activities.
23
<PAGE> 26
STOCKHOLDERS PROPOSALS FOR 1999
Any proposal intended to be presented by a stockholder at the Company's
1999 Annual Meeting of Stockholders must be presented to the Company no later
than the close of business on February 9, 1999. Proposals should be addressed
to Robert D. Ohmes, Marine Management Systems, Inc., 470 West Avenue Stamford,
Connecticut 06902.
By order of the Board of Directors,
Robert D. Ohmes
Secretary
Stamford, CT
June 9, 1998
24
<PAGE> 27
APPENDIX A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MARINE MANAGEMENT SYSTEMS, INC.
Marine Management Systems, Inc., a corporation incorporated under the
General Corporation Law of the State of Delaware, hereby amends and restates its
Certificate of Incorporation, which was originally filed with the Secretary of
State on December 4, 1995, in order to give effect to all amendments and to
restate all of the provisions now in effect that are not amended, so that the
same shall read, in its entirety, as follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is Marine Management Systems, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle 19805; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation has authority to issue is twenty-five million six hundred fifty-one
(25,000,651), consisting of (a) twenty-five million (25,000,000) shares of
Common Stock with a par value of $.002 per share (the "Common Stock") and (b)
six hundred fifty-one shares of Series A Cumulative Convertible Preferred Stock
with a par value of $.002 per share (the "Series A Preferred Stock"). The number
of the authorized shares of Series A Preferred Stock may be decreased, but not
increased (but not below the number of shares then outstanding) by the Board of
Directors without a vote of the stockholders.
A. COMMON STOCK
1. Voting Rights. The holders of shares of Common Stock shall
be entitled to one vote for each share held with respect to all matters
voted on by the stockholders of the Corporation.
2. Liquidation Rights. Subject to the prior and superior right
of the Preferred Stock, upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of Common Stock and the holders of Preferred Stock shall be
entitled to receive the remaining funds to be distributed on the basis
of the number of shares of Common Stock held by each of them and the
number of shares of Common Stock into which each share of Preferred
Stock is then convertible.
3. Dividends. Dividends may be paid on the Common Stock as and
when declared by the Board of Directors, provided, however, no such
dividends may be declared or paid if dividends are not simultaneously
declared or paid, respectively, on the Preferred Stock.
B. SERIES A PREFERRED STOCK
The rights, preferences, privileges and restrictions granted
to and imposed upon the Series A Preferred Stock are as follows:
A-1
<PAGE> 28
1. Liquidation Rights. The Series A Preferred Stock shall,
with respect to dividend rights and rights on liquidation, dissolution
or winding up, rank prior to the Common Stock.
2. Dividends and Distributions.
(a) The holders of shares of Series A Preferred Stock,
in preference to the holders of shares of Common Stock and of
any shares of other capital stock of the Corporation ranking
junior to the Series A Preferred Stock as to payment of
dividends, shall be entitled to receive, and the Board of
Directors shall declare, to the extent that (i) the
Certificate of Incorporation of the Corporation shall permit
and that (ii) sufficient surplus or net profits of the
Corporation are available therefor in accordance with Section
170 of the Delaware General Corporation Law, cumulative cash
dividends at an annual rate of 10% from and after the Issue
Date as long as the shares of Series A Preferred Stock remain
outstanding. Dividends shall be computed on the basis of
$1,000 per share, and shall accrue and be payable quarterly,
in arrears, on the last business day of March, June, September
and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on
September 30, 1998.
(b) Dividends payable pursuant to paragraph (a) of this
Section 2 shall begin to accrue and be cumulative from the
Issue Date, whether or not earned or declared. The amount of
dividends so payable shall be determined on the basis of
twelve 30-day months and a 360-day year. Accrued but unpaid
dividends shall bear interest at an annual rate of 10%.
Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date
for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend
declared hereon, which record date shall be no more than sixty
days prior to the date fixed for the payment thereof.
(c) The holders of shares of Series A Preferred Stock
shall not be entitled to receive any dividends or other
distributions except as provided herein.
3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the voting rights provided to such holders under the
General Corporation Law of the State of Delaware.
4. Certain Restrictions.
(a) Subject to paragraph (c) of this Section 4, whenever
quarterly dividends payable on shares of Series A Preferred
Stock as provided in Section 2 are not paid in full,
thereafter and until all unpaid dividends payable on the
outstanding shares of Series A Preferred Stock, whether or not
declared, shall have been paid in full, the Corporation shall
not: (A) declare or pay dividends, or make any other
distributions, on any shares of Junior Stock, other than
dividends or distributions payable in Junior Stock; or (B)
declare or pay dividends, or make any other distributions, on
any shares of Parity Stock, except (1) dividends or
distributions payable in Junior Stock and (2) dividends or
distributions paid ratably on the Series A Preferred Stock and
all Parity Stock on which dividends are payable or in arrears,
in proportion to the total amounts to which the holders of all
shares of the Series A Preferred Stock and such Parity Stock
are then entitled.
(b) Whenever quarterly dividends payable on shares of
Series A Preferred Stock as provided in Section 2 are not paid
in full, thereafter and until all unpaid dividends payable,
whether or not declared, on the outstanding shares of Series A
Preferred Stock shall have been paid in full, the Corporation
shall not: (A) redeem, purchase or otherwise acquire for
consideration any shares of Junior Stock or Parity Stock;
provided, however, that the Corporation may at any time (1)
redeem, purchase or otherwise acquire shares of Junior Stock
or Parity Stock in exchange for any shares of Junior Stock,
(2) accept shares of any Parity Stock or Junior Stock for
conversion and (3) redeem, purchase or otherwise acquire
shares of any Parity Stock pursuant to any mandatory
redemption, put, sinking fund or other similar obligation, pro
rata with the Series A Preferred Stock in proportion to the
total amount then required to be applied by it to redeem,
repurchase or
A-2
<PAGE> 29
otherwise acquire shares of Series A Preferred Stock, if any
such requirement exists, and shares of such Parity Stock; or
(B) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock.
(c) Notwithstanding anything to the contrary contained
in this Section 4, the Corporation shall not declare, and the
holders of shares of Junior Stock and Parity Stock shall not
be entitled to, dividends of any kind prior to the Eligibility
Date.
(d) The Corporation shall not permit any Subsidiary of
the Corporation to purchase or otherwise acquire for
consideration any shares of capital stock of the Corporation
unless the Corporation could, pursuant to paragraph (b) of
this Section 4, purchase such shares at such time and in such
manner.
5. Conversion.
(a) Each outstanding share of the Series A Preferred
Stock is, at the option of the holder at any time after the
Eligibility Date, convertible into that number of fully paid
and nonassessable shares of the Corporation's Common Stock as
determined by dividing (i) the Liquidation Preference of the
shares of Series A Preferred Stock to be converted by (ii) the
Conversion Price. No fractional Conversion Shares will be
issued as a result of conversion, but in lieu thereof such
fractional interest will be rounded off to the nearest whole
share of Common Stock.
(b) In the event of a stock dividend, recapitalization,
reorganization, merger, consolidation, subdivision,
combination or reclassification of shares of the Corporation's
Common Stock, or any other change in the corporate structure
or shares of the Corporation's Common Stock, prior to the
conversion of the Series A Preferred Stock, the Corporation
shall make such adjustment as is necessary to give the holder
of the Series A Preferred Stock substantially the same rights
as the holder of the Series A Preferred Stock had immediately
prior to the occurrence of such event. In the event of any
consolidation of the Corporation with, or merger of the
Corporation into, another corporation where the Corporation is
not the successor entity, or in the case of the sale or
conveyance to another corporation of the property of the
Corporation, then the holder of the Series A Preferred Stock
shall thereafter, upon conversion of the Series A Preferred
Stock in accordance with the terms hereof, prior to the record
date for such consolidation, merger, sale or conveyance, have
the right to purchase and receive the kind and number of
shares of stock and other securities or properties receivable
upon such consolidation, merger, sale or conveyance, that
would have been issued to the holder of the Series A Preferred
Stock had the Series A Preferred Stock been converted
immediately prior to such event.
(c) The right of the holders of the Series A Preferred
Stock to convert their shares shall be exercised by
transmitting to the Corporation or its agent, a notice of such
conversion together with certificates representing shares of
the Series A Preferred Stock to be converted, duly endorsed in
blank. If the shares issuable upon conversion are to be issued
in a name other than the name in which the shares of Series A
Preferred Stock to be converted are then registered, such
notice and the certificates representing shares of the Series
A Preferred Stock to be converted shall be accompanied by such
evidence of payment transfer taxes and such proper instruments
of transfer as may be reasonably requested by the Corporation.
The Corporation shall promptly after receipt of the foregoing
issue to the holder of the Series A Preferred Stock the
appropriate number of shares of the Corporation's Common
Stock.
(d) The Corporation shall reserve and keep available out
of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be
sufficient to effect the conversion of the Series A Preferred
Stock.
(e) The Corporation shall pay all documentary stamp or
similar issue or transfer taxes payable with respect to the
issue or delivery of shares of Common Stock upon conversion of
the Series A Preferred Stock pursuant hereto, provided that
such shares of Common Stock are issued in the name of the then
registered holder of the Series A Preferred Stock to be
converted.
A-3
<PAGE> 30
6. Reacquired Shares. Any shares of Series A Preferred Stock
converted, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the
acquisition thereof.
7. Liquidation, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary case
under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law, or
consent to the entry of an order for relief in an involuntary
case under such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for
the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if
a decree or order for relief in respect of the Corporation
shall be entered by a court having jurisdiction in the
premises in an involuntary case under the Federal bankruptcy
laws or any other applicable federal or state bankruptcy,
insolvency or similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up
or liquidation of its affairs, and any such decree or order
shall be unstayed and in effect for a period of 150
consecutive days and on account of any such event the
Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up, no
distribution shall be made (i) to the holders of shares of
Junior Stock unless, prior thereto, the holders of shares of
Series A Preferred Stock, subject to Section 8, shall have
received the Liquidation Preference with respect to each
share, or (ii) to the holders of shares of Parity Stock unless
the holders of shares of Series A Preferred Stock, subject to
Section 8 shall have received distributions made ratably to
the holders of the Series A Preferred Stock and the Parity
Stock in proportion to the total amounts to which the holders
of all such shares of Series A Preferred Stock and Parity
Stock would be entitled upon such liquidation, dissolution or
winding up.
(b) Neither the consolidation, merger or other business
combination of the Corporation with or into any other Person
or Persons nor the sale of all or substantially all the assets
of the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of
this Section 8.
8. Remedies. Any registered holder of Series A Preferred Stock
may proceed to protect and enforce its rights and the rights of such
holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific
enforcement of any provision in this Certificate of Incorporation or in
aid of the exercise of any power granted herein, or to enforce any
other proper remedy.
9. Definitions. For the purposes of this Article Fourth,
Section B, the following terms shall have the meanings indicated:
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
"Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of New York
are authorized or obligated by law or executive order to close.
"Conversion Price" shall be equal to the greater of (i) the
average Current Market Price of the Common Stock for the ten (10)
Trading Days preceding the Conversion Date or (ii) $1.00.
"Current Market Price," when used with references to shares of
Common Stock or other securities for any period shall mean the average
of the daily closing prices per share of Common Stock or such other
securities for such period. The closing price for each day shall be the
last quoted sale price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated
Quotation System or such other system then in use, or, on any such date
the Common Stock or such other securities are not quoted by any such
organization, the
A-4
<PAGE> 31
average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock or such
other securities selected by the Board of Directors of the Corporation.
If the Common Stock is listed or admitted to trading on a national
securities exchange, the closing price shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the Common Stock on such other
securities are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock or such other
securities are listed or admitted to trading. If the Common Stock or
such other securities are not publicly held or so listed or publicly
traded, "Current Market Price" shall mean the Fair Market Value per
share of Common Stock or of such other securities as determined in good
faith by the Board of Directors of the Corporation based on an opinion
of an independent investment banking firm with an established national
reputation as a valuer of securities, which opinion may be based on
such assumptions as such firm shall deem to be necessary and
appropriate.
"Eligibility Date" shall mean any date after the sixth (6th)
anniversary of the Issue Date; provided, however, that in no event
shall such date occur prior to twelve (12) months after all amounts of
principal and interest outstanding under the Senior Notes have been
indefeasibly paid in full.
"Issue Date" shall mean the first date on which shares of
Series A Preferred Stock are issued:
"Junior Stock" shall mean any capital stock of the Corporation
ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock.
"Liquidation Preference" with respect to a share of Series A
Preferred Stock shall mean $1,000 per share, plus an amount equal to
all accrued but unpaid dividends (plus any interest accrued thereon).
"Parity Stock" shall mean any capital stock of the Corporation
ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock.
"Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of
such entity.
"Redemption Price" shall mean the product obtained by
multiplying (i) the Liquidation Preference by (ii) the number of shares
of Series A Preferred Stock to be redeemed pursuant to Section 6
hereof.
"Senior Notes" shall mean the Senior Five-Year Convertible
Notes, in the original aggregate principal amount of $2,000,000, issued
by the Corporation on July , 1998.
"Subsidiary" of any Person means any corporation or other
entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such
Person.
"Trading Day" means a Business Day or, if the Common Stock is
listed or admitted to trading on any national securities exchange, a
day on which such exchange is open for the transaction of business.
FIFTH: The name and the mailing address of the incorporator are as
follows:
Name Mailing Address
---- ---------------
Brian O'Connor One Atlantic Street
Stamford, CT 06901
A-5
<PAGE> 32
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of creditors, and/or of
the stockholders or class of creditors, and/or the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the Bylaws.
The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning, to wit, the total number of
directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other Bylaws of the Corporation have
been adopted, amended, or repealed, as the case may be, in accordance
with the provisions of Section 109 of the General Corporation Law of
the State of Delaware, and, after the Corporation has received any
payment for any of its stock, the power to adopt, amend, or repeal the
Bylaws of the Corporation may be exercised by the Board of Directors of
the Corporation; provided, however, that any provision for the
classification of directors of the Corporation for staggered terms
pursuant to the provisions of subsection (d) of Section 141 of the
General Corporation Law of the State of Delaware shall be set forth in
an initial Bylaw or in a Bylaw adopted by the stockholders entitled to
vote of the Corporation unless provisions for such classification shall
be set forth in this Certificate of Incorporation.
3. Whenever the Corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
Certificate of Incorporation shall entitle the holder thereof to the
right to vote at any meeting of stockholders except as the provisions
of paragraph (2) of subsection (b) of Section 242 of the General
Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
4. Pursuant to Section 221 of the General Corporation Law of
the State of Delaware, the Board of Directors of the Corporation may,
by resolution duly adopted, grant to the holders of any bonds,
debentures or other obligations issued or to be issued by the
Corporation any rights that the stockholders of the Corporation have or
may have by reason of the General Corporation Law of the State of
Delaware or this Certificate of incorporation, including, but not
limited to, the power to vote in respect to the corporate affairs and
A-6
<PAGE> 33
P MARINE MANAGEMENT SYSTEMS, INC.
R
O PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
X TO BE HELD JULY 7, 1998
Y PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all proxies, hereby appoint(s)
Michael P. Barney and Robert D. Ohmes, and each of them, with full
power of substitution, as proxies to represent and vote as designated
herein, all shares of stock of Marine Management Systems, Inc. (the
"Company") which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the Company
to be held at the offices of the Company, 470 West Avenue, Stamford,
Connecticut 06902, on July 7, 1998 at 11:00 a.m., local time, and at
any adjournment thereof.
In their discretion, the proxies are authorized to vote upon
such other matters as properly may come before the meeting or any
adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4
AND 5. THE UNDERSIGNED MAY REVOKE THIS PROXY AT ANY TIME BEFORE IT IS
VOTED BY EXECUTING AND DELIVERING TO THE COMPANY A PROXY BEARING A
LATER DATE, BY DELIVERING A WRITTEN NOTICE TO THE SECRETARY OF THE
COMPANY STATING THAT THE PROXY IS REVOKED, OR BY VOTING IN PERSON AT
THE MEETING.
___________
SEE REVERSE
SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE ___________
<PAGE> 34
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
MARINE MANAGEMENT SYSTEMS, INC.
JULY 7, 1998
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
A / X / Please mark your votes as in this example.
The Board of Directors unanimously recommends a vote FOR Proposals 2, 3,
4 and 5.
CERTAIN CAPITALIZED TERMS USED IN THIS PROXY ARE
DEFINED IN THE ACCOMPANYING PROXY STATEMENT
1. To elect directors
FOR WITHHELD
/ / / /
NOMINEES:
EUGENE D. STORY, MICHAEL F. BARNEY, ROBERT D. OHMES, LYMAN C. HAMILTON JR.,
DONALD R. YEARWOOD, ALAN K. GREENE
/ / _______________________________________
For all nominees except as noted above.
2. To approve the sale by the Company of $2 million in senior convertible
notes convertible into 2,000,000 shares of the Company's Common Stock;
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve the adoption of an Amended and Restated Certificate of
Incorporation;
FOR AGAINST ABSTAIN
/ / / / / /
4. To approve an amendment to the Company's 1996 Key Employees' Stock Plan
to increase the number of shares issuable under the plan to 450,000
shares; and
FOR AGAINST ABSTAIN
/ / / / / /
5. To ratify the appointment by the Board of Directors of BDO Seidman, LLP
as the Company's independent certified public accountants for the
fiscal year ending December 31, 1998.
FOR AGAINST ABSTAIN
/ / / / / /
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
/ /
Signature _____________________________________________ Date __________________
Signature _____________________________________________ Date __________________
Note: Sign as name appears on stock certificate. Joint owners must both sign.
Attorney, executor, administrator, trustee or guardian must give title.
A corporation or partnership must sign in its name by an authorized
person.
