<PAGE>
[LOGO]
-------------------------------------
PRINCIPAL EXECUTIVE OFFICE
13250 GREGG STREET
POWAY, CALIFORNIA 92064
-------------------------------------
To Ontro Shareholders:
Ontro, Inc.'s 2000 Annual Meeting will be held at its corporate offices
at 13250 Gregg Street, Poway, California 92064, on September 29, 2000, at 2:00
p.m. San Diego Time. The formal notice and proxy statements follow.
The Directors and Officers of the Corporation invite you to attend this
meeting. Whether or not you plan to attend the meeting, we would appreciate your
completing and returning the accompanying proxy which, of course, may be revoked
at any time before the meeting.
The Company's 1999 Form 10-KSB is enclosed herewith.
Sincerely yours,
/s/ James A. Scudder
---------------------
James A. Scudder
CHAIRMAN OF THE BOARD
August 18, 2000
<PAGE>
--------------------------------------------------------------------------------
TO ENSURE YOUR REPRESENTATION AT THE MEETING,
PLEASE DATE, SIGN AND MAIL PROMPTLY
THE ENCLOSED PROXY, FOR WHICH
A RETURN ENVELOPE IS PROVIDED.
--------------------------------------------------------------------------------
[LOGO]
---------------------------------
NOTICE OF ANNUAL MEETING
----------------------------------
The Annual Meeting of Shareholders of Ontro, Inc. will be held at its
corporate offices at 13250 Gregg Street, Poway, California 92064, on September
29, 2000, at 2:00 p.m San Diego Time, for the following purposes:
1. To elect five Directors for the ensuing year;
2. To approve an amendment to the Company's 1996 Stock Plan, to
increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 500,000 shares;
3. To ratify the appointment of KPMG LLP as the Company's 2000
Independent Auditors; and
4. To transact such other business as may properly come before
the meeting.
The record date for determination of the stockholders entitled to
notice of and to vote at the Annual Meeting and any adjournments thereof is the
close of business on August 18, 2000. For ten days prior to the meeting, a
complete list of stockholders entitled to vote at the meeting will be available
at the offices of the Company for examination during business hours by any
stockholder for any purpose relating to the meeting.
Whether or not you expect to attend the Annual Meeting in person,
please complete, sign, date and promptly return the enclosed proxy in the
envelope provided, which requires no postage if mailed in the United States.
By Order of the Board of Directors
/s/ Kevin A. Hainley
--------------------
Kevin A. Hainley
SECRETARY
August 18, 2000
Poway, California
1
<PAGE>
ONTRO, INC.
13250 GREGG STREET
POWAY, CALIFORNIA 92064
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 29, 2000
GENERAL
This Proxy Statement is furnished in connection with the solicitation of Proxies
by or on behalf of the Board of Directors ("Board") of Ontro, Inc., a California
corporation (the "Company"), for use at the Company's 2000 Annual Meeting of
Shareholders to be held at 2:00 p.m.on September 29, 2000, at its corporate
offices at 13250 Gregg Street, Poway, California 92064, on and at any and all
adjournments thereof (the "Annual Meeting"), for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders.
REVOCABILITY OF PROCESS
Any shareholder may revoke his or her proxy by delivering written notice of
revocation to the Secretary of the Company at its principal office, 13250 Gregg
Street, Poway, California 92064, by a delivery of a proxy bearing a later date,
or by attendance at the Annual Meeting and voting in person.
SOLICITATION
This Proxy Statement and the Form 10-KSB of the Company for the year ended
December 31, 1999, will be mailed on or about August 25 to each shareholder of
record as of the close of business on August 18, 2000.
The solicitation of proxies is being made by use of the mails. The cost of
preparing, assembling and mailing these proxy materials will be paid by the
Company. Following the mailing of this Proxy Statement, directors, officers and
regular employees of the Company may solicit proxies by mail, telephone, e-mail
or personal interview. Such persons will receive no additional compensation for
such services. Brokerage houses and other nominees, fiduciaries and custodians
nominally holding shares of the Company's common stock of record will be
requested to forward proxy soliciting material to the beneficial owners of the
shares and will be reimbursed by the Company for their reasonable out-of pocket
expenses incurred in forwarding these materials.
VOTING
When your proxy is returned properly signed, the shares represented will be
voted in accordance with your directions. Where specific choices are not
indicated, proxies will be voted in favor of the five persons nominated to be
directors in Proposal One and in favor of Proposals Two and Three. If a proxy
indicates that a shareholder or nominee abstains from voting or that shares are
not to be voted on a particular proposal, the shares will not be counted as
having been voted on that proposal, and those shares will not be reflected in
the final tally of the votes cast with regard to that proposal, although such
shares will be counted as in attendance at the Annual Meeting for purposes of
determining a quorum. Additionally, broker non-votes are not counted as votes
cast on any matter to which they relate.
The presence at the Annual Meeting in person or by proxy of the holders of a
majority of the shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum for the transaction of business.
Holders of Common Stock are entitled to one vote per share on all matters
brought before the Annual Meeting and to cumulate votes for the election of
directors. A shareholder may not cumulate votes unless the shareholder has
announced at the Annual Meeting the intention to do so before the voting has
begun, but if any shareholder makes such an announcement, all shareholders may
cumulate votes. Cumulative voting rights entitle a shareholder to give one
nominee as many votes as are equal to the number of directors to be elected,
multiplied by the number of shares owned by the shareholder, or to distribute
his or her votes as the shareholder sees fit among two or more nominees on the
same principle, up to the total number of nominees to be elected. The five
nominees for director receiving the highest number of votes at the Annual
Meeting from the holders of Common Stock will be elected.
2
<PAGE>
The Company's Articles of Incorporation provide that the shareholder's right to
cumulative voting will terminate automatically when the Common Stock of the
Company is listed on Nasdaq NMS, NYSE or AMEX, provided the Company has at least
800 shareholders as of the record date for the most recent meeting of its
shareholders. The absence of cumulative voting may have the effect of limiting
the ability of minority shareholders to effect changes in the Board of Directors
and may have the effect of deterring hostile takeovers delaying or preventing
changes in control or management of the Company.
An affirmative vote of a majority of the shares represented and voting at the
Annual Meeting is required for approval of Proposal One, Proposal Two and
Proposal Three.
Directors and officers beneficially own approximately 1,096,845 of the
outstanding shares of Common Stock. The directors and officers have indicated
that they intend to vote for each of the nominees for director and in favor of
Proposals Two and Three.
RECORD DATE
The Company had 6,670,548 shares of Common Stock, no par value (the "Common
Stock"), outstanding as of August 18, 2000. Holders of record of shares of the
Common Stock at the close of business on August 18, 2000, will be entitled to
notice of and to vote at the Annual Meeting and will be entitled to one vote for
each such share. All votes will be tabulated by the inspector of election
appointed for the meeting, who will separately tabulate affirmative and negative
votes, absentees and broker non-votes.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information concerning the ownership of the Company's
Common Stock as of August 18, 2000, by (i) all persons known to the Company to
be beneficial owners of more than 5% of the outstanding Common Stock, (ii) each
director and nominee for director of the Company, (iii) each executive officer
of the Company, and (iv) all executive officers and directors of the Company as
a group. Except as otherwise indicated, and subject to applicable community
property and similar laws, the persons named have sole voting and investment
power with respect to the securities owned by them.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of
of Shareholder (1) Beneficially Owned Outstanding Shares
--------------- ------------------ ------------------
<S> <C> <C>
James L. Berntsen 540,590 (2) 8.0%
Danae C. Brooker 40,366 (3) *
Robert F. Coston 47,040 (4) *
Ann T. Davern 99,747 (5) 1.5%
Kevin A. Hainley 142,167 (6) 2.1%
Doug W. Moul 46,386 (7) *
James A. Scudder 647,941 (8) 9.6%
Carroll E. Taylor 39,492 (9) *
L.L. Knickerbocker Co., Inc. 630,073 9.4%
30005 Comercio
Rancho Santa Margurita, CA 92688
William D. Corneliuson 587,400 (10) (11) 8.8%
777 East Wisconsin Ave., Suite 3020
Milwaukee, WI 53202
All Directors and Executive 1,603,729 (12) 22.3%
Officers as a Group (7 Persons)
</TABLE>
* Less than 1%
3
<PAGE>
(1) The address for all directors and executive officers is 13250 Gregg
Street, Poway, California, 92064.
(2) Includes 86,667 shares subject to stock options exercisable within 60
days of August 18, 2000.
(3) Includes 37,666 shares subject to stock options exercisable within 60
days of August 18, 2000.
(4) Includes 40,000 shares subject to stock options exercisable within 60
days of August 18, 2000.
(5) Includes 63,717 shares subject to stock options exercisable within 60
days of August 18, 2000.
(6) Includes 122,167 shares subject to stock options exercisable within 60
days of August 18, 2000.
(7) Includes 35,000 shares subject to stock options exercisable within 60
days of August 18, 2000.
(8) Includes 86,667 shares subject to stock options exercisable within 60
days of August 18, 2000.
(9) Includes 39,492 shares subject to stock options exercisable within 60
days of August 18, 2000.
(10) Includes 420,500 publicly traded warrants exercisable within 60 days of
August 18, 2000.
(11) As reported on Form 13-GA filed December 31, 1999.
(12) Includes 506,884 shares subject to stock options exercisable within 60
days of August 18, 2000.
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named below have been nominated by management for election as
directors of the Company to serve until the 2001 Annual Meeting of Shareholders
or until their respective successors are duly elected and qualify. All nominees
are currently serving as directors of the Company.
Unless otherwise instructed, the enclosed proxy will be voted for election of
the nominees listed below, except that the persons designated as proxies reserve
full discretion to cast their votes for another person recommended by management
in the unanticipated event that any nominee is unable to or declines to serve.
The Board has no reason to believe that any nominee will be unable or unwilling
to serve. The five (5) candidates receiving the highest number of affirmative
votes of the shares entitled to vote at the Annual Meeting will be elected
Directors of the Company. The Company's Articles of Incorporation provide for a
classified Board of Directors designated as Class I and Class II. After the
initial term of office of each class, each class shall have a term of two years.
At each annual meeting of shareholders thereafter, directors of one class could
be elected to succeed the directors of that class whose terms have expired, and
each newly elected director will serve a two-year term. The classified director
provisions of the Company's Articles of Incorporation are not presently in
effect but will automatically become effective when the Common Stock of the
Company is listed on the Nasdaq NMS, NYSE or AMEX, and when the Company has at
least 800 shareholders as of the record date for the most recent annual meeting
of shareholders. The classification of directors has the effect of making it
take more time to change the composition of a majority of the Board of
Directors.
MANAGEMENT AND THE BOARD OF DIRECTORS
RECOMMEND A VOTE IN FAVOR OF EACH NOMINEE.
NOMINEES
Set forth below is information regarding the nominees, including information
furnished by them as to their principal occupations, certain other directorships
held by them, any arrangements pursuant to which they were selected as directors
or nominees, and their ages as of August 18, 2000.
<TABLE>
<CAPTION>
Name of Nominee Age Position with the Company
--------------- --- -------------------------
<S> <C> <C>
James L. Berntsen 43 Executive Vice President and Director
Robert F. Coston 67 Director
Douglas W. Moul 64 Director
James A. Scudder 44 Chairman, President, Chief Executive Officer and Director
Carroll E. Taylor 59 Director
</TABLE>
James L. Berntsen, a co-founder of the Company has been a director of the
Company since its inception in November, 1994. He currently serves as Executive
Vice President.
Robert F. Coston has been a director since October, 1997. Mr. Coston has been a
self-employed consultant since 1990, specializing in production and distribution
of various food products. Mr. Coston holds a Bachelor of Science in Civil
Engineering from Lehigh University.
4
<PAGE>
Douglas W. Moul has been a director since December, 1997. Mr. Moul is a director
for the following companies: Morgan Foods Inc. of Austin, Indiana; Shorr
Packaging of Aurora, Illinois; and National Fruit Product Company of Winchester,
Virgina. He holds a Bachelor of Science in Mechanical Engineering from the
University of British Columbia. Mr. Moul has been a consultant for the last five
years.
James A. Scudder, a co-founder of the Company has been a director of the Company
since its inception in November, 1994. He currently serves as Chairman of the
Board, President and Chief Executive Officer.
Carroll E. Taylor has been a director since September, 1998. He holds a Bachelor
of Science in Chemical Engineering from the University of Southern California
and an MBA from the University of Cincinnati. He is a private investor.
There is no family relationship between any of the Company's directors and
officers. There are no arrangements or understandings between any director or
executive officer and any other person pursuant to which any person has been
elected or nominated as a director or executive officer. All directors and
executive officers currently serve for a term of one year until the next Annual
Meeting of Shareholders until such time, if ever, as the classified board
applies.
During the year ended December 31, 1999, the board held twelve meetings. All
directors other than Mr. Bernsten, who was absent for one meeting, attended all
meetings. The Company presently has a Compensation Committee of the Board
consisting of Messrs. Coston, Moul and Taylor. The Compensation Committee's
primary function is to establish compensation for executives and officers. The
Audit Committee, consisting of Messrs. Coston, Moul, and Taylor, advises the
Board as to the selection of the Company's independent accountants, reviews with
the independent accountants the accounting principles and practices followed by
the Company and the adequacy thereof, approves the Company's annual audit and
financial results and any material change thereto and makes recommendations to
the Board regarding such matters. The Board does not have a standing Nominating
Committee. During 1999, the Compensation Committee met four times and the Audit
Committee met two times.
Executive Officers
In addition to Messrs. Scudder and Berntsen, the following individuals are also
Executive Officers:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Ann T. Davern 47 Vice President, Manufacturing
Kevin A. Hainley 43 Chief Financial Officer
Danae C. Brooker 32 Vice President, Sales and Marketing
</TABLE>
DIRECTOR COMPENSATION
Non-employee directors of the Company received $2,000 for each Board meeting
they attended. Non-employee Directors are also compensated $1,000 per day for
any consulting services they provide the Company. Additionally, non-employee
directors each received stock options to purchase 50,000 shares of Common Stock
upon their appointments as Directors. These options vest evenly over five years.
Each of the non-employee directors was appointed to the Advisory Board and
received stock options to purchase 20,000 shares of Common Stock. These options
vest evenly over four years.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than 10%
of the Company's stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission. Executive
officers, directors and greater than 10% beneficial owners are required by
applicable regulations to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely upon a review of the copies of such forms furnished to the Company
and information involving securities transactions of which the Company is aware,
the Company believes that during the fiscal year ending December 31, 1999, all
its executive officers, directors and greater than 10% beneficial shareholders
complied with Section 16(a) filing requirements.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the years indicated certain compensation of
the Company's Chief Executive Officer and each of the other four (4) most
highly-compensated of the Company's executive officers who earned or who were
paid more than $100,000 in compensation in such years ("Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
No. of shares
Name and underlying Other Annual
Principal Position Year Salary Bonus Options Compensation
-------------------- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James L. Berntsen 1999 $155,600 $20,000 20,000 $1,000
Executive Vice President 1998 175,900 -- 40,000 1,000
1997 97,200 -- --
Ann T. Davern 1999 128,700 11,225 24,050
Vice President of Manufacturing 1998 121,080 -- 31,000
1997 68,300 -- --
Kevin A. Hainley 1999 129,900 -- 46,500
Chief Financial Officer 1998 127,200 -- 31,000
1997 96,100 -- --
Allan C. Mayer, Jr. 1999 24,500 6,000 24,000
Vice President of Marketing 1998 119,400 -- 24,000
1997 96,000 -- --
James A. Scudder 1999 181,600 20,000 20,000 1,800
Chief Executive Officer 1998 170,500 -- 40,000 1,800
and President 1997 97,200 -- --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock option grants made to
the Company's Chief Executive Officer and each of the other Named Executive
Officers during the fiscal year ended December 31, 1999. No stock appreciation
rights were granted or exercised during such fiscal year.
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted Exercise or
Options To Employees Base Price
Name Granted In Fiscal Year per Share Expiration
---- -------- -------------- --------- ----------
<S> <C> <C> <C> <C>
James L. Berntsen 40,000 13.1% $2.00 2004
Ann T. Davern 31,000 10.1% $2.00 2004
Kevin A. Hainley 31,000 10.1% $2.00 2004
James A. Scudder 40,000 13.1% $2.00 2004
</TABLE>
6
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table sets forth information concerning exercises of options and
the fiscal year end option values during the fiscal year ended December 31, 1999
with respect to the Company's Chief Executive Officer and each of the other
Named Executive Officers. No options were exercised and no stock appreciation
rights were exercised or outstanding during such fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options At 12-31-99 Options At 12-31-99
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James L. Berntsen 40,000 20,000 $14,800 $ 7,400
Ann T. Davern 39,550 15,500 14,600 5,700
Kevin A. Hainley 82,500 27,500 62,200 20,700
Allan C. Mayer, Jr. 84,000 24,000 73,300 19,400
James A. Scudder 40,000 20,000 14,800 7,400
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has employment agreements with Messrs. Scudder and Berntsen. Mr.
Scudder's employment agreement provides for his employment by the Company as its
President and Chief Executive Officer at a current salary of $181,600. Mr.
Berntsen's employment agreement provides for his employment by the Company as
its Executive Vice President at a current salary of $155,600. Messrs. Scudder
and Berntsen are party to agreements providing for an initial term expiring on
August 31, 1999 and such agreements were extended by the Board of Directors for
a term ending August 31, 2002. Each officer may receive bonuses awarded in the
discretion of the Board of Directors. The agreements do not provide for any
fixed or formula bonuses to be paid to the officers. The Employment Agreements
provide that Messrs. Scudder and Berntsen may, at their election, receive a
severance payment equal to 299% of their average annual base salary and bonuses
during the preceding five year period in the event of a change of control as
defined in their employment agreements.
PROPOSAL 2
APPROVE AN AMENDMENT TO THE COMPANY'S 1996 STOCK PLAN
TO AUTHORIZE AN INCREASE IN THE COMMON STOCK AVAILABLE FOR ISSUANCE
The Company's 1996 Stock Plan was adopted by the Board of Directors in November
1996 and approved by the shareholders in December 1996. 1,045,500 shares of the
Company's Common Stock are currently reserved for issuance pursuant to options
granted pursuant to the 1996 Stock Plan, of which options to acquire 905,550
shares of Common Stock have been granted as of August 18, 2000. As a result,
there are 139,950 shares of Common Stock available for future grant under the
1996 Stock Plan.
In May of 2000, the Board of Directors approved an amendment to the 1996 Stock
Plan, subject to shareholder approval, to enable the Board of Directors and the
Compensation Committee to continue to grant stock options, stock appreciation
rights and other stock awards to the Company's employees, directors, consultants
and advisors at levels determined to be appropriate by the Board of Directors
and the Compensation Committee. The amendment increases the number of shares to
a total of 1,545,500; an increase of 500,000 shares over the number previously
authorized under the 1996 Stock Plan.
The foregoing amendment to the 1996 Stock Plan requires the approval of the
shareholders. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote on the proposal
at the meeting, will be required to approve the 1996 Stock Plan as amended.
7
<PAGE>
MANAGEMENT AND THE BOARD OF DIRECTORS
RECOMMEND A VOTE IN FAVOR OF PROPOSAL 2.
DESCRIPTION OF THE 1996 STOCK OPTION PLAN
The essential features of the Company's 1996 Stock Plan, as amended are outlined
below. The description of the 1996 Stock Plan set forth below is a summary and
does not purport to be complete.
PURPOSE. The purpose of the 1996 Stock Plan is to provide an incentive to
eligible employees, officers, directors, and consultants, whose present and
potential contributions are important to the continued success of the Company,
to afford these individuals the opportunity to acquire a proprietary interest in
the Company, and to enable the Company to enlist and retain in its employment
qualified personnel for the successful conduct of its business. It is intended
this purpose will be effected through the granting of: (i) Stock Options,
including incentive stock options ("Incentive Stock Options") under Section 422
of the Internal Revenue Code and non-qualified stock options ("Non-qualified
Stock Options") which are not intended to meet the requirements of such section;
(ii) stock appreciation rights ("Stock Appreciation Rights"); (iii) restricted
stock ("Restricted Stock"); and (iv) long-term performance awards ("Long-Term
Performance Awards").
ELIGIBILITY. Officers, directors, consultants, and other employees of the
Company whom the Board of Directors deems to have the potential to contribute to
the success of the Company shall be eligible to receive awards under the 1996
Stock Plan. The 1996 Stock Plan provides that Non-qualified Stock Options, Stock
Appreciation Rights, Restricted Stock, and Long-Term Performance Awards may be
granted to employees (including officers), directors, and consultants of the
Company or any parent or subsidiary of the Company. The 1996 Stock Plan provides
Incentive Stock Options may only be granted to employees (including officers) of
the Company or any parent or subsidiary of the Company.
ADMINISTRATION. The 1996 Stock Plan is administered by the Board of Directors,
or a duly appointed committee thereof. Subject to the provisions of the 1996
Stock Plan, the Board of Directors or a committee thereof has full power to
select the eligible individuals to whom awards will be granted, to make any
combination of awards to any participant and to determine the specific terms of
each grant. The interpretation and construction of any provision of the 1996
Stock Plan by the Board of Directors shall be final and conclusive. The Board of
Directors shall have discretion in determining the number of shares and other
terms of each option granted to each recipient. Each option grant shall be
evidenced by an option agreement that shall specify the option price, the
duration of the option, the number of shares to which the option pertains, the
percentage of the option that may be exercised on specified dates in the future,
and such other provisions as the Board of Directors shall determine.
OPTION PRICE AND EXERCISE. The option price for each grant of an option shall be
determined by the Board of Directors, provided that, in the case of Incentive
Stock Options, the option price shall not be less than the fair market value of
a share of the Company's Common Stock, or in the case of Incentive Stock Options
granted to the holder of 10% or more of the Company's Common Stock, at least
110% of the fair market value of such shares on the date of grant.
All options granted under the 1996 Stock Plan shall expire no later than 10
years from the date of grant, subject to the limitations set forth in the 1996
Stock Plan. Options may be granted authorizing exercise by payment to the
Company of cash or by surrender of shares of the Company's Common Stock already
owned by the employee, a combination of cash and such shares, or such other
consideration as is approved by the Board of Directors.
The 1996 Stock Plan places limitations on the exercise of options under certain
circumstances upon or after termination of employment or in the event of the
death, disability, or termination associated with a change in control (as
defined in the 1996 Stock Plan) of the Company. At the discretion of the Board
of Directors the agreement evidencing the grant of a stock option may contain
additional limitations upon the exercise of the option under specified
circumstances, or may provide certain limited rights to exercise such options
under specified circumstances. The granting of an option under the 1996 Stock
Plan does not accord the recipient the rights of a shareholder, and such rights
shall only accrue after the exercise of an option, and the issuance of the
underlying shares of Common Stock in the recipient's name.
8
<PAGE>
RESTRICTED STOCK AWARDS. The 1996 Stock Plan provides for the award of shares of
Common Stock of the Company which are subject to certain restrictions
("Restricted Stock") provided in the 1996 Stock Plan or otherwise determined by
the Board of Directors. Restricted Stock awards pursuant to the 1996 Stock Plan
will be represented by a stock certificate registered in the name of a recipient
to whom the award is made subject to the restrictions upon which it is granted.
Upon the grant of Restricted Stock, such recipient will be entitled to vote the
Restricted Stock, and to exercise other rights as a shareholder of the Company,
including the right to receive all dividends and other distributions paid or
made with respect to the Restricted Stock. Pursuant to the 1996 Stock Plan, a
Restricted Stock award recipient may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of the Restricted Stock during the restriction
period designated by the Board of Directors, except by testamentary disposition,
or as may otherwise be determined by the Board of Directors. When the conditions
of a Restricted Stock award established by the Board of Directors lapse or are
satisfied, the Company will deliver stock certificates representing the shares
of Common Stock which are no longer subject to any restrictions, except those
required by applicable law.
STOCK APPRECIATION RIGHTS. Pursuant to the 1996 Stock Plan, the Board of
Directors in its discretion may grant Stock Appreciation Rights ("SARS"). A
Stock Appreciation Right generally will entitle the holder to receive money or
stock from the Company in an amount equal to the excess, if any, of the
aggregate fair market value of the Company's Common Stock which is subject to
such right over the fair market value of the same stock on the date of grant.
The Company may grant SARS allowing for the payment of the amount to which the
participant exercising the SAR is entitled by delivering shares of the Company's
Common Stock or cash or a combination of stock and cash as the Board of
Directors in its sole discretion may determine. SARS may contain additional
rights, limitations, terms, and conditions which the Board of Directors
otherwise deems desirable.
LONG-TERM PERFORMANCE AWARDS. The 1996 Stock Plan also permits the granting of
Long-Term Performance Awards. Such awards, if issued, are anticipated to be
based upon Company, subsidiary, and/or individual performance over designated
periods based on such performance factors or other criteria as the Board of
Directors deems appropriate. Performance objectives may vary from participant to
participant, group to group, and period to period. Such awards will generally be
granted for no cash consideration. The Board of Directors may adjust Long-Term
Performance Awards as they deem necessary or appropriate in order to avoid
windfalls or hardships or to compensate for changes in tax, accounting, legal
rules, or other circumstances. Long-Term Performance Awards may be payable in
cash or Common Stock (including Restricted Stock).
RESTRICTION ON TRANSFER. Options, SARS, Restricted Stock Awards, and Long-Term
Performance Awards granted pursuant to the 1996 Stock Plan, will generally be
nontransferable by the participant, other than by will or by the laws of descent
and distribution, and may generally be exercised only by the participant during
the lifetime of the participant.
CHANGE IN CONTROL PROVISIONS. Subject to the 1996 Stock Plan's change in control
provisions, in the event of a sale of all or substantially all of the assets of
the Company or the merger of the Company with or into another corporation, each
outstanding Option, SAR, Restricted Stock Award, or Long-Term Performance Award
shall be assumed or substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event the successor corporation
does not agree to such assumption or substitution, the administrators shall, in
lieu of such assumption or substitution, provide for the participant to have the
right to exercise the Option, SAR, Restricted Stock Award, or Long-Term
Performance Award as to all or a portion of the Common Stock subject to the
option, including shares of Common Stock as to which the option would not
otherwise be exercisable.
FEDERAL INCOME TAX CONSEQUENCES
The following general description of federal income tax consequences is based on
current statutes, regulations and interpretations. This description is not
intended to address specific tax consequences applicable to an individual
participant and does not address special rules that may be applicable to
directors, officers and greater-than-10% stockholders of the Company.
OPTION. There will not be any federal income tax consequences to either the
participant or the Company as a result of the grant to a participant of an
Incentive Option under the 1996 Plan. The exercise by a participant of an
Incentive Option will also not result in any federal income tax consequences to
the Company or the participant, except that an amount equal to the excess fair
market value of the shares acquired upon exercise of the Incentive Option,
determined at the time of exercise, over the consideration paid for the shares
by the participant will be a tax preference item for purposes of the alternative
minimum tax. Upon the exercise of a Non-Statutory Option, a participant will
recognize ordinary income on the date of exercise in an amount equal to the
difference between the fair market value of the shares purchased and the
consideration paid for the shares. In general, the Company will be entitled to a
compensation expense deduction in connection with the exercise of a
Non-Statutory Option for any amounts includable in the taxable
9
<PAGE>
income of a participant as ordinary income.
If a participant disposes of the shares acquired upon exercise of an Incentive
Option, the federal income tax consequences will depend upon how long the
participant has held the shares. If the participant does not dispose of the
shares within two years after the Incentive Option was granted, nor within one
year after the participant exercised the Incentive Option and the shares were
transferred to the participant, then the participant will recognize a long-term
capital gain or loss. The amount of the long-term capital gain or loss will be
equal to the difference between (i) the amount the participant realized on
disposition of the shares and (ii) the option price at which the participant
acquired the shares. The Company is not entitled to any compensation expense
deduction under these circumstances.
If the participant does not satisfy both of the above holding period
requirements, then the participant will be required to report as ordinary
income, in the year the participant disposes of the shares, the amount by which
the lesser of the fair market value of the shares at the time of exercise of the
Incentive Option or the amount realized on the disposition of the shares (if the
disposition is the result of a sale or exchange to one other than a related
taxpayer) exceeds the option price for the shares. The Company will be entitled
to a compensation expense deduction in an amount equal to the ordinary income
includable in the taxable income of a participant. The remainder of the gain or
loss recognized on the disposition, if any, will be treated as long-term or
short-term capital gain or loss, depending on the holding period.
STOCK APPRECIATION RIGHTS. A participant who receives a Stock Appreciation Right
will not recognize any taxable income at the time of grant. Upon exercise of a
Stock Appreciation Right, the participant will realize ordinary income in an
amount equal to the cash and fair market value of any shares of Common Stock
received by the participant. The Company will receive a corresponding tax
deduction for any amounts includable by the participant as ordinary income.
RESTRICTED STOCK AWARDS AND CASH AND STOCK BONUSES. With respect to shares
issued pursuant to a Restricted Stock Award that are not subject to risk of
forfeiture or with respect to stock bonuses, a participant will include as
ordinary income in the year of receipt an amount equal to the fair market value
of the shares received on the date of receipt. With respect to shares that are
subject to a risk of forfeiture, a participant may file an election under
Section 83(b) of the Code within 30 days after the transfer to include as
ordinary income in the year of transfer an amount equal to the fair market value
of the shares received on the date of transfer (determined as if the shares were
not subject to any risk of forfeiture). If a Section 83(b) election is made, the
participant will not recognize any additional income when the restrictions on
the shares issued in connection with the Restricted Stock Award lapse. The
Company will receive a corresponding tax deduction for any amounts includable by
the participant as ordinary income.
A participant who does not make a Section 83(b) election within 30 days of a
Restricted Stock Award that is subject to a risk of forfeiture will recognize
ordinary income at the time of the lapse of the restrictions in an amount equal
to the then fair market value of the shares freed of restrictions. The Company
will receive a corresponding tax deduction for any amounts includable by the
participant as ordinary income.
EXCISE TAX ON PARACHUTE PAYMENTS. The Internal Revenue Code ("Code") imposes a
20% excise tax on the recipient of "excess parachute payments," as defined in
the Code, and denies tax deductibility to the Company for such excess parachute
payments. Generally, parachute payments are payments in the nature of
compensation to employees of a company who are officers, shareholders or highly
compensated employees, which payments are contingent upon a change in control of
a company. Acceleration of the vesting of options and rights upon a change in
control of the Company may constitute parachute payments and in certain cases,
"excess parachute payments." The 1996 Stock Plan does not limit the acceleration
of such vesting to avoid excess parachute payments.
SECTION 162(m). Under Section 162(m) of the Code, the deductibility of certain
compensation paid to the chief executive officer and each of the four other most
highly compensated executives of publicly held companies is limited to
$1,000,000. Compensation for this purpose generally includes any items of
compensation expense described above in connection with options and rights under
the 1996 Stock Plan. However, certain types of compensation are excepted from
this limit, including compensation that qualifies as "performance-based
compensation." Under Section 162(m), any compensation expense resulting from the
exercise of Options or Stock Appreciation Rights under the 1996 Stock Plan with
exercise prices equal to (or greater than) the fair market value of the Common
Stock on the date of grant should qualify as "performance-based compensation"
excepted from the limit of Section 162(m). However, compensation expense in
connection with any other options and rights under the 1996 Stock Plan would be
subject to this limit.
10
<PAGE>
PROPOSAL 3
RATIFICATION AND SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 2000, it being intended that
such appointment would be presented for ratification by the shareholders. KPMG
LLP has audited the Company's financial statements since its inception in 1994.
A representative of KPMG LLP is expected to be present at the Annual Meeting.
The representative will have an opportunity to make a statement and will be
available to respond to appropriate questions from shareholders. The
affirmative vote of a majority of the shares present in person or represented
by proxy and entitled to vote on the proposal at the meeting will be required
to ratify the selection of KPMG LLP.
MANAGEMENT AND THE BOARD OF DIRECTORS
RECOMMEND A VOTE IN FAVOR OF PROPOSAL 3.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Any proposal relating to a proper subject which a shareholder may intend to
present for action at the 2001 Annual Meeting of Shareholders and which such
shareholder may wish to have included in the Company's proxy materials for such
meeting must, in accordance with the provisions of Rule 14a-8 promulgated under
the Securities Exchange Act of 1934, be received in proper form by the Company
at its principal executive office no later than December 31, 2000. It is
suggested that any such proposal be submitted by certified mail, return receipt
requested.
FORM 10-KSB ANNUAL REPORT
The Company files an Annual Report on Form 10-KSB with the SEC. A copy of the
Annual Report on Form 10-KSB (excluding exhibits) including financial statements
and schedules has been included with the mailing of this proxy to all
shareholders. Shareholders may obtain additional copies of these reports,
including financial statements and financial statement schedules, without
charge, by writing to Kevin A. Hainley, Chief Financial Officer of the Company,
at the Company's executive offices at 13250 Gregg Street, Poway, California
92064.
OTHER BUSINESS
Management is not aware of any matters to come before the Annual Meeting other
than those stated in this Proxy Statement. However, inasmuch as matters of which
management is not now aware may come before the Annual Meeting or any
adjournment thereof, the proxies confer discretionary authority with respect to
acting thereon, and the persons named in such proxies intend to vote, act, and
consent in accordance with their best judgment with respect thereto. Upon
receipt of such proxies (in the form enclosed and properly signed) in time for
voting, the shares represented thereby will be voted as indicated thereon and in
this Proxy Statement.
By Order of the Board of Directors,
/s/ Kevin A. Hainley
--------------------
Kevin A. Hainley
Secretary
Poway, California
August 18, 2000
<PAGE>
PROXY
ONTRO, INC.
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints James A. Scudder and Kevin A. Hainley,
jointly and severally, as proxies, each with the power to act without the
other and with the power to appoint his substitute, and hereby authorizes
them to represent and vote all of the shares of common stock of Ontro, Inc.
held of record by the undersigned on August 18, 2000 standing in the name of
the undersigned, as designated on the reverse hereof side, with all powers
which the undersigned would possess if present at the Annual Meeting of the
Stockholders to be held on September 29, 2000, or any postponements or
adjournments thereof and to vote in his or her discretion on such other
business as may properly come before the Meeting and any adjournments thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED ON THE OTHER SIDE)
FOLD AND DETACH HERE
<PAGE>
Please mark your votes as indicated in this example /X/
The Board of Directors recommends a vote FOR Items 1, 2, and 3.
WITHHELD
FOR FOR ALL
Item 1 ELECTION OF DIRECTORS / / / /
Nominees:
James L. Berntsen
Robert F. Coston
Douglas W. Moul
James A. Scudder
Carroll E. Taylor
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Item 2 APPROVAL OF AMENDMENT TO 1996 STOCK OPTION PLAN / / / / / /
Item 3 RATIFICATION OF KPMG LLP AS INDEPENDENT ACCOUNTANTS / / / / / /
</TABLE>
WITHHELD FOR: (write that nomine's name(s) in the space provided below).
_________________________________________________________________________
Unless otherwise specified by the undersigned, this proxy will be voted FOR
proposals 1, 2 and 3 and will be voted by the proxy-holder at his discretion
as to any other matters properly transacted at the Meeting or any
adjournments thereof. To vote in accordance with the Board of Directors'
recommendations, just sign below, no boxes need to be checked.
Signature________________________Signature______________________Date___________
NOTE: Please sign your name as it appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If the shares are owned by a corporation,
sign in the full corporate name by the President or other authorized officer.
If the shares are owned by a Partnership, sign in the name of the Partnership
name by an authorized person. Please mark, sign, date and return the Proxy
promptly using the enclosed envelope.
FOLD AND DETACH HERE
