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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-2.
NetWolves Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12
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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously 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>
--------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
November 16, 1999
--------------------------------
To the Shareholders of
NetWolves Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of NetWolves
Corporation will be held at ___________ on Tuesday, November 16, 1999 at 10:00
a.m., or at any adjournment thereof, for the following purposes:
1. To consider and act upon a proposal to amend the Company's By-Laws
eliminating the requirement to annually elect directors and
substituting in its stead, creation of a classified Board of
Directors, permitting the sequential election of nominees to each
class of directors every three years.
2. (a) If item 1 is adopted:
to elect five directors of the Company, two of whom shall each serve a
one year term expiring in 2000, two of whom shall each serve a two
year term expiring in 2001; and two of whom shall each serve a three
year term expiring in 2001, or until the election and qualification of
their successors; or
(b) if item 1 is not adopted:
to elect six directors of the Company, each to serve for the
ensuing year until the next annual meeting or until the election
and qualification of his successor.
3. To consider and act upon a proposal to amend Article FOURTH of the
Certificate of Incorporation to increase the total number of
authorized shares of the Company from 10,000,000 shares to 52,000,000
shares, as set forth in Exhibit A.
4. To consider and act upon a proposal to grant the Board of Directors
authority to authorize a two- for one or three-for-one split of the
Company's common stock.
5. To consider and act upon such other business as may properly come
before this meeting or any adjournment thereof.
The above matters are set forth in the Proxy Statement attached to this
Notice to which your attention is directed.
Only shareholders of record on the books of the Company at the close of
business on October 11, 1999 will be entitled to vote at the Annual Meeting of
Shareholders or at any adjournment thereof. Shareholders who are unable to be
present personally may attend the meeting by proxy. Such shareholders are
requested to sign, date and return the enclosed Proxy at their earliest
convenience in order that your shares may be voted for you as specified. The
proxy may be revoked at any time before it is voted.
By Order of the Board of Directors
Walter M. Groteke
Chairman of the Board
October 13, 1999
Tampa, Florida
<PAGE>
NETWOLVES CORPORATION
2502 Rocky Point Drive, Suite 740
Tampa, Florida 33607
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
November 16, 1999
---------------
The Annual Meeting of Shareholders of NetWolves Corporation (the "Company")
will be held on Tuesday, November 16, 1999 at ______________________, at 10:00
a.m. for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders. The enclosed proxy is solicited by and on behalf of the Board of
Directors of the Company for use at the Annual Meeting of Shareholders to be
held on November 16, 1999 and at any adjournments of such meeting. This proxy
statement and the enclosed proxy are being mailed to shareholders on or about
October 13, 1999.
If a proxy in the accompanying form is duly executed and returned, the shares
represented by such proxy will be voted as specified. Any person executing the
proxy may revoke it prior to its exercise either by letter directed to the
Company or in person at the Annual Meeting.
Voting Rights
Only shareholders of record on October 11, 1999 (the "Record Date") will be
entitled to vote at the Annual Meeting or any adjournment thereof. As of the
Record Date, the Company had outstanding one class of voting capital stock,
namely _______________ shares of common stock, $.0033 par value per share
("common stock"). Each share of common stock issued and outstanding on the
Record Date is entitled to one vote at the Annual Meeting of Shareholders.
The affirmative vote of a majority of the outstanding shares on the Record
Date is required for the approval of the amendment to the Certificate of
Incorporation increasing the authorized capital stock and the amendment to the
By-Laws providing for a classified Board of Directors. The affirmative vote of a
majority of the votes cast at the Annual Meeting is required for approval of the
election of directors and authorization of the Board of Directors to grant a
three-for-one or two-for-one stock split. For purposes of determining whether
proposals have received a majority vote, abstentions will not be included in the
vote totals and, in instances where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not returned a proxy (so
called "broker non-votes"), those votes will not be included in the vote totals.
Therefore, abstentions and broker non-votes will have no effect on the vote, but
will be counted in the determination of a quorum.
<PAGE>
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of shares of voting
stock of the Company, as of August 31, 1999, of (i) each person known by the
Company to beneficially own 5% or more of the shares of outstanding common
stock, based solely on filings with the Securities and Exchange Commission, (ii)
each of the Company's executive officers and directors and (iii) all of the
Company's executive officers and directors as a group. Except as otherwise
indicated, all shares are beneficially owned, and investment and voting power is
held by, the persons named as owners.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Shares Percentage
Beneficial Owner Beneficially Owned Ownership
- -------------------- ------------------ ---------
<S> <C> <C>
Greenleaf Capital Partners, LLC _________ (5) %
Walter M. Groteke 528,064 (1)(2) %
Daniel G. Stephens 528,064 (1)(2) %
Kevin F. Sherlock 528,064 (2)(3) %
Walter R. Groteke 150,000 (1) %
Internet Technologies, Inc. 320,000 (4)(5) %
Ed Lavin 50,000 %
Louis Liben 50,000 %
Kirlin Securities, Inc. 500,000 (6) %
Executive officers and
directors as a group _________ %
<FN>
- --------------
* less than one percent (1%) unless otherwise indicated.
(1) Does not include unvested warrants to purchase 200,000 shares at an option
price of $1.63 per share.
(2) Messrs. Walter M. Groteke, Daniel G. Stephens and Kevin F. Sherlock have
agreed that the shares owned by them may not be sold until June 17, 2000
without the prior written consent of Kirlin Securities. Kirlin Securities
may release such restriction, although there are no understandings or
arrangements in this regard.
(3) Does not include unvested warrants to purchase 150,000 shares at an option
price of $1.63 per share. Does not include unvested, performance based
warrants to purchase 50,000 shares each at an option price of $5.00 per
share.
(4) Internet Technologies, Inc., a consultant to the Company, has the right to
receive up to 60,000 additional shares based upon future performance
criteria.
(5) Greenleaf Capital Partners, LLC has demand registration rights on its
shares and Internet Technologies, Inc. has demand registration rights for
200,000 shares of common stock.
(6) Represents warrants currently exercisable by Kirlin Securities and its
affiliates to purchase 500,000 shares of common stock at $1.63 per share.
Kirlin Securities, Inc. has demand registration rights on the shares of
common stock issuable upon exercise of the warrants.
</FN>
</TABLE>
<PAGE>
PROPOSAL TO AMEND THE BY-LAWS
TO CREATE AND ELECT A CLASSIFIED BOARD OF DIRECTORS
In connection with the election of nominees to the Company's Board of
Directors, the Board has approved and recommends for approval by the
Shareholders an amendment to the Company's By-Laws (the "By-Law Amendment"),
creating a classified board of directors ("Classified Board"). This proposed
Amendment to the Company's By-Laws is set forth in Exhibit "A" annexed hereto.
If the By-Law Amendment is approved, commencing with the election of directors
at this annual meeting of shareholders each director will be elected to one of
three classes for a term of years. The Board will be divided into three classes.
Under the Business Corporation Law of New York (the "BCL"), the proposed
Classified Board must have as nearly equal a number of directors in each class
as possible, based upon the total number of directors constituting the entire
Board. Assuming adoption of the proposal, the initial term of office of the
directors in the first class will expire at the next succeeding annual meeting
of shareholders following adoption of the By-Law Amendment. The terms of office
of the second and third classes will expire at the second and third annual
meetings of shareholders following the date of adoption of the By-Law Amendment,
respectively. Commencing next year and each successive year, as the terms of
office of the directors of each class expire, successors to directors of each
class will be elected to serve for three-year terms, or until their successors
are elected and qualified. A director elected by the Board to fill a vacancy or
a newly created directorship will not be classified, but will be elected and
hold office until the next annual meeting of shareholders.
Under the current By-Laws, all of the directors are elected at each annual
meeting of shareholders. As a result, the holders of a majority of the Company's
shares could replace a majority, or all, of the directors at one annual meeting.
Classification will have the effect of slowing changes in the composition of the
Board because, absent vacancies in the Board due to directors' retirement,
resignation, illness and the like, fewer than half of the Board positions will
be subject to election each year. Thus, classification of the Board helps
contribute to continuity and stability in management of the Company.
If the By-Law Amendment is adopted, at least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in a
majority of the Board. While this proposal is not in response to any effort to
obtain control of the Company by means of a merger, tender offer, solicitation
in opposition to management or otherwise, such a delay may help ensure that the
Company's directors, if confronted by a third party attempting to force a proxy
contest, a tender or exchange offer, or other extraordinary corporate
transaction, will have sufficient time to review the proposal, as well as any
available alternatives, and act in a manner that management believes to be the
best interests of the Shareholders. Classification provisions could also have
the effect of discouraging a third party from initiating a proxy contest, making
a tender offer, or otherwise attempting to obtain control of the Company, even
though such an attempt might be result in a short-term financial benefit for the
Company and its Shareholders. Classification of the Board could also increase
the possibility that incumbent directors will retain their positions, if they so
desired.
The Board of Directors recommends that the Shareholders approve the By-Law
Amendment, because the Board wishes to increase the stability of the Company in
the event that the Board receives any unsolicited proposal for a business
combination or change in control. Should that occur, the Board believes that the
By-Law Amendment will maximize its ability to make a reasoned and informed
decision concerning the alternatives which are in the best interests of the
Shareholders.
<PAGE>
The proposal will be adopted only if it receives the affirmative vote of a
majority of the outstanding shares of common stock . The Board of Directors
believes that the proposed amendment is in the best interests of the Company and
its shareholders and recommends a vote FOR its adoption. Proxies received will
be voted in favor of the proposed amendment unless otherwise indicated.
ELECTION OF DIRECTORS
The Company's By-Laws provide for a Board of Directors consisting of not
less than three nor more than nine directors. The Company's Board of Directors
now consists of five directors. The following table sets forth the directors of
the Company and the proposed classes in which they will be distributed if
proposal 1 is approved. In the event proposal 1 is not approved, all directors
will be elected until the next annual meeting or until the successors are
elected:
<TABLE>
<CAPTION>
Class I Class II Class III
------- -------- ---------
(To serve until the Annual (To serve until the Annual (To serve until the Annual
Meeting of Shareholders Meeting of Shareholders Meeting of Shareholders
in 2000) in 2001) in 2002)
- -------------------------- ------------------------- -------------------------
<S> <C> <C>
Louis Liben (1)(2) Daniel Stephens Walter M. Groteke
Walter R. Groteke (2) Ed Lavin (1)(2)
- ---------
<FN>
(1) Member of Audit Committee
(2) Member of Compensation Committee
</FN>
</TABLE>
Principal Occupations of Directors
Walter M. Groteke, a co-founder of the Company, has been Chairman of the
Board, Chief Executive Officer and a director of the Company since June 1998.
Mr. Groteke is responsible for planning, developing and establishing policies
and business objectives for the Company. From June 1995 until 1997, Mr. Groteke
was regional business development manager for Techmatics, Inc. an information
systems Department of Defense contractor. From May 1993 to June 1995, Mr.
Groteke was senior account manager for NYNEX's strategic account management
program.
Daniel G. Stephens, a co-founder of the Company, has been Vice Chairman of
the Board and Chief Information Officer since June 1998. Mr. Stephens directs
research and development, information systems and technical support services for
the Company. From May 1994 until 1997, Mr. Stephens was a senior systems
engineer for Techmatics, Inc. In this capacity, he advised the Department of
Justice on development of a nationwide series network infrastructure to support
a law-enforcement database.
Walter R. Groteke has been a director of the Company since February 1999
and Vice President - Sales and Marketing since August 1998. From 1995 through
July 1998, Mr. Groteke was a regional and district sales manager for GTE Florida
and GTE Communications Corporation. Mr. Groteke founded Hawk Telecom in 1975 and
was President until its sale in 1994. Mr. Groteke is the father of Walter M.
Groteke.
<PAGE>
Ed Lavin has been a director of the Company since February 1999. Mr. Lavin
has been Chairman and Chief Executive Officer of Staples Communications, a
subsidiary of Staples Corporation since March, 1999. Mr. Lavin began his career
at ADT from 1967 to 1972. In 1970 he was promoted into ADT's National Accounts
Division. Mr. Lavin then joined the L. M. Ericcson Company of Sweden from 1973
to 1979 where he served as Vice President of Sales in the United States. Mr.
Lavin immigrated to Canada in 1980 to form Canadian Telecommunications Group and
was Chairman and CEO of Canadian Telecommunications Group (CTG) from 1980 to
1986. Mr. Lavin moved to TIE Communications where he served as president from
1987 to 1990. TIE Communications acquired Centel Communications, which was later
merged with WilTel Communications where he served as CEO from 1990 to 1993. In
November 1993, Mr. Lavin founded Quest America, a telecommunications consulting
company based in Boston, Massachusetts. On April 10, 1996, Mr. Lavin led a group
that acquired Executone Information Systems' Network Division. The purchaser was
a group financed by Bain Capital, Inc. of Boston, Massachusetts. The company
name was later changed to Claricom, Inc. In March 1999, Claricom successfully
merged its business with Staples Corporation.
Louis Liben has been a director of the Company since February 1999. From
1997 to date, Mr. Libin has been a director, Chief Technology Officer and Senior
Vice President of e.TV Commerce, Inc., a Jacksonville, Florida network
distribution technology company. Mr. Libin is also a director and the Chief
Technology Officer of Compu-DAWN, Inc., a leading public safety software company
in the United States. Louis Libin is the founder of Broadcast Communications,
Inc. (Broad Comm), a broadcast project management group. Mr. Libin is a
world-renowned expert in wireless communications systems. At the International
Telecommunications Union in Geneva, Switzerland, Mr. Libin represents the United
States on satellite and transmission issues and is currently Chairman of the
expert group on interactive data services. Mr. Libin has over 15 years
experience in engineering, communications, and management. From 1983 to 1986,
Mr. Libin was employed by the Radio Corporation of American ("RCA") as a project
manager. In 1986, RCA was acquired by the General Electric Corporation ("G.E.").
From 1987 to 1997, Mr. Libin served as the Director of Technology for NBC/G.E.,
specializing in a broadcast transmission systems and is also an officer as
Corporate Secretary or Assistant Corporate Secretary for all G.E. wholly-owned
subsidiaries that deal in broadcast, with responsibility for technical
developments and all Federal Communications Commission ("FCC") issues and
licenses. From 1981 to 1982, Mr. Libin was employed by the Loral Corporation as
Electronic Design Engineer and designed Radio Frequency ("RF") systems for the
military. From 1979 to 1980 he worked for Burroughs Computer Systems, Inc. (now
UNISYS) as a Field Engineer and from 1980 to 1981 for the Chryon corporation as
Design Engineer.
<PAGE>
MANAGEMENT
Officers of the Company
The directors and executive officers of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- ---------
<S> <C> <C>
Walter M Groteke 29 Chairman of the Board, President and
Chief Executive Officer
Daniel G. Stephens 28 Vice Chairman of the Board and
Chief Information Officer
Kevin F. Sherlock 35 Chief Operating Officer and Director
Walter R. Groteke 52 Vice President - Sales and Marketing
and Director
Ed Lavin 55 Director
Louis Liben 40 Director
</TABLE>
Executive Compensation
The following table sets forth the annual and long-term compensation with
regard to the Chairman/Chief Executive Officer and each of the other executive
officers of the Company who received more than $100,000 for services rendered
during the first year of the Company's operations as NetWolves, which was the
fiscal year ended June 30, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------- -------------
Other
Name and Annual
Principal Position Salary Bonus Compensation
- ------------------ ------ ----- ------------
<S> <C> <C> <C> <C>
Walter M. Groteke $101,250 - - -
Chairman and Chief Executive Officer
Daniel G. Stephens 101,250 - - -
Vice Chairman and Chief Information
Officer
Kevin Sherlock 100,000 - - -
Chief Operation Officer
- ---------------
<FN>
(1) Represents compensation received under employment agreements. Mr. Sherlock
ceased being an officer or director of the Company effective August 1,
1999.
(2) Other Annual Compensation excludes certain perquisites and other non-cash
benefits provided by the Company since such amounts do not exceed the
lesser of $50,000 or 10% of the total annual base salary disclosed in the
table for the respective officer.
</FN>
</TABLE>
<PAGE>
Employment Agreements
Walter M. Groteke, Daniel G. Stephens and Kevin F. Sherlock entered into
employment agreements in June 1998 in connection with the acquisition of
Watchdog Patrols, Inc. ("Watchdog Patrols"). Pursuant to these agreements,
Messrs. Groteke, Stephens and Sherlock were employed as Chief Executive Officer,
Chief Information Officer and Chief Operating Officer, respectively, for a term
of three years. While Mr. Sherlock ceased being an officer and director of the
Company effective August 1, 1999, he continues to be employed under the terms of
his employment agreement, as amended. The current base salary for each person is
$130,000.
The employment agreements with Messrs. Groteke, Stephens and Sherlock
further provide for certain payments following death or disability for certain
fringe benefits such as reimbursement for reasonable expenses and participation
in medical plans, and for accelerated payments in the event of change of control
of the Company.
Walter M. Groteke, Daniel G. Stephens, Kevin F. Sherlock and Walter R.
Groteke also have entered into warrant agreements with the Company whereby they
are entitled to receive warrants to purchase 200,000, 200,000 and 150,000
shares, respectively, of the Company's common stock at $1.63 per share under
certain terms and conditions. The warrants are fully vested two years from their
respective dates of employment subject to acceleration under certain events.
These events include the sale or disposition of substantially all of the capital
stock or assets of the Company.
Stock Option Plan
In June 1998, the Company adopted a 1998 Long Term Incentive Plan (the
"1998 Incentive Plan") in order to motivate qualified employees of the Company,
to assist the Company in attracting employees and to align the interests of such
persons with those of the Company's shareholders.
The 1998 Incentive Plan provides for a grant of "incentive stock options"
within the meaning of the Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers, key employees, consultants and independent
contractors of the Company and its affiliates.
The 1998 Incentive Plan, which will be administered by the Board of
Directors, authorizes the issuance of a maximum of 282,500 shares of common
stock, which may be either newly issued shares, treasury shares, reacquired
shares, shares purchased in the open market or any combination thereof. If any
award under the 1998 Incentive Plan terminates, expires unexercised, or is
cancelled, the shares of common stock that would otherwise have been issuable
pursuant thereto will be available for issuance pursuant to the grant of new
awards. As of August 31, 1999, the Company had granted options to purchase
243,500 shares of common stock under the 1998 Incentive Plan to its officers and
key employees.
Certain Relationships
On June 17, 1998, NetWolves, LLC merged into a subsidiary of Watchdog
Patrols, Inc., which thereafter changed its name to NetWolves Corporation. The
merger provided for exchange of securities of NetWolves, LLC for the securities
of the Company. As part of such exchange, the principals of NetWolves, LLC at
such time received 2,640,322 shares of NetWolves Corporation. Messrs. Walter M.
Groteke, Daniel G. Stephens, Jr. , Kevin F. Sherlock and Keith A. Darling each
received 528,064 shares and Mr. Marc Jacques received 475,258 shares.
<PAGE>
Compensation Committee Interlocks and Insider Participation
During fiscal 1998, the Company's Compensation Committee consisted of
Messrs. Ed Lavin, Louis Liben, and Walter R. Groteke. Except for Mr. Walter R.
Groteke whose relationship has been disclosed, none of these persons were
officers or employees of the Company during fiscal 1998 nor had any relationship
requiring disclosure in this Proxy Statement.
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Compensation Committee
Report on Executive Compensation" and "Performance Graph" will not be deemed to
be filed or to be proxy soliciting material or incorporated by reference in any
prior or future filings by the Company under the Securities Act of 1933 or the
Securities Exchange Act.
PERFORMANCE GRAPH
The following graph sets forth the cumulative total return to the Company's
shareholders during the period indicated as well as an overall stock market
index (S & P 500 Index) and the Company's peer group index (S & P Computer
Software & Services):
COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN*
AMONG NETWOLVES CORPORATION, THE S & P 500 INDEX
AND THE S & P COMPUTERS (SOFTWARE & SERVICES) INDEX
<TABLE>
<CAPTION>
Cumulative Total Return
------------------------------------------------
18-Jun-98 30-Jun-98 30-Jun-99 31-Aug-99
<S> <C> <C> <C> <C>
NETWOLVES CORPORATION 100.00 323.08 1400.00 1292.31
S & P 500 100.00 104.06 127.74 123.14
S & P COMPUTERS (SOFTWARE & SERVICES) 100.00 121.73 186.97 184.55
* $100 invested on 6/18/98 in stock or on 6/30/99
in index - including reinvestment of dividends.
Fiscal year ending June 30.
</TABLE>
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is generally
determined by the Compensation Committee of the Board of Directors, subject to
applicable employment agreements and incentive plans. Each member of the
Compensation Committee is a director who is not an employee of the Company or
any of its affiliates. The following report with respect to certain compensation
paid or awarded to the Company's executive officers during fiscal 1999 is
furnished by the directors who comprised the Compensation Committee during
fiscal 1999.
General Policies
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain the management talent required to achieve
corporate objectives, and thereby increase shareholder value. It is the
Company's policy to provide incentives to its senior management to achieve both
short-term and long-term objectives and to reward exceptional performance and
contributions to the development of the Company's businesses. To attain these
objectives, the Company's executive compensation program includes a competitive
base salary, cash incentive bonuses and stock-based compensation. See
"Management Employment Agreements and Senior Management Incentive Compensation
Plan."
Stock options are granted to employees, including the Company's executive
officers, by the Compensation Committee under the Company's stock option plans.
The Committee believes that stock options provide an incentive that focuses the
executive's attention on managing the Company from the perspective of an owner
with an equity stake in the business. Options are awarded with an exercise price
equal to the market value of common stock on the date of grant, and have a
maximum term of ten years. Among the Company's executive officers, the number of
shares subject to options granted to each individual generally depends upon the
level of that officer's responsibility. The largest grants are awarded to the
most senior officers who, in the view of the Compensation Committee, have the
greatest potential impact on the Company's profitability and growth. Previous
grants of stock options are reviewed but are not considered the most important
factor in determining the size of any executive's stock option award in a
particular year.
From time to time, the Compensation Committee may utilize the services of
independent consultants to perform analyses and to make recommendations to the
Committee relative to executive compensation matters. No compensation consultant
is paid on a retainer basis.
Relationship of Compensation to Performance
The Compensation Committee annually establishes, subject to the approval of
the Board of Directors and any applicable employment agreements and the
Company's Senior Management Incentive Plan ("Incentive Plan"), the salaries
which will be paid to the Company's executive officers during the coming year.
In setting salaries, the Compensation Committee takes into account several
factors, including competitive compensation data, the extent to which an
individual may participate in the stock plans maintained by the Company, and
qualitative factors bearing on an individual's experience, responsibilities,
management and leadership abilities, and job performance.
<PAGE>
For fiscal 1998, pursuant to the terms of his employment agreement with the
Company, Daniel Stephens received his base salary. See "Management Employment
Agreements and ." In light of his employment agreement, the Compensation
Committee was not required to make any decision regarding their compensation
except to change the vesting provisions of certain stock options previously
granted. The Compensation Committee determined that Mr. Stephens' compensation
was appropriate given the substantial contribution made by him to the Company's
performance.
Compensation of Chief Executive Officer
For fiscal 1999, pursuant to the terms of his employment agreement with the
Company, the Company's Chairman and Chief Executive Officer, received a base
salary. In light of this employment agreement, the Compensation Committee was
not required to make any decision regarding the compensation of Mr. Groteke
except to change the vesting provisions of certain stock options previously
granted. The Compensation Committee determined that Mr. Groteke's compensation
was appropriate given the substantial contribution made by him to the Company's
performance.
The Compensation Committee
Ed Lavin
Louis Liben
Walter R. Groteke
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Exchange Act requires the Company's executive
0officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities ("Reporting Persons") to file reports
of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities
and Exchange Commission (the "SEC"). These Reporting Persons are required by SEC
regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file
with the SEC. Based solely upon the Company's review of the copies of the forms
it has received, the Company believes that all Reporting Persons complied on a
timely basis with all filing requirements applicable to them with respect to
transactions during fiscal 1999.
<PAGE>
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES
General
The Board of Directors has proposed and recommended to its shareholders a
proposal which authorizes the Board in its discretion to file an amended
Certificate of Incorporation which amends Article FOURTH of the Certificate of
Incorporation to increase the total number of shares which the Company has
authority to issue from 10,000,000 shares to 52,000,000 shares, of which
50,000,000 shares shall be shares of common stock of the par value of $.0033 per
share and 2,000,000 shares shall be shares of preferred stock of the par value
of $.0033 per share. This proposed amendment to the Company's Certificate of
Incorporation is set forth in Exhibit "B" annexed hereto.
Purpose of Increasing Authorized Shares of Common Stock
The increased authorization of 42,000,000 shares of capital stock is
intended to provide additional flexibility to the Company for possible capital
reorganization, acquisitions, refinancing, exchange of securities, public
offerings and other corporate purposes. In the past year, the Company issued a
substantial number of shares of common stock in connection with the NetWolves
merger, which has significantly decreased the number of shares of common stock
presently available for further issuance.
The Board of Directors, which recommends approval of this amendment,
believes it would be advantageous to the Company to be in a position to issue
additional common stock without the necessary delay of calling a shareholders'
meeting or seeking written consents in lieu thereof if one or more suitable
opportunities present themselves to the Company. Stockholder approval of an
increase in the number of authorized shares of common stock is required for the
two-for-one or three-for-one stock split for which the Board seeks discretion to
vote upon to be effected. If this Amendment is not approved by the shareholder,
the stock split cannot be effected. Other than the shares which are required to
effect a stock split, the Company's management has no present arrangements,
agreements, undertakings or plans for the issuance or use of the additional
shares proposed to be authorized by this Amendment.
Common stock can be authorized to be issued in the discretion of the Board
of Directors without stockholder approval of each issuance. After this proposal
is approved by the shareholders, the Board does not intend to solicit further
shareholder approval prior to the issuance of any additional shares of common
stock. If applicable law or regulation does not require shareholder approval as
a condition to the issuance of such shares in any particular transaction, it is
expected that such approval will not be sought. The Company may fund its
existing obligations by raising capital through the sale of shares of common
stock. Any increase in the number of shares authorized or outstanding shares of
common stock may depress the price of shares and impair the liquidity of
shareholders. In addition, the issuance may be on terms that are dilutive to
shareholders. Issuance of additional shares also could have the effect of
diluting the earnings per share and book value per share of shares outstanding.
The following table sets forth as of August 31, 1999, the approximate
number of shares of common stock authorized, outstanding, reserved and available
for issuance. The table further sets forth the approximate number of shares
which will be available for issuance if this amendment is approved.
<PAGE>
<TABLE>
<CAPTION>
Available for
Available Issuance upon
for Approval of
Authorized Outstanding Reserved(1) Issuance Amendment(2)
---------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Common Stock. . . . . 10,000,000 6,064,322 2,320,000 1,615,678 41,615,678
<FN>
- -------
(1) Includes shares of common stock issuable upon exercise of outstanding stock
options and warrants.
(2) Without giving effect to any proposed stock split.
</FN>
</TABLE>
Board Position and Required Vote
The proposal will be adopted only if it receives the affirmative vote of a
majority of the outstanding shares of common stock. The Board of Directors
believes that the proposed amendment is in the best interests of the Company and
its shareholders and recommends a vote FOR its adoption. Proxies received will
be voted in favor of the proposed amendment unless otherwise indicated.
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
TO EFFECT A STOCK SPLIT
On July 1, 1999, the Board of Directors unanimously adopted a resolution
directing the shareholders to vote on a proposal granting discretion to the
Board to authorize a two-for-one or three-for-one stock split. Accordingly, the
Board of Directors has proposed and recommended to the shareholders a proposal
which authorizes the Board of Directors to effect in its discretion a
two-for-one or three-for-one stock split (the "Stock Split"). The intent of the
Board of Directors insofar as recommending the Stock Split is to increase the
number of shares available in the public float. The Board of Directors believes
that the relatively low number of shares available for public trading impairs
the marketability of the common stock to institutional investors and members of
the investing public.
If a stock split is approved by the shareholders of the Company and
authorized by the Board, the Board will select, in its discretion, a number of
shares of old common stock ("Old Common Stock") to be reclassified into one each
share of new common stock ("New Common Stock") (the "ratio"). Its determination
of the split ratio must be a whole-number ratio within the stated limits of
one-for-two to one- for-three. The shareholders are requested to approve a Stock
Split in each of the following ratios of: one- for-two or one-for-three, and the
Board can choose either or none of these alternatives in its discretion; and the
remaining alternative Stock Split would be abandoned by the Board without
further action by the shareholders of the Company. A Stock Split will be
effected only upon determination by the Board of Directors that a Stock Split is
in the best interests of the Company and the Shareholders. A Stock Split would
become effective on any date (the "Effective Date") selected by the Board of
Directors after authorization by shareholders.
<PAGE>
The Board currently expects to effect a Stock Split in the ratio of
two-for-one, and intends to reexamine the ratio in light of all relevant
circumstances. The Board may consider the advice of financial advisors and
factors deemed relevant by the Board, which may include but not be limited to
belief as to future marketability and liquidity of the common stock, prevailing
market conditions, the likely effect on the market price of the common stock,
the effect upon its proposed Nasdaq listing and other relevant factors. The
Board of Directors reserves the right, notwithstanding stockholder approval of
this proposal and without further action by the shareholders, to abandon the
Stock Split, if, at any time, the Board of Directors, in its sole discretion,
determines that the Stock Split is no longer in the best interests of the
Company and its shareholders. Conversely, the Board reserves the right to
effectuate the Stock Split under less than favorable conditions based on any
factors deemed material by the Board, in its sole discretion. The Board of
Directors believes that leaving the discretion to the Board of Directors in
these regards will permit flexibility so as to effectuate the Stock Split in an
appropriate and well-planned manner. For example, one of the most important
factors that the Board will consider will be the effect of the Stock Split on
the market price of the common stock. These factors may include an effort to
make the common stock more attractive to members of the financial community and
certain types of investors.
Effects of the Stock Split
Consummation of a Stock Split will not alter the number of authorized
shares of common stock, which will remain at 10,000,000 shares, unless the
shareholders approve Proposal 2 to increase the authorized shares, which would
increase the authorized shares of common stock to 50,000,000 shares.
Consummation of the Stock Split will not alter the par value of common stock,
which will remain at $.0033 per share of common stock.
Effective with the Stock Split, the conversion rate of certain outstanding
options and warrants will be adjusted proportionately, so that, for example, if
a two-for-one Stock Split is effected, each such outstanding option or warrant
would thereafter cover twice as many shares of common stock, or if a three-
for-one Stock Split is effected, each outstanding option or warrant would
thereafter cover triple as many shares of common stock, each at one-half or
one-third, respectively, of the option or warrant price prior to the split.
Proportionate voting rights and other rights of shareholders will not be altered
by any Stock Split (other than as a result of payment in cash in lieu of
fractional shares.)
In the event a Stock Split is effectuated, certificates representing shares
of the Company's common stock issued prior to the time the Stock Split becomes
effective will continue to represent the same number of shares of the Company's
stock as they did prior to such time. Each common shareholder of record at the
close of business on the Stock Split record date will be entitled to receive one
additional share of common stock for a two-for-one Stock Split or two additional
shares of common stock for a three-for-one Stock Split for each share of common
stock held on such date. In the event this proposal is approved and authorized
by the Board, additional instructions will be mailed to shareholders.
Existing certificates will continue to represent the number of shares
evidenced thereby. Existing certificates will not be exchanged for new
certificates.
The Company has been advised by its tax counsel that under U.S. federal
income tax laws the receipt of additional shares of common stock in the Stock
Split will not constitute taxable income to the shareholders. In addition, the
cost or other tax basis to a stockholder of each old share held immediately
prior to the split will be divided equally between the corresponding two or
three shares held immediately after the split, and the holding period for each
of the two or three shares will include the period for which the corresponding
old share was held. The laws of jurisdictions other than the United States may
impose income taxes on the receipt by a stockholder of additional shares of
common stock resulting from the split. Shareholders subject to such other laws
should consult with their own tax advisors for additional information.
<PAGE>
If a stockholder elects to sell or purchase shares of the Company's common
stock following the effectuation of the Stock Split, stock transfer taxes, if
applicable, may be higher in a transaction involving an equivalent aggregate
market value, because of the greater number of shares involved, and the
brokerage commissions associated with such activities may also be higher.
Shareholders may wish to determine from their brokers the taxes and commissions
applicable for the additional number of shares.
The common stock is listed for trading on the over-the-counter Bulletin
Board. On the Record Date, the reported closing price of the common stock on the
Bulletin Board was $_____ per share. No assurance can be made as to the future
price of shares of common stock.
Board Position and Required Vote
While not otherwise required under current law, the proposal will be
adopted only if it receives the affirmative vote of a majority of the
outstanding shares of common stock. The Board of Directors believes that the
proposed amendment is in the best interests of the Company and its shareholders
and recommends a vote FOR each of the proposed alternative ratios. Proxies
received will be voted in favor of the proposed amendment unless otherwise
indicated.
INDEPENDENT PUBLIC ACCOUNTANTS
Hays & Company acted as the Company's independent auditors for the year
ended June 30, 1999.
A representative of Hays & Company plans to be present at the Annual
Meeting with the opportunity to make a statement if he desires to do so, and
will be available to respond to appropriate questions.
FINANCIAL STATEMENTS
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended June 30, 1999 has been provided to all stockholders as of the Record Date.
Stockholders are referred to the report for financial and other information
about the Company, but such report is not incorporated in this proxy statement
and is not a part of the proxy soliciting material.
<PAGE>
MISCELLANEOUS INFORMATION
As of the date of this Proxy Statement, the Board of Directors does not
know of any business other than specified above to come before the meeting, but,
if any other business does lawfully come before the meeting, it is the intention
of the persons named in the enclosed Proxy to vote in regard thereto, in
accordance with their judgment.
The Company will provide without charge to any stockholder as of the Record
Date, copies of the Company's Form 10-K upon written request delivered to office
of the Secretary, NetWolves Corporation, 6011 Benjamin Road, Suite 107, Tampa,
Florida 33634.
The Company will pay the cost of soliciting proxies in the accompanying
form. In addition to solicitation by use of the mails, certain officers and
regular employees of the Company may solicit proxies by telephone, telegraph or
personal interview. The Company may also request brokerage houses and other
custodians, and, nominees and fiduciaries, to forward soliciting material to the
beneficial owners of stock held by record by such persons, and may make
reimbursement for payments made for their expense in forwarding soliciting
material to the beneficial owners of the stock held of record by such persons.
Stockholder proposals with respect to the Company's next Annual Meeting of
Shareholders must be received by the Company no later than __________, 2000 to
be considered for inclusion in the Company's next Proxy Statement.
By Order of the Board of Directors,
Walter M. Groteke
Chairman of the Board
October 13, 1999
Tampa, Florida
<PAGE>
Exhibit A
PROPOSED AMENDMENT TO THE BY-LAWS
TO CREATE AND ELECT A CLASSIFIED BOARD OF DIRECTORS
The following sets forth the changes to the Company's By-Laws if the
proposed amendment is approved:
RESOLVED, that in accordance with Article XI of the Company's By-Laws,
Article III, Sections 3 and 4 are hereby deleted in their entirety and the
following substituted in their place:
"3. The Board of Directors shall be comprised of three Classes, each
such Class to be as nearly equal in number as possible. At each annual
meeting of shareholders, each director shall be elected to hold office
until expiration of the term of that director's Class, which shall in each
instance be three years, or until such director's successor is elected and
qualified; provided, however, that the term of office of directors
initially classified and elected shall be as follows: the term of the first
Class shall expire at the next annual meeting of shareholders following
approval of classification; the term of the second Class at the second
succeeding annual meeting following approval of classification; and the
term of the third Class at the third succeeding annual meeting following
approval of classification."
"4. Newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the Board of Directors for
any reason whatsoever shall be filled by a vote of a majority of the
directors then in office, although less than a quorum exists. A director
elected to fill a vacancy or a newly created directorship shall not be
classified, but shall be elected and hold office until the next annual
meeting of shareholders, or until such time as may be otherwise provided
for in Sections ___ and ___ herein. Any newly created directorships, or any
decrease in directorships, shall be so apportioned among the classes as to
make all classes as nearly equal as possible."
<PAGE>
Exhibit B
PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
The following sets forth the changes to Article FOURTH of the
Company's Certificate of Incorporation if the proposed amendment is
approved:
"FOURTH: The total number of shares of all classes of stock which the
corporation shall have the authority to issue is FIFTY TWO MILLION
(52,000,000) shares, of which FIFTY MILLION (50,000,000) shares shall be
shares of common stock of the par value of $.0033 per share and TWO MILLION
(2,000,000) shares shall be shares of Preferred Stock of the par value of
$.0033 per share. The Preferred Stock may be issued in series and the
number, designation, relative rights, preferences and limitations of shares
of each series of Preferred Stock $.0033 per share par value shall be fixed
by the Board of Directors."
<PAGE>
NETWOLVES CORPORATION
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
November 16, 1999
The undersigned hereby appoints Walter M. Groteke and Daniel G. Stephens,
or either of them, attorneys and Proxies with full power of substitution in each
of them, in the name and stead of the undersigned to vote as Proxy all the stock
of the undersigned in NETWOLVES CORPORATION, a New York corporation, at the
Annual Meeting of Shareholders scheduled to be held on November 16, 1999 and any
adjournments thereof.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF THEM,
AS SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED
FOR PROPOSALS AS SET FORTH ON THE REVERSE HEREOF.
The Board of Directors recommends a vote FOR the following proposals:
(Continued and to be signed on reverse side)
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
ANNUAL MEETING OF SHAREHOLDERS OF
NETWOLVES CORPORATION
November 16, 1999
1. Proposal to amend the Company's By-Laws eliminating the requirement to
annually elect directors and substituting in its stead, creation of a
classified Board of Directors, permitting the sequential election of
nominees to each class of directors every three years, as set forth in
Exhibit A to the Proxy Statement..
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. (a) If item 1 is adopted, election of the following nominees, as set forth
in the proxy statement:
To serve until the Annual Meeting of Stockholders in 2000:
---------------------------------------------------------
Louis Liben
To serve until the Annual Meeting of Stockholders in 2001:
---------------------------------------------------------
Daniel Stephens
Walter R. Groteke
To serve until the Annual Meeting of Stockholders in 2002:
---------------------------------------------------------
Walter M. Groteke
Ed Lavin
[ ] FOR all nominees listed above [ ] WITHHOLD authority to vote
---------------------------------------------------------------------------
(Instruction: To withhold authority to vote for any individual nominee,
print the nominee's name on the line provided below)
<PAGE>
(b) If item 1 is not adopted, election of the following nominees, as
set forth in the proxy statement:
Louis Liben, Daniel Stephens, Walter R. Groteke,
Walter M. Groteke and Ed Lavin
[ ] FOR all nominees listed above [ ] WITHHOLD authority to vote
---------------------------------------------------------------------------
(Instruction: To withhold authority to vote for any individual nominee,
print the nominee's name on the line provided below)
3. Proposal to amend Article FOURTH of the Certificate of Incorporation to
increase the total number of authorized shares of the Company from
10,000,000 shares to 52,000,000 shares, as set forth in Exhibit B to the
Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal to grant the Board of Directors authority to effect a stock split
of the Company's common stock, in the proportion determined by the Board of
Directors, as set forth in the Proxy Statement.
You may vote for, vote against or abstain from voting on any one or more of
the following. The Board will select one and only one of the approved
ratios:
(a) To authorize a two-for-one stock split:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(b) To authorize a three-for-one stock split:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Upon such other business as may properly come before the meeting or any
adjournment thereof.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
SIGNATURE(S)___________________________ ____________________________
DATED:_________ , 1999
