<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
[ ] Confidential for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
NETWOLVES CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JULY 6, 2000
------------------------
TO THE SHAREHOLDERS OF
NETWOLVES CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of NetWolves
Corporation will be held at the Company's corporate office at 2502 Rocky Point
Drive, Suite 740, Tampa, Florida 33607 on Thursday, July 6, 2000 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, as set forth in Exhibit A.
2. (a) If item 1 is adopted:
to elect five directors of the Company, one 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 2002, or until the election and qualification of their
successors; or
(b) if item 1 is not adopted:
to elect five 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 common stock from 10,000,000 shares, $.0033 par value to
50,000,000 shares, $.0033 par value, as set forth in Exhibit B.
4. To consider and act upon a proposal to amend Article FOURTH of the
Certificate of Incorporation to authorize 2,000,000 shares of preferred
stock, $.0033 par value, as set forth in Exhibit C.
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 May 15, 2000 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
June 7, 2000
Tampa, Florida
<PAGE> 3
NETWOLVES CORPORATION
2502 ROCKY POINT DRIVE, SUITE 740
TAMPA, FLORIDA 33607
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
JULY 6, 2000
------------------------
The Annual Meeting of Shareholders of NetWolves Corporation (the "Company")
will be held on Thursday, July 6, 2000 at the Company's corporate office at 2502
Rocky Point Drive, Suite 740, Tampa, Florida 33607, 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 JULY 6,
2000 AND AT ANY ADJOURNMENTS OF SUCH MEETING. This proxy statement and the
enclosed proxy are being mailed to shareholders on or about June 7, 2000.
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 May 15, 2000 (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 8,299,904 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 number of authorized shares of common stock, the
amendment to the Certificate of Incorporation establishing a class of preferred
stock and the amendment to the By-Laws providing for a classified Board of
Directors. These three proposals while recommended by the Board of Directors,
individually and in the aggregate will make it more difficult for a third party
to acquire, or may discourage a third party from seeking to acquire, control of
the Company; and this anti-takeover effect could benefit incumbent management at
the expense of the shareholders. The Company's articles of incorporation,
By-Laws and other corporate documents do not contain any provisions that have
material anti-takeover aspects and the Company has no plans or proposals to
submit other provisions of the articles, By-Laws or other measures in the future
that have anti-takeover effects.
The affirmative vote of a majority of the votes cast at the Annual Meeting
is required for approval of the election of directors. 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, for the purposes of approving
<PAGE> 4
the amendment to the Certificate of Incorporation increasing the number of
authorized shares of common stock, the amendment to the Certificate of
Incorporation establishing a class of preferred stock and the amendment to the
By-Laws providing for a classified Board of Directors, abstentions and broker
non-votes will have the effect of a negative vote. For the purposes of approving
the election of directors, abstentions and broker non-votes will have no effect
on the vote, but will be counted in the determination of a quorum.
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of shares of voting
stock of the Company, as of March 15, 2000, 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(6) BENEFICIALLY OWNED OWNERSHIP
------------------- ------------------ ----------
<S> <C> <C>
Computer Concepts Corp. .................................. 2,000,000(1) 24.1%
Greenleaf Capital Partners, LLC........................... 861,360 10.4%
Walter M. Groteke......................................... 2,428,064(2)(3) 29.3%
Daniel G. Stephens........................................ 428,064(2)(3) 5.2%
Walter R. Groteke......................................... 125,000(2) 1.5%
Internet Technologies, Inc. .............................. 260,000 3.1%
James A. Cannavino........................................ 200,000(4) 2.3%
Ed Lavin.................................................. 50,000 *
Kirlin Securities, Inc.................................... 500,000(5) 6.0%
Executive officers and directors as a group............... 3,231,128 38.0%
</TABLE>
---------------
* less than one percent (1%) unless otherwise indicated.
(1) The voting rights to these shares are held by Mr. Walter M. Groteke pursuant
to the terms of a voting agreement.
(2) Does not include unvested warrants to purchase 200,000 shares at an option
price of $1.63 per share. Includes 2,000,000 shares owned by Computer
Concepts Corp. covered by a voting agreement.
(3) Messrs. Walter M. Groteke and Daniel G. Stephens have agreed that these
shares owned by them may not be sold until June 17, 2000 without the prior
consent of Kirlin Securities.
(4) Represents warrants issued to Mr. Cannavino for joining the Board of
Directors to purchase 200,000 shares at an option price of $10 per share.
(5) Represents warrants currently exercisable by Kirlin Securities, Inc. 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.
(6) The natural person or persons who exercise sole or shared voting and
dispositive powers over the shares held of record by these entities are as
follows: Greenleaf Capital Partners, LLC -- Mr. Phillip LoRusso and Mr.
Edmund McCormick; Internet Technologies, Inc. -- Mr. Louis McElwee; Kirlin
Securities, Inc. -- Mr. Anthony Kirincic.
2
<PAGE> 5
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.
This proposal, together with the other proposals at this meeting, individually
and in the aggregate will make it more difficult for a third party to acquire,
or may discourage a third party from seeking to acquire, control of the Company;
and this anti-takeover effect could benefit incumbent management at the expense
of the shareholders.
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
3
<PAGE> 6
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.
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>
Ed Lavin(1)(2) James A. Cannavino(1)(2) Walter M. Groteke
Daniel G. Stephens Walter R. Groteke(2)
</TABLE>
---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
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.
4
<PAGE> 7
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.
James A. Cannavino has been a director of the Company since April, 2000.
Mr. Cannavino is President and Chief Executive Officer of CyberSafe, Inc., a
corporation specializing in network security. He was the President and Chief
Executive Officer of Perot Systems Corporation through July 1997, and prior to
that was a Senior Vice President at IBM, responsible for strategy and
development. He also served on the IBM Corporate Executive Committee and
Worldwide Management Council, and on the board of IBM's integrated services and
solutions company. Mr. Cannavino currently serves on the boards of National
Center for Missing and Exploited Children, 7(th) Level, Inc. and Marist College.
5
<PAGE> 8
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
Walter R. Groteke....................... 52 Vice President -- Sales and Marketing
and Director
Ed Lavin................................ 55 Director
James A. Cannavino...................... 55 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 $100,000 for services rendered
during the first year of the Company's operations as NetWolves, which was the
fiscal year ended June 30, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------------
NAME AND FISCAL OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($)(2)
------------------ ------ ------------ -------- ------------------
<S> <C> <C> <C> <C>
Walter M. Groteke.......................... 1999 $101,250 -- --
Chairman and Chief Executive Officer 1998 -- -- --
Daniel G. Stephens......................... 1999 101,250 -- --
Vice Chairman and Chief Information 1998 --
Officer
Kevin Sherlock............................. 1999 100,000 -- --
Chief Operating Officer 1998 -- -- --
</TABLE>
---------------
(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 $50,000 or 10% of the total annual base salary disclosed in the table for
the respective officer.
6
<PAGE> 9
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised
during the year ended June 30, 1999 by the named executive officers and the
value of unexercised options held by them as of June 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR END(#) YEAR END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Walter M. Groteke...... 0 0 0 200,000 0 $4,224,000
Daniel G. Stephens..... 0 0 0 200,000 0 $4,224,000
Kevin Sherlock......... 0 0 0 200,000 0 $4,224,000
</TABLE>
---------------
(1) Based upon the closing price of common stock of $22.75 on June 30, 1999.
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, 150,000 and
200,000 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
7
<PAGE> 10
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 September 30, 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. No options, warrants or
similar rights to purchase the Company's securities were granted to Walter M.
Groteke, Daniel G. Stephens or Kevin Sherlock during fiscal 1999.
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. The total capital contribution to NetWolves LLC by its members
was $64,245. As part of such exchange, principals of NetWolves, LLC received
2,640,322 shares of NetWolves Corporation for a per share cost of approximately
$.02. 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. Messrs. Groteke, Stephens, Sherlock, Darling and Jacques also
each received 200,000 warrants in connection with the merger, exercisable at a
price of $1.63 per share. The exercise price was based upon the public trading
price of Watchdog Patrols, Inc.'s common stock at the time of the acquisition.
Howard Habberstadt and Joseph Ariola acted as finders for the merger transaction
for which they received 75,000 warrants and 12,500 warrants, respectively,
exercisable at a price of $2.00 per share. The exercise price for the warrants
issued to Messrs. Habberstad and Ariola was determined through arms-length
negotiations between the parties.
Greenleaf Capital Partners LLC was a shareholder of Watchdog Patrols, Inc.
prior to the merger, having acquired 1,141,360 shares at an aggregate purchase
price of $2,200,000. Greenleaf Capital received demand registration rights in
connection with the merger. Pursuant to these rights, Greenleaf Capital or any
member or members of Greenleaf Capital owning at least 20% of the outstanding
shares of common stock owned by Greenleaf Capital, has the right to request in
writing that NetWolves register such shares under a registration statement to be
filed with the Securities and Exchange Commission. The Company is thereafter
required to file such registration statement within sixty (60) days after
receipt of the request. The Company is further obligated to maintain the
effectiveness of the registration statement until the securities covered
thereunder have been sold.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, the Company's Compensation Committee consisted of
Messrs. Ed Lavin, Louis Liben (a former director) and Walter R. Groteke. Except
for Mr. Walter R. Groteke, who is an officer and director of the Company, none
of these persons were officers or employees of the Company during fiscal 1999
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.
8
<PAGE> 11
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 SmallCap 600 Index) and [the Company's peer group index (S&P Computer
Software & Services):]
COMPARISON OF 4 MONTH CUMULATIVE TOTAL RETURN*
AMONG NETWOLVES CORPORATION,
THE S&P SMALLCAP 600 INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
NETWOLVES
CORPORATION PEER GROUP S&P SMALLCAP 600
----------- ---------- ----------------
<S> <C> <C> <C>
3/1/99 100 100 100
6/30/99 182 111.93 116.91
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
03/01/1999 06/30/1999
---------- ----------
<S> <C> <C>
NETWOLVES CORPORATION....................................... 100.00 182.00
PEER GROUP.................................................. 100.00 111.93
S&P SMALLCAP 600............................................ 100.00 116.91
</TABLE>
* $100 INVESTED ON 3/1/99 IN STOCK OR
ON 2/28/99 IN INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
9
<PAGE> 12
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. With the exception of
Walter R. Groteke, each member of the Compensation Committee is a director who
is not an employee of the Company or any of its affiliates. During fiscal 1999,
the Compensation Committee was not called upon to determine compensation to its
executive officers, including its Chief Executive Officer, since such
compensation is covered by employment agreements terminating in June 2000, which
became effective in June 1998 prior to the formation of the Compensation
Committee. Further, no additional common stock nor options nor any additional
monetary compensation could be awarded to Walter M. Groteke or Daniel Stephens
during fiscal 1999 under the terms of the merger agreement with Watchdog
Patrols, Inc.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive
officers, 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.
10
<PAGE> 13
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
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 of common stock which the
Company has authority to issue from 10,000,000 shares to 50,000,000 shares, par
value $.0033 per share. This proposed amendment to the Company's Certificate of
Incorporation is set forth in Exhibit "B" annexed hereto.
PURPOSE OF INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The authorization of an additional 40,000,000 shares of common 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 including the issuance of shares or
options to attract and retain key personnel. 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. 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 except for
approximately 2,000,000 to 3,000,000 which it intends to reserve for issuance
under new stock plans yet to be definitized.
Common stock can be authorized to be issued in the discretion of the Board
of Directors without shareholder 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 proportionately larger spread between authorized shares and outstanding
shares also might be used to decrease the percentage of stock ownership or
voting rights of persons seeking to obtain control of the Company; and this
anti-takeover effect could benefit incumbent management at the expense of the
shareholders.
11
<PAGE> 14
The following table sets forth as of April 1, 2000, 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.
<TABLE>
<CAPTION>
AVAILABLE FOR
ISSUANCE
AVAILABLE UPON
FOR APPROVAL OF
AUTHORIZED OUTSTANDING RESERVED(1) ISSUANCE AMENDMENT
---------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Common Stock...................... 10,000,000 8,299,904 1,642,000 58,096 40,058,096
</TABLE>
---------------
(1) Includes shares of common stock issuable upon exercise of outstanding stock
options and warrants.
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 ESTABLISH A CLASS OF PREFERRED STOCK
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 authorize 2,000,000 shares of preferred stock, par value $.0033
per share. This proposed amendment to the Company's Certificate of Incorporation
is set forth in Exhibit "C" annexed hereto.
PURPOSE OF ESTABLISHING A CLASS OF PREFERRED STOCK
The authorization of 2,000,000 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.
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
preferred 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. 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.
Preferred stock can be authorized to be issued in the discretion of the
Board of Directors without shareholder approval of each issuance. The terms of
the preferred stock are to be established by the Board of Directors at the time
of issuance. The issuance of preferred stock by the Board of Directors could
adversely affect the rights of holders of common stock by among other things,
establishing preferential dividends, liquidation rights or voting power and may
include provisions permitting the
12
<PAGE> 15
preferred stock to be converted into common stock. After this proposal is
approved by the shareholders, the Board does not intend to solicit further
shareholder approval prior to the issuance of any shares of preferred 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 preferred
stock. However, although the issuance of preferred stock may provide flexibility
in connection with possible acquisitions and other corporate purposes, such
issuance may also make it more difficult for a third party to acquire, or may
discourage a third party from seeking to acquire control of the Company; and
this anti-takeover effect could benefit incumbent management at the expense of
the shareholders.
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.
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Richard A. Eisner & Co., LLP, the Company's independent
auditor, 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 Shareholders for the fiscal year
ended June 30, 1999 has been provided to all shareholders as of the Record Date.
Shareholders 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.
13
<PAGE> 16
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 shareholder as of the Record
Date, copies of the Company's Form 10-K upon written request delivered to office
of the Secretary, NetWolves Corporation, 2502 Rocky Point Drive, Suite 740,
Tampa, FL 33607.
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.
Shareholder proposals with respect to the Company's next Annual Meeting of
Shareholders must be received by the Company no later than October 1, 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
June 7, 2000
Tampa, Florida
14
<PAGE> 17
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 be
classified by the Board of Directors and shall hold office until the
expiration of the term of that director's class. 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> 18
EXHIBIT B
PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK
The following sets forth the changes to Article FOURTH of the Company's
Certificate of Incorporation if proposal 3 is approved and proposal 4 is not
approved:
"FOURTH: The total number of shares of all classes of stock which the
corporation shall have the authority to issue is FIFTY MILLION (50,000,000)
shares, all of which shall be shares of common stock of the par value of
$.0033 per share."
The following sets forth the changes to Article FOURTH of the Company's
Certificate of Incorporation if both proposals 3 and 4 are 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> 19
EXHIBIT C
PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION ESTABLISHING A CLASS OF PREFERRED STOCK
The following sets forth the changes to Article FOURTH of the Company's
Certificate of Incorporation if proposal 4 is approved and proposal 3 is not
approved:
"FOURTH: The total number of shares of all classes of stock which the
corporation shall have the authority to issue is TWELVE MILLION
(12,000,000) shares, of which TEN MILLION (10,000,000) 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."
The following sets forth the changes to Article FOURTH of the Company's
Certificate of Incorporation if proposals 3 and 4 are 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> 20
NETWOLVES CORPORATION
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
JULY 6, 2000
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 July
6, 2000 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
JULY 6, 2000
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 Shareholders in 2000:
----------------------------------------------------------
Ed Lavin
To serve until the Annual Meeting of Shareholders in 2001:
----------------------------------------------------------
James A. Cannavino
Daniel Stephens
To serve until the Annual Meeting of Shareholders in 2002:
----------------------------------------------------------
Walter M. Groteke
Walter R. Groteke
[ ] 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> 21
(b) If item 1 is not adopted, election of the
following nominees, as set forth in the proxy statement:
James A. Cannavino, 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 common stock
from 10,000,000 shares, $.0033 par value to 50,000,000 shares, $.0033
par value, as set forth in Exhibit B to the Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal to amend Article FOURTH of the Certificate of Incorporation
to authorize 2,000,000 shares of preferred stock, $.0033 par value,
as set forth in Exhibit C to the Proxy Statement.
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: ______ , 2000
20
