SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14(a)-12
THE BETHLEHEM CORPORATION
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(Name of Registrant as Specified in Charter)
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(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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
<PAGE>
/ / 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:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
<PAGE>
THE BETHLEHEM CORPORATION
--------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD [ ], 1998
--------------
To the Shareholders of The Bethlehem Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of THE BETHLEHEM CORPORATION, a Pennsylvania corporation (the
"Company"), will be held on [ ], 1998 at 11:00 a.m. local time at the Holiday
Inn, Route 512, Bethlehem, Pennsylvania, for the following purposes:
1. To elect eight directors, each to serve for a term of one
year and until the next annual meeting of Shareholders and until their
successors are duly elected and qualify;
2. To approve the grant of stock options to each of Universal
Process Equipment, Inc. ("UPE"), James L. Leuthe and Salvatore J.
Zizza;
3. To approve the issuance of 350,000 shares of the Company's
common stock, no par value, to UPE;
4. To approve an amendment to the Company's Certificate of
Incorporation confirming cumulative voting in the election of
directors.
5. To ratify the appointment of BDO Seidman, LLP as
independent auditors of the Company for the fiscal year ending May 31,
1998; and
6. To transact such other business as may properly come before
the Meeting and any adjournment thereof according to the proxies
discretion.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Board of Directors has fixed the close
of business on [ ], 1998 as the record date (the "Record Date") for the Meeting.
Only shareholders of record of the Company's common stock, no par value, on the
Company's stock transfer books on the close of business on the Record Date are
entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors
HAROLD BOGATZ
SECRETARY
[ ], 1998
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WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL
IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
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<PAGE>
THE BETHLEHEM CORPORATION
25TH AND LENNOX STREETS
EASTON, PENNSYLVANIA 18045
----------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
[ ], 1998
----------------
INTRODUCTION
This Proxy Statement is being furnished to shareholders by the Board of
Directors of The Bethlehem Corporation, a Pennsylvania corporation (the
"Company"), in connection with the solicitation of the accompanying proxy (each
a "Proxy" and collectively, the "Proxies") for use at the Annual Meeting of
Shareholders of the Company (the "Meeting") to be held [ ], 1998 at 11:00 a.m.
local time at the Holiday Inn, Route 512, Bethlehem, Pennsylvania or at any
adjournment thereof.
The principal executive offices of the Company are located at 25th and
Lennox Streets, Easton, Pennsylvania 18045. The approximate date on which this
Proxy Statement and the accompanying Proxy will first be sent or given to
shareholders is [ ], 1998.
RECORD DATE AND VOTING SECURITIES
As of the close of business on [ ], 1998, the record date for the
Meeting (the "Record Date"), there were 1,938,520 outstanding shares of the
Company's common stock, no par value (the "Common Stock"). Except as indicated
below, holders of Common Stock have one vote per share on each matter to be
acted upon. Only holders of Common Stock (the "Shareholders") of record at the
close of business on the Record Date will be entitled to vote at the Meeting and
at any adjournment thereof. The presence, in person or by proxy, of Shareholders
entitled to cast at least a majority of the votes that all Shareholders are
entitled to cast on a particular matter to be acted upon at the meeting shall
constitute a quorum for purposes of consideration and action on such matter.
In the election of directors, each Shareholder shall have the right to
multiply the number of votes to which he may be entitled by the total number of
directors to be elected in the election of directors and he may cast the whole
number of his votes for one candidate or he may distribute them among any two or
more candidates. All other matters expected to be brought before the Meeting
require the affirmative vote of the holders of a majority of the Company's
Common Stock represented and voting at the Meeting for approval.
VOTING OF PROXIES
Shares of Common Stock represented by Proxies, which are properly
executed, duly returned and not revoked, will be voted in accordance with the
instructions contained therein. If no specification is indicated on the Proxy,
the shares of Common Stock represented thereby will be voted: (i) for the
election as Directors of the eight persons who have been nominated by the Board
of Directors; (ii) to approve the grant of stock options to each of Universal
Process Equipment, Inc. ("UPE"), James L. Leuthe and Salvatore J. Zizza; (iii)
to approve the issuance of 350,000 shares of Common Stock to UPE; (iv) to
approve an amendment to the Company's Certificate of
<PAGE>
Incorporation confirming cumulative voting in the election of directors; (v) to
ratify the appointment of BDO Seidman, LLP as independent auditors of the
Company for the year ending May 31, 1998 (the "1998 Fiscal Year"); and (v) on
any other matter that may properly be brought before the Meeting in accordance
with the judgment of the person or persons voting the Proxies.
The execution of a Proxy will in no way affect a Shareholder's right to
attend the Meeting and to vote in person. Any Proxy executed and returned by a
Shareholder may be revoked at any time thereafter if written notice of
revocation is given to the Secretary of the Company prior to the vote to be
taken at the Meeting, or by execution of a subsequent proxy that is presented
before the Meeting, or if the Shareholder attends the Meeting and votes by
ballot, except as to any matter or matters upon which a vote shall have been
cast pursuant to the authority conferred by such Proxy prior to such revocation.
For purposes of determining the presence of a quorum for transacting business at
the Meeting, abstentions and broker "non-votes" (I.E., proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares on a particular matter
with respect to which the brokers or nominees do not have discretionary power)
will be treated as shares that are present but that have not been voted.
The cost of solicitation of the Proxies being solicited on behalf of
the Board of Directors will be borne by the Company. In addition to the use of
the mail, proxy solicitation may be made by telephone, telegraph and personal
interview by officers, directors and employees of the Company. The Company will,
upon request, reimburse brokerage houses and persons holding Common Stock in the
names of their nominees for their reasonable expenses in sending soliciting
material to their principals.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of [ ], 1998, information regarding
ownership of the outstanding Common Stock of the Company by (i) all persons who
are known to the Company to be the beneficial owner of more than 5% of the
Common Stock; (ii) each director and Named Executive Officer (as such term is
hereinafter defined); and (iii) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
Percentage of
Name and Address of Beneficial Owner* Shares Owned Beneficially(1) Outstanding Shares
- ---------------------------------------------- --------------------------------- ------------------------
<S> <C> <C>
Universal Process 2,181,600(2)(3) 58.4%
Equipment, Inc.
P.O. Box 338
Roosevelt, NJ 08555
Ronald H. Gale 2,263,934 (4)(5) 60.4
Jan Gale 2,261,934(4)(5) 60.3
James L. Leuthe 338,958 (6)(10) 16.4
Robert F. Bacigalupo 140,901(7) 7.2
2433 S. Oakley Avenue
Chicago, IL 60608
Alan H. Silverstein 260,000(8) 11.8
Salvatore J. Zizza 184,667(9) 8.7
O. Karl Dieckmann 33,020(10) 1.7
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Name and Address of Beneficial Owner* Shares Owned Beneficially(1) Outstanding Shares
- ---------------------------------------------- --------------------------------- ------------------------
<S> <C> <C>
B. Ord Houston 10,199(10) (11)
Harold Bogatz 6,667(12) (11)
Clarence T. Lind 7,334(13) (11)
All directors and executive officers as a 3,192,381(14) 73.4%
group (12 persons)
</TABLE>
* Unless otherwise noted the address of the Beneficial Owner is c/o the
Company, 25th & Lennox Streets, Easton, Pennsylvania 18045.
(1) All persons identified below as holding options are deemed to be beneficial
owners of shares of Common Stock subject to such options by reason of their
right to acquire such shares within 60 days after September 26, 1997.
(2) Includes 1,800,000 shares subject to options. See "Certain Relationships and
Transactions."
(3) Does not include shares owned by Ronald H. Gale and Jan P. Gale.
(4) Includes 10,334 shares subject to options.
(5) Includes 2,181,600 shares beneficially owned by UPE, of which the individual
is an officer, director and principal stockholder.
(6) Of this total, 52,281 shares are owned by Nikki, Inc., a corporation of
which Mr. Leuthe is an officer and director and the sole stockholder, 161,343
shares are owned by Mr. Leuthe and 125,334 shares are subject to options. This
total does not include 640 shares owned by Mr. Leuthe's adult children, as to
which he disclaims beneficial ownership.
(7) This total does not include 2,331 shares owned by Mr. Bacigalupo's wife and
6,000 shares held in trust for the benefit of family members as to which Mr.
Bacigalupo acts as trustee. Mr. Bacigalupo disclaims beneficial ownership of
these 8,331 shares.
(8) Consists of 260,000 shares subject to options.
(9) Consists of 184,667 shares subject to options.
(10) Includes 334 shares subject to options.
(11) Less than 1.0%.
(12) Consists of 6,667 shares subject to options.
(13) Includes 3,334 shares subject to options.
(14) Includes 2,408,006 shares subject to options.
-3-
<PAGE>
INTEREST OF CERTAIN PERSONS WITH RESPECT TO THE PROPOSALS TO APPROVE THE GRANT
OF STOCK OPTIONS AND ISSUANCE OF COMMON STOCK
On March 26, 1996, the Board of Directors of the Company, subject to
the approval of the Company's stockholders, granted to UPE an option to purchase
350,000 shares of Common Stock at an exercise price of $1.8125 per share. These
options were in consideration for guarantees provided by UPE including
guarantees expected to be required for successor debt. UPE provided a limited
guarantee for up to $350,000 of the mortgage payable. UPE also agreed to
purchase all of the Company's resale inventory in the event of a default by the
Company. The amount of such inventory subject to this arrangement outstanding at
November 17, 1997 approximates $1,000,000. The Company has a $4,000,000 line of
credit with CIT Group for used equipment.
On March 26, 1996, the Board of Directors of the Company subject to the
approval of the Company's stockholders, authorized the issuance to UPE of
350,000 shares of Common Stock. These shares will be issued at the determined
fair market value of the stock on the date the issuance is approved by the
stockholders. These shares were issued in consideration for a 50% interest in
inventory UPE purchased in 1992, 1993 and 1995 in the approximate amount of
$402,750.
On March 26, 1996, the Board of Directors of the Company, subject to
the approval of the Company's stockholders, granted to Mr. Leuthe and Mr. Zizza
stock options to purchase an aggregate of 125,000 and 178,000 shares of Common
Stock respectively. These options were granted at an exercise price of $1.8125
per share, not being less than 100% of the fair market of the Common Stock on
March 26, 1996, the date of the grant. These options were in consideration for
Mr. Leuthe's services to the Company as Chairman of the Board and Chief
Executive Officer, which position he held from 1977 to December 1995, and as an
inducement for continued service as a director of the Company. Mr. Zizza under a
consulting agreement with the Company, receives $60,000 per annum in return for
the level of management services he renders to the Company as Chairman of the
Board.
For further information with respect to the foregoing transactions,
please see "Proposal II -- Approval of Grant of Stock Options." "Proposal III --
Approval of Issuance of Stock to UPE" and "Certain Relationships and
Transactions."
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<PAGE>
PROPOSAL I--ELECTION OF DIRECTORS
NOMINEES
Prior to the 1995 Annual Meeting of Shareholders (the "1995 Meeting"),
the Company's By-Laws provided for the organization of the Board of Directors
into four classes with directors in each class serving for four year terms. The
Board of Directors approved and at the 1995 Meeting the Shareholders ratified an
amendment to the ByLaws that created a Board of Directors whose entire
membership is to be elected annually. The By-Law amendment did not affect the
terms of then incumbent directors who were elected in prior years and whose
terms expired subsequent to the 1995 Meeting. Each of such terms will have
expired at or before the Meeting.
It is proposed that eight nominee directors, Harold Bogatz, O. Karl
Dieckmann, Ronald H. Gale, Jan P. Gale, B. Ord Houston, James L. Leuthe, Alan H.
Silverstein and Salvatore J. Zizza (the "Nominees"), be elected to serve until
the next Annual Meeting of Shareholders and until their respective successors
are elected and qualify. Unless otherwise specified, all Proxies received will
be voted in favor of the election of the Nominees as directors of the Company.
All Nominees are currently directors of the Company.
Each Nominee has consented to serve if elected. In the event that any
of the Nominees should be unable to serve, the Proxies will vote for such
substitute nominee or nominees as they, in their discretion, shall determine.
The Board of Directors has no reason to believe that any of the Nominees named
herein will be unable to serve. Any vacancy occurring on the Board of Directors
for any reason may be filled by a majority vote of the directors then in office,
and each person so elected shall serve until the next Annual Meeting of
Shareholders and until his successor is elected and qualified.
The following table sets forth information regarding the current ages,
terms of office and business experience the Nominees, including their positions
with the Company:
<TABLE>
<CAPTION>
Year First Became
NAME AGE PRINCIPAL OCCUPATION a Director
- ---- --- -------------------- ---------------------
<S> <C> <C> <C>
Salvatore J. Zizza 51 Chairman of the Board of 1995
Directors since 1995; Chairman
(from 1991 to July 1997) and
Executive Vice President and
Treasurer (since July 1997) of
The Lehigh Group, a public
company listed on the New York
Stock Exchange with subsidiaries
in the distribution of electrical
products
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Year First Became
NAME AGE PRINCIPAL OCCUPATION a Director
- ---- --- -------------------- ---------------------
<S> <C> <C> <C>
Alan H. Silverstein 48 President and Chief Executive 1994
Officer of the Company since
December 1995; President and
Chief Operating Officer of the
Company from February 1994 to
November 1995; from July 1992
to February 1994, President of
Universal Envirogenics, Inc., a
rebuilder of industrial gas plants
James L. Leuthe 55 Chairman of the Board of First 1976
Lehigh Corporation, a bank
holding company, since 1982;
from 1977 until 1995 held
various positions with the
Company, including most
recently President and Chief
Executive Officer
Jan P. Gale(1) 43 Vice President since 1978 of 1991
UPE, an international supplier of
complete process plants and
equipment and manufacturer of
new equipment in the United
States and Europe
Ronald H. Gale(1) 46 President and Chief Executive 1990
Officer of UPE since 1978
Harold Bogatz 59 Vice President and General 1995
Counsel of UPE since 1987;
Secretary of the Company since
1996
O. Karl Dieckmann 84 Investment manager and 1960
consultant, retired for at least the
past five years
B. Ord Houston 84 Secretary of the Company from 1976
June 1983 to December 1995,
otherwise retired for at least the
last five years; held various
positions with the Company since
1966, most recently as Executive
Vice President
</TABLE>
(1) Ronald H. Gale and Jan P. Gale are brothers.
-6-
<PAGE>
REQUIRED VOTE
In voting for directors, each Shareholder is entitled to eight votes
for each share of Common Stock held, one for each of eight directors to be
elected. A Shareholder may cast his votes evenly for all Nominees or may
cumulate his votes and cast them for one Nominee or distribute his votes among
two or more Nominees. The eight persons receiving the highest number of votes
cast in person or by proxy shall be elected to the Board of Directors. Brokers
that do not receive instructions are entitled to vote on the election of
directors. Abstentions from voting on the election of directors will have no
effect, because they will not represent votes cast at the Meeting for the
purpose of electing directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE NOMINEES.
BOARD MEETINGS -- COMMITTEES OF THE BOARD
The Board of Directors met three times during the fiscal year ended May
31, 1997 (the "1997 Fiscal Year"). The Board of Directors has constituted an
Audit Committee, a Compensation Committee, a Stock Option Committee and a
Nominating Committee. No director of the Company attended fewer than 75% of the
aggregate of the total number of meetings of the Board of Directors held plus
the total number of meetings held by all committees of the Board on which he
served during the 1997 Fiscal Year; with the exception of Mr. Dieckmann, whose
health prevented him from attending two such meetings during the 1997 Fiscal
Year.
The Audit Committee currently consists of Messrs. Leuthe, Houston and
Dieckmann and is appointed annually by the Board of Directors to recommend the
selection of independent auditors, to review the scope and results of the audit,
to review the adequacy of the Company's accounting, financial and operating
controls and to supervise special investigations. The Audit Committee meet once
during the 1997 Fiscal Year.
The Compensation Committee currently consists of Messrs. Zizza, Houston
and R. Gale and is appointed annually by the Board of Directors to recommend to
the Board of Directors remuneration arrangements for senior management and
directors, the adoption of compensation plans in which officers and directors
are eligible to participate and the granting of options or other benefits under
such plans. The Compensation Committee did not meet during the 1997 Fiscal Year.
The Stock Option Committee currently consists of Messrs. Ronald H. Gale
and B. Ord Houston and is appointed annually by the Board of Directors to
determine the terms of the grant of stock options and the persons to whom such
options shall be granted in accordance with the terms of the Company's stock
option plans and to administer such plans. The Stock Option Committee did not
meet during the 1997 Fiscal Year.
The Nominating Committee currently comprises Messrs. J. Gale, Zizza,
Silverstein and Bogatz, and is appointed annually by the Board of Directors to
recommend to the Board of Directors nominees for election as directors. The
Nominating Committee did not meet during the 1997 Fiscal Year.
-7-
<PAGE>
EXECUTIVE COMPENSATION TABLE
The following table summarizes compensation information for the
Company's President and Chief Executive Officer and Clarence T. Lind, the only
other executive officer of the Company whose compensation exceeded $100,000 for
the fiscal year ended May 31, 1997. The table presents for such individuals
information with respect to compensation paid or accrued by the Company for
services rendered during the fiscal years ended May 31, 1995, 996 and 1997.
Messrs. Silverstein and Lind are collectively referred to herein as the "Named
Executive Officers."
-8-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Fiscal Year Compensation Long Term Compensation
-------------------------------------- --------------------------------
Stock All Other
Name and Other Annual Option Compensation
Principal Position Year Salary Bonus Compensation(s) Awards ----------------
- --------------------- ------------- -------- --------- ----------------- ------------- (1)
<S> <C> <C> <C> <C> <C> <C>
Alan H. Silverstein 1997 $140,441 $83,570 $ 7,295(3) -- 11,925
President and Chief 1996 118,655 46,850 7,295(3) -- 11,925
Executive Officer(2) 1995 110,000 30,698 5,472(3) -- 11,925
Clarence T. Lind
Vice President of 1997 99,000 25,907 4,369(3) -- 672
Sales, Marketing and 1996 90,000 26,350 4,369(3) 20,000 672
Technology(4)
</TABLE>
- ----------------------------------------
(1) Represents life insurance premiums paid by the Company.
(2) Mr. Silverstein was elected President and Chief Operating Officer of the
Company in February 1994 and was appointed Chief Executive Officer of the
Company on December 12, 1995.
(3) Represents lease and insurance payments made by the Company with respect to
use of an automobile.
(4) Mr. Lind was elected Vice President of Sales, Marketing and Technology of
the Company on December 12, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted during the 1997 Fiscal Year to any Named
Executive Officers.
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<PAGE>
AGGREGATED FISCAL YEAR-END OPTIONS
The following table sets forth certain information regarding
unexercised stock options held by each of the Named Executive Officers as of May
31, 1997. No stock options were exercised by any Named Executive Officer during
the 1997 Fiscal Year.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options in-the-Money Options
at May 31, 1997 at May 31, 1997 ($)(1)
Exercisable/ Exercisable/
Unexercisable Unexercisable
NAME --------------------- ------------------------
- ----
<S> <C> <C>
Alan H. Silverstein 260,000/0 234,375/0
Clarence T. Lind 3,334/16,666 1,250/0
James L. Leuthe 334/125,000 0/7,813
</TABLE>
- ----------------------------
(1) On May 31, 1997, the last reported sale price of the Common Stock, as
reported by the American Stock Exchange, was $1.875 per share.
COMPENSATION OF DIRECTORS
Directors are not compensated for their services as a director but are
entitled to reimbursement of expenses incurred in connection with their
attendance at all meetings. In the past the Company has granted options to
certain directors.
EMPLOYMENT AGREEMENTS
Alan H. Silverstein, President and Chief Executive Officer, is employed
by the Company pursuant to an agreement (the "Employment Agreement") dated
February 1, 1994. The Employment Agreement provides for a five year term, with
automatic renewal for successive terms of two years, subject to a mutual right,
exercisable within 120 days prior to the expiration of any term, not to renew
the Employment Agreement. The salary paid to Mr. Silverstein for the first year
under the Employment Agreement is $110,000 increasing to $165,000 in the fifth
year. Mr. Silverstein is entitled to a quarterly bonus based on the earnings of
the Company, with a minimum guaranteed bonus for the first 18 months of $30,000.
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<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Ronald H. Gale and Jan Gale are directors and Shareholders of the
Company and are officers, directors and principal stockholders of UPE, a
principal Shareholder of the Company. UPE and/or Ronald H. Gale and/or Jan Gale
are also majority shareholders or otherwise affiliated with other companies that
engage in transactions with the Company. UPE and related entities have purchased
process equipment manufactured by the Company and have utilized the Company's
remanufacturing services. The approximate total revenues derived from sales to
UPE and related parties was $76,000 for the fiscal year ended May 31, 1997. The
Board of Directors believes that the terms of such sales were at least as
favorable to the Company as could have been obtained from unaffiliated third
parties.
On March 26, 1996, the Company granted an option to purchase 350,000
shares of Common Stock to UPE at an exercise price of $1.8125 per share. Such
option was issued in consideration for guarantees by UPE of borrowings by the
Company from the CIT Group and Sterling Commercial Capital in July 1995. The
financing from the CIT Group consists of a three year $5 million maximum line of
credit and term loan facility, secured by a third lien position on Company owned
real estate and a first lien on substantially all other owned assets of the
Company.
See "Proposal II -- Approval of Grant of Stock Options."
The Board of Directors has authorized the issuance to UPE of 350,000
shares of Common Stock in consideration for a 50% ownership interest in certain
resale inventory, which consists primarily of heat transfer equipment owned by
UPE. See "Proposal III -- Approval of Issuance of Stock to UPE."
From time to time in the ordinary course of business, UPE advances
funds to the Company to enable the Company to meet certain temporary cash
requirements. The interest rate on the advances is prime rate (Chase Bank New
York) plus 1%. In August 1996, UPE advanced $250,000 to the Company. UPE
advanced an additional $250,000 to the Company in October 1996. As of September
30, 1997, both advances remained outstanding.
On February 28, 1997, the Company purchased a complete two stage
environmental thermal process system in Alberta, Canada. In order to effect the
acquisition of the equipment, the Company borrowed $225,000 from UPE at an
interest rate of prime rate (Chase Bank, New York) plus 2.5%. This loan will be
repaid from the proceeds of the sale of the specific equipment purchased.
As of June 1, 1996, the Company began a three year profit sharing
arrangement with UPE. This arrangement was agreed upon as consideration for
UPE's role in introducing the Company to Third Millenium Products, Inc.
("Millenium"), assisting in negotiating the acquisition of the assets of the
American Furnace Division of Millenium by Bethlehem Advanced Materials
Corporation ("BAM"), a wholly-owned subsidiary of the Company, and UPE's role in
originating, negotiating, developing and assisting in the marketing of the Tower
Filter Process product line. Under this arrangement, which expires in May 1999,
UPE is entitled to receive 25% of the pre-tax profits of BAM and the Tower
Filter Press product line.
The Company and Salvatore J. Zizza, Chairman of the Board of the
Company, are parties to an agreement under which Mr. Zizza renders certain
financial advisory services, including those relating to proposed mergers and
acquisitions and equity and debt financing and relations with the financial
community and investors. Mr. Zizza receives compensation in the amount of
$60,000 per annum.
-11-
<PAGE>
PROPOSAL II--APPROVAL OF GRANT OF STOCK OPTIONS
PROPOSAL
The Board of Directors recommends that the Shareholders vote to approve
the grant of stock options, described below, to UPE, a principal Shareholder of
the Company, James L. Leuthe, a director and former Chairman and Chief Executive
Officer of the Company, and Salvatore J. Zizza, Chairman of the Board of
Directors of the Company.
GRANT OF OPTIONS
Subject to the approval of the Company's Shareholders, the Board of
Directors has granted to UPE and Messrs. Leuthe and Zizza stock options (the
"Options") to purchase an aggregate of 350,000, 125,000 and 178,000 shares of
Common Stock, respectively. Such Options were granted at an exercise price of
$1.8125 per share, being not less than 100% of the fair market value of the
Common Stock on March 26, 1996, the date of grant. Upon approval by the
Shareholders of the Company, the Options will vest over a three-year period. On
May 31, 1997, the last reported sale price of the Company's Common Stock, as
reported by the American Stock Exchange, was $1.875 per share.
The Options granted to each of UPE and Messrs. Leuthe and Zizza expire
on March 25, 2006, or, with respect to Messrs. Leuthe and Zizza, within three
months after death or permanent incapacitation.
The Options are not transferable except, with respect to Messrs. Leuthe
and Zizza, by will or by the laws of descent and distribution.
The exercise price of the Options and the number of shares issuable
upon the exercise of the Options will be subject to adjustment to protect
against dilution in the event of stock dividends, stock splits, consolidations,
mergers, or liquidation of the Company.
Additional terms of each Option have been set by the Board of Directors
and are embodied in option agreements executed by each of UPE and Messrs. Leuthe
and Zizza.
PURPOSE OF OPTIONS
The Options granted to UPE were in consideration for guarantees by UPE
of borrowings by the Company from the CIT Group and Sterling Commercial Capital
in July 1995. The financing from the CIT Group consists of a three year $5
million maximum line of credit and term loan facility, secured by a third lien
position on Company owned real estate and a first lien on substantially all
other owned assets of the Company. This credit facility includes: (a) an
$800,000 term loan requiring $13,333 monthly principal payments plus interest at
prime rate (Chase Bank, New York) plus 3% and (b) advances against a percentage
of eligible inventory not to exceed $4,000,000 in the aggregate. Initial
proceeds of this credit facility were used to fund working capital. With respect
to the CIT Group financing, UPE agreed to purchase certain inventory in the
event of a default by the Company. The amount of such inventory subject to this
arrangement approximates $1,000,000 at November 17, 1997.
The financing from Sterling Commercial Capital consists of a $1.5
million five year first mortgage loan. The loan is collateralized by a first
mortgage lien on real estate owned by the Company and a second lien on all other
Company owned assets. The loan bears interest at 14.25% per annum. The
outstanding principal and interest is payable in 59 consecutive equal monthly
payments calculated to fully amortize over a 15 year period with a final payment
of all then outstanding principal and interest. In connection with the Sterling
mortgage financing, UPE agreed to provide a guarantee for up to $350,000 of the
Company's indebtedness.
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The Options granted to Mr. Leuthe were in consideration of his services
to the Company as Chairman of the Board and Chief Executive Officer which
position he held from 1977 to December 1995 and as an inducement for continued
service as a director of the Company. The Options granted to Mr. Zizza were in
consideration of his serving as a director of the Company.
The Options are expressly conditioned upon approval of their grant of
the Options by the Company's Shareholders. If approval of the Company's
Shareholders is not received, the Options will be cancelled and deemed never to
have been granted.
Pursuant to paragraph 8 of SFAS No. 123, the Options granted to Messrs.
Leuthe and Zizza will be recorded at fair value on the date of shareholder
approval. The Company will capitalize the amount related to UPE's loan guarantee
and amortize it over the existing indebtedness and any successor financing. The
Company estimates that the fair value of a share of the Company's Common Stock
will approximate $1.25 per share on the date of shareholder approval. With
respect to the options granted to Messrs. Zizza and Leuthe, the Company will
recognize an expense of $379,000 (or a monthly expense of approximately $10,500)
over the three-year vesting period of the options.
The Company's methodology to determine the inherent value of the
options was reviewed by an independent valuation consultant. Significant
assumptions on the valuation of the options include: risk free interest rate of
6.04%; expected volatility of 31.4% and expected lives of three years. In
addition, the difference between the estimated market price at the date of the
grant and the value used by the Company will reflect an appropriate discount off
the market price because among other factors, the illiquidity in the Company's
stock.
EFFECT ON RIGHTS OF EXISTING STOCKHOLDERS
The effect of the grant of the Options on existing stockholders will be
the dilution arising from the difference between the net tangible book value per
share of the Company's Common Stock immediately before the exercise of the
options and the net tangible book value of the Common Stock immediately after
the exercise of the Options. As of May 31, 1997, the net tangible book value of
the Company's Common Stock was [$ ]. After giving effect to exercise of the
Options, the net tangible book value of the Common Stock at May 31, 1997 would
have been [$ ]. In addition, if all the Options are exercised the Company's
outstanding shares will increase by 653,000.
FEDERAL INCOME TAX CONSEQUENCES
All of the Options are non-qualified stock options.
NON-QUALIFIED STOCK OPTIONS. Upon exercise of an Option, the optionee
will recognize ordinary income in an amount equal to the excess of the fair
market value of the Common Stock received over the exercise price of the Option.
That amount will increase the optionee's basis in the Common Stock acquired
pursuant to the exercise of the Option. Upon a subsequent sale of the Common
Stock, the optionee will recognize short term or long term gain or loss
depending upon his holding period for the Common Stock and upon the subsequent
appreciation or depreciation in the market value of the Common Stock. The
Company will be allowed a federal income tax deduction for the amount recognized
as ordinary income by the optionee upon the optionee's exercise of the Option.
SUMMARY OF TAX CONSEQUENCES. The foregoing outline is no more than a
summary of the federal income tax provisions relating to the grant and exercise
of the Options and the sale of Common Stock acquired upon exercise. Individual
circumstances and amendments to the federal income tax laws or regulations may
vary these results.
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REGISTRATION OF SHARES
The Company intends to file a registration statement under the
Securities Act of 1933, as amended, with respect to the Common Stock issuable
upon exercise of the Options subsequent to approval of the Options by the
Company's Shareholders.
REQUIRED VOTE
Approval of the grant of options requires the affirmative vote of a
majority of the votes cast by all Shareholders represented and entitled to vote
thereon. An abstention, withholding of authority to vote or broker non- vote,
therefore, will not have the same legal effect as an "against" vote and will not
be counted in determining whether the proposal has received the requisite
Shareholder vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE GRANT OF THE STOCK OPTIONS.
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PROPOSAL III-APPROVAL OF ISSUANCE OF STOCK TO UPE
PROPOSAL
The Board of Directors recommends that the Shareholders vote to approve
the issuance of stock, described below, to UPE, a principal Shareholder of the
Company.
GRANT OF STOCK; PURPOSE OF STOCK
On March 26, 1996, the Board of Directors authorized the issuance to
UPE of 350,000 shares of Common Stock in consideration for a 50% ownership
interest in certain resale inventory, which consists primarily of tower presses,
rotary vacuum dryers, double cone dryers and vacuum freeze dryers owned by UPE.
This line of inventory is similar to those manufactured and marketed by the
Company. The economic purpose of the transaction is to have used inventory on
hand for customers who can not afford new equipment or who need the equipment in
a much shorter time frame than the construction of new equipment permits. This
equipment is much lower in sales value and cost and with shorter delivery time
provides a valuable alternative for the Company's customers. On March 26, 1996,
the last reported sale price of the Common Stock as reported by the American
Stock Exchange was $1.8125 per share.
Based on APB 29, paragraph 25, the Company will base the carrying
value of the inventory on the determined fair market value of the stock (in
effect the value of consideration given) at the date the stockholders approve
the transaction. The Company believes the market price of the Company's stock on
the day the Company's stockholders approve this transaction should be discounted
by a factor because of the size of the issue as well as the illiquidity of the
Company's stock. Such values will be reviewed by an independent valuation
consultant. The cost of the inventory to UPE was $402,750 and the Company had
independent appraisals performed whereby the inventory was valued at
approximately $1,672,000. The inventory was purchased by UPE in December 1992,
July 1993 and August 1995. Based on the Company's knowledge and expertise in
this type of equipment, the Company believes the appraisals are a fair
assessment of the value of this inventory. Therefore, the Company believed that
the issuance of 350,000 shares of Common Stock was an appropriate purchase price
for the inventory. UPE typically purchases inventory in large quantities and it
is not unusual for them to purchase an entire plant with equipment. Since UPE is
one of the largest used equipment dealers in the world, they have the ability to
purchase these large quantities of inventory at very discounted prices. It is
not unusual for UPE to have inventory on hand for at least five years.
The issuance of such shares is subject to Shareholder approval. The
Company will evaluate that the UPE inventory should be carried at the lower of
cost and market at each balance sheet date if and when stockholders approval is
received.
The Company will obtain its 50% interest in the resale inventory if and
when the shareholders approve the proposal. The Company will have title for 100%
of the inventory and will assume the risk of loss regarding the inventory. UPE
will have a 50% partnership interest in the inventory.
EFFECT ON RIGHTS OF EXISTING STOCKHOLDERS
The effect of the issuance of stock to UPE will be the dilution arising
from the difference between the net tangible book value per share of the
Company's Common Stock immediately before the issuance of the 350,000 Shares of
Common Stock to UPE and the net tangible book value of the Common Stock after
the issuance of the Shares to UPE. As of May 31, 1997, the net tangible book
value of the Company's Common Stock was [$ ] per share. After giving effect to
the grant of the Common Stock to UPE, the net tangible book value of the
Company's Common Stock at May 31, 1997 would have been [$ ] per share. In
addition, if the shares of Common Stock are issued, the Company's outstanding
shares will increase by 350,000.
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REQUIRED VOTE
Approval of the grant of stock to UPE requires the affirmative vote of
a majority of the votes cast by all Shareholders represented and entitled to
vote thereon. An abstention, withholding of authority to vote or broker non-
vote, therefore, will not have the same legal effect as an "against" vote and
will not be counted in determining whether the proposal has received the
requisite Shareholder vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE GRANT OF THE STOCK.
PROPOSAL IV--AMENDMENT THE TO THE COMPANY'S CERTIFICATE OF INCORPORATION
The Company's Board of Directors has adopted, and is recommending that
the Shareholders vote to approve a resolution to amend the Company's Amended and
Restated Articles of Incorporation (the "Articles") to confirm the right of
holders of Common Stock to cumulate their votes in the election of directors.
Cumulative voting entitles shareholders, when electing directors, to
multiply the number of votes they are entitled to cast by the total number of
directors to be elected. A shareholder may cast the whole number of his votes
for one candidate, or distribute them among two or more candidates.
Under Section 1758 of the Pennsylvania Business Corporation Law (the
"BCL"), cumulative voting is not mandatory, but is presumed to be a right unless
the corporation's articles of incorporation provide otherwise. However, Section
1758 (c)(2) of the BCL provides that for corporations, such as the Company,
which were incorporated prior to the Business Corporation Law of 1933, if the
shareholders of such corporation were not entitled to cumulate votes at the date
the corporation was incorporated or became subject to the Business Corporation
Law of 1933 or Section 1758, those shareholders may cumulate their votes only
"...if and to the extent [the corporation's] articles so provide."
The Company's Bylaws specifically provide for cumulative voting for
directors unless cumulative voting is prohibited by the Articles. The Articles
neither specifically provide for nor prohibit cumulative voting. It has been the
Company's position that, since the Company's Bylaws specifically provide for
cumulative voting and the Articles do not prohibit cumulative voting, the
Company's shareholders may cumulate their votes in electing directors. The
Company believes that its shareholders were entitled to cumulate their votes at
the time the Company was incorporated or became subject to the Business
Corporation Law of 1933 or Section 1758. However, because more than 60 years
have elapsed since the Company became subject to the Business Corporation Law of
1933 and because of the lack of records confirming the Company's position, it is
the view of the Board of Directors that it would desirable to confirm this right
of shareholders.
Accordingly, the Board of Directors is submitting to the shareholders a
proposal which will amend Section I.A. of Article 6 so that it reads in its
entirety as follows:
"I. THE COMMON STOCK.
A. VOTING. Each holder of Common Stock shall be entitled to one vote
for each share of Common Stock held on all matters submitted to the shareholders
of the Corporation for a vote. In each election of directors every shareholder
entitled to vote shall have the right to multiply the number of votes to which
he may be entitled by the total number of directors to be elected in the same
election and he may cast the whole number of his votes for one candidate or he
may distribute them among any two or more candidates. The holders of the Common
Stock
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shall vote as a single class with the holders of each series of Preferred Stock
to which voting rights are granted pursuant to the certificate filed pursuant to
law with respect to such series of Preferred Stock, except for those matters
with respect to which one or more series of the Preferred Stock shall have
exclusive or special voting rights as specifically provided in the certificate
filed pursuant to law with respect to such series of the Preferred Stock or as
otherwise provided by law."
REQUIRED VOTE
The affirmative vote of the holders of a majority of all
outstanding shares of Common Stock entitled to vote at a meeting of
stockholders, in person or by proxy, is required for approval of the proposed
amendment to the Company's Articles. An abstention, withholding of authority to
vote or broker non-vote, therefore, will have the same effect as a negative
vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE ARTICLES.
PROPOSAL V--RATIFICATION OF SELECTION OF AUDITORS
On March 6, 1997, the Board of Directors of the Company terminated the
engagement of Sobel & Co., LLC, Certified Public Accountants ("Sobel") as the
independent auditors of the Company and appointed BDO Seidman, LLP as the
independent auditors of the Company for the fiscal year ending May 31, 1997.
Sobel's report on the financial statements of the Company for the fiscal years
ended May 31, 1995 and May 31, 1996 did not contain any adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. There were no other reportable events or
disagreements with Sobel to report in response to Item 304(a) of Regulation S-B.
Although the selection of auditors does not require ratification, the
Board of Directors has directed that the appointment of BDO Seidman, LLP for the
1998 Fiscal Year be submitted to Shareholders for ratification due to the
significance of their appointment to the Company. If Shareholders do not ratify
the appointment of BDO Seidman, LLP, the Board of Directors will consider the
appointment of other certified public accountants. A representative of BDO
Seidman, LLP is expected to be available at the Meeting to make a statement if
such representative desires to do so and to respond to appropriate questions.
REQUIRED VOTE
Ratification of the appointment of BDO Seidman, LLP requires the
affirmative vote of a majority of the votes cast by all Shareholders represented
and entitled to vote thereon. An abstention, withholding of authority to vote or
broker non-vote, therefore, will not have the same legal effect as an "against"
vote and will not be counted in determining whether the proposal has received
the requisite Shareholder vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE 1998 FISCAL YEAR.
INCORPORATION BY REFERENCE
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This Proxy Statement incorporates by reference the Company's Audited
Financial Statements for the fiscal years ended May 31, 1997 and May 31, 1996 as
well as Management's Discussion and Analysis of Financial Conditions and Results
of Operations. Such information is included in the Company's Annual Report for
the 1997 Fiscal Year which is being mailed to shareholders with this Proxy
Statement.
ANNUAL REPORT
All Shareholders of record as of the Record Date are concurrently
herewith being sent a copy of the Company's Annual Report for the 1997 Fiscal
Year.
ANY SHAREHOLDER OF THE COMPANY MAY OBTAIN WITHOUT CHARGE A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB, FOR THE 1997 FISCAL YEAR (WITHOUT
EXHIBITS), AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, BY WRITING TO
SHAREHOLDER INFORMATION, THE BETHLEHEM CORPORATION, 25TH AND LENNOX STREETS,
EASTON, PENNSYLVANIA 18045.
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials to be
distributed in connection with the next Annual Meeting of Shareholders of the
Company, Shareholder proposals for such meeting must be submitted to the Company
no later than June 2, 1998.
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no matters
other than those set forth herein which will be presented for consideration at
the Meeting. If any other matter or matters are properly brought before the
Meeting or any adjournment thereof, the persons named in the accompanying Proxy
will have discretionary authority to vote, or otherwise act, with respect to
such matters in accordance with their judgment.
By Order of the Board of Directors,
HAROLD BOGATZ
SECRETARY
[ ], 1998
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