SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 (a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.___)
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Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Prelimiary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11 (c) or Section 240.14a-12
Enercorp, Inc.
--------------
(Name of Registrant as Specified in its Charter)
Robert R. Hebard, President
-----------------------------
(Name of Person(s) Filing Proxy Statement)
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) amd 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: _____________________________________
(4) Proposed Maximum aggregate value of transaction: ____________
(5) Total Fee Paid: _____________________________________________
[ ] Fee previously paid 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 Registrantion Statement No.: _________________
(3) Filing Party: ______________________________
(4) Date Filed: ________________________________
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<PAGE>
ENERCORP, INC.
7001 Orchard Lake Road, Suite 424
West Bloomfield, Michigan 48322-3608
- ------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held on
January 29, 1999
- ------------------------------------------------------------------------------
December 23, 1998
TO THE SHAREHOLDERS OF ENERCORP, INC.:
The Annual Meeting of Shareholders of Enercorp, Inc., a Colorado
corporation (the "Company"), will be held at the Company's headquarters, 7001
Orchard Lake Road, Suite 424, West Bloomfield, Michigan 48322 on, Friday,
January 29, 1999 at 9:00 a.m. Eastern Standard Time, to consider and take action
on:
1. The election of three directors to serve until the next annual meeting of
shareholders and until their successors have been elected and qualified.
2. A proposal to authorize the Company to sell shares of its capital stock at
prices below such stock's current net asset value. (Passage of this proposal
requires both the affirmative vote of a majority of the Company's outstanding
shares entitled to vote on the proposal and a majority of the Company's voting
shares entitled to vote on the proposal which are held by non-affiliates.)
3. A proposal to authorize the Company to change the nature of its business and
withdraw its election as a business development company under the Investment
Company Act of 1940, as amended. (Passage of this proposal requires the
affirmative vote of a majority of the shares of common stock outstanding and
entitled to vote on the proposal.)
4. Three proposals, which will be voted upon separately, to adopt certain
amendments to the Company's Restated Articles of Incorporation. (Passage of each
of these proposals requires the affirmative vote of two-thirds of the Company's
outstanding shares entitled to vote on the proposals.)
5. A proposal to ratify the appointment of Hirsch, Silberstein and Sulbelsky,
P.C. as the independent auditors of the Company for the fiscal years ended June
30, 1997 and 1998 and for the fiscal year ending June 30, 1999. (Passage of this
proposal requires the affirmative vote of the majority of the shares represented
at the meeting and entitled to vote on the proposal.)
<PAGE>
6. Such other business as may properly come before the meeting, or any
adjournment or adjournments thereof.
The discussion of the proposals of the Board of Directors set forth above
is intended only as a summary, and is qualified in its entirety by the
information relating to the proposals set forth in the accompanying Proxy
Statement.
Only holders of record of Common Stock at the close of business on
December 22, 1998 will be entitled to notice of and to vote at this special
meeting, or any postponements or adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS:
Robert R. Hebard, President
PLEASE DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR SHARES MAY
BE VOTED IN ACCORDANCE WITH YOUR WISHES. THE GIVING OF SUCH PROXY DOES NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
YOUR VOTE IS IMPORTANT
<PAGE>
ENERCORP, INC.
7001 Orchard Lake Road, Suite 424
West Bloomfield, Michigan 48322-3608
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 29, 1999
December 23, 1998
This proxy statement is being furnished to shareholders of Enercorp, Inc.
(the "Company") in connection with a solicitation of proxies by the board of
directors of the Company for use at the 1998 Annual Meeting of Shareholders and
at any adjournments or postponements thereof. The meeting will be held at 9:00
a.m. Eastern Standard Time, at the Company's headquarters at 7001 Orchard Lake
Road, Suite 424, West Bloomfield, Michigan 48322, on Wednesday, January 29,
1999. The proxy and proxy statement (the "Proxy Materials") will be first mailed
to the shareholders on or about December 23, 1998.
REVOCABILITY OF PROXY
If the enclosed proxy is executed and returned, it will be voted on the
proposals as indicated by the shareholder. The proxy may be revoked by the
shareholder at any time prior to its use by notice in writing to the Secretary
of the Company, by executing a later dated proxy and delivering it to the
Company prior to the meeting or by voting in person at the meeting.
SOLICITATION
In addition to solicitation by mail, the Company may use the services of
its directors, officers and employees to solicit Proxies, personally or by
telephone and telegraph, but at no additional salary or compensation. The
Company will reimburse banks, brokers and other custodians, nominees and
fiduciaries holding shares of record for others reasonable out-of-pocket
expenses incurred by them in forwarding copies of the Proxy Materials to the
beneficial owners of such shares.
VOTING SECURITIES
Holders of record of the Company's common stock, no par value (the "Common
Stock"), at the close of business on December 22, 1998 (the "Record Date") will
be entitled to vote on all matters. On the Record Date the Company had 590,897
shares of Common Stock outstanding. The holders of shares of Common Stock are
entitled to one vote per share. The Company's only class of voting securities is
the Common Stock. A majority of the issued and outstanding shares of the Common
Stock entitled to vote, represented in person or by proxy, constitutes a quorum
for the transaction of business at the meeting.
Abstentions will be treated as shares present or represented and entitled
to vote for purposes of determining the presence of a quorum, but will not be
considered as votes cast in determining whether a matter has been approved by
the shareholders. As to any shares a broker indicates on its proxy that it does
not have the authority to vote on any particular matter because it has not
received direction from the beneficial owner thereof, said shares will not be
counted as voting on the particular matter.
<PAGE>
PERFORMANCE GRAPH
The graph below compares the percentage changes in the Company's cumulative
stockholder return on its Common Stock for the five-year period ended June 30,
1998, with the cumulative total return of the Nasdaq Stock Market (US Companies)
and a peer index of the Nasdaq Stocks - Miscellaneous Investing.
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Legend
CRSP Total Returns Index for: 06/30/93 06/30/94 06/30/95 06/30/96 06/30/97 06/30/98
-------- -------- -------- -------- -------- --------
Enercorp, Inc. 100.0 157.1 114.3 95.2 75.6 173.8
Nasdaq Stock Market (US Companies) 100.0 101.0 134.8 173.0 210.4 277.6
Nasdaq Stocks (SIC 6790-6799 US Companies) 100.0 103.7 99.1 114.0 155.7 193.0
Miscellaneous Investing
NOTES:
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 06/30/93.
E. The data for Enercorp, Inc. was provided by the client.
</TABLE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information as to certain persons known by the Company
to be the beneficial owner of more than five percent of the Common Stock; the
Company's directors and named executive officers, individually, and executive
officers and directors as a group, as of November 15, 1998:
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class
- ------------------------- ------------------ ----------
Robert R. Hebard 69,248 11.5%
7001 Orchard Lake Road (1)(2)(3)
Suite 424
W. Bloomfield, MI 48322
H. Samuel Greenawalt 14,333 2.4%
27777 Inkster Road
Farmington Hills, MI 48333
Carl W. Forsythe -0- 0%
P.O. Box 918
Spring House, PA 19477
Thomas W. Itin 49,149 8.3%
7001 Orchard Lake Road (4)
W. Bloomfield, MI 48322
Charles Maginnis 35,000 5.9%
c/o Corporate Securities Group, Inc. (5)
7600 Southland Blvd., Suite 101
Orlando, FL 32809
Executive officers and 83,581 13.9%
directors as a group (1)(2)(3)
(three persons)
- ----------
(1) Includes 15,467 shares owned by Mr. Hebard's spouse and 1,333 shares
held in a custodian account under the Uniform gifts to Minors Act for
the benefit of Mr. Hebard's daughter. Mr. Hebard disclaims
beneficial ownership of the 1,333 shares in the custodial account.
(2) Includes 10,581 shares of common stock underlying stock options currently
exercisable or exercisable within 60 days from November 15, 1998.
(3) Does not include 28,443 shares held in trust for Mr. Hebard's minor
children. Mr. Hebard's mother-in-law is trustee of these trusts.
(4) Based upon information contained in the Schedule 13D and amendments
as filed with the Securities and Exchange Commission (the "SEC"),
includes shares owned directly and through other entities controlled
by Mr. Itin and by Mr. Itin's spouse through entities she controls
and for which she is trustee for the benefit of Mr. & Mrs. Itin's
minor grandchildren. Mr. Itin is the father-in-law of the Company's
president.
(5) Based upon information contained in a Schedule 13D filed with the SEC.
No change in control of the Company has occurred since the beginning of
the last fiscal year.
The Company does not know of any arrangements, the operation of which may,
at a subsequent date, result in a change in control of the Company.
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
Commencement
date of
service as an
executive
officer and/or
Name Position with Company Age director
- ------------------ ----------------------- ----- --------------
Robert R. Hebard * Chairman of the Board, 45 6/29/93
Chief Executive Officer,
President, Treasurer
and Director
Carl W. Forsythe Director 41 6/28/93
H. Samuel Greenawalt Director 70 6/28/93
- ---------
* Mr. Hebard is an "interested person" of the Company as defined under the
Investment Company Act of 1940, as amended (the "1940 Act"), because he is
an executive officer and a director of the Company.
No arrangement exists between any of the above officers and directors
pursuant to which any one of those persons was elected to any such office or
position. Directors are elected to serve until the next meeting of shareholders.
Executive officers serve at the pleasure of the Board of Directors.
There are no family relationships among the directors and executive
officers of the Company.
Robert R. Hebard has served as Chairman of the Board, Chief Executive
Officer, President, Treasurer and Director of the Company since June 29, 1993.
He also serves as vice president of Woodward Partners, Inc., a real estate
development company in suburban Detroit, Michigan. Mr. Hebard also has served as
a Director of Ajay Sports, Inc. since June 1989, and as Ajay's Secretary since
September 1990, and was a director of Kimbro Imaging Systems, Inc. from November
1994 to August 1995. Mr. Hebard holds a Bachelors Degree in Marketing/Management
from Cornell University and an MBA from Canisius College.
<PAGE>
Carl W. Forsythe has served as Director of the Company since June 28,
1993. Since October 1998, Mr. Forsythe's has served as Chief Executive Officer
and President of Advanta Mortgage Corporation. From January 1996 to September
1998, he has served as Executive Vice President of Retail Banking and Marketing
for Home Savings of America; and from August 1994 to December 1995, he was
Senior Vice President-Chief Retail Officer for Banc One-Ohio Corporation. Mr.
Forsythe holds a Master of Business Administration degree from Cornell
University and a Bachelor of Arts degree from Columbia University.
H. Samuel Greenawalt has served as Director of the Company since June 28,
1993. From 1987 to June 1995, Mr. Greenawalt was Senior Vice President, Business
Development, for Michigan National Bank. Mr. Greenawalt retired from Michigan
National in June 1995 and is now an independent consultant to the bank. Mr.
Greenawalt holds a Bachelor of Science degree from the Wharton School of the
University of Pennsylvania and is a graduate of the University of Wisconsin
Banking School.
During the fiscal year ended June 30, 1998, the Board of Directors held
one meeting and acted through written consent eight times. The Board of
Directors has Compensation and Audit Committees consisting of Messrs. Forsythe
and Greenawalt, the independent directors of the Company. The Compensation
Committee was appointed primarily to administer the 1994 Stock Option Plan for
Employees and Officers. During the fiscal year ended June 30, 1998, the
Compensation Committee did not meet. The Audit Committee was formed to provide
additional oversight in connection with the Company's compliance with the
applicable provisions of the Investment Company Act of 1940. During the fiscal
year ended June 30, 1998, the Audit Committee held one meeting. All directors
and committee members attended all of the meetings held during the fiscal year.
The Company has no standing Nominating Committee.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth information regarding compensation paid to
the Company's chief executive officer for the three years ending June 30, 1993.
No other person who is currently an executive officer of the Company earned
compensation exceeding $100,000 during any of those years.
Annual Compensation Awards
-------------------------------- -------------
Securities
Name and Other Annual Underlying
Principal Position Year Salary Bonus Compensation Stock Options
- -------------------- ----- ------- ------- ------------- -------------
($) ($) ($) (#)
Robert R. Hebard 1998 $87,000 $ -0- $-0- -0-
President and 1997 $87,000 $25,000 $-0- -0-
Chief Executive 1996 $72,000 $10,000 $-0- -0-
Officer
<PAGE>
The Company has a stock option plan but does not have any other long-term
compensation arrangements in the form of restricted stock awards, stock
appreciation rights plans, or other long-term incentive plans or arrangements.
Option Grant Table
No stock options were granted during the fiscal year ended June 30, 1998.
Aggregated Option Exercises and Fiscal Year End Option Value Table
No stock options were exercised during the fiscal year ended June 30,
1998. The table below sets forth information related to the value at June 30,
1998 of unexercised options held by the the Company's President and Chief
Executive Officer.
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Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Stock
Stock Options at June Options at June 30, 1998
30, 1998 (#) ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ------------ -------------- ------------ --------------
Robert R. Hebard, 10,581 -0- $13,854 $-0-
President and Chief
Executive Officer
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Compensation of Directors
During fiscal 1998, directors were paid $500 and were reimbursed for
expenses incurred in attending each Board meeting.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") requires executive officers, directors and persons who
beneficially own more than ten percent of the Company's Common Stock to file
with the SEC initial reports of beneficial ownership on Form 3, reports of
changes in beneficial ownership on Form 4 and annual statements of changes in
beneficial ownership on Form 5. Persons filing such reports are required under
the regulations promulgated by the SEC pursuant to Section 16 to furnish the
Company with copies of such reports.
Based solely upon a review of the copies of the reports received by the
Company during the fiscal year ended June 30, 1998, and written representations
of the persons required to file said reports, the Company believes that all
required reports were timely filed.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Williams Controls, Inc. ("Williams") is an investee company of the Company
which, as of September 30, 1998, accounted for over 90% of the Company's
portfolio securities. On November 8, 1997, the Company exercised stock options
to purchase 150,000 shares of Williams common stock for $0.41 per share. In
March 1998, as consideration for management consulting services rendered,
Williams granted the Company stock options to purchase 50,000 shares of Williams
common stock for $2.44 per share.
- -------------------------------------------------------------------------------
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
- -------------------------------------------------------------------------------
The following three persons have been nominated for election as directors
of the Company for a term of one year and until the election and qualification
of their successors: Robert R. Hebard, Carl W. Forsythe and H. Samuel
Greenawalt. These three directors constitute the entire Board of Directors. The
persons named in the proxy intend to vote for Messrs. Hebard, Forsythe and
Greenawalt unless a shareholder withholds authority to vote for any or all of
these nominees. If any nominee is unable to serve or, for good cause, will not
serve, the persons named in the proxy reserve the right to substitute another
person of their choice as nominee in his place. Each of the nominees has agreed
to serve if elected.
Vote Required
Directors of the Company are elected by a plurality vote. This means that
the three nominees receiving the greatest number of votes cast at the Meeting
will be elected as the directors of the Company.
- -------------------------------------------------------------------------------
PROPOSAL NUMBER TWO
TO AUTHORIZE THE SALE OF CAPITAL STOCK AT
LESS THAN ITS THEN CURRENT NET ASSET VALUE PER SHARE
- -------------------------------------------------------------------------------
The Investment Company Act of 1940 prohibits the Company, as a business
development company (a "BDC"), from selling its capital stock at a price less
than the current net asset value per share for such stock unless the policy and
practice of doing so is approved by the Company's shareholders. Pursuant to this
provision, the Company is requesting that the shareholders authorize the sale of
the Company's capital stock at a price less than its then current net asset
value per share of such stock.
<PAGE>
Frequently, the stock of BDCs trades at prices below the corresponding net
asset value. As shown in the following table, the high and low bid closing
quotations of the Company's Common Stock, the only class of stock outstanding,
often has been below the corresponding net asset value per share:
Closing Bid Prices Net Asset
As of High Low Average Value
- ------------- ------ ----- -------- ----------
Fiscal 1997
September 30, 1996 $2.75 $1.88 $2.32 $5.10
December 31, 1996 1.88 1.88 1.88 3.58
March 31, 1997 2.50 1.50 2.00 4.14
June 30, 1997 2.50 1.50 2.00 4.00
Fiscal 1998
September 30, 1997 1.50 1.50 1.50 3.71
December 31, 1997 2.25 1.50 1.88 3.78
March 31, 1998 2.69 1.31 2.00 4.02
June 30, 1998 5.25 2.50 3.63 3.90
Fiscal 1999
September 30, 1998 4.88 2.13 3.50 3.65
This indicates that should the Company desire to sell shares of its
Common Stock in either a public or private offering, the price for such stock
may be below the then current net asset value per share, limiting the Company's
ability to raise additional equity capital. Section 63(2) of the Investment
Company Act of 1940 provides that the Company may sell its Common Stock at
prices below the then current net asset value with shareholder approval;
provided, that, in addition to shareholder approval, any such sales are approved
by a required majority of the directors as being in the best interests of the
Company and its shareholders and after a required majority of directors, in
consultation with the underwriter of the offering if it is to be underwritten,
have determined in good faith, and as of a time immediately prior to the first
solicitation by or on behalf of the Company of any firm commitment to purchase
such securities or immediately prior to the issuance of such securities, that
the price at which such securities are to be sold is not less and a price which
closely approximates the market value of those securities, less any distributing
commission or discount.
Presently, the Company depends primarily on its bank loan for its working
capital. Over time, the Company has increased its credit limit to provide
additional working capital. The Company does not anticipate being able to obtain
substantial increases in its current bank credit line in the near future. The
only other source of funds available to the Company is through sales of its
portfolio securities. Securities of Williams Controls, Inc. make up over 90% of
the Company's portfolio securities and, therefore, the value of the Company's
assets is closely related to the value of the Williams Controls common stock.
Any significant levels of sales of Williams Controls common stock by the Company
potentially could adversely affect the market price of Williams common stock.
For these reasons, the Board of Directors believes that it would be in the best
interest of the Company and its shareholders to raise additional equity capital
to repay its bank indebtedness and to provide working capital either to purchase
additional portfolio securities or a controlling interest in an operating
company. See Proposal Number Three. Therefore, if the shareholders approve this
proposal, it is likely that the Board of Directors will seriously consider
authorizing an equity offering of the Company's Common Stock.
Generally, equity securities sold in private and/or public securities
offerings are priced based on market prices rather than net asset value. The
Board of Directors is seeking the approval of the shareholders to offer and sell
Common Stock at prices which may be less than net asset value so as to permit
the flexibility in pricing that market conditions generally require. The Board
has not seriously considered any particular type of offering or any specific
terms because the Board believes that it would be premature to do so until after
the shareholders vote on this proposal to permit the Company to make sales of
its securities at prices less than net asset value.
<PAGE>
If the shareholders approve this proposal, during a one-year period
commencing on the date the shareholders approve this proposal, the Company will
be permitted, but not required or otherwise obligated, to sell newly issued
shares of its capital stock for prices below the net asset value. The sale of a
substantial number of shares of capital stock at below net asset value would
dilute the percentage interest of the Company's present shareholders. In
determining whether or not to sell additional shares at a price below the net
asset value, the Board of Directors will have fiduciary obligations to act in
the best interest of the Company and its shareholders and must comply with the
other requirements of Section 63(2) of the Investment Company Act of 1940 as
described above.
Board Recommendation and Vote Required
The Company believes this proposal is important because of the
flexibility it would provide in raising additional equity capital even if the
Company's capital stock is trading at prices below the net asset value.
Consequently, the Board of Directors recommends that the shareholders vote "FOR"
this proposal. Approval of this requires both the affirmative vote of a majority
the Company's outstanding shares entitled to vote on this proposal, and a
majority of the Company's outstanding shares entitled to vote on this proposal
which are held by non-affiliates of the Company.
<PAGE>
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PROPOSAL NUMBER THREE
APPROVAL TO WITHDRAW THE COMPANY'S
ELECTION AS A BUSINESS DEVELOPMENT COMPANY
- -------------------------------------------------------------------------------
The Company has elected to be treated as a business development company
("BDC") as that term is defined in Section 54 of the Investment Company Act of
1940. As such, the Company is subject to a number of provisions relating to BDCs
rather than all of the provisions of the Investment Company Act of 1940
applicable to registered investment companies. Section 58 of the Investment
Company Act of 1940 provides that a BDC may not change the nature of its
business so as to cease to be, or withdraw its election as, a BDC unless it is
authorized to do so by a majority of its outstanding voting securities.
If the Company's shareholders approve this proposal to permit the Company
to withdraw the Company's BDC election, the withdrawal will become effective
only upon the filing and acceptance by the Securities and Exchange Commission of
the Company's application for withdrawal. The Company does not anticipate filing
a withdrawal until it can be reasonably certain that the Company will not be
deemed to be an investment company without the protection of its BDC election.
After the Company's application for withdrawal of its BDC election is accepted
by the Securities and Exchange Commission and is declared effective, the Company
will no longer be subject to the regulatory provisions of the Investment Company
Act of 1940 applicable to BDCs generally, including regulations related to
insurance, custody, composition of the board, affiliated transactions and
compensation arrangements. Withdrawal of the Company's election as a BDC will
not affect the Company's registration under Section 12(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Under the Exchange Act,
the Company is required to file periodic reports on Form 10-K, Form 10-Q, Form
8-K, proxy statements and other reports required under the Exchange Act.
Since September 18, 1998, the Company's Common Stock has been traded on
the over-the-counter ("OTC") Bulletin Board. Until that time, the Company's
Common Stock had been traded on the Nasdaq SmallCap Market. At the time of the
change, Nasdaq notified the Company that its Common Stock no longer met the
minimum public float share requirement for continued listing on the Nasdaq
SmallCap Market. The Company has filed an appeal with Nasdaq to attempt to have
its Common Stock reinstated for trading on the Nasdaq SmallCap Market. This
appeal will be heard by the Nasdaq Hearings Panel in January 1999. There can be
no assurance that the Company's Common Stock will be reinstated for trading on
the Nasdaq SmallCap Market. The Company's withdrawal as a BDC is not expected to
have any direct effect on the Company's trading status on the OTC Bulletin Board
or, if reinstated after the appeals hearing, on the Nasdaq SmallCap Market.
Reasons for Proposed Withdrawal as a BDC
From time to time, the Company's Board of Directors has discussed the
feasibility of the Company continuing its election as a BDC and, on November 9,
1998, the Board unanimously agreed that it would be in the best interest of the
Company and its shareholders to present this matter to the shareholders.
<PAGE>
In making the determination to present this proposal to the Company's
shareholders, the Board of Directors considered a number of factors. Over the
years, since the Company has operated as a BDC, the business, regulatory and
financial climates have shifted gradually, making operations as a BDC more
challenging and difficult. The first, and possibly the most important factor, is
that the Investment Company Act of 1940 imposes many regulations on BDCs,
including regulations limiting a BDCs ability to sell its common stock at a
price below net asset value without shareholder approval and certain other
requirements. Historically, the market prices for BDC stocks are lower than net
asset value,.making it much more difficult for BDCs to raise equity capital. Had
the Company had the flexibility to offer and sell equity securities absent the
restrictions imposed on BDCs by the Investment Company Act of 1940, possibly the
Company could have taken other actions to preserve its Nadsaq listing for its
Common Stock, although no assurance could be given that the outcome would have
been any different. Regulations applicable to BDCs under the Investment Company
Act of 1940 also restrict a BDCs ability to issue debt securities. BDCs do not
generate cash flow from operations as operating companies generally do because a
BDC's business is owning and investing in securities. With the limitations for
capital raising and cash generation, it is difficult for BDCs to have sufficient
cash flow and capital to compete in the marketplace.
At June 30, 1998, the Company's total assets were approximately
$4,776,505, consisting of investments in securities valued at their fair value
of $4,538,361, notes receivable from investee companies and accrued interest of
$217,422, cash of $16,128 and other assets of $4,594. The Company's most
significant assets are its holdings of investment securities of Williams
Controls, Inc. At June 30, 1998, the Company's holdings in Williams Controls,
Inc. had an equity and/or cost basis of $895,250 and a fair value of $4,256,438.
After careful consideration of the factors discussed above and other
relevant factors, the Board of Directors has determined that the shareholders'
return on assets is not likely to warrant continued operations as a BDC over the
long term. The Board of Directors believes that the Company may be more likely
to achieve greater stability in the valuation of its assets and to prosper and
grow if the Company's long-term strategy is to cease operating as a BDC in favor
of purchasing and operating an on-going business. In addition, by withdrawing
its election as a BDC, the Company would be relieved of the restrictions and
additional costs of complying with the many rules and regulations associated
with operating as a BDC under the Investment Company Act of 1940.
The Board of Directors has adopted a plan to obtain shareholder approval
for the Company to withdraw its election as a BDC, with the goal of becoming an
operating company. If shareholders approve this proposal, it will indicate to
the Company the shareholders' agreement with Board of Directors plan for a
change in the fundamental nature of the Company's business from operating as a
BDC to operating an on-going business. Upon approval of this proposal, the Board
of Directors will actively pursue business opportunities to acquire or otherwise
purchase an on-going business or target an appropriate merger candidate. It is
possible that the Company will be required to obtain further shareholder
approval to effect the purchase or merger transaction which would enable the
Company to withdraw its BDC election and become an operating company.
<PAGE>
Even if this proposal is approved, the Company does not intend to file
with the Securities and Exchange Commission an election to withdraw as a BDC
until such time as it is relatively certain that it will qualify as an operating
business rather than as an investment company. A voluntary election to withdraw
as a BDC becomes effective upon filing the election form with and acceptance of
the form by the Securities and Exchange Commission unless a later date is
specified in the application for withdrawal. The Board of Directors has adopted
its two-part strategy of effecting a transaction which will enable the Company
to become an operating company before it files its application for withdrawal as
a BDC in order to minimize the possiblity that, after the Company's withdrawal
as a BDC, the Company could be considered an unregistered investment company
which is not in compliance with the Investment Company Act of 1940.
Effect of Withdrawal of BDC Election on the Company's Financial Statements
As an operating company, the fundamental nature of the Company's business
will change from that of investing in a portfolio of securities with the goal of
achieving gains on appreciation and dividend income to that of being actively
engaged in the ownership and management of an on-going business with the goal of
generating income from the operations of that business. Withdrawal of the
Company's election to be treated as a BDC under the Investment Company Act of
1940 will result in a significant change in the Company's method of accounting.
BDC financial statement presentation and accounting utilizes the value method of
accounting used by investment companies. As an operating company, the required
financial statement presentation and accounting for securities held will be
either fair value or historical cost accounting, depending on the classification
of the investment and the Company's intent with respect to the period of time it
intends to hold the investment.
Solely for the purpose of providing the shareholders an example of the
effect of changing methods of accounting after the Company withdraws its
election to be treated as a BDC under the Investment Company Act of 1940, the
Company has prepared pro forma financial statements as of June 30, 1998, with
the assumption that the Company withdrew its BDC election effective July 1,
1997. These pro forma financial statements are included as Exhibit A to this
Proxy Statement. IN READING THESE ILLUSTRATIVE PRO FORMA FINANCIAL STATEMENTS,
SHAREHOLDERS SHOULD BE AWARE THAT THIS IS WHAT THE COMPANY'S FINANCIAL
STATEMENTS WOULD RESEMBLE ONLY FROM THE TIME THE COMPANY WITHDRAWS ITS BDC
ELECTION UNTIL IT ACHIEVES THE STATUS OF AN OPERATING COMPANY. AS STATED
PREVIOUSLY, THE COMPANY DOES NOT PLAN TO WITHDRAW ITS ELECTION AS A BDC UNTIL IT
IS RELATIVELY CERTAIN THAT IT WILL HAVE ON-GOING OPERATIONS AS ITS PRIMARY
BUSINESS.
<PAGE>
Board Recommendation and Vote Required
The Board of Directors recommends that shareholders vote "FOR" this
proposal to approve withdrawal of the Company's election to be treated as a BDC
under the Investment Company Act of 1940. Approval of this proposal requires the
affirmative vote of a majority the Company's outstanding shares entitled to vote
on this proposal.
- -------------------------------------------------------------------------------
PROPOSAL NUMBER FOUR
TO ADOPT THREE AMENDMENTS TO THE COMPANY'S
RESTATED ARTICLES OF INCORPORATION
- -------------------------------------------------------------------------------
The Board of Directors has approved and recommends that the shareholders
approve the following three amendments to the Company's Restated Articles of
Incorporation (the "Restated Articles"). The amendments being proposed would (1)
provide to the Company's directors the limitation of monetary liability to the
Company's and its shareholders under certain circumstances; (2) reduce the
quorum required for the transaction of business at any shareholders meeting from
a majority to one-third of the shares entitled to vote at the meeting; and (3)
reduce the voting requirement for shareholder approval of certain actions from
two-thirds to a majority of the shares entitled to vote on the action. The
following discussion is qualified in its entirety by the text of the proposed
amendments to the Company's Restated Articles attached hereto as Exhibit B.
Description of, Reasons for and Effects of the Amendments
Limitation of Director Liability. This proposed amendment would add a new
Article IX to the Restated Articles which wouldl limit the personal liability of
the Company's directors for monetary damages for certain breaches of the
fiduciary duty of care as permitted under Section 7-108-402 of the Colorado
Business Corporation Act. The Colorado Business Corporation Act permits a
Colorado corporation to limit or eliminate the personal monetary liability of
its directors to the corporation or its shareholders by reason of their breach
of the fiduciary duty of care as directors, including liability for negligence,
and gross negligence, by including a provision to this effect in its articles of
incorporation. This provision of the Colorado Business Corporation Act was
adopted in 1987, long after the Company's inception, and generally is included
in the charter documents of most newly formed Colorado corporation as a matter
of practice.
<PAGE>
Proposed Article IX of the Restated Articles would not permit any
limitation upon the liability of a director for: (i) any breach of a duty of
loyalty to the Company and its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) assenting to an unlawful distribution made in violation of section
7-106-401 of the Colorado Business Corporation Act or the Restated Articles, or
(iv) any transaction from which a director directly or indirectly derived an
improper personal benefit. Accordingly, the provisions limiting or eliminating
the potential monetary liability of directors permitted by the Colorado Business
Corporation Act apply only to the directors' "duty of care." The provision is
not retroactive and, therefore, would not have the effect of limiting liability
for acts or omissions occurring prior to the date of its adoption by
shareholders.
In performing their duties, the Company's directors are scrutinized under
the "business judgment rule" which stipulates the fiduciary duties of care and
loyalty imposed upon directors. Under the business judgment rule, a director is
required to perform all duties as a director in good faith, in a manner the
director reasonably believes to be in the best interests of the company, and
with such care as an ordinarily prudent person in a like position would use
under similar circumstances.
The "duty of care" requires that each director act in a manner which,
after a reasonable investigation, the director believes in good faith to be in
the best interests of the Company and all of its shareholders and requires that
each director, in the performance of the director's corporate responsibilities,
exercise the care that an ordinary prudent person would exercise under similar
circumstances. The "duty of loyalty" prohibits faithlessness and self-dealing by
directors and prohibits directors from using their corporate position to make a
personal profit or gain other personal advantage.
In recent years, litigation seeking to impose liability on directors of
publicly-held corporations for violations of the duty of care has become
commonplace. To preclude liability, the director is required to show that he
conducted himself in strict compliance with the duty of care as set forth in the
business judgment rule. In practice, the application of this duty varies widely
among the courts, leaving directors with little guidance and certainty as to
what constitutes adequate care under a given set of circumstances. Compounding
this uncertainty, in several decisions, courts have imposed a clairvoyant duty
upon directors, despite the fact that the actions of the directors in exercising
reasonable care are supposed to be judged as of the time and under the
circumstances existing at the time the decision was made.
This type of litigation is expensive to defend, with costs frequently
amounting to hundreds of thousands, and sometimes millions of dollars. In many
cases, costs of defense exceed the means of individual defendants, even if
ultimately they are vindicated on the issue of individual liability or
wrongdoing. Furthermore, in view of the costs and uncertainties of litigation,
it is often prudent for companies to settle such claims. While settlements
frequently are for only a fraction of the amount claimed, the settlement amount
may well exceed the financial resources of individual defendants. In summary,
without the benefit of protective measures such as indemnification and
limitation of liability as permitted under the Colorado Business Corporation
Act, exposure to the costs and risks of claims of personal liability for
corporate directors may exceed any benefit to them of serving as a director of a
public corporation.
<PAGE>
The risks of personal liability for directors has traditionally been
mitigated through directors' and officers' liability insurance ("D&O
Insurance"). Changes in the market for D&O Insurance during recent years have
resulted in meaningful coverage becoming unavailable for directors and officers
of many corporations. Insurance carriers have in certain cases declined to renew
existing directors' and officers' liability policies, or have increased
premiums, thereby making the cost of obtaining such insurance prohibitive.
Moreover, policies often exclude coverage for areas where the service of
qualified independent directors is most needed. For example, many policies do
not cover liabilities or expenses arising from directors' and officers'
activities in response to attempted takeovers of a corporation.
In response to the above developments regarding litigation against
directors and the general unavailability of meaningful D&O Insurance, in 1987
the Colorado legislature adopted Section 7-108-402 of the Colorado Business
Corporation Act which permits a corporation to limit or eliminate the personal
monetary liability of a director for certain breaches of the duty of care.
Effectively, the limitation acts as a substitute for, or a supplement to, D&O
Insurance coverage. As a matter of practice, articles of incorporation for newly
formed companies frequently include provisions for mandatory indemnification and
limitation and/or elimination of personal monetary liability for directors as
permitted under Section 7-108-402 of the Colorado Business Corporation Act.
The Board of Directors believes that inclusion of a provision for
limitation of liability in the Restated Articles, when combined with the
Company's policy of entering into indemnification agreements with its directors,
will best position the Company to attract and retain qualified candidates to
serve as its directors. Although the Company has not experienced difficulty
finding qualified candidates to serve on its Board of Directors to date, it
believes that it may experience difficulty in the future if protective measures
are not taken.
Adoption of proposed Article IX for inclusion in the Company's Restated
Articles would prevent the Company and its shareholders, but not third parties,
from bringing actions for monetary damages based upon a director's negligent or
grossly negligent business decisions, including those related to attempts to
change control of the Company, to the benefit of the Board and at the expense of
the shareholders. Thus, if the proposal to add a provision to limit the monetary
liability of directors is approved, the Company or a shareholder will be able to
prosecute an action against a director for monetary damages for breach of
fiduciary duty only if it can be shown that such damages have been caused by a
breach of the duty of loyalty, a failure to act in good faith, intentional
misconduct, a knowing violation of law, a direct or indirect improper personal
benefit, or an illegal distribution. Proposed Article IX would not limit or
eliminate the right of the Company or any shareholder to seek an injunction or
any other non-monetary relief if a director breaches his duty of care. Although
equitable remedies remain available, they may be inadequate as a practical
matter.
<PAGE>
Proposed new Article IX to the Company's Restated Articles providing for
the limitation of liability is intended to be effective only against actions by
the Company and its shareholders. Third party plaintiffs, such as creditors,
will not be prevented from recovering damages on the basis of the provision. In
addition, the provision would apply only to claims against a director arising
out of his status as a director and would not apply to claims arising from his
status as an officer or his status in any other capacity; nor would it apply to
a director's responsibilities under any other law, such as the federal
securities laws. If proposed Article IX to the Restated Articles is approved,
changes in Colorado law further limiting or eliminating personal liability of
directors automatically will be applicable without further shareholder approval.
Neither the Board of Directors nor any of its members have experienced
any recent litigation which would have been affected by the above provision had
it been in effect previously. Proposed new Article IX to the Restated Articles
is not being prompted by any pending or threatened litigation against any member
of the Company's Board of Directors. Rather, it is being proposed to modernize
the Company's Restated Articles to conform with the Colorado law which, since
1987 has permitted companies to include of these protective measures for their
corporate directors in their articles of incorporation.
Reduction in Quorum Requirement. Proposed new Article X to the Restated
Articles would reduce the quorum required for shareholder meetings from a
majority to one-third of the shares entitled to vote at the meeting. For any
shareholder meeting, all shareholders of record as of the record date
established for that meeting would continue to be sent notices of the meeting
and be given the opportunity to vote. Reduction of the quorum requirement would
permit the Company and its shareholders to transact business at the meeting if
at least one-third of the shares entitled to vote at the meeting were present
either in person or by proxy. The quorum requirement relates to the number of
shares that are required to be present at a shareholder meeting before a vote
can be taken. It does not govern the percentage of affirmative vote required to
pass any proposal voted upon.
Decrease in Voting Requirements for Shareholder Approval of Certain
Actions. Proposed new Article XI of the Restated Articles would reduce the
affirmative shareholder vote necessary to approve certain transactions, such as
mergers, major acquisitions or sales of all or substantially all the Company's
assets, or any other matter which would require an amendment to the Company's
Restated Articles. Currently, the Company's Restated Articles does not contain
such a provision and, therefore under the Colorado Business Corporation Act, the
affirmative vote of two-thirds of the issued and outstanding Common Stock is
required to approve such transactions. Long after the Company's inception, the
Colorado Business Corporation Act was amended to provide that no action taken by
a corporation requires more than a majority vote of the shares entitled to vote
unless otherwise provided in the corporation's articles of incorporation, or
unless the corporation was formed before July 1, 1994 and its articles of
incorporation do not contain a provision reducing the voting requirement from
two-thirds to not less than a majority.
<PAGE>
Due to the dispersion of the Company's shareholders, it is extremely
difficult, if not impossible, for the Company to locate and obtain the vote of
two-thirds of the outstanding shares. The Board of Directors believes that it is
in the best interests of the Company to reduce the voting requirement from
two-thirds to not less than a majority of the shares entitled to vote on these
types of matters so that a minority of the Company's shareholders will not be
able to thwart the will of the majority.
Other than as described this Proxy Statement, the Board of Directors has
no present or contemplated plans to enter into any transactions that would
require approval of the Company's shareholders.
Anti-takeover Implications of the Proposed Amendments
Approval of proposed new Article IX providing for the limitation of the
personal monetary liability of the Company's directors for breach of the duty of
care could cause the directors to feel less constrained in approving a
transaction such as the issuance of shares or the taking of other action
designed to prevent a takeover of the Company, since monetary liability to the
Company or its shareholders for approval of such transactions could not be
predicated on a failure to exercise care in connection with the process of
approving the transaction. Directors would, however, remain subject to liability
for breach of the duty of loyalty to the Company, even if this proposed
amendment is approved.
Despite any anti-takeover implications, the proposed amendment is not the
result of management's knowledge of any specific effort to accumulate the
Company's securities or to obtain control of the Company by means of a merger,
tender offer, proxy solicitation in opposition to management or otherwise. The
Company is not submitting any of the amendments contained in this Proposal to
enable it to frustrate any efforts by another party to acquire a controlling
interest or to seek Board representation.
The amendments contained in this Proposal are not a part of any plan by
the Company's management to adopt a series of amendments to the Restated
Articles or Bylaws so as to render the takeover of the Company more difficult.
Management does not currently intend to propose any anti-takeover measures in
future proxy solicitations. Management is not aware of the existence of any
other provisions currently in the Company's Restated Articles or Bylaws of the
Company having any anti-takeover effects which would impose any burden in excess
of requirements imposed by Colorado or federal law upon potential tender
offerors or others seeking a takeover of the Company.
<PAGE>
Board Recommendation and Vote Required
The Board of Directors recommends that shareholders vote "FOR" approval
of each of the amendments described above which it proposes to add to the
Restated Articles. The directors of the Company face a potential conflict of
interest in recommending to the shareholders an amendment which would relieve
them of future liability to the shareholders or to the Company. However, the
Board of Directors recommends approval of this amendment because it believes the
provision for limitation of monetary liability of directors for certain acts, as
permitted under the Colorado Business Corporation Act, will encourage capable
individuals to continue to serve as, and become directors of, the Company and
that adoption of the amendment is in the best interests of the Company.
Each proposed amendment will be voted upon separately by the
shareholders. The affirmative vote of two-thirds of the outstanding shares
entitled to vote on these amendments is required to approve each of the three
amendments described in this Proposal.
- -------------------------------------------------------------------------------
PROPOSAL NUMBER FIVE
RATIFICATION OF THE APPOINTMENT OF
THE COMPANY'S INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
The Board of Directors of the Company appointed and engaged the firm of
Hirsch, Silberstein & Sulbelsky, P.C., as independent auditors of the Company
for the years ended June 30, 1997 and 1998. For the year ending June 30, 1999,
the Board has selected Hirsch, Silberstein & Sulbelsky, P.C. to continue as its
independent auditors. Pursuant to the requirements for BDCs under the Investment
Company Act of 1940, the Company is requesting that shareholders ratify these
appointments. Since the audits for the years ending June 30, 1997 and 1998 have
already been completed, a vote against the ratification of Hirsch, Silberstein &
Sulbelsky, P.C. as the Company's auditors will be interpreted as a ratification
for the audits already completed but not for the current fiscal year. If the
Company's appointment of Hirsch, Silberstein & Sulbelsky, P.C. is not ratified
by the shareholders for the current fiscal year, the Board of Directors will
select a different accounting and auditing firm to audit its financial
statements for the fiscal year ending June 30, 1999, subject to ratification of
that appointment at the next annual meeting of shareholders.
A representative of Hirsch & Silberstein, P.C., is not expected to be
present at the meeting.
Board Recommendation and Vote Required
<PAGE>
The Board of Directors recommends that shareholders vote "FOR" ratification
of the Company's auditors. Ratification of the Company's selection of auditors
requires the affirmative vote of a majority of the votes cast at the meeting by
shareholders entitled to vote on this Proposal.
FINANCIAL INFORMATION
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998, including audited financial statements, is being sent to
shareholders with this Proxy Statement.
OTHER MATTERS
Management does not know of any other matters to be brought before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the appointees named in the enclosed form of proxy to vote in
accordance with their best judgment on such matters.
SHAREHOLDER PROPOSALS
Any shareholder proposing to have any appropriate matter brought before
the 1999 Annual Meeting of Shareholders, tentatively scheduled for December 20,
1999, must submit such proposal in accordance with the proxy rules of the SEC.
Such proposals should be sent to Robert R. Hebard, President, Enercorp, Inc.,
7001 Orchard Lake Road, Suite 424, West Bloomfield, Michigan 48322-3608, for
receipt no later than August 23, 1999.
By Order of the Board of Directors:
ENERCORP, INC.
/s/ Robert R. Hebard
----------------------------
Robert R. Hebard, President
<PAGE>
EXHIBIT A
----------
Pro Forma Financial Statements
The following unaudited pro forma information presents the financial position,
operations and cash flows of the Company at June 30, 1998. This unaudited pro
forma information gives effect to the Company's proposed withdrawal of its
election as a BDC as if it had occurred on July 1, 1997.
Enercorp, Inc.
Balance Sheets
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------
June 30, June 30,
ASSETS 1998 1997
---------- ----------
<S> <C> <C>
Cash $ 16,128 $ 99
Accounts receivable - related party 2,985
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $14,908 and
$12,477 at June 30, 1998 and 1997, respectively 9,707 18,273
Notes receivable - related parties, net of allowance for
uncollectible notes receivable of $23,147 at June
30, 1998 and 1997, respectively 207,715 207,715
Investments: Available for Sale 4,538,361 4,287,148
Furniture and fixtures, net of accumulated depreciation
of $6,238 and $4,747 at June 30, 1998 and 1997,
respectively 2,697 4,189
Other assets 1,897 3,693
--------------- ---------------
$ 4,776,505 $ 4,524,102
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Note payable - bank 2,081,749 1,712,900
Accounts payable and accrued liabilities 22,739 51,238
Deferred tax liability 367,000 395,000
--------------- ---------------
2,471,488 2,159,138
--------------- ---------------
Stockholders' Equity
Common stock, no par value: 10,000,000 shares
authorized, 590,897 shares issued and
outstanding at June 30, 1998 and 1997 1,468,251 1,468,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (1,046,707) (861,049)
Accumulated unrealized net gain/losses on investments,net of
deferred income taxes of $970,000 and $906,000 at
June 30, 1998 and 1997, respectively 1,883,473 1,757,762
--------------- ---------------
2,305,017 2,364,964
--------------- ---------------
$ 4,776,505 $ 4,524,102
=============== ===============
</TABLE>
See notes to financial statements
<PAGE>
Enercorp, Inc.
Schedule of Investments
June 30, 1998
PRO FORMA
<TABLE>
<CAPTION>
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
<S> <C> <C> <C> <C> <C>
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product
Development 1,751 $ - $ 2
10,000,000 106,477 9,000
Williams Controls, Inc.* Manufacturer of sensor (e) 400,000 60,000 945,000
and control systems (e) 850,000 127,500 2,008,125
(e) 330,000 412,500 779,625
(e) 30,000 108,750 70,875
(e) 50,000 125,000 118,125
(b)(e)11/8/98 150,000 61,500 334,688
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) 1,764,706 600,000 248,162
(e) 100,000 37,500 14,063
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 5,850
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Manufacturer of sensors 08/04/99 (c) 25,000 - -
and control systems 05/03/00 (c) 25,000 - -
09/13/99 (c) 50,000 - -
03/12/03 (c)(f) 50,000 - -
----------- -----------
1,659,227 4,533,515
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1998
PRO FORMA
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
<S> <C> <C> <C> <C>
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response Holding Company 10,000,000 5,000 -
Vitro Diagnostics Diagnostic Test Kits 300 1,500 56
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
----------- -----------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,846
----------- -----------
Total - ALL COMPANIES $ 1,684,888 $ 4,538,361
=========== ===========
(a) Non-public company whose securities are privately owned.
(b) May be sold under the provisions of Rule 144 of the Securities Act of
1933 after a holding period which expires in the month indicated.
(c) No public market exists for this security.
(d) The fair value of restricted securities is determined in good faith by
the Company's Board of Directors, which may take into account a variety
of factors including recent and historical prices of these securities,
recent transactions completed by the Company, and other factors that
the Board believes are applicable.
(e) Pledged as collateral against a line of credit with Comerica Bank.
(f) Options will vest at 25% on 9/12/98, 9/12/99, 9/12/00 & 9/12/01
consecutively.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
</TABLE>
<PAGE>
Enercorp, Inc.
Statements of Operations
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------------
For the years ended June 30,
-----------------------------------------
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
REVENUES
Interest income $ -0- $ -0- $ 400
Interest income from related entities 22,241 17,355 6,033
Consulting fees from related companies 25,000 1,788 167,738
Royalties and settlement income -0- -0- 2,445
Recovery of bad debt -0- -0- 42,942
Net realized gain on sale of investments -0- 216,000 269,410
Loss on sale of fixed assets -0- -0- -0-
Dividend income from affiliated company -0- 1,500 1,370
------------ ------------ -------------
47,241 236,643 490,338
------------ ------------ -------------
EXPENSES
Salaries - officer 87,000 122,000 72,000
Bonus expense - officer -0- -0- -0-
Directors' fees 1,000 -0- 1,000
Staff salaries -0- 20,332 38,200
Legal, accounting and other professional fees 14,686 11,537 31,926
Interest expense - related entity -0- -0- 29,303
Interest expense - other 181,123 162,538 115,354
Loss on worthless investments -0- -0- -0-
Bad debt expense 2,431 2,433 4,520
Other general and administrative expenses 38,661 50,248 75,186
------------ ------------ ------------
324,901 369,088 367,489
------------ ------------ ------------
Net gain (loss) from operations before (277,660) (132,444) 122,849
Income taxes (Note 5) 92,000 44,000 (43,000)
------------ ------------ ------------
Net gain (loss) from operations after taxes (185,660) (88,444) 79,849
------------ ------------ ------------
Net unrealized gain (loss) on investment before 189,713 229,517 (2,569,991)
Income taxes (Note 5) (64,000) (78,999) 874,000
------------ ------------ ------------
Net unrealized gain (loss) on investment after 125,713 150,518 (1,695,991)
Taxes ------------ ------------ ------------
Increase (decrease) in net assets $ (59,947) 62,074 $(1,616,142)
============ ============ ============
Increase (decrease) in net assets per share $ (0.10) $ 0.11 $ (2.74)
============ ============ =============
</TABLE>
See notes to financial statements
<PAGE>
Enercorp, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------
For the years ended June 30,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Increase (decrease) in net assets $ (59,947) $ 62,074 $(1,616,142)
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,491 659 1,723
Bad debt provision on notes receivable
and interest net of write offs 2,431 2,433 4,520
Stock received for consulting services -0- (125,000) (37,500)
Recovery of bad debt -0- -0- (42,942)
Gain on sale of investments -0- (216,000) (269,410)
(Gain) Loss on sale of fixed assets -0- (777) -0-
Write off of worthless investments -0- -0- -0-
Unrealized (gain) loss on investments (251,213) (229,517) 2,569,992
(Increase) in accounts receivable - related party -0- (2,985) (125,000)
(Increase) in interest receivable 6,135 (14,922) (6,028)
Decrease in accounts receivable from
related party 2,985 125,000 58
(Increase) Decrease in other assets 1,796 11,936 (5,736)
Increase (Decrease) in accounts payable and
accrued expenses 3,751 12,840 (71,520)
Increase(Decrease) in accrued salaries (32,250) 32,250 -0-
Increase (Decrease) in deferred taxes (28,000) 35,000 (831,000)
------------ ------------ ------------
Total adjustments (292,873) (369,083) 1,187,157
------------ ------------ -------------
Net cash (used) by operating activities (352,820) (307,009) (428,985)
------------ ------------ -------------
Cash flows from investing activities:
Purchase of investments -0- -0- (88,000)
Sale of investments -0- 250,000 303,410
Payments received on note receivable -0- -0- 78,364
Issuance of notes receivable -0- (200,000) -0-
Proceeds from sale of fixed assets -0- -0- -0-
Purchase of furniture and fixtures -0- (1,565) -0-
------------ ------------ ------------
Net cash provided (used) by investing activities -0- 48,435 293,774
------------ ------------ ------------
See notes to financial statements
<PAGE>
Enercorp, Inc.
Statements of Cash Flows (Continued)
PRO FORMA
------------------------------------------
For the years ended June 30,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 368,849 508,179 1,905,825
Principal payments of notes payable -0- (250,000) (1,771,310)
------------ ------------ ------------
Net cash provided by investing activities 368,849 258,179 134,515
------------ ------------ ------------
Increase (Decrease) in cash 16,029 (396) (696)
Cash, beginning of period 99 495 1,191
------------ ------------ ------------
Cash, end of period 16,128 99 495
============ ============ ============
Supplemental disclosures of cash flow information:
Interest paid 165,099 148,982 152,332
============ ============ ============
Interest received 28,377 -0- 403
============ ============ ============
See notes to financial statements
</TABLE>
<PAGE>
Enercorp,Inc.
Notes to Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies
------------------------------------------
Significant accounting policies are as follows:
a. Business History
----------------
Enercorp, Inc. (the "Company") was incorporated under the laws of the
state of Colorado on June 30, 1978. During the fiscal year ended June 30,
1982, the Company elected to become a "Business Development Company" (BDC)
as that term is defined in the Small Business Investment Incentive Act of
1980, which Act is an amendment to the Investment Company Act of 1940.
This change resulted in the Company becoming a specialized type of
investment company. For the years ended June 30, 1998, 1997 and 1996 the
Company's cash flows have been dependent primarily upon sale of stock and
loans.
b. Investment Valuation
--------------------
The investment valuation method adopted in 1982 provides for the Company's
Board of Directors to be responsible for the valuation of the Company's
investments (and all other assets) based on recommendations of a Valuation
Committee of the Board, comprised of the independent disinterested
directors of the Company. In the development of the Company's valuation
methods, factors that affect the value of investees' securities, such as
significant escrow provisions, trading volume and significant business
changes are taken into account. These investments are carried at fair
value using the following four basic methods of evaluation:
1. Cost - The cost method is based on the original cost to the Company
adjusted for amortization of original issue discounts and accrued
interest for certain capitalized expenditures of the corporation.
Such method is to be applied in the early stages of an investee's
development until significant positive or adverse events subsequent
to the date of the original investment require a change to another
method.
2. Private market - The private market method uses actual or proposed
third party transactions in the investee's securities as a basis for
valuation, utilizing actual firm offers as well as historical
transactions, provided that any offer used is seriously considered
and well documented by the investee.
3. Public market - The public market method is the preferred method of
valuation when there is an established public market for the
investee's securities. In determining whether the public market method
is sufficiently established for valuation purposes, the corporation is
directed to examine the trading volume, the number of shareholders and
the number of market makers in the investee's securities, along with
the trend in trading volume as compared to the Company's proportionate
share of the investee's securities. If the security is restricted, the
value is discounted at an appropriate rate.
4. Appraisal - The appraisal method is used to value an investment
position after analysis of the best available outside information
where there is no established public or private market method which
have restrictions as to their resale as denoted in the schedule of
investments are also considered to be restricted securities.
<PAGE>
Enercorp, Inc.
Notes to Financial Statements (Continued)
All portfolio securities valued by the cost, private market and
appraisal methods are considered to be restricted as to their
disposition. In addition, certain securities valued by the public
market method which have restrictions as to their resale as denoted
in the schedule of investments are also considered to be restricted
securities.
c. Statement of Cash Flows
-----------------------
Consistent with the reporting requirements of a BDC, cash and cash
equivalents consist only of demand deposits in banks and cash on hand.
Financial statement account categories such as investments and notes
receivable, which relate to the Company's activity as a BDC, are included
as operating activities in the statement of cash flows.
d. Furniture and Equipment
-----------------------
Expenditures for furniture and equipment and for renewals and betterments
which extend the originally estimated economic life of assets or convert
the assets to a new use are capitalized at cost. Expenditures for
maintenance, repairs and other renewals of items are charged to expense.
When items are disposed of, the cost and accumulated depreciation are
eliminated from the accounts and any gain or loss is included in the
results of operations.
The provision for depreciation is calculated using the straight-line
method over a five or seven year life.
e. Securities Transactions
-----------------------
Purchases and sales of securities transactions are accounted for on the
trade date, which is the date the securities are purchased or sold. The
value of securities sold is reported on the first-in first-out basis for
financial statement presentation.
f. Revenue Recognition
-------------------
Due to the uncertainty of collection, the Company recognizes all types of
consulting fee revenues, from portfolio companies as cash is received. All
other revenues are recognized on the accrual basis.
g. Net Assets per Share
--------------------
In accordance with the fair value accounting method used by regulated
investment companies, net assets (total stockholders' equity) per share at
June 30, 1998 and June 30, 1997, respectively was $ 4.00 and $3.90 per
share based on 590,897 shares.
h. Reclassifications
-----------------
Prior year share and per share amounts have been restated to reflect the 1
for 75 reverse stock split that occurred on December 13, 1995. Also
certain amounts as originally reported in the June 30, 1996 financial
statements were reclassified to conform with the June 30, 1998
presentations.
<PAGE>
Enercorp, Inc.
Notes to Financial Statements (Continued)
Note 2: Investments
-----------
Investments consist of holdings of securities in publicly and privately
held companies. The Company's largest portfolio company is Williams
Controls, Inc. ("Williams"). At June 30, 1998 Williams represented 93.79%
of the company's investments at fair market value.
Note 3: Related Party Transactions
--------------------------
a. Accounts Receivable - Related Party
-----------------------------------
The Company has an account receivable from Ajay Sports, Inc. for various
traveling fees for services performed for the benefit of Ajay Sports, Inc.
At June 30, 1998 and 1997 accounts receivable related party was $0 and
$2,985.
b. Notes Receivable - Related Entities
-----------------------------------
The Company has notes receivable from ProConnextions, Inc., ("PCI"). All
of the notes are due on demand. The notes have interest rates of 12% and
10%. There is no collateral for the notes. The Company is a shareholder in
PCI. The notes receivable balance, net of allowance for uncollectible note
receivable, from PCI at was $7,715 at June 30, 1998 and 1997.
On July 1, 1998, the Registrant and Williams signed an agreement under
which Williams would issue 42,329 shares of its common stock to the
Registrant and issue a note payable to the Registrant in the amount of
$100,000, as payment in full for the $200,000 note originally due to the
Registrant from Ajay. The balance of the original note from Ajay at June
30, 1998 and 1997 was $200,000 and $200,000, respectively. The balance of
the note receivable from Williams, which replaced the note receivable from
Ajay, was $100,000 as of September 30, 1998.
Note 4: Note Payable - Bank
-------------------
In July 1997, the Registrant was approved for a $2,250,000 line of credit
at 3/4% over prime by Comerica Bank ("Comerica"), replacing the previous
$2,000,000 loan with NBD Bank ("NBD"). The collateral for the line of
credit was all of the shares of Williams Controls common stock owned by
the Registrant at the time (1,660,000) and all of the shares of common
stock of Ajay Sports, Inc. ("Ajay") owned by the Registrant at the time
(1,864,706). Borrowing was limited to 50% of the fair market value of the
collateral, except that the maximum amount that can be borrowed against
the Ajay stock is $400,000. This loan was scheduled to expire in July,
1998. In June 1998, the loan limit was increased to $2,500,000 and renewed
on the same basic remaining terms as were present in the original loan.
The balance of the Registrant's note payable to Comerica as of September
30, 1998 was $2,121,749 and the balances of the Registrant's Notes
Payable-Bank at June 30, 1998 and 1997 were $2,081,749 and $1,712,900,
respectively.
<PAGE>
Enercorp, Inc.
Notes to Financial Statements (Continued)
Note 5: Income Taxes
------------
The Company adopted, effective July 1, 1992, Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting For Income Taxes", issued
in February 1992. Under the liability method specified by SFAS 109,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
Income tax expense for the years ended June 30, 1998, 1997 and 1996 consisted
of:
1998 1997 1996
---- ---- ----
Current $ -0- $ -0- $ -0-
Deferred 7,000 35,000 (831,000)
----- ------ ---------
$7,000 $35,000 $(831,000)
The components of the deferred tax liability at June 30, 1998 and 1997 consist
of the following:
6/30/98 6/30/97
-----------------------------
Unrealized gain on investments $ 970,000 $ 906,000
Capital loss carryover -0- -0-
Accrued officer wages -0 -0-
Allowance for notes receivable (12,00) (12,000)
Net operating loss carry over (591,000) ( 499,000)
--------- ----------
$ 367,000 $ 395,000
============= ===========
At June 30, 1998, the Company has net operating loss carry forward
available to offset future taxable income of approximately $1,742,000 that
expires at various years through June 30, 2013.
Note 6: Operating Leases
----------------
The company leased office space accounted for as an operating lease which
expired in March 1997. The Company is currently renting space from an
affiliate. Lease expense was $6,180, $8,090 and $9,915 for the years
ending June 30, 1998, 1997 and 1996, respectively. Future minimum lease
obligations are as follows:
6/30/98 $6,180
======
Note 7: Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
<PAGE>
Enercorp, Inc.
Notes to Financial Statements (Continued)
Note 8: Financial Statement Presentation
--------------------------------
On August 25, 1997, the Midwest Regional Office (the "MRO") of the
Securities and Exchange Commission (the "SEC") began an examination of the
Registrant's books and records. The field work portion of the examination
was completed on August 29, 1997. On October 23, 1997, upon completion of
the MRO's review, the Registrant received a letter from the MRO outlining
the results of its examination and deficiencies that the MRO cited in the
books and records of the Registrant. On November 21, 1997, the Registrant
sent its response to the MRO stating the actions it had taken or would be
taking in order to comply with the matters cited in the MRO's letter of
October. Based on this response, the Registrant believes that it has
complied with the requests of the MRO on all matters discussed in the
examination.
Note 9: Other Subsequent Events
-----------------------
At the request of Nasdaq, and as a condition of an exception granted by
them to the Registrant on July 28, 1998, Enercorp filed a Form 8-K report
on August 14, 1998. This report stated that the Registrant met all Nasdaq
continued listing requirements, including the requirement that it have a
minimum of 500,000 shares in the public float, reporting that it had
517,897 shares in the public float as the result of a change in ownership
by a principal stockholder of the Registrant. In the absence of any NASD
regulations as a guide, the Registrant believed that it had complied with
the relevant SEC rules, had informed Nasdaq of this position, and was
awaiting a response to its correspondence when the Nasdaq delisting notice
was delivered to the Registrant. The Registrant believes that during this
process it has complied with all Nasdaq requirements and requests, and has
filed an appeal with Nasdaq to attempt to have its common stock reinstated
as eligible to trade on the SmallCap Market. There is no assurance that
the Registrant will be successful in an appeal, which is scheduled to be
heard by a Nasdaq Hearings Panel in January 1999. During the appeal
process, the Registrant's common stock will continue to be eligible to
trade under the symbol "ENCP" on the OTC Bulletin Board.
<PAGE>
Exhibit B
---------
Proposal 4(a) - New Article IX
ARTICLE IX.
LIMITATION ON DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for breach of fiduciary
duty as a director; except that this provision shall not eliminate or limit the
liability of a director to the Corporation or to its shareholders for monetary
damages otherwise existing for (i) any breach of the director's duty of loyalty
to the Corporation or to its shareholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) acts specified in Section 7-108-403 of the Colorado Business Corporation
Act; or (iv) any transaction from which the director directly or indirectly
derived any improper personal benefit. If the Colorado Business Corporation Act
is hereafter amended to eliminate or limit further the liability of a director,
then, in addition to the elimination and limitation of liability provided by the
preceding sentence, the liability of each director shall be eliminated or
limited to the fullest extent permitted by the Colorado Business Corporation Act
as so amended. Any repeal or modification of this Article IX shall not adversely
affect any right or protection of a director of the corporation under this
Article IX as in effect immediately prior to such repeal or modification with
respect to any liability that, but for this Article IX, would have accrued prior
to such repeal or modification.
Proposal 4(b) - New Article X
ARTICLE X
QUORUM FOR SHAREHOLDERS' MEETINGS
Unless otherwise ordered by a court having jurisdiction, at all meetings
of shareholders one-third of the shares of a voting group entitled to vote at
such meeting, represented in person or by proxy, shall constitute a quorum of
that voting group.
Proposal 4(c) - New Article XI
ARTICLE XI
SHAREHOLDER VOTING
Whenever the shareholders must approve any matter, the affirmative vote of
a majority of the shares entitled to vote, represented in person or by proxy,
and voting at a duly held meeting at which a quorum is present shall be
necessary to constitute such approval or authorization, except as otherwise
provided herein. For any matter requiring shareholder approval which, as a
result of the repeal of the Colorado Corporation Code and the adoption of the
Colorado Business Corporation Act, would be deemed to require approval of
two-thirds of the shares entitled to vote on the matter, the vote required
hereafter shall be a majority of the shares entitled to vote on the matter.
Elections of Directors shall be determined by a plurality vote.
Enercorp, Inc.
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322-3608
PROXY This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Robert R. Hebard, as Proxy, with the power to
appoint his substitute, and hereby authorizes him to vote, as designated below,
all of the shares of Common Stock of Enercorp, Inc. held of record by the
undersigned on December 22, 1998, at the Annual Meeting of Shareholders to be
held on January 29, 1999 and at any adjournments or postponements thereof.
<PAGE>
1. ELECTION OF DIRECTORS
_______ FOR all nominees listed below (except as marked to the contrary below)
_______ WITHHOLD AUTHORITY to vote for all nominees listed below
(INSTRUCTION) To withhold authority to vote for any individual nominee
mark the box next to the nominee's name below.)
_____ Robert R. Hebard ______ Carl W. Forsythe _______ H. Samuel Greenawalt
2. On approval of the proposal to authorize the Company to sell shares of its
capital stock at prices below such stock's net asset value.
________ FOR __________ AGAINST _________ ABSTAIN
3. On approval of the proposal to authorize the Company to change the nature
of its business and withdraw its election as a business development
company under the Investment Company Act of 1940, as amended.
________ FOR __________ AGAINST _________ ABSTAIN
4. On approval of the three following proposals to amend the Company's
Restated Articles of Incorporation:
(a) To add a provision to provide for the limitation of liability for
the Company's directors under certain circumstances.
________ FOR __________ AGAINST _________ ABSTAIN
(b) To add a provision to reduce the quorum required for the transaction
of business at any shareholders meeting from a majority to one-third
of the shares entitled to vote at the meeting.
________ FOR __________ AGAINST _________ ABSTAIN
(c) To add a provision to reduce the voting requirement for shareholder
approval for actions requiring a two-thirds vote from two-thirds to
a majority of the shares entitled to vote on the action.
________ FOR __________ AGAINST _________ ABSTAIN
5. On approval of the proposal to ratify the appointment of Hirsch,
Silberstein & Sulbelsky, P.C. as the independent auditors for the Company
for the fiscal years ended June 30, 1997 and 1998 and for the year ending
June 30, 1999.
________ FOR __________ AGAINST _________ ABSTAIN
6. In his discretion, the above-named Proxy is authorized to vote upon such
other business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted for the election as directors of all nominees and for the approval of
all other matters.
<PAGE>
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
- ---------------------------- ----------------------------------
Signature Date:
- ----------------------------
Signature if held jointly
Address if different from that on label:
---------------------------------------------
Street Address
---------------------------------------------
City, State and Zip Code
---------------------------------------------
Number of Shares
Please check if you intend to be present at the meeting ______
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE
