SCHEDULE 14A
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 [section]240.14a-11(c) or
[section]240.14a-12
QUESTRON TECHNOLOGY, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A. (Fee eliminated effective October 7, 1996)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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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:
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<PAGE>
Preliminary Copy
QUESTRON TECHNOLOGY, INC.
6400 Congress Avenue, Suite 200
Boca Raton, Florida 33487
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of
Stockholders of Questron Technology, Inc. which will be held on Friday,
December 27, 1996 at 11:00 a.m. (local time) at the City Midday Club, 140
Broadway, 50th Floor, New York, New York.
This booklet includes the notice of the meeting and the proxy
statement which contains information about the functions of your Board of
Directors and personal information about each of the nominees for the Board.
It also includes five (5) proposals of the Board of Directors, with the
Board's position on each.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING
REGARDLESS OF THE SIZE OF YOUR HOLDINGS. I URGE YOU TO COMPLETE, SIGN, DATE,
AND RETURN YOUR PROXY CARD PROMPTLY.
If you plan to attend the meeting and are a stockholder of record,
please mark your proxy card in the space provided for that purpose. However,
if your shares are not registered in your own name, please advise the
stockholder of record (your bank, broker, etc.) that you wish to attend. Such
stockholder of record must provide you with evidence of your ownership which
will enable you to gain admittance to the meeting.
Sincerely,
Dominic A. Polimeni
Chairman, President and
Chief Executive Officer of the Company
November 25, 1996
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY CARD IN THE ENCLOSED ENVELOPE
<PAGE>
NOTICE OF
ANNUAL MEETING
OF
STOCKHOLDERS
Dear Stockholders:
The 1996 Annual Meeting (the "Meeting") of Stockholders of Questron
Technology, Inc., a Delaware corporation (the "Company"), will be held at the
City Midday Club, 140 Broadway, 50th Floor, New York, New York on Friday,
December 27, 1996 beginning at 11:00 a.m. (local time) for the following
purposes:
1. TO ELECT DIRECTORS.
2. TO CONSIDER AND ACT UPON:
-- approval of an amendment to the Company's Certificate of
Incorporation to effect a one-for-ten reverse split of the Company's
outstanding common stock, which is RECOMMENDED by the Board of
Directors;
-- approval of an amendment to the Company's Certificate of
Incorporation to decrease the number of authorized shares of common
stock, which is RECOMMENDED by the Board of Directors;
-- approval of an amendment to the Company's Certificate of
Incorporation to decrease the number of authorized shares of
preferred stock, which is RECOMMENDED by the Board of Directors;
-- approval of the 1996 Stock Option Plan, which is RECOMMENDED by the
Board of Directors; and
-- ratification of the appointment of Moore Stephens, P.C. as the
Company's independent public accountants for fiscal year 1996, which
is RECOMMENDED by the Board of Directors.
3. TO TRANSACT SUCH OTHER BUSINESS AS MAY BE PROPERLY BROUGHT BEFORE
THE MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
Only holders of record of the Company's Common Stock as of the close
of business on November 7, 1996 are entitled to notice of and to vote at the
Meeting and any adjournments or postponements thereof.
By Order of the Board of Directors,
Milton M. Adler
Secretary
QUESTRON TECHNOLOGY, INC.
6400 Congress Avenue, Suite 200
Boca Raton, Florida 33487
November 25, 1996
<PAGE>
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Questron Technology, Inc., a Delaware
corporation (the "Company"), for use at the 1996 Annual Meeting of
Stockholders of the Company (the "Meeting") which will be held at 11:00 a.m.
on Friday, December 27, 1996 at the City Midday Club, 140 Broadway, 50th
Floor, New York, New York, and at any and all adjournments of the Meeting for
the purposes set forth in the accompanying Notice of Meeting of Stockholders.
This Proxy Statement and the enclosed proxy card will be mailed to
stockholders on or about November 25, 1996. The Company's principal executive
offices are located at 6400 Congress Avenue, Suite 200, Boca Raton, Florida
33487.
The accompanying proxy card is designed to permit each stockholder of
record at the close of business on November 7, 1996 (the "Record Date") to
vote in the election of directors and on the proposals described in this Proxy
Statement. The presence of a majority of the outstanding shares of Common
Stock, represented in person or by proxy at the meeting, will constitute a
quorum. The proxy card provides space for a stockholder to withhold voting for
any or all nominees for the Board of Directors or to abstain from voting for
any proposal if the stockholder chooses to do so. Shares represented by
properly executed proxy cards received by the Company at or prior to the
Meeting will be voted at the Meeting according to the instructions indicated
thereon or otherwise as provided therein. The election of directors requires
the affirmative vote of a plurality of the votes cast. The reverse split and
decreases in authorized common stock and preferred stock require the
affirmative vote of a majority of the outstanding stock entitled to vote.
Approval of the 1996 Stock Option Plan and ratification of the appointment of
auditors requires the affirmative vote of a majority of the votes cast at the
Meeting in person or by proxy. For purposes of determining the number of votes
cast with respect to any voting matter, only those cast "FOR" or "AGAINST" are
included. Abstentions and broker non-votes are counted only for purposes of
determining whether a quorum is present at the Meeting.
Unless instructions to the contrary are indicated, the persons named
on the proxy card will be deemed to have intended to vote the shares so
represented "FOR" the election of the nominated directors, "FOR" the reverse
split, "FOR" the decrease in the shares of authorized common stock, "FOR" the
decrease in the shares of authorized preferred stock, "FOR" approval of the
1996 Stock Option Plan and "FOR" the ratification of the appointment of
auditors. As to any other business which may properly come before the Meeting,
the persons named on the proxy card will vote according to their best
judgment.
A proxy may be revoked at any time before it is voted at the Meeting
by filing with the Secretary of the Company an instrument revoking it, by a
duly executed proxy bearing a later date, or by voting by ballot at the
Meeting.
This proxy is solicited by the Board of Directors of the Company. The
cost of preparing, assembling and mailing this notice of meeting, proxy
statement, and proxy will be borne by the Company. In addition to solicitation
of the proxies by use of the mails, some of the officers, directors and
regular employees of the Company, without extra remuneration, may solicit
proxies personally or by telephone, telegraph, or cable. The Company may also
request brokerage houses, nominees, custodians and fiduciaries to forward
soliciting material to the beneficial owners of stock held of record. The
Company will reimburse such persons for their reasonable expenses in
forwarding soliciting material.
<PAGE>
VOTING SECURITIES AND SECURITIES OWNERSHIP
VOTING SECURITIES
The Board of Directors has fixed the close of business on November 7,
1996 as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Meeting and any adjournments thereof. Only
stockholders on the Record Date will be able to vote at the Meeting. The list
of stockholders entitled to vote at the Meeting will be available for the
examination of any stockholder for any purpose germane to the Meeting at the
offices of Gould & Wilkie, One Chase Manhattan Plaza, 58th Floor, New York,
New York, for ten days prior to the date of the Meeting.
As of the Record Date, there were 15,354,842 shares of the Company's
common stock, par value $.0001 per share, (the "Common Stock") issued and
outstanding. Each holder of record will be entitled to one vote for each share
held, with no shares having cumulative voting rights. Holders of the Common
Stock are entitled to vote on all matters.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of November 7,
1996, known to the Company regarding beneficial ownership of the Company's
Common Stock by (i) any person who is known by the Company to own beneficially
more than five percent of the outstanding shares of the Company's Common
Stock; (ii) the Company's directors; and (iii) all executive officers and
directors as a group. The following calculations were based upon 15,354,842
shares of the Company's Common Stock issued and outstanding as of the above
date.
<TABLE>
<CAPTION>
Position with Number Percentage
Name & Address the Company of Shares of Shares
- -------------- ------------- --------- ----------
<S> <C> <C> <C>
Dominic A. Polimeni(1) Chairman, President and 2,602,721(2) 16.95%
Chief Executive Officer
Milton M. Adler (1) Director, Secretary, 7,666(3) *
Treasurer and Controller
Robert V. Gubitosi(1) Director __(4) __
Mitchell Hymowitz(1) Director 45,000(5) *
William J. McSherry, Jr.(1) Director 35,000(6) *
Joan R. Gubitosi 2,602,721(2) 16.95%
c/o Gulfstream Financial Group, Inc.
6400 Congress Ave., Suite 200
Boca Raton, FL 33487
Phillip D. Schwiebert President and Chief 1,361,360(7) 8.87%
c/o Quest Electronic Hardware, Inc. Operating Officer of
1180 Murphy Avenue Quest Electronic
San Jose, CA 95131 Hardware, Inc., a
subsidiary of the
Company
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Position with Number Percentage
Name & Address the Company of Shares of Shares
- -------------- ------------- --------- ----------
<S> <C> <C> <C>
The Miami Project to Cure Paralysis 1,000,000 6.51%
The University of Miami
School of Medicine
1600 NW Tenth Avenue
Miami, FL 33136
All officers and directors as a group 2,690,387 17.45%
(five persons)
</TABLE>
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* Less than 1%
(1) c/o Questron Technology, Inc., 6400 Congress Avenue, Suite 200, Boca
Raton, FL 33487.
(2) These shares are owned by Gulfstream Financial Group, Inc.
("Gulfstream"). Joan R. Gubitosi and Mr. Polimeni are executive officers
and the stockholders of Gulfstream and share voting and investment power
with respect to shares owned by Gulfstream. Pursuant to a Management
Advisory and Consulting Agreement, dated as of November 29, 1994, between
the Company and Gulfstream, Gulfstream may be entitled to be awarded as
incentive compensation warrants to purchase up to 10.0% of the Company's
Common Stock outstanding at March 31, 1995 (for purposes of such
calculation, the common stock outstanding at March 31, 1995 assumes the
conversion of all outstanding warrants, options and preferred stock), at
a price of $.10 per share, upon the attainment of certain earnings
targets. See also "VOTING SECURITIES AND SECURITIES OWNERSHIP--Exchange
Agreements" and "RELATED PARTY TRANSACTIONS."
(3) Includes Options to purchase 6,666 shares of Common Stock at $12.75 per
share granted pursuant to the 1992 Stock Option Plan.
(4) Mr. Gubitosi's wife, Joan R. Gubitosi, has shared beneficial ownership of
2,602,721 shares of Common Stock (see Footnote 2). Mr. Gubitosi disclaims
beneficial ownership of such shares.
(5) Consists of options to purchase 15,000 shares of Common Stock at $1.125
per share, options to purchase 15,000 shares of Common Stock at $2.406
per share and options to purchase 15,000 shares of Common Stock at $1.906
per share granted pursuant to the 1994 Director Non-Qualified Stock
Option Plan.
(6) Includes options to purchase 15,000 shares of Common Stock at $1.906 per
share granted pursuant to the 1994 Director Non-Qualified Stock Option
Plan.
(7) Pursuant to an Employment Agreement, dated as of November 29, 1994,
between Quest and Phillip D. Schwiebert, Mr. Schwiebert may be entitled
to be awarded as incentive compensation warrants to purchase up to 5.0%
of the Company's Common Stock outstanding at March 31, 1995 (for purposes
of such calculation, the common stock
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<PAGE>
outstanding at March 31, 1995 assumes the conversion of all outstanding
warrants, options and preferred stock), at a price of $.10 per share,
upon the attainment of certain earnings targets. See also "VOTING
SECURITIES AND SECURITIES OWNERSHIP-- Exchange Agreements" and "RELATED
PARTY TRANSACTIONS."
As of the close of business on March 31, 1995, the Company acquired from
Gulfstream Financial Group, Inc. ("Gulfstream"), a Florida corporation owned
by Dominic A. Polimeni and Joan R. Gubitosi, and from Phillip D. Schwiebert
all of the outstanding capital stock of Quest Electronic Hardware, Inc.
("Quest"). Quest, in turn, simultaneously acquired the fasteners distribution
business of Arrow Electronics, Inc. These events resulted in changes in
ownership of the capital stock of the Company which may have affected the
control of the Company. These changes included the following:
(a) Gulfstream became the direct beneficial owner of 22.1% of the shares
of common stock, par value $.0001 per share ("Common Stock"), of the Company
outstanding at March 31, 1995;
(b) Gulfstream, in consideration of its services to the Company under a
Management Advisory and Consulting Agreement, dated as of November 29, 1994,
may be entitled to be awarded as incentive compensation, subject to certain
conditions and restrictions, warrants to purchase up to 10.0% of the Company's
Common Stock outstanding at March 31, 1995 (for purposes of such calculation,
the Common Stock outstanding at March 31, 1995 assumes the conversion of all
outstanding warrants, options and preferred stock), at a price of $.10 per
share, upon the attainment of certain earnings targets;
(c) Dominic A. Polimeni ("Polimeni"), a Director, Executive Officer and
principal stockholder of Gulfstream, and the Chairman, Chief Executive Officer
and Chief Financial Officer of Quest, which became a subsidiary of the
Company, was named President and Chief Operating Officer of the Company (Mr.
Polimeni was subsequently named Chairman, President and Chief Executive
Officer of the Company); and
(d) Phillip D. Schwiebert ("Schwiebert"), the President and Chief
Operating Officer of Quest, became the beneficial owner of 11.6% of the shares
of Common Stock of the Company outstanding at March 31, 1995, and, pursuant to
an Employment Agreement, dated as of November 29, 1994, by and between Quest
and Schwiebert, may be entitled to be awarded as incentive compensation,
subject to certain conditions and restrictions, warrants to purchase up to 5.0%
of the Company's Common Stock outstanding at March 31, 1995 (for purposes of
such calculation, the Common Stock outstanding at March 31, 1995 assumes the
conversion of all outstanding warrants, options and preferred stock), at a
price of $.10 per share, upon the attainment of certain earnings targets.
Subsequent to the foregoing events, certain principal stockholders of the
Company (Jordan R. Belfort, Richard Bronson, Elliot Loewenstern and Daniel
Porush) who, in the aggregate, beneficially owned approximately 45% of the
Company's outstanding stock disposed of the bulk of these shares. In addition,
the Board of Directors of the Company underwent a restructuring by reason of
the resignation of four (4) former directors and the election of Messrs.
Adler, Gubitosi and McSherry to the Board.
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<PAGE>
EXCHANGE AGREEMENTS
In connection with the proposed transactions described below under
"Proposed Offering and Related Acquisition," Gulfstream and Schwiebert have
entered into Exchange Agreements dated as of November 8, 1996 (the "Exchange
Agreements") pursuant to which Gulfstream and Schwiebert have agreed to
exchange their rights (as described above) to receive warrants to purchase up
to 10% and 5%, respectively, of the Common Stock outstanding as of March 31,
1995. The Exchange Agreements are conditioned upon the effectiveness of the
reverse split. Based upon the number of shares of Common Stock outstanding on
such date (after giving effect to the exercise of all the outstanding options
and warrants), the foregoing represented the right of Gulfstream and
Schwiebert to acquire up to 2,641,720 and 1,320,860 shares of Common Stock,
respectively, at $.10 per share. After giving effect to the proposed
one-for-ten reverse split, the foregoing would represent the right to acquire
264,172 and 132,086 shares of post-split Common Stock, respectively, at $1.00
per share.
The Board of Directors deemed it desirable to enter into the Exchange
Agreements by reason of the fact that the rights previously granted to
Gulfstream and Schwiebert would have resulted in substantial charges to the
Company's earnings by reason of accounting rules now in effect and would have
resulted in substantial dilution to the other stockholders. Under the options,
warrants and rights granted under the Exchange Agreements, no charge to
earnings should result as a result of their being exercisable at the fair
market value at the date of grant in lieu of $.10 per share ($1.00 per share
after giving effect to the proposed one-for-ten reverse split). In addition,
pursuant to the Exchange Agreements the Company has substantially increased
the pre-tax income targets needed to earn the awards from $1.4 million, $1.8
million, $2.2 million and $2.6 million to $2.5 million, $3.5 million and $4.5
million. Under the prior arrangements, one half of the awards would have been
earned upon completion of the proposed acquisiton described below under
"Proposed Offering and Related Acquisition" thereby resulting in a substantial
charge to earnings and substantial dilution to stockholders. Under the
Exchange Agreements, no awards will be earned until the $2.5 million pre-tax
income target is met or exceeded. Finally, although Gulfstream and Schwiebert
have the opportunity to earn a substantially greater number of shares, the
amount of consideration which will have to be paid for such shares has
substantially increased as well. Based upon current market prices and giving
effect to the proposed reverse split, the price to be paid per share acquired
will have increased under the Exchange Agreements from $1.00 to at least
$3.75.
Pursuant to the Exchange Agreements, Gulfstream and Schwiebert would be
entitled to receive the following in exchange for the rights previously
granted under their agreements. All amounts have been adjusted to reflect the
proposed one-for-ten reverse split.
Gulfstream: 1) Options to acquire 120,000 shares of Common Stock for
a per share exercise price equal to the average of the
closing bid and asked price of the Common Stock at the
date of grant; and
2) Warrants to acquire 1,000,000 shares of Common Stock
("Warrants"). The exercise price of the Warrants would
be the same as those expected to be issued in the
proposed offering described below or, if the proposed
offering is not consummated, 115% of the average of
the closing bid and asked price of the Common Stock at
the date of grant.
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<PAGE>
Schwiebert: 1) Options to acquire 30,000 shares of Common Stock for a
per share exercise price equal to the average of the
closing bid and asked price of the Common Stock at the
date of grant; and
2) Warrants to acquire 250,000 shares of Common Stock
("Warrants"). The exercise price of the Warrants would
be the same as those expected to be issued in the
proposed offering described below or, if the proposed
offering is not consummated, 115% of the average of
the closing bid and asked price of the Common Stock at
the date of grant.
In addition, Gulfstream and Schwiebert will be entitled to receive
options to acquire additional shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock at the date of grant if the
pre-tax income targets set forth below are met or exceeded in any fiscal year
up to and including fiscal year 2001:
No. of Additional No. of Additional
Gulfstream Shares Schwiebert Shares Pre-tax Income at Least
----------------- ----------------- -----------------------
333,333 166,667 $2,500,000
333,333 166,667 $3,500,000
333,334 166,666 $4,500,000
The following table summarizes the effect of the Exchange Agreements. All
amounts have been adjusted to reflect the proposed one-for-ten reverse split.
<TABLE>
<CAPTION>
Before Exchange Agreement After Exchange Agreement
--------------------------------------------------- ---------------------------------------------------
Maximum No. Aggregate Maximum No. Aggregate
of Shares to be Exercise Price Percentage of Shares to be Exercise Price Percentage
Purchased to be Paid of Stock Purchased to be Paid* of Stock**
--------------- -------------- ---------- --------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gulfstream 264,172 $264,172 13.68% 2,120,000 $8,512,500 47.80%
Schwiebert 132,086 $132,086 6.84% 780,000 $3,065,625 17.59%
</TABLE>
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* In the case of the options, the average of the closing bid and asked price
of the Common Stock on November 6, 1996 (adjusted for the proposed reverse
split) was used for the purpose of determining the exercise price. In the
case of the Warrants, a Warrant exercise price of 115% of the closing bid
and asked price of the Common Stock on such date (adjusted for the proposed
reverse split) was used for the purpose of determining the exercise price.
** These amounts do not give effect to any possible issuances of shares under
the proposed transactions described below under "Proposed Offering and
Related Acquisition."
PROPOSED OFFERING AND RELATED ACQUISITION
The Company has signed a letter of intent relating to a proposed public
offering of its securities (the "Offering"). The proposed Offering is
anticipated to consist of units comprised of: (i) newly issued shares of the
Company's preferred stock which are to be convertible into shares of Common
Stock; and (ii) warrants to purchase shares of Common Stock. The proposed
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<PAGE>
Offering, which will be made only by means of a prospectus, is anticipated to
occur in early 1997 and to generate gross proceeds of approximately $6 million.
These proceeds will be primarily used to fund the cash portion of the purchase
price for the proposed acquisition described below and to retire debt. There
can be no assurance that the proposed Offering can be successfully completed.
The Company has signed a letter of intent with a distributor of fasteners
and electronic hardware in the New England market, with annual sales of
approximately $8 million, relating to the possible acquisition of such
distributor. Such letter of intent is subject to a number of conditions,
including satisfactory completion of due diligence and the execution of a
definitive agreement. The consideration for such proposed acquisition would
consist of cash representing a portion of the net proceeds of the Offering and
newly issued securities of the Company. There can be no assurance that an
agreement relating to such proposed acquisition can be successfully negotiated
or, if negotiated, that such transaction can be successfully completed.
ELECTION OF DIRECTORS
At the Meeting, the stockholders of record will elect five (5) directors
to hold office until the 1997 annual meeting of stockholders or until their
respective successors have been duly elected and qualified. Unless contrary
instructions are given, the shares represented by a properly executed proxy
will be voted "FOR" the election of the following nominees: Milton M. Adler,
Robert V. Gubitosi, Mitchell Hymowitz, William J. McSherry, Jr. and Dominic A.
Polimeni. All of the nominees presently comprise the entire Board of Directors
of the Company. If at any time prior to or during the Meeting any of the
nominees becomes unavailable to serve as a director, the persons named in the
enclosed proxy will vote the shares represented by the proxy for the election
of such person as the Board of Directors may recommend.
Set forth below is certain information concerning the nominees for
election as directors:
Name Age Position
- ---- --- --------
Milton M. Adler 69 Secretary, Treasurer and Director
Robert V. Gubitosi 49 Director
Mitchell Hymowitz 34 Director
William J. McSherry, Jr. 49 Director
Dominic A. Polimeni 50 Chairman, President
and Chief Executive Officer
MILTON M. ADLER has been a Director of the Company since February 1996,
Controller of the Company since January 1992, Treasurer of the Company since
February 1992 and Secretary since October 1993. Prior thereto, Mr. Adler was
employed by Travelco, a travel consulting firm, for more than 18 years in
various capacities, the most recent of which was Vice President of
Administration. Mr. Adler is a Certified Public Accountant.
ROBERT V. GUBITOSI has been a Director of the Company since February 1996
and Director of Operations of Quest Electronic Hardware, Inc., a subsidiary of
the Company, since
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<PAGE>
March 1995. Mr. Gubitosi has been a Managing Director of Gulfstream Financial
Group, Inc., a privately held financial consulting and investment banking firm,
since August 1990. Prior to that he held the position of General Partner and
Chief Financial Officer of the Securities Groups, a New York investment banking
firm and primary dealer of U.S. government securities, with responsibility for
the investment banking activities of the firm. In addition, he has held
managerial positions at Goldman Sachs & Company and Oppenheimer & Company and
specialized in brokerage accounting and auditing at Haskins & Sells and Touche
Ross & Co. He holds a bachelor of business administration degree from Hofstra
University. Mr. Gubitosi is the brother-in-law of Mr. Polimeni.
MITCHELL HYMOWITZ has been a Director of the Company since December 1993.
Mr. Hymowitz has also been Principal/Chief Financial Officer of H&W Hardware
Co., Inc. and Vice President of Two Twenty First Avenue Realty Corp. since
September 1990. Prior to that he was Senior Accountant with Paritz and
Company, P.A., in New Jersey. Mr. Hymowitz earned a Bachelor of Science in
Business Administration with a degree in Accounting from State University of
New York at Buffalo in 1984.
WILLIAM J. MCSHERRY, JR. has been a Director of the Company since
February 1996. Mr. McSherry has been a partner of Battle Fowler LLP, a law
firm with offices in New York City and Los Angeles, since July 1991. Prior to
July 1991, Mr. McSherry was a partner in the law firm of Bryan Cave. Mr.
McSherry is also the President and a director of Playtex Marketing
Corporation, a privately-owned corporation, and serves as a trustee and as
Deputy Mayor of the Village of Larchmont, State of New York.
DOMINIC A. POLIMENI has been President, Chief Operating Officer and a
Director of the Company since March 1995, and Chairman and Chief Executive
Officer since February 1996. He has also been Chairman, Chief Executive
Officer and Chief Financial Officer of Quest Electronic Hardware, Inc. since
October 1994. Since May 1996, Mr. Polimeni has been a director of Healthcare
Imaging Services, Inc., a publicly held company based in Middletown, New
Jersey which provides healthcare management and services. Since March 1996 Mr.
Polimeni has also been a director of TMCI Electronics, Inc., a publicly held
company based in San Jose, California which provides custom manufacturing and
value-added services to the information technology industry. Mr. Polimeni has
been Managing Director of Gulfstream Financial Group, Inc., a privately held
financial consulting and investment banking firm, since August 1990. Prior to
that he held the position of Chief Financial Officer of Arrow Electronics,
Inc. ("Arrow") for four (4) years. He also held several other positions,
including general management positions, with Arrow over an eight-year period.
Prior to that he practiced as a Certified Public Accountant for more than 12
years and was a Partner in the New York office of Arthur Young & Company. He
has also held the position of Chief Operating Officer of Fugazy Express, Inc.,
a New York based transportation company in its start-up phase. He holds a
bachelor of business administration degree from Hofstra University. Mr.
Polimeni is the brother-in-law of Mr. Gubitosi.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held two (2) meetings during the fiscal year ended
December 31, 1995. All directors participated in both such meetings of the
Board of Directors except for Marc Powell, a former director who did not
attend one of the meetings. The Board of Directors acted by unanimous written
consent four (4) times during such fiscal year. The Board of Directors, to
date during 1996, has held four (4) meetings (in which all directors
participated) and has acted by unanimous written consent seven (7) times.
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<PAGE>
Election of the above nominees as Directors of the Company requires a
plurality of the votes represented at the meeting in person or by proxy. In
case any of the nominees should become unavailable for election for any reason
not presently known or contemplated, the persons named on the proxy still have
discretionary authority to vote pursuant to the proxy for a substitute.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE-NAMED NOMINEES.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the named executives
for the periods indicated. No executive officer had total annual salary and
bonus during any such period equal to or greater than $100,000.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------- ----------------------- ------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted Securities
Name and Other Annual Stock Underlying LTIP All other
Principal Position Year Salary Bonus Compensation Awards ($) Options/SARs(#) Payouts Compensation
- ------------------ ---- ------ ----- ------------ ---------- --------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dominic A. Polimeni 1995(1) $75,000 -- -- -- -- -- --
Chairman, President and 1994 -- -- -- -- -- -- --
Chief Executive Officer 1993 -- -- -- -- -- -- --
Stephen J. Drescher 1995(1) $52,000 -- -- -- -0- -- --
Former Chairman and Chief 1994 $52,000 -- -- -- 250,000(2) -- --
Executive Officer 1993 $19,000 -- -- -- -0- -- --
</TABLE>
- ---------------
(1) Mr. Polimeni served as President and Chief Operating Officer of the
Company during the period March-December 1995. Mr. Drescher acted as
Chairman and Chief Executive Officer until January 1996. In February
1996, Mr. Polimeni was elected to the additional capacities of Chairman
and Chief Executive Officer. Prior to March 1995, Mr. Polimeni was not
associated with the Company.
(2) Options to acquire 250,000 shares at $0.625 per share were granted to Mr.
Drescher in 1994 pursuant to the 1992 Amended and Restated Management
Incentive Option Plan.
EMPLOYMENT AGREEMENTS
Dominic A. Polimeni, Chairman, Chief Executive Officer and President of
the Company, is party to an employment agreement with Quest Electronic
Hardware, Inc., a subsidiary of the Company. This agreement expires on March
31, 2000, provides for a base salary of $100,000 per annum and requires Mr.
Polimeni to devote such portion of his business time and energies to the
business and affairs of the Company as is needed to perform his duties under
the agreement. See also "RELATED PARTY TRANSACTIONS" with respect to a
Management Advisory and Consulting Agreement between the Company and
Gulfstream, a company owned by Mr. Polimeni and Joan R. Gubitosi.
- 9 -
<PAGE>
OPTION/SAR GRANTS
There were no grants during 1995 of stock options or stock appreciation
rights to any person named in the Summary Compensation Table. For information
relating to warrants and rights granted to Gulfstream, a company owned by
Dominic A. Polimeni and Joan R. Gubitosi, and to Phillip D. Schwiebert, see
"VOTING SECURITIES AND SECURITIES OWNERSHIP-- Exchange Agreements."
OPTION/SAR EXERCISES
Set forth below is information concerning exercises of options during
1995 and the year-end value of unexercised options for the persons named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities
Underlying Unexercised Value of Unexercised-In-
Shares Options/SAR's at Fiscal the-Money Options/SARs
Acquired Value Year End (#) at Fiscal Year End ($)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dominic A. Polimeni -0- -0- -0- -0-
Chairman, President and
Chief Executive Officer
Stephen J. Drescher 250,000 $656,250 -0- -0-
Former Chairman and
Chief Executive Officer
</TABLE>
The value realized is based on the difference between the exercise price
of $0.625 per share and the average of the high and low bid prices for the
Common Stock on April 28, 1995, the date of exercise.
COMPENSATION OF DIRECTORS
Other than the 1994 Director Non-Qualified Stock Option Plan described
below, the Company does not have a standard policy regarding compensation of
members of the Board of Directors. Other than as reported below, the members
of the Board of Directors did not receive compensation for their services as
such during the year ended December 31, 1995.
THE 1994 DIRECTOR NON-QUALIFIED STOCK OPTION PLAN
On January 26, 1994, the Board of Directors (the "Board") adopted,
subject to stockholder approval, the above captioned plan and in February 1996
amended the plan so as to change the annual date of the grant to the first
Wednesday of February. On April 2, 1996, the Director Non-Qualified Stock
Option Plan was approved by the Company's stockholders at a special meeting.
The plan, as amended and approved, is hereinafter referred to as the "1994
Plan." Pursuant to the terms of the 1994 Plan, options for an aggregate of
300,000 shares of the Company's Common Stock may be granted.
- 10 -
<PAGE>
All non-employee directors shall receive an option to purchase 15,000
shares of the Common Stock of the Company on the first Wednesday of February
in each calendar year at an exercise price equal to the fair market value per
share of the Common Stock on that date. Such options shall be exercisable
immediately for a period of 10 years from date of grant unless terminated
earlier pursuant to the terms of the plan. Under the 1994 Plan, 120,000
options have been granted to date at exercise prices of $1.125 per share,
$1.906 per share and $2.406 per share.
1992 STOCK OPTION PLAN
In June 1992, the Board unanimously approved the adoption of the "1992
Plan" which was approved by the Shareholders of the Company on January 8,
1993. Under the 1992 Plan, both incentive stock options ("ISOs") and
non-qualified stock options ("Non-Qualified Options") may have been granted
(together, the "Options"). Each option was to be specifically designated at
the time of its grant as an ISO (within the meaning of Section 422 of the
Internal Revenue Code of 1986) (the "Code"), or a Non-Qualified Option. All
non-management employees were eligible to receive ISOs under the 1992 Plan.
All non-management employees and non-employee consultants and Company Judges
were eligible to receive Non-Qualified Options under the 1992 Plan.
No options were granted under the 1992 Plan during 1995. The Board of
Directors has terminated the 1992 Plan and no additional options will be
granted thereunder.
THE 1992 AMENDED AND RESTATED MANAGEMENT INCENTIVE OPTION PLAN
In December 1991, the Board approved the Company's 1992 Management
Incentive Option Plan (the "Incentive Plan"). In September and October 1992,
effective as of the date of the original plan, the Board approved certain
amendments to the original plan which were ratified by the Shareholders of the
Company on January 8, 1993. Pursuant to the terms of the Incentive Plan
non-qualified options to purchase up to 533,333 shares of the Company's Common
Stock may have been granted to officers, directors, key employees and
consultants of the Company.
No options were granted under the Incentive Plan during 1995. The Board
of Directors has terminated the Incentive Plan and no additional options will
be granted thereunder.
RELATED PARTY TRANSACTIONS
As of the close of business on March 31, 1995, the Company acquired from
Gulfstream Financial Group, Inc., a Florida corporation owned by Dominic A.
Polimeni and Joan R. Gubitosi, and from Phillip D. Schwiebert all of the
outstanding capital stock of Quest Electronic Hardware, Inc. This transaction
is described under "VOTING SECURITIES AND SECURITIES OWNERSHIP--Security
Ownership of Management and Principal Stockholders." Pursuant to the
Management Advisory and Consulting Agreement therein described, the Company
has also agreed to compensate Gulfstream for advisory and consulting services
at the rate of $150,000 per year. This agreement expires on March 31, 2000 and
can be terminated by either party on 90 days notice. See also "VOTING
SECURITIES AND SECURITIES OWNERSHIP--Exchange Agreements" for the terms of a
related exchange agreement.
In April 1995, the Company loaned Stephen J. Drescher, then Chairman and
Chief Executive Officer of the Company, $156,250 in connection with the
exercise by Mr. Drescher
- 11 -
<PAGE>
of options to purchase Common Stock. The obligation to repay this loan was
satisfied by Gulfstream and Mr. Schwiebert by the contribution of shares of
Common Stock to the Company in connection with Mr. Drescher's resignation in
January 1996 as an officer and director of the Company.
In April 1995, the Company loaned Paul L. Burton, then Executive Vice
President and a Director of the Company, $125,000 in connection with the
exercise by Mr. Burton of options to purchase Common Stock. The obligation to
repay this loan and to repay $69,228 of expenses paid by the Company on Mr.
Burton's behalf was satisfied by Gulfstream and Mr. Schwiebert by the
contribution of shares of Common Stock to the Company in connection with Mr.
Burton's resignation in January 1996 as an officer and director of the
Company.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership of equity securities of the Company with the Securities and Exchange
Commission. Officers, directors and greater-than-ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file.
Based solely on a review of the copies of Forms 3, 4 and 5 and amendments
thereto furnished to the Company, or written representations from certain
reporting persons that such persons have filed on a timely basis all reports
required by Section 16(a), and without researching or making any inquiry
regarding delinquent Section 16(a) filings, the Company believes that, during
the fiscal year ended December 31, 1995, a Form 5 was filed on a non- timely
basis by Daniel Porush (formerly a holder of more than 10% of the Common
Stock) and Forms 4 were filed on a non-timely basis with respect to two
transactions by Paul L. Burton and with respect to six transactions by Stephen
J. Drescher. Messrs. Burton and Drescher were officers and directors of the
Company during 1995.
BOARD OF DIRECTORS PROPOSALS
PROPOSAL NO. 1
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
EFFECT A ONE-FOR-TEN REVERSE SPLIT OF THE COMPANY'S OUTSTANDING
COMMON STOCK
The Board of Directors has proposed an amendment to Article FOURTH of the
Company's Certificate of Incorporation that would effect a reverse split of
the Company's issued and outstanding Common Stock on the basis of one new
share of Common Stock for each ten shares of presently outstanding Common
Stock. As of November 7, 1996, 15,354,842 shares of Common Stock were issued
and outstanding, 118,493 shares were held in treasury and 34,526,665 shares
were unissued. As of November 7, 1996, there were 297,666 shares of Common
Stock reserved for issuance upon the exercise of outstanding options or
warrants.
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT
The Board of Directors believes that the present level of per share
market prices of the Common Stock impairs the acceptability of the stock by
portions of the financial community and
- 12 -
<PAGE>
the investing public and therefore impacts liquidity. Theoretically, the number
of shares outstanding should not, by itself, affect the marketability of the
stock, the type of investor who acquires it or a company's reputation in the
financial community, but in practice this is not necessarily the case, as many
investors look upon low priced stock as unduly speculative in nature and, as a
matter of policy, avoid investment in such stocks. The Board of Directors also
believes that the current per share price of the Common Stock has reduced the
effective marketability of the shares because of the reluctance of many leading
brokerage firms to recommend low priced stock to their clients. Further,
various brokerage house policies and practices tend to discourage individual
brokers from dealing in low priced stocks. Some of those policies and practices
pertain to the payment of brokers' commissions and to time-consuming procedures
which function to make the handling of low priced stocks unattractive to
brokers from an economic standpoint. In addition, the structure of trading
commissions also tends to have an adverse impact upon holders of low priced
stock because the brokerage commission on a sale of low priced stock generally
represents a higher percentage of the sales price than the commission on higher
priced issues. Accordingly, the Board of Directors proposes the reverse split
so as to bolster the marketability of the Company's stock by increasing the per
share market prices of the Company's Common Stock.
Another purpose of the proposed amendment is to reduce the number of
shares of Common Stock outstanding. The Board of Directors believes that the
total number of shares currently outstanding is disproportionately large
relative to the Company's present market capitalization. Moreover, when such a
large number of shares is outstanding, earnings per share is only affected by
a significant change in net earnings. If a smaller number of shares were
outstanding, the Company's financial results would be better reflected in the
Company's earnings per share.
Consistent with the foregoing considerations, the Board of Directors also
believes that effecting the reverse split will facilitate the Company's
ability to consummate the proposed offering and the proposed acquisition
described under "VOTING SECURITIES AND SECURITIES OWNERSHIP--Proposed Offering
and Related Acquisition."
Although there can be no assurance that the price of the Common Stock
after the reverse split will actually increase in an amount proportionate to
the decrease in the number of outstanding shares, the proposed reverse stock
split is intended to result in a price level for the Common Stock that will
increase investor interest, reduce resistance of brokerage firms to recommend
the Common Stock and facilitate the proposed transactions described herein.
PRINCIPAL EFFECTS OF THE PROPOSED REVERSED STOCK SPLIT
The principal effects of the proposed reverse stock split would be the
following:
Based upon 15,354,842 shares of Common Stock outstanding on November 7,
1996, the proposed one-for-ten reverse stock split would decrease the
outstanding shares of Common Stock by approximately 90.0%, and thereafter
approximately 1,535,484 shares of Common Stock would be outstanding, held by
approximately 1,000 stockholders of record. The proposed reverse split would
not affect the proportionate equity interest in the Company of any holder of
Common Stock, except as may result from the provisions for the elimination of
fractional shares as described below. The proposed reverse stock split would
not affect the registration of the Common Stock under the Securities Exchange
Act of 1934.
The reverse split may leave certain stockholders with one or more "odd
lots" of the Company's Common Stock, i.e., stock in amounts of less than 100
shares. These shares may
- 13 -
<PAGE>
be more difficult to sell, or require a greater commission per share to sell,
than shares in even multiples of 100.
As of November 7, 1996, there were outstanding options and warrants to
purchase shares relating to an aggregate of 297,666 shares of Common Stock.
All of the outstanding options and warrants include provisions for adjustments
in the number of shares covered thereby, and the exercise price thereof, in
the event of a reverse stock split by appropriate action of the Board of
Directors. If the proposed one-for-ten reverse split is approved and effected,
there would be reserved for issuance upon exercise of all outstanding options
and warrants a total of 29,767 shares of Common Stock. Each of the outstanding
options would thereafter evidence the right to purchase 10% of the shares of
Common Stock previously covered thereby and the exercise price per share would
be ten times the previous exercise price.
In addition, by reason of the amendment to the Certificate of
Incorporation, the par value of the Common Stock will be increased from $.0001
to $.001.
Under the proposal, only the issued and outstanding shares of Common
Stock would be affected by the reverse split. The number of authorized shares
of Common Stock would remain at 50,000,000. By reason of the foregoing, one of
the effects of the reverse split would be to substantially increase the number
of authorized but unissued shares. The Board of Directors is proposing,
however, to reduce the number of authorized shares of Common Stock from
50,000,000 to 20,000,000. See "PROPOSAL NO. 2 -- AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO DECREASE THE NUMBER OF AUTHORIZED SHARES OF
THE COMPANY'S COMMON STOCK."
Although management is not currently aware of any effort by any person to
gain control of the Company, in the event of such an effort, the authorized
but unissued shares of Common Stock could be used to make a change in control
of the Company more difficult. Under certain circumstances such shares could
be used to create voting impediments to deter persons seeking to effect a
takeover or otherwise gain control of the Company. Such shares could be sold
in public or private transactions to purchasers who might side with the Board
of Directors in opposing a takeover bid which the Board of Directors
determines not to be in the best interests of the Company and its
stockholders. The authorized shares might have the effect of discouraging an
attempt by another person, through the acquisition of a substantial number of
shares of the Company's Common Stock, to acquire control of the Company with a
view to imposing a merger, sale of all or any part of the Company's assets or
a similar transaction, since the issuance of new shares could be used to
dilute the stock ownership of such person or entity.
In addition, shares of the Company may be authorized for issuance by the
Board of Directors as consideration in whole or in part for future
acquisitions which may be made by the Company. The Company's stockholders may
not have the opportunity to review the financial statements of any of the
companies which may be acquired or have the opportunity to vote on any
proposed acquisitions. Any such issuance of additional shares may cause
current stockholders of the Company to suffer significant dilution and may
adversely affect the market for the Company's securities.
- 14 -
<PAGE>
The following table illustrates the principal effects of the proposed
reverse stock split discussed in the preceding paragraphs:
<TABLE>
<CAPTION>
IF PROPOSAL TO REDUCE
NUMBER OF SHARES PRIOR TO AFTER AUTHORIZED COMMON
OF COMMON STOCK REVERSE SPLIT REVERSE SPLIT STOCK IS APPROVED
---------------- ------------- ------------- ---------------------
<S> <C> <C> <C>
Authorized.......................................... 50,000,000 50,000,000 20,000,000
Outstanding......................................... 15,354,842 1,535,484 1,535,484
Shares held in treasury............................. 118,493 11,849 11,849
Reserved for future issuance upon exercise of
options and warrants................................ 297,666 29,767 29,767
Available for future issuance by action of the
Board of Directors (after giving effect to the
above reservations)................................. 34,228,999 48,422,900 18,422,900
</TABLE>
Assuming the proposed amendment to the first clause of Article FOURTH of
the Certificate of Incorporation effecting the reverse stock split is
approved, a Certificate of Amendment amending the Certificate of Incorporation
as set forth in Appendix A to this Proxy Statement will be filed with the
Secretary of State of the State of Delaware (the "Delaware Secretary of
State") as promptly as practicable thereafter. The amendment and the proposed
reverse stock split would become effective upon the date of filing (the
"Effective Date").
EXCHANGE OF STOCK CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
As soon as possible after the Effective Date, holders of Common Stock
will be notified and requested to surrender their present Common Stock
certificates for new certificates representing the number of whole shares of
Common Stock after the reverse split, rounded, if necessary, to the next
highest whole share. Until so surrendered, each current certificate
representing shares of Common Stock will be deemed for all corporate purposes
after the Effective Date to evidence ownership of Common Stock in the
appropriately reduced whole number of shares. American Stock Transfer & Trust
Company will be appointed exchange agent (the "Exchange Agent") to act for
stockholders in effecting the exchange of their certificates.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
consequences of the proposed reverse split of the Company's Common Stock. This
discussion does not purport to deal with all aspects of federal income
taxation that may be relevant to holders of Common Stock and is not intended
to be applicable to all categories of investors, some of which, such as
dealers in securities, banks, insurance companies, tax-exempt and foreign
persons, may be subject to special rules. Furthermore, the following
discussion is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and administrative and judicial interpretations
as of the date hereof, all of which are subject to change. Holders of Common
Stock are advised to consult their own tax advisors regarding the federal,
state, local and foreign tax consequences of the proposed reverse stock split.
The proposed reverse stock split will be a tax-free recapitalization for
the Company and its stockholders. The new shares of Common Stock in the hands
of a stockholder will have an
- 15 -
<PAGE>
aggregate basis for computing gain or loss equal to the aggregate basis of
Common Stock held by that stockholder immediately prior to the proposed reverse
stock split. A stockholder's holding period for the new shares of Common Stock
will be the same as the holding period for the shares of Common Stock exchanged
therefor.
Approval of the reverse stock split requires the affirmative vote of a
majority of all of the issued and outstanding shares of Common Stock. The
foregoing summary of the amendment is qualified in its entirety by reference
to the complete text of the proposed revised first clause of Article FOURTH of
the Certificate of Incorporation, which is set forth as Appendix A to this
Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
FOREGOING PROPOSAL.
PROPOSAL NO. 2
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO DECREASE THE NUMBER OF AUTHORIZED SHARES
OF THE COMPANY'S COMMON STOCK
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Certificate of Incorporation to decrease the
Company's authorized number of shares of Common Stock from 50,000,000 shares
to 20,000,000 shares. The Board of Directors has also adopted, pursuant to
stockholder approval an amendment to decrease the number of authorized shares
of Preferred Stock. See "PROPOSAL NO. 3 -- AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO DECREASE THE NUMBER OF AUTHORIZED SHARES OF
THE COMPANY'S PREFERRED STOCK ."
The Board of Directors is proposing to decrease the number of authorized
shares of Common Stock because of its view that the one-for-ten reverse split
of the issued and outstanding Common Stock without a corresponding reduction
of the number of shares of authorized Common Stock will result in the Company
having more shares of Common Stock authorized for issuance than the Board
reasonably anticipates being needed for the foreseeable future. Even if the
number of authorized shares of Common Stock is reduced as proposed, there will
still be a substantial number of authorized but unissued shares. Please refer
to Proposal No. 1 for factors to be considered in connection with such a
substantial number of authorized but unissued shares, and to the corresponding
table.
The proposed amendment to the Certificate of Incorporation requires the
affirmative vote of a majority of the outstanding stock entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
FOREGOING PROPOSAL.
PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO DECREASE THE NUMBER OF AUTHORIZED SHARES
OF THE COMPANY'S PREFERRED STOCK
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Certificate of Incorporation to decrease the
Company's authorized number of
- 16 -
<PAGE>
shares of Preferred Stock from 10,000,000 shares to 6,000,000 shares. Of the
10,000,000 authorized shares of Preferred Stock, 900,000 shares were previously
issued under terms which provided that such shares could not be reissued at a
later date. All of such shares of Preferred Stock have been converted into
Common Stock and no shares of Preferred Stock currently remain outstanding. The
Board of Directors has also adopted, pursuant to stockholder approval an
amendment to decrease the number of authorized shares of Common Stock. See
"PROPOSAL NO. 2 -- AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
DECREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK."
The Board of Directors is proposing to decrease the number of
authorized shares of Preferred Stock because of its view that the Company has
more shares of Preferred Stock authorized for issuance than the Board
reasonably anticipates being needed for the foreseeable future. Even if the
number of authorized shares of Preferred Stock is reduced as proposed, there
will still be a substantial number of authorized but unissued shares. Please
refer to Proposal No. 1 for factors to be considered in connection with such a
substantial number of authorized but unissued shares.
The proposed amendment to the Certificate of Incorporation requires
the affirmative vote of a majority of the outstanding stock entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
FOREGOING PROPOSAL.
PROPOSAL NO. 4
APPROVAL OF THE 1996 STOCK OPTION PLAN
SUMMARY OF THE 1996 STOCK OPTION PLAN.
The Board of Directors submits to the stockholders for their approval a
1996 Stock Option Plan (the "Plan"), which is summarized below. The summary is
qualified in its entirety by reference to the text of the Plan which is
attached hereto as Appendix B. The purpose of such Plan is to advance the
interests of the Company by enabling officers, employees and directors of the
Company and its Affiliates, as such term is defined by the Plan, to
participate in the Company's future and to enable the Company to attract and
retain such persons by offering them proprietary interests in the Company.
Administration
The Plan shall be administered by a Stock Award Committee (the
"Committee"), which would be composed of not less than two directors of the
Company all of whom shall be NonEmployee Directors, as that term is defined in
the Plan. Each member of the Committee will be appointed by the Board. In the
absence of such a committee, the Plan shall be administered by the entire
Board.
The Committee shall have the authority to adopt, alter and repeal
administrative rules, guidelines and practices governing the Plan as it, from
time to time, deems advisable to supervise the administration of the Plan.
However, no amendment to the Plan shall be made without the approval of the
Company's stockholders to the extent such approval is required by law or
agreement, except that the Board of Directors of the Company shall have the
authority to amend the Plan to take into account changes in law and tax and
accounting rules, as well as
- 17 -
<PAGE>
other developments and to grant Awards which qualify for beneficial treatment
under such rules without shareholder approval. The Committee may act only by a
majority of its members then in office. The duration of the Plan shall be ten
years from the date upon which the Plan is approved by the stockholders of the
Company.
Eligibility
Officers, employees and directors of the Company and its Affiliates who
are responsible for or contribute to the management growth and profitability
of management, the business of the Company and its Affiliates are eligible to
be granted Awards under the Plan. The Company estimates the approximate number
of officers, employees and directors eligible to participate in the Plan as of
November 7, 1996 to be two (2), twenty (20), and two (2), respectively. The
benefits or amounts that will be received by or allocated to the Company's
chief executive officer, the Company's next four most highly compensated
officers who were serving as executive officers at the end of the last
completed fiscal year, and other Plan beneficiaries cannot be determined at
this time. The Company will not incur any expense and has no obligation to
issue Awards with respect to past services and current services.
Types of Awards
The Committee will have the plenary authority to grant Awards to
officers, employees and directors of the Company or its Affiliates. Awards
granted to participants of the Plan include Stock Options, Stock Appreciation
Rights, Restricted Stock, or any combination of the foregoing, as these terms
are defined and regulated under the Plan. The Committee shall have the
authority to grant either Incentive Stock Options or Non-Qualified Stock
Options under the Plan; however, the former may be granted only to employees
of the Company and its subsidiaries. The Awards are subject to such terms and
conditions as determined by the Committee and which may differ from Award to
Award. The prices, expiration dates and other material conditions upon which
the Stock Options and Stock Appreciation Rights may be exercised and the
consideration received or to be received by the Company or its Affiliates for
the granting or extension of the Awards are to be determined by the Committee
and are indeterminable as of the date of this Proxy Statement.
Number of Shares
The total number of shares of Stock reserved and available for
distribution as Awards under the Plan will be 250,000 (post-split) shares of
the Company's Common Stock.
SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE 1996 STOCK OPTION PLAN
This summary of certain federal income tax consequences is provided as
general information, but does not purport to be a complete and detailed
description of all possible tax consequences to the recipient of an Option and
the Company. It describes the federal tax consequences in effect as of the
date set forth in the notice. Each holder of an Option is advised to consult
his tax advisor because tax consequences may vary depending upon the
individual circumstances of the holder.
Incentive Options ("ISO"). ISOs are designed to qualify as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). In the case of ISOs no taxable gain will be realized by
a recipient upon grant or exercise of the option, and the Company will not be
entitled to a tax deduction at the time any such option is granted or
exercised. However, the excess of the fair market value of any stock received
over the option
- 18 -
<PAGE>
price will constitute an adjustment in computing alternative minimum taxable
income at the time of the transfer of stock pursuant to the exercise of the
option, or if later, at the earlier of the time that the stock is transferable
or is not subject to a substantial risk of forfeiture. Alternative minimum
taxable income is the base for calculating an individual taxpayer's liability
for the alternative minimum tax, a tax which is payable if it exceeds the
amount of the individual's tax liability calculated on the regular method.
Additionally, the basis of the stock for alternative minimum tax purposes would
be increased by this adjustment.
If a recipient of an ISO does not dispose of stock acquired by him upon
the exercise of the option within one year after the date of transfer of such
stock or within two years after the date of grant of such an option, any gain
realized by him on a subsequent sale of such stock will be capital gain, which
will be long term capital gain if the stock was held for the appropriate
holding period (currently more than one year). In determining the amount of
taxable gain or loss on a subsequent sale or other disposition of stock
obtained by exercise of an ISO, the tax basis of such stock (for regular tax
purposes) will be an amount equal to the option price paid therefor.
On the other hand, if the recipient sells or otherwise disposes of the
stock obtained by exercise of an ISO within one year of the date of grant of
the option (other than certain permitted disposition), he will at that time
recognize ordinary income to the extent that the fair market value of the
stock on the date that the option was exercised or the amount realized on sale
or disposition, whichever is less, exceeds the option price. If the amount
realized on sale or disposition is greater than the fair market value of the
stock on the date the option was exercised, such excess will be treated as
capital gain, which will be a long-term capital gain if the stock was held for
the appropriate holding period (currently more than one year).
In general, in any year in which a recipient recognizes ordinary income
because of the disposition of his shares within one year from the date of
exercise or two years from the date of grant of an ISO, the Company will
receive a corresponding deduction for federal income tax purposes. No
deduction will be allowed to the Company if the stock acquired upon exercise
of an ISO is held for more than one year after the date of transfer of such
stock and more than two years from the date of grant of the ISO.
Non-Qualified Options. The treatment of Non-Qualified Options for federal
income tax purposes depends on whether the option has a readily ascertainable
fair market value at the time it is granted. If a Non-Qualified Option has a
readily ascertainable fair market value at the time of grant, the excess of
the fair market value of Non-Qualified Options received by a recipient over
the amount, if any, paid for the options must be included in the recipient's
gross income at the time the option is granted, or if later, at the earlier of
the time that the option is transferable or is not subject to a substantial
risk of forfeiture. If an option with a readily ascertainable fair market
value is not taxable at the time the option is granted because the option is
nontransferable and subject to a substantial risk of forfeiture, the recipient
may nevertheless elect to include such amount in gross income in the year of
grant of the option. Because the Non-Qualified Options are not actively traded
on an established market and because it is likely that the Non-Qualified
Options will be nontransferable by the recipient or will not be immediately
exercisable, it is not expected that the Non-Qualified Options will have a
readily ascertainable fair market value. If a Non-Qualified Option does not
have a readily ascertainable fair market value at the time of grant, there is
no taxable event at grant; rather, the excess of (i) the value of the stock on
the date it is acquired pursuant to exercise of the option over (ii) the
exercise price plus the amount, if any, paid for the option must be included
in the recipient's gross income at the time of the receipt of the stock
pursuant to the exercise of the option, or, if later, at the earlier of the
time that the stock is transferable or is not subject to a substantial
- 19 -
<PAGE>
risk of forfeiture. If stock received pursuant to the exercise of a
Non-Qualified Option is not taxable at receipt because the stock is
nontransferable and subject to a substantial risk of forfeiture, the recipient
may elect to include such amount in gross income in the year the stock is
received pursuant to exercise of the option.
The receipt of taxable income upon exercise of a Non-Qualified Option may
be ameliorated if the underlying stock is registered because the recipient may
sell a portion of his stock to pay the income tax liability; such is not the
case with the receipt of income upon grant of a Non-Qualified Option. The
grant or exercise of a Non-Qualified Option will not result in any adjustment
for alternative minimum tax purposes. In general, with respect to
Non-Qualified Options, a corresponding deduction is allowed to the Company for
the amount and at the time that the recipient recognizes income, and such
income is subject to withholding and employment taxes, if applicable.
The affirmative vote of a majority of the shares of Common Stock
represented at the Meeting in person or by proxy is required for approval of
the 1996 Stock Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
FOREGOING PROPOSAL.
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Moore Stephens, P.C. as independent
public accountants of the Company for the year ending December 31, 1996. The
Board of Directors is submitting the appointment of Moore Stephens, P.C. for
ratification at the Annual Meeting. Moore Stephens, P.C. audited the Company's
financial statements for the fiscal years ending December 31, 1995 and 1994,
and the Board believes that this firm has demonstrated that it is well
qualified to make an independent examination of the accounts of the Company.
If the appointment is not approved, the Board will reconsider its appointment.
Representatives of Moore Stephens, P.C. will be present at the meeting, and
will have the opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions.
The affirmative vote for a majority of the shares of Common Stock
represented at the Meeting in person or by proxy is required for approval of
the appointment of auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
FOREGOING PROPOSAL.
- 20 -
<PAGE>
OTHER BUSINESS
It is not expected that any business other than that set forth in the
Notice of Annual Meeting of Stockholders and more specifically described in
this Proxy Statement will be brought before the meeting. However, if any other
business should properly come before the meeting, it is the intention of the
persons named on the enclosed proxy card to vote the signed proxies received
by them in accordance with their best judgment on such business and any
matters dealing with the conduct of the meeting.
1997 STOCKHOLDER PROPOSALS
To be eligible for inclusion in the Company's Proxy Statement for the
1997 Annual Meeting of Stockholders, to be held on or about June 3, 1997,
stockholder proposals must be received by the Company at its principal
executive office, Questron Technology, Inc., 6400 Congress Avenue, Suite 200,
Boca Raton, FL 33487, on or before January 2, 1997.
ANNUAL REPORT
The Securities and Exchange Commission rules require that an annual
report precede or accompany proxy material. Copies of the Company's Annual
Report on Form 10-KSB for the fiscal period ended December 31, 1995 accompany
this proxy statement. More than one annual report need not be sent to the same
address, if the recipient agrees. If more than one annual report is being sent
to your address, at your request, mailing of the duplicate copy to the account
you select will be discontinued.
By Order of the Board of Directors,
Milton M. Adler
Secretary
Date: November 25, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE FILL IN, SIGN, AND DATE
THE PROXY SUBMITTED HEREWITH AND RETURN IT IN THE ENCLOSED STAMPED ENVELOPE.
THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH PROXY IN
PERSON SHOULD YOU LATER DECIDE TO ATTEND THE MEETING. THE ENCLOSED PROXY IS
BEING SOLICITED BY THE BOARD OF DIRECTORS.
- 21 -
<PAGE>
APPENDIX A
PROPOSAL NO. 1
The Certificate of Incorporation of the Corporation is proposed to be amended
by deleting ARTICLE FOURTH in its entirety and substituting the following in
lieu therefor:
"FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is
sixty million (60,000,000) shares, of which fifty million
(50,000,000) shares shall be Common Stock, par value $.001
per share ("Common Stock"), and ten million (10,000,000)
shares shall be preferred stock, par value $.01 per share
("Preferred Stock"). The Preferred Stock may be issued with
full, multiple or fractional voting rights with such
designations, preferences, qualifications, privileges,
limitations, options, conversion rights and other special
relative rights that shall be fixed from time to time by
resolution of the Board of Directors.
Upon filing with the Secretary of State of the State of
Delaware of a Certificate of Amendment to the Corporation's
Certificate of Incorporation whereby ARTICLE FOURTH is
amended to include the within paragraph, each ten (10) issued
and outstanding shares of Common Stock of this Corporation
shall thereby be combined into one (1) validly issued, fully
paid and non-assessable share of Common Stock, par value
$.001 per share. Each person at that time holding of record
any issued and outstanding shares of Common Stock shall
receive upon surrender to the Corporation's transfer agent a
stock certificate or certificates to evidence and represent
the number of shares of post-reverse split common Stock to
which such stockholder is entitled after giving effect to the
reverse split, rounded, if necessary, to the next highest
whole share."
PROPOSAL NO. 2
If Proposal No. 2 is approved but Proposal No. 3 is not approved:
The Certificate of Incorporation of the Corporation is proposed to be amended
by deleting ARTICLE FOURTH in its entirety and substituting the following in
lieu therefor:
"FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is thirty million
(30,000,000) shares, of which twenty million (20,000,000) shares shall
be Common Stock, par value $.001 per share ("Common Stock"), and ten
million (10,000,000) shares shall be preferred stock, par value $.01
per share ("Preferred Stock"). The Preferred Stock may be issued with
full, multiple or fractional voting rights with such designations,
preferences, qualifications, privileges, limitations, options,
conversion rights and other special relative rights that shall be
fixed from time to time by resolution of the Board of Directors.
<PAGE>
Upon filing with the Secretary of State of the State of Delaware of a
Certificate of Amendment to the Corporation's Certificte of
Incorporation whereby ARTICLE FOURTH is amended to include the within
paragraph, each ten (10) issued and outstanding shares of Common Stock
of this Corporation shall thereby be combined into one (1) validly
issued, fully paid and non-assessable share of Common Stock, par value
$.001 per share. Each person at that time holding of record any issued
and outstanding shares of Common Stock shall receive upon surrender to
the Corporation's transfer agent a stock certificate or certificates
to evidence and represent the number of shares of post-reverse split
Common Stock to which such stockholder is entitled after giving effect
to the reverse split, rounded, if necessary, to the next highest whole
share."
PROPOSAL NO. 3
If Proposal No. 2 is approved and Proposal No. 3 is approved:
The Certificate of Incorporation of the Corporation is proposed to be amended
by deleting ARTICLE FOURTH in its entirety and substituting the following in
lieu therefor:
"FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is twenty-six
million (26,000,000) shares, of which twenty million (20,000,000)
shares shall be Common Stock, par value $.001 per share ("Common
Stock"), and six million (6,000,000) shares shall be preferred stock,
par value $.01 per share ("Preferred Stock"). The Preferred Stock may
be issued with full, multiple or fractional voting rights with such
designations, preferences, qualifications, privileges, limitations,
options, conversion rights and other special relative rights that
shall be fixed from time to time by resolution of the Board of
Directors.
Upon filing with the Secretary of State of the State of Delaware of a
Certificate of Amendment to the Corporation's Certificte of
Incorporation whereby ARTICLE FOURTH is amended to include the within
paragraph, each ten (10) issued and outstanding shares of Common Stock
of this Corporation shall thereby be combined into one (1) validly
issued, fully paid and non-assessable share of Common Stock, par value
$.001 per share. Each person at that time holding of record any issued
and outstanding shares of Common Stock shall receive upon surrender to
the Corporation's transfer agent a stock certificate or certificates
to evidence and represent the number of shares of post-reverse split
Common Stock to which such stockholder is entitled after giving effect
to the reverse split, rounded, if necessary, to the next highest whole
share."
A-2
<PAGE>
APPENDIX B
QUESTRON TECHNOLOGY, INC.
1996 STOCK OPTION PLAN
SECTION 1. Purpose. The purpose of the Questron Technology, Inc. 1996 Stock
Option Plan is to advance the interests of Questron Technology, Inc. (the
"Company") by enabling officers, employees and directors of the Company and
its Affiliates to participate in the Company's future and to enable the
Company to attract and retain such persons by offering them proprietary
interests in the Company.
SECTION 2. Definitions. For purposes of the Plan, the following terms are
defined as set forth below:
a. "Affiliate" means a corporation or other entity controlled
directly, or indirectly through one or more intermediaries, by the Company and
designated by the Committee as such.
b. "Award" means an award granted to a Participant in the form of a
Stock Appreciation Right, Stock Option, or Restricted Stock, or any
combination of the foregoing.
c. "Board" means the Board of Directors of the Company.
d. "Cause" shall have the meaning set forth in Section 8.
e. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
f. "Commission" means the Securities and Exchange Commission or any
successor agency.
g. "Committee" means the Committee referred to in Section 5.
h. "Common Stock" means common stock, $.001 per share par value, of
the Company.
i. "Company" means Questron Technology, Inc., a Delaware corporation.
j. "Disability" means permanent and total disability as determined
under procedures established by the Committee for purposes of the Plan.
k. "Non-Employee Director" shall mean a director who qualifies as such
under Rule 16b-3(b)(3), as promulgated under the Exchange Act, or as such term
is defined under any successor rule adopted by the Commission.
l. "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
m. "Fair Market Value" means the average, as of any given date,
between the highest and lowest reported closing bid and asked prices of the
Stock on NASDAQ or the closing sale price as of any given date if the Stock is
listed on a national securities exchange or the
<PAGE>
NASDAQ National Market System. If there is no regular public trading-market for
such Stock under circumstances specified above, the Fair Market Value of the
Stock shall be determined by the Committee in good faith.
n. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
o. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
p. "Normal Retirement" means retirement from active employment with
the Company or an Affiliate at or after age 65 or at such other age as may be
specified by the Committee.
q. "Participant" means an officer, employee or director of the Company
or of an Affiliate to whom an Award has been granted which has not terminated,
expired or been fully exercised.
r. "Plan" means the Questron Technology, Inc. 1996 Stock Option Plan,
as set forth herein and as hereinafter amended from time to time.
s. "Restricted Period" means the period of time, which may be a single
period or multiple periods, during which Restricted Stock awarded to a
Participant remains subject to the restrictions imposed on such Stock, as
determined by the Committee.
t. "Restrictions" means the restrictions and conditions imposed on
Restricted Stock awarded to a Participant, as determined by the Committee,
which must be satisfied in order for the Restricted Stock to vest, in whole or
in part, in the Participant.
u. "Restricted Stock" means an Award of Stock on which are imposed
Restriction Period(s) and Restrictions whereby the Participant's rights to
full enjoyment of the Stock are conditioned upon the future performance of
substantial services by any individual or are otherwise subject to a
"substantial risk of forfeiture" within the meaning of Section 83 of the Code,
as amended.
v. "Restricted Stock Agreement" means a written agreement between a
Participant and the Company evidencing an award of Restricted Stock.
w. "Restricted Stock Award Date" means the date on which the Committee
awarded Restricted Shares to the Participant.
x. "Retirement" means Normal Retirement or early retirement if a
defined benefit or 401(k) retirement plan of the Company provides for same.
y. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission
granted under Section 16(b) of the Exchange Act, as amended from time to time.
z. "Stock" means the Common Stock.
aa. "Stock Appreciation Right" means a right granted under Section 9.
bb. "Stock Option" or "Option" means an option granted under Section 8.
B-2
<PAGE>
cc. "Termination of Employment" means the termination of the
Participant's employment with the Company and any Affiliate. A Participant
employed by an Affiliate shall also be deemed to incur a Termination of
Employment if the Affiliate ceases to be an Affiliate and the Participant does
not immediately thereafter become an employee of the Company or another
Affiliate.
In addition, certain other terms used herein have definitions
given to them in the first place in which they are used.
SECTION 3. Effective Date.
The effective date of the Plan shall be the date upon which the
Plan is approved by the stockholders of the Company.
SECTION 4. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution pursuant to Awards under the Plan shall be 250,000 shares of post
one-for-ten reverse split Stock. Such shares may consist, in whole or in part,
of authorized and unissued shares or treasury shares.
If any shares of Stock that have been Optioned cease to be subject
to a Stock Option, if any shares of Stock that are subject to any Award are
forfeited or if any Award otherwise terminates without a distribution being
made to the Participant in the form of Stock, such shares shall again be
available for distribution in connection with Awards under the Plan. In
addition, any stock purchased by a Participant upon exercise of an Option
under the Plan which is subsequently repurchased by the Company pursuant to
the terms of such Option may again be the subject of an Option under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization (including but not limited to the issuance of Stock or any
securities convertible into Stock in exchange for securities of the Company),
stock dividend, stock split or reverse stock split, extraordinary distribution
with respect to the Stock or other similar change in corporate structure
affecting the Stock, such substitution or adjustments shall be made in the
aggregate number of shares reserved for issuance under the Plan, in the number
and Option price of shares subject to outstanding Stock Options and Stock
Appreciation Rights, and in the number of shares subject to other outstanding
Awards granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion; provided, however, that the number of
shares subject to any Award shall always be a whole number and further
provided that no adjustment shall be made by reason of the one-for-ten reverse
split of the outstanding Stock proposed in the proxy statement relating to the
Company's 1996 Annual Meeting of Stockholders. Such adjusted Option price
shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 5. Administration.
The Plan shall be administered by the Stock Award Committee
("Committee") of the Board or such other committee of the Board, composed of
not less than two directors all of whom shall be Non-Employee Directors unless
otherwise determined by the Board. Each member of the Committee shall be
appointed by and serve at the pleasure of the Board. If at any time no
Committee shall be in place, the functions of the Committee specified in the
Plan shall be exercised by the Board.
B-3
<PAGE>
The Committee shall have plenary authority to grant Awards to
officers, employees and directors of the Company or an Affiliate. Among other
things, the Committee shall have the authority, subject to the terms of the
Plan:
(a) to select the officers, employees and directors to whom Awards
may from time to time be granted;
(b) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights and
Restricted Stock, or any combination thereof are to be granted hereunder;
(c) to determine the number of shares of Stock to be covered by
each Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option price, any vesting
restrictions or limitation, any repurchase rights in favor of the Company and
any vesting acceleration or forfeiture waiver regarding any Award and the
shares of Stock relating thereto, based on such factors as the Committee shall
determine);
(e) to adjust the terms and conditions, at any time or from time
to time, of any Award, including with respect to performance goals and
measurements applicable to performance-based Awards pursuant to the terms of
the Plan;
(f) to determine under what circumstances an Award may be settled
in cash or Stock;
(g) if appropriate, to determine Fair Market Value; and
(h) to substitute new Stock Options for previously granted Stock
Options, including previously granted Stock Options having higher Option
prices.
The Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any Award issued under the Plan (and any agreement
relating thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in
office, except that the members thereof may authorize any one or more of their
number or any officer of the Company to execute and deliver documents on
behalf of the Committee.
Any determination made by the Committee pursuant to the provisions
of the Plan with respect to any Award shall be made in its sole discretion at
the time of the grant of the Award or, unless in contravention of any express
term of the Plan, at any time thereafter. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Participants.
B-4
<PAGE>
SECTION 6. Eligibility.
Officers, employees and directors of the Company and its
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Company and its Affiliates are eligible
to be granted Awards under the Plan. Any person who files with the Committee,
in a form satisfactory to the Committee, a written waiver of eligibility to
receive any Award under the Plan shall not be eligible to receive an Award
under the Plan for the duration of the waiver.
SECTION 7. Duration of the Plan.
The Plan shall terminate ten (10) years from the effective date
specified in Section 3 of the Plan, unless terminated earlier pursuant to
Section 11 hereto, and no Awards may be granted thereafter.
SECTION 8. Stock Options.
Stock Options granted under the Plan may be of two types:
Incentive Stock Options and Non-Qualified Stock Options. Any Stock Option
granted under the Plan shall be in such form as the Committee may from time to
time approve.
The Committee shall have the authority to grant any optionee
Incentive Stock Options, Non-Qualified Stock Options or both types of Stock
Options (in each case with or without Stock Appreciation Rights). Incentive
Stock Options may be granted only to employees of the Company and its
subsidiaries (within the meaning of Section 424(f) of the Code). To the extent
that any Stock Option is not designated as an Incentive Stock Option or even
if so designated does not qualify as an Incentive Stock Option, it shall
constitute a Non-Qualified Stock Option.
Stock Options shall be evidenced by Option agreements, the terms
and provisions of which may differ. An Option agreement shall indicate on its
face whether it is an agreement for an Incentive Stock Option or a
Non-Qualified Stock Option. The grant of a Stock Option shall occur on the
date the Committee by resolution selects an individual to be a participant in
any grant of a Stock Option, determines the number of shares of Stock to be
subject to such Stock Option to be granted to such individual and specifies
the terms and provisions of the Option agreement. The Company shall notify a
Participant of any grant of a Stock Option, and a written Option agreement or
agreements shall be duly executed and delivered by the Company to the
Participant, which among other things, will make appropriate arrangements with
respect to the Company's tax withholding obligations. Such agreement or
agreements shall become effective upon execution by the Participant.
Anything in the Plan to the contrary notwithstanding, no term of
the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the optionee affected, to disqualify any Incentive
Stock Option under such Section 422.
Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
B-5
<PAGE>
(a) Option Price. The Option price per share of Stock purchasable
under an Option shall be determined by the Committee and set forth in the
Option agreement, and shall not be less than the Fair Market Value of the
Stock subject to the Option on the date of grant in the case of Incentive
Stock Options and not less than 50% of the Fair Market Value of the Stock
subject to the Option on the date of grant in the case of Non-Qualified Stock
Options.
(b) Option Term. The term of each Stock Option shall be fixed by
the Committee, but no Incentive Stock Option shall be exercisable more than 10
years after the date of grant; and no Non-Qualified Stock Option shall be
exercisable more than 10 years and one day after the date the Stock Option is
granted.
(c) Exercisability. Subject to Section 11, Stock Options shall
otherwise be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may
at any time waive such installment exercise provisions, in whole or in part,
based on such factors as the Committee may determine. In addition, the
Committee may at any time accelerate the exercisability of any Stock Option.
(d) Methods of Exercise. Subject to the provisions of this Section
8, Stock Options may be exercised, in whole or in part, at any time during the
Option period by giving written notice of exercise to the Company specifying
the number of shares of Stock subject to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the
purchase price by certified or bank check or such other instrument as the
Company may accept. If approved by the Committee, payment in full or in part
may also be made in the form of unrestricted Stock already owned by the
optionee of the same class as the Stock subject to the Stock Option provided,
however, that, in the case of an Incentive Stock Option, the right to make a
payment in the form of already owned shares of Stock of the same class as the
Stock subject to the Stock option shall be authorized only at the time the
Stock Option is granted.
An optionee shall have all of the rights of a stockholder of the
Company holding the class or series of Stock that is subject to such Stock
Option (including, if applicable, the right to vote the shares and the right
to receive dividends), when the optionee has given written notice of exercise,
and has paid in full for such shares. In the discretion of the Committee,
payment for any Stock subject to an option may also be made by delivering a
properly executed exercise notice to the Company together with a copy of
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds to pay the purchase price. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures
with one or more brokerage firms. The value of previously owned Stock
exchanged in full or partial payment for the shares purchased upon the
exercise of an Option shall be equal to the aggregate Fair Market Value of
such shares on the date of the exercise of such Option.
(e) Non-transferability of Options. Except as may otherwise be
determined by the Committee, no Stock Option shall be transferable by the
optionee other than by will or by the laws of descent and distribution, and
all Stock Options shall be exercisable, during the optionee's lifetime, only
by the optionee or by the guardian or legal representative of the optionee, it
being understood that the terms "holder" and "optionee" include the guardian
and legal representative of the optionee named in the Option agreement and any
person to whom an Option is transferred by will or the laws of descent and
distribution.
B-6
<PAGE>
(f) Termination by Death. If an optionee's employment terminates
by reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent then exercisable or on such accelerated basis as the
Committee may determine, for a period of one year and one day (or such other
period as the Committee may specify) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(g) Termination by Reason of Disability. If any optionee's
employment terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination or on such accelerated basis as the
Committee may determine, for a period or one year and one day (or such shorter
period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is the shorter; provided, however, that if the
optionee dies within such one year and one day period (or such shorter period
ending upon the expiration of the stated term of the Stock Option), any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such one year and one day period, continue to be exercisable to
the extent to which it was exercisable at the time of death for a period of
one year and one day from the date of such death or until the expiration of
the stated term of such Stock Option, whichever period is the shorter. In the
event of termination of employment by reason of disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(h) Other Termination. Unless otherwise determined by the
Committee, if an optionee incurs a Termination of Employment for any reason
other than death or Disability, any Stock Option held by such optionee shall
thereupon terminate, except that such Stock Option, to the extent then
exercisable, may be exercised for the lesser of three months and one day from
the date of such Termination of Employment or the balance of such Stock
Option's term if such Termination of Employment of the optionee is involuntary
and without Cause. Unless otherwise determined by the Committee, for the
purposes of the Plan "Cause" shall have the same meaning as that set forth in
any employment or severance agreement, in effect between the Company and the
Participant. Otherwise, it shall mean (1) the conviction of the optionee for
committing a felony under Federal law or the law of the state in which such
action occurred, (2) dishonesty in the course of fulfilling the optionee's
employment duties or (3) willful and deliberate failure on the part of the
optionee to perform his or her employment duties in any material respect.
(i) Cashing Out of Option. On receipt of written notice of
exercise, the Committee may, in its sole discretion, elect to cash out all or
part of any Stock Option to be exercised by paying the optionee an amount, in
cash or Stock, equal to the excess of the Fair Market Value of the Stock that
is the subject of the Option over the Option price times the number of shares
of Stock subject to the option on the effective date of such cash out.
SECTION 9. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted
in conjunction with all or part of any Stock Option granted under the Plan. In
the case of a Non- Qualified Stock Option, such rights may be granted either
at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant
of such Stock Option. A Stock Appreciation Right shall terminate and no longer
be exercisable upon the termination or exercise of the related Stock Option.
B-7
<PAGE>
A Stock Appreciation Right may be exercised by an optionee in
accordance with Section 9(b) by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the
Committee. Upon such exercise and surrender, the optionee shall be entitled to
receive an amount determined in the manner prescribed in Section 9(b). Stock
Options which have been so surrendered shall no longer be exercisable to the
extent the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions as shall be determined by the Committee,
including the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they relate
are exercisable in accordance with the provisions of Section 8 and this
Section 9 or as may otherwise be determined by the Committee.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash, shares of Stock or both equal
in value to the excess of the Fair Market Value of one share of Stock over the
option price per share specified in the related Stock Option multiplied by the
number of shares in respect of which the Stock Appreciation Right shall have
been exercised, with the Committee having the right, in its sole discretion,
to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when
and to the extent that the underlying Stock Option would be transferable under
Section 8(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related shall
be deemed to have been exercised for the purpose of determining the number of
shares of Stock available for issuance under the Plan in accordance with
Section 5 of the Plan, but only to the extent of the number of shares
resulting from dividing the value of the Stock Appreciation Right at the time
of exercise by the Fair Market Value of one share of Stock determined in
accordance with this Section 9.
SECTION 10. Terms of Restricted Stock Awards.
Subject to and consistent with the provisions of the Plan, with
respect to each Award of Restricted Stock to a Participant, the Committee
shall determine:
(a) the terms and conditions of the Restricted Stock Agreement
between the Company and the Participant evidencing the Award;
(b) the Restricted Period for all or a portion of the Award;
(c) the Restrictions applicable to the Award, including, but not
limited to, continuous employment with the Company for a specified term or the
attainment of specific corporate, divisional or individual performance
standards or goals, which Restricted Period and Restrictions may differ with
respect to each Participant;
(d) whether the Participant shall receive the dividends and other
distributions paid with respect to an award of the Restricted Stock as
declared and paid to the holders of Stock during the Restricted Period or
shall be withheld by the Company for the account of the Participant until the
Restricted Periods have expired or the Restrictions have been satisfied, and
B-8
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whether interest shall be paid on such dividends and other distributions
withheld, and if so, the rate of interest to be paid;
(e) the percentage of the Award which shall vest in the
Participant in the event of death, Disability or Retirement prior to the
expiration of the Restricted Period or the satisfaction of the Restrictions
applicable to an award of Restricted Stock; and
(f) notwithstanding the Restricted Period and the Restrictions
imposed on the Restricted Shares, as set forth in a Restricted Stock
Agreement, whether to shorten the Restricted Period or waive any Restrictions,
if the Committee concludes that it is in the best interests of the Company to
do so.
Upon an award of Restricted Stock to a Participant, the stock
certificate representing the Restricted Stock shall be issued and transferred
to and in the name of the Participant, whereupon the Participant shall become
a stockholder of the Company with respect to such Restricted Stock and shall
be entitled to vote the Stock. Such stock certificates shall be held in
custody by the Company, together with stock powers executed by the Participant
in favor of the Company, until the Restricted Period expires and the
Restrictions imposed on the Restricted Stock are satisfied.
SECTION 11. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would (i) impair
the rights of an Award theretofore granted without the Participant's consent,
except such an amendment made to cause the Plan to qualify for the exemption
provided by Rule 16b-3, or (ii) disqualify the Plan from the exemption
provided by Rule 16b-3. In addition, no such amendment shall be made without
the approval of the Company's stockholders to the extent such approval is
required by law or agreement.
The Committee may amend the terms of any Stock Option or other
Award theretofore granted, prospectively or retroactively, but no such
amendment shall impair the rights of any holder without the holder's consent
except such an amendment made to cause the Plan or Award to qualify for the
exemption provided by Rule 16b-3. The Committee may also substitute new Stock
Options for previously granted Stock Options, including previously granted
Stock Options having higher option prices.
Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in law and tax and accounting
rules, as well as other developments and to grant Awards which qualify for
beneficial treatment under such rules without shareholder approval.
SECTION 12. General Provisions.
(a) Nothing contained in the Plan shall prevent the Company or an
Affiliate from adopting other or additional compensation arrangements for its
employees.
(b) The Plan shall not confer upon any employee any right to
continued employment nor shall it interfere in any way with the right of the
Company or an Affiliate to terminate the employment of any employee at any
time.
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<PAGE>
(c) No later than the date as of which an amount first becomes
includible in the gross income of the Participant for Federal income tax
purposes with respect to any Award under the Plan, the Participant shall pay
to the Company, or make arrangements satisfactory to the Company regarding the
payment of, any Federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Company, withholding obligations may be settled with Stock, including
Stock that is part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the participant.
(d) The Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid.
(e) Agreements entered into by the Company and Participants
relating to Awards under the Plan, in such form as may be approved by the
Committee from time to time, to the extent consistent with or permitted by the
Plan shall control with respect to the terms and conditions of the subject
Award. If any provisions of the Plan or any agreement entered into pursuant to
the Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions of the Plan or the
subject agreement.
(f) The Plan and all Awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware.
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<PAGE>
QUESTRON TECHNOLOGY, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Milton M. Adler, Robert V. Gubitosi
and Dominic A. Polimeni as Proxies, each with the full power of substitution,
and hereby authorizes each of them, to represent and vote, as designated on
the reverse hereof, all shares of Common Stock of Questron Technology, Inc.
(the "Company") held of record by the undersigned on November 7, 1996, at the
Annual Meeting of Stockholders to be held on December 27, 1996, or any
adjournment thereof, upon all such matters as may properly come before the
Meeting.
(THE PROXY CONTINUES AND MUST BE SIGNED ON THE REVERSE SIDE.)
<PAGE>
[X] Please mark your If you plan to attend [ ]
votes as in this the Annual Meeting, place an
example. X in this box.
WITHHOLD AUTHORITY
to vote for all
FOR nominees listed below Nominees:
ELECTION OF [ ] [ ] Milton M. Adler
DIRECTORS Robert V. Gubitosi
Mitchell Hymowitz
FOR all nominees listed William J. McSherry, Jr.
(except as marked to the contrary below) Dominic A. Polimeni
- -----------------------------
- -----------------------------
- -----------------------------
PROPOSAL NO. 1: Approval of an amendment to Article FOURTH of the Company's
Certificate of Incorporation to effect a one-for-ten reverse split of the
Company's outstanding Common Stock. (The Board of Directors recommends a vote
"FOR" approval.)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PROPOSAL NO. 2: Approval of an amendment to Article FOURTH of the Company's
Certificate of Incorporation to decrease the number of authorized shares of
the Company's Common Stock. (The Board of Directors recommends a vote "FOR"
approval.)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PROPOSAL NO. 3: Approval of an amendment to Article FOURTH of the Company's
Certificate of Incorporation to decrease the number of authorized shares of
the Company's Preferred Stock. (The Board of Directors recommends a vote "FOR"
approval.)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PROPOSAL NO. 4: Approval of the Company's 1996 Stock Option Plan. (The Board
of Directors recommends a vote "FOR" approval.)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
<PAGE>
PROPOSAL NO. 5: Ratification of the appointment of Moore Stephens, P.C. as the
Company's independent public accountants for the fiscal year ending December
31, 1996. (The Board of Directors recommends a vote "FOR" approval.)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WILL
BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSALS NOS. 1-5.
STOCKHOLDERS ARE URGED TO DATE, MARK, SIGN AND RETURN THIS PROXY PROMPTLY IN
THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED
STATES.
SIGNATURE: DATE:
-------------------------------------- ---------------
SIGNATURE: DATE:
-------------------------------------- ---------------
(Signature if Held Jointly)
NOTE: Please sign exactly as name or names appear on stock certificate as
indicated hereon. Joint owners should each sign. When signing as
attorney, executor, administrator or guardian, please give full title
as such.
