<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
<TABLE>
<S> <C>
Check the appropriate box:
- -------------------------
/x/ Preliminary Proxy Statement / / Definitive Proxy Statement
/ / Definitive Additional Materials / / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
</TABLE>
NASTECH PHARMACEUTICAL COMPANY INC.
(Name of Registrant as Specified in its Charter)
NASTECH PHARMACEUTICAL COMPANY INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check in the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(l), or 14a-6(j)(2).
/ / $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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11(1).
(4) Proposed maximum aggregate value of transaction.
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / 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: None
(2) Form, Schedule or Registration No.:
(3) Filing Party: Registrant
(4) Date Filed:
<PAGE> 2
NASTECH PHARMACEUTICAL COMPANY, INC.
45 DAVIDS DRIVE
HAUPPAUGE, NEW YORK 11788
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 2, 1996 AT 10:00 A.M.
TO THE STOCKHOLDERS OF NASTECH PHARMACEUTICAL COMPANY, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
NASTECH PHARMACEUTICAL COMPANY INC. (the "Company") will be held at the
Company's offices located at 45 Davids Drive, Hauppauge, New York 11788 at
10:00 A.M. on Monday, December 2, 1996, to consider and vote on the following
proposals:
1. To elect eight (8) directors, each to hold office for a term of one
(1) year or until their respective successors shall have been duly elected or
appointed;
2. To amend the Company's Certificate of Incorporation so as to
increase the number of shares of Common Stock which the Company has the
authority to issue from 6,000,000 shares to 25,000,000 shares;
3. To approve a proposal to amend the Company's Stock Option Plan
to allow an increase in the total shares issuable under the Plan from 483,333
shares to 700,000 shares; and
4. To transact such other business as may properly come before the
meeting.
Only holders of shares of Common Stock of record on the Company's
books at the close of business on November 5, 1996 will be entitled to vote at
the meeting. All such stockholders are requested to be represented at the
meeting either in person or by proxy. The stock transfer books will not be
closed.
Enclosed is a copy of the Annual Report for the year ended June 30,
1996 along with a proxy statement and a proxy card.
It is desirable that all holders of Common Stock of the Company be
represented at the meeting either in person or by proxy.
SUCH STOCKHOLDERS WHO CANNOT ATTEND THE MEETING IN PERSON ARE
REQUESTED TO DATE AND EXECUTE THEIR PROXIES AND RETURN THEM TO THE COMPANY IN
THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE.
By Order of the Board of Directors,
Joel Girsky,
Secretary
November 6, 1996
Hauppauge, New York
<PAGE> 3
NASTECH PHARMACEUTICAL COMPANY, INC.
45 DAVIDS DRIVE
HAUPPAUGE, NEW YORK 11788
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 2, 1996
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies by the management of NASTECH PHARMACEUTICAL COMPANY, INC. (the
"Company"), a Delaware corporation, for use at the Annual Meeting of
Stockholders to be held on December 2, 1996 and at any postponements or
adjournments thereof. This material is first being mailed to stockholders on or
about November 6 , 1996.
The cost of such solicitation will be borne by the Company. The
Company may also agree to pay banks, brokers, nominees and other fiduciaries
their reasonable charges and expenses incurred in forwarding the proxy material
to their principles.
A form of proxy is enclosed for use at the meeting. The issuance of a
proxy by a shareholder will not affect his right to vote his shares if he
attends the meeting and desires to vote in person. A proxy may be revoked at
any time prior to the voting thereof, but a revocation will not be effective
unless notice thereof is received, in writing, by the Secretary of the Company
prior to such voting. All such shares represented by effective proxies on the
enclosed form received by the Company will be voted at the meeting or any
adjourned session thereof in accordance with the terms of such proxies. If no
direction is indicated, all shares represented by valid proxies received
pursuant to this solicitation will be voted FOR all directors and proposals
contained therein. Proxies marked "abstain" will be treated as present for the
purpose of determining a quorum but will not be voted with respect to any
proposal marked "abstain."
VOTING SECURITIES OUTSTANDING
AND PRINCIPAL SHAREHOLDERS
Shares of common stock, of which 3,860,061 shares were outstanding as
of September 5, 1996, are the only voting securities of the Company. Each share
is entitled to one vote and a vote of a majority of the shares present, or
represented, and entitled to vote at the meeting is required to approve each
proposal to be acted upon at the meeting. Only holders of shares of Common
Stock of the Company of record on its books at the close of business on
November 5, 1996 will be entitled to notice of, and to vote at the meeting. Any
such stockholder may vote his shares either in person or by his duly authorized
proxy.
The following table sets forth as of September 5, 1996 certain
information as to persons known to the Company who may be deemed to be
beneficial owners of more than five percent of the outstanding shares of the
Company's Common Stock, each director of the Company and all officers and
directors of the Company as a group:
- 3 -
<PAGE> 4
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding Shares
Name of Beneficial Owner (1) Ownership (2) Owned (3)
---------------------------- ------------- ---------
<S> <C> <C>
Devin N. Wenig (4) 369,733 9.6%
Basil Properties (5)(10) 283,537 7.3%
Bruce R. Thaw (6) 155,041 3.9%
Alvin Katz (7) 117,000 3.0%
Carol Wenig (8) 93,041 2.4%
Vincent D. Romeo (9) 68,845 1.8%
Ian Ferrier (11) 25,000 (13)
Joel Girsky (7) 18,750 (13)
John V. Pollock (7)(10) 18,333 (13)
Grant W. Denison, Jr. -- (13)
All Officers and
Directors as a Group
(9 persons) (12) 1,149,280 28.1%
</TABLE>
- -----------------------------------------
(1) The addresses of all persons other than Messrs. Bruce R. Thaw, Basil
Properties, Alvin Katz and John V. Pollock is c/o the Company. The
address of Bruce R. Thaw is 45 Banfi Plaza, Farmingdale,
NY; the address of Basil Properties and John V. Pollock is 1510 H
Street, N.W., Washington D.C.; and the address of Alvin Katz is 301
N. Birch Rd., Fort Lauderdale, FL.
(2) All shares are owned beneficially and of record unless indicated
otherwise. Includes 178,333 shares issuable pursuant to
outstanding stock options with the Company and 26,000 Warrants, which
may be exercised within 60 days of the date of this
Report.
(3) Does not give effect to (i) the exercise of the Representative's
Warrant and (ii) 305,000 shares of Common Stock reserved
for issuance under the Company's stock option plan.
(4) Devin N. Wenig is the son of Carol Wenig. Devin N. Wenig's shares, as
indicated above, include 25,000 shares issuable
pursuant to outstanding stock options with the Company, which may be
exercised within 60 days of the date of this Report,
166 shares held by Mr. Wenig's wife and 6,666 shares held in a trust
for which Carol Wenig serves as the trustee.
(5) Includes 40,000 shares held by Mrs. Sophie Basil a general partner of
Basil Properties.
(6) Includes 25,000 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60
days of the date of this Report. Also includes 26,000 shares and
26,000 Warrants owned by Mr. Thaw's wife.
(7) Includes 10,000 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60
days of the date of this Report.
(8) The amount indicated herein includes 5,000 shares issuable to Carol
Wenig pursuant to outstanding stock options with the
Company, which may be exercised within 60 days of the date of this
Report.
(9) Includes 58,333 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60
days of the date of this Report.
(10) John V. Pollock is a managing director of Basil Properties and its
nominee to the Company's Board of Directors.
(11) Includes 25,000 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60
days of the date of this Report.
- 4 -
<PAGE> 5
(12) Includes shares held by Basil Properties and Carol Wenig. See
notes (5), (8) and (10) above.
(13) Represents less than 1% of the outstanding shares of the Company's
Common Stock.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three fiscal
years to the Company's Chief Executive Officer and to each of the Company's
executive officers who received salary and bonus payments in excess of $100,000
during the fiscal year ended June 30, 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
------------------- Compensation
Awards
------
Name and Principal Position
-------- Options All other
Year Salary Bonus (Shares) Compensation
---- ------ ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Dr. Vincent D. Romeo, 1996 $160,000 __ __ __
President/Chief Executive
Office 1995 $156,000 __ 25,000 __
1994 $125,000 __ 25,000 __
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock during the fiscal year
ended June 30, 1996, to the person named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Individual Grant in Last Fiscal Year
------------------------------------
% of Total
Options
Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (Shares)(1) Year ($/Sh)(2) Date
---- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Dr. Vincent
D. Romeo None __ __ __
</TABLE>
- -------------------------------
(1) The options to be granted under the Plan are designated as
incentive stock options or non-incentive stock options by the Board of
Directors which also has discretion as to the persons to be granted options,
the number of shares subject to the options and the terms of the option
agreements. The Plan provides that options granted thereunder shall be
exercisable during a period of no more than ten years (five years in the case
of 10% stockholders) from the date of grant, depending upon the specific stock
option agreement, and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair
- 5 -
<PAGE> 6
market value of the Common Stock at the time of grant (110% in the case of 10%
stockholders). All outstanding options are subject to optionee's continuous
employment or association with the Company. Under the Stock Option Plan, the
Board retains discretion to modify the terms of outstanding options, subject to
the provisions of the Plan.
(2) All options were granted at market value on the date of grant.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information related to the number and
value of stock options and stock appreciation rights held at fiscal year end by
the named executive officer:
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the Money
Options at June 30, 1996 Options at June 30, 1996
------------------------ ------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Vincent D. Romeo 58,333 $627,080
</TABLE>
COMPENSATION OF DIRECTORS
The Company has not paid and does not presently propose to pay
compensation to any director for acting in such capacity, except for nominal
sums for attending Board of Directors meetings and reimbursement for reasonable
expenses in attending those meetings.
Devin N. Wenig, the Company's Chairman, was paid approximately $30,000
in the Company's fiscal year ended June 30, 1996 for acting as Chairman of the
Executive Committee of the Company's Board of Directors.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In August 1994, the Company and Dr. Romeo entered into a three year
employment agreement. Pursuant to this agreement, Dr. Romeo receives
compensation of $160,000 per year. Upon completion of Phase II studies for two
of the Company's proposed products such compensation will be increased to
$175,000 per year. Dr. Romeo is also entitled to a $20,000 incentive bonus if
and when the Company's prescription Vitamin B-12 nasal formulation is approved
for marketing by the FDA and a $20,000 bonus each time an NDA for one of the
Company's proposed products is accepted for filing by the FDA. In addition, Dr.
Romeo received an additional incentive stock option to acquire 25,000 shares of
the Company's Common Stock in accordance with the terms and conditions of the
Company's Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee presently consists of Ian
Ferrier, Joel Girsky and John V. Pollock, all outside directors of the Company.
The Compensation Committee is responsible for reviewing and approving the
compensation of the President, other officers of the Company and administering
and/or interpreting the Company's stock option plan.
- 6 -
<PAGE> 7
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's Compensation Committee made no discretionary
recommendations regarding executive compensation in the last fiscal year as the
compensation of the Company's President was determined by contract.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that all such filing requirements were complied with.
STOCK OPTION PLAN
Currently, under the Company's Stock Option Plan (the "Plan") options
to purchase a maximum of 483,333 shares of Common Stock of the Company (subject
to adjustment in the event of stock splits, stock dividends, recapitalizations
and other capital adjustments) may be granted to employees, officers and
directors of the Company and other persons who provide services to the Company.
There are 255,049 such options presently granted and outstanding. The options
to be granted under the Plan are designated as incentive stock options or
non-incentive stock options by the Board of Directors which also has discretion
as to the persons to be granted options, the number of shares subject to the
options and the terms of the option agreements. Only employees, including
officers and part-time employees of the Company may be granted incentive stock
options. The options are intended to receive incentive stock option tax
treatment pursuant to Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code").
The Plan provides that options granted thereunder shall be exercisable
during a period of no more than ten years (five years in the case of 10%
shareholders) from the date of grant, depending upon the specific stock option
agreement, and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair market value of the
Common Stock at the time of grant (110% in the case of 10% shareholders).
Pursuant to the provisions of the Plan, the aggregate fair market value
(determined on the date of grant) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by an employee
during any calendar year shall not exceed $100,000.
The purpose of the Plan is to increase the ability of the Company to
attract and retain individuals of exceptional skill upon whom, in large
measure, its sustained progress, growth and ultimate profitability depend. In
addition, the Plan is intended to advance the interests of the Company by
enabling its directors, officers and employees to acquire a financial interest
in the Company through grants of options to acquire the Company's Common Stock.
The Plan is intended to provide an increased incentive to these individuals,
thereby providing such persons with an added incentive to continue in the
employ or service of the Company and to stimulate their efforts in promoting
the growth, efficiency and profitability of the Company.
- 7 -
<PAGE> 8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Bruce R. Thaw, a director of the Company, billed the Company
approximately $58,000 for legal fees for representing the Company in connection
with certain legal and regulatory matters in fiscal 1996. Mr. Thaw continues to
represent the Company for which he will be paid customary legal fees.
Dr. Ian Ferrier, a director of the Company, is the Chief Executive
Officer of Bogart Delafield Ferrier Inc. ("BDF") and is an affiliate of Mazier
Partners LLC ("MP"). BDF and MP provided consulting services to the Company in
areas of strategic planning, market planning and research and development
prioritization. For its fiscal year ended June 30, 1996, the Company expensed
fees of $40,000 and $62,000, for BDF and MP, respectively.
PROPOSAL NO. 1 - NOMINATION AND ELECTION OF DIRECTORS
At the annual meeting, eight directors are to be elected by the
holders of the Common Stock to serve until the next annual meeting of
shareholders and until their successors have been elected and qualify. Certain
information concerning the nominees for election at the annual meeting, each of
whom is presently a director, and all the directors and officers as a group, is
set forth below. While the Board of Directors has no reason to believe that any
of those named will not be available as a candidate, should such a situation
arise, the proxy may be voted for the election of the other nominees in the
discretion of the persons acting pursuant to the proxy.
The following information is submitted concerning the nominees for
election as directors based upon information received by the Company from such
persons:
<TABLE>
<CAPTION>
Name Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
Devin N. Wenig 30 Chairman 1991
Dr. Vincent D. Romeo 39 President and Chief 1991
Executive Officer
Joel Girsky 57 Director, Secretary and 1983
Treasurer
Bruce R. Thaw 43 Director 1991
Dr. Ian R. Ferrier 53 Director 1995
Grant W. Denison, Jr. 47 Director 1996
Alvin Katz 65 Director 1993
John V. Pollock 57 Director 1993
</TABLE>
Mr. Wenig was appointed Chairman of the Company's Board of Directors
in June 1991. Mr. Wenig received a B.A. degree from Union College and a J.D.
degree from the Columbia University School of Law. From May 1991 to May 1994
Mr. Wenig was a corporate associate with the firm of Cravath, Swaine and Moore.
Mr. Wenig is currently a practicing corporate attorney in New York City, New
York.
- 8 -
<PAGE> 9
Dr. Romeo has been employed by the Company since 1985 as Director of
Research and was appointed President and Chief Executive Officer of the Company
in August 1991. Dr. Romeo is a registered pharmacist and received a Ph.D.
degree from St. John's University College of Pharmacy and Allied Health
Professions in Pharmaceutical Sciences in 1984, with a specialty in
pharmacology. He continues at St. John's as an Adjunct Professor of
Pharmacology, Graduate Division, College of Pharmacy and Allied Health
Professions. Dr. Romeo has devoted a significant amount of his time with the
Company formulating drugs for nasal delivery, developing animal models for
nasal drug testing, and designing clinical efficacy and safety studies. He has
authored and co-authored several published articles in the field. Dr. Romeo has
also presented his work at various meetings and conferences sponsored by the
American Association of Pharmaceutical Scientists and the American College of
Clinical Pharmacology. Dr. Romeo is an active member of the American
Association of Pharmaceutical Scientists, the American College of Clinical
Pharmacology, the Rho Chi Pharmaceutical Society, and the New York Academy of
Sciences. Dr. Romeo has also been appointed as an Adjunct Assistant Professor
of Pharmaceutics at The University of Rhode Island, College of Pharmacy.
Mr. Girsky has been a Director of the Company since October 1983, and
the Company's Secretary/Treasurer since April 1986. From 1961 to the present,
Mr. Girsky has been President and Chairman of the Board of Jaco Electronics,
Inc., Hauppauge, New York, a publicly held company engaged in the distribution
of electronic components. Mr. Girsky received a degree in Marketing from
Brooklyn College in 1957.
Mr. Thaw has been a Director of the Company since June 1991. From 1984
to the present, Mr. Thaw has been a principal in a law firm, which serves as
general counsel to the Company. Mr. Thaw was admitted to the bar of the State
of New York in 1978 and the California State Bar in 1983. Mr. Thaw is also a
director of Information Resource Engineering, Inc., a publicly traded company
engaged in the computer network security industry and Amtech Systems, Inc. a
publicly traded company engaged in the semi-conductor industry.
Dr. Ferrier, who was appointed to the Company's Board of Directors in
January 1995, is the founder, President and Chief Executive Officer of Bogart
Delafield Ferrier Inc., and has served in such capacity since its inception in
1982. Trained in medicine and pharmacology, Dr. Ferrier has managed and
directed pharmaceutical programs and guided the growth of several multinational
companies. He has served on the Board of Directors of a number of health care
and biotechnical firms, as well as serving as consultant to many of the worlds
major pharmaceutical companies. From 1982 to 1987, Dr. Ferrier served as
President of McCann Healthcare Inc. From 1982 to 1983, Dr. Ferrier served as
Chairman of The Covington Group of Companies; in 1982 as Executive Vice
President of TechAmerica Group and from 1979 to 1982, as Vice President of
Kalipharma Inc. From 1975 to 1979 Dr. Ferrier served as Chief Executive Officer
of the Monadnock Medical Center. Dr. Ferrier received a BSc in Pharmacology
from the University of Edinburgh, Edinburgh Scotland; served his residency
training in nephrology/clinical pharmacology at Southmead General Hospital,
University of Bristol Associated Hospitals, Bristol, England; and his
post-graduate internship at the Western General Hospital of the University of
Edinburgh Associated Hospitals, Edinburgh, Scotland.
Mr. Denison, who was appointed to the Company's Board of Directors in
September 1996, is the President, Worldwide Consumer Products of G.D. Searle &
Co. ("Searle") and has served in such capacity since 1993. Mr. Denison has also
served as Corporate Vice President, Strategic Planning for Searle's parent
company Monsanto from 1989 to 1993. In addition, Mr. Denison also served as
President of Searle's U.S. Pharmaceutical Operations from 1987 to 1989. Prior
to joining Searle, Mr. Denison was Vice President of International Operations
for Squibb Medical Systems and also held a number of senior management
positions at Pfizer, Inc. Mr. Denison is a member of the board of directors of
Genetronics Inc., a subsidiary of Genetronics Biomedical Ltd. He has served as
- 9 -
<PAGE> 10
national chairman of the President's Council for the American Lung Association
and is an Executive Committee member of the New York Cancer Society. Mr.
Denison holds a master of business administration degree from Harvard Business
School and received a bachelor's degree from Colgate University.
Mr. Katz was appointed to the Company's Board of Directors in
September 1993. Mr. Katz was formerly Chief Executive Officer of Odessa
Engineering Corp., a company engaged in the manufacturing of pollution
monitoring equipment. From 1957 to 1976, Mr. Katz was employed by United Parcel
Service holding various managerial positions, including District Manager and
Corporate Manager of Operations, Planning, Research and Development. Mr. Katz
serves on the Board of Directors of several publicly held companies including
Miller Industries, a manufacturer of windows and doors; Blimpie International,
Inc., which is engaged in the franchising and marketing of quick service
sandwich restaurants; Amtech Systems, Inc., which is engaged in the
semi-conductor industry; and Foremost Industries which is engaged in the
distribution and repair of commercial refrigeration. He is also a director of
Aromatics Incorporated, a manufacturer of car wash equipment. Mr. Katz holds a
B.S. in Business Administration degree from New York University and has done
graduate work at C.U.N.Y.- Baruch School.
Mr. Pollock was appointed to the Company's Board of Directors in
September 1993. From 1991 to the present Mr. Pollock has served as a director
of Frank E. Basil, Inc., a worldwide provider of facilities maintenance,
engineering and operations management services. Mr. Pollock also serves as a
consultant to the partners of Basil Properties and has served as the President
of Nastech-Basil International, Inc. From 1975 to 1991 Mr. Pollock was a senior
banking executive in the Washington, D.C. area, serving as President and Chief
Executive Officer of Dominion Bank of Washington and the John Hanson Savings
Bank.
The Company does not have a nominating or similar committee. There
were three (3) board meetings held during the fiscal year ended June 30, 1996.
Each director attended all meetings of the Board and any committee of which he
was a member in the past fiscal year, except that Joel Girsky was unable to
attend one board meeting, and Alvin Katz was unable to attend one board
meeting.
PROPOSAL NO. 2 - AMENDMENT OF THE CERTIFICATE OF INCORPORATION SO AS TO
INCREASE THE AUTHORIZED COMMON STOCK FROM 6,000,000 TO 25,000,000 SHARES
On September 13, 1996, the Board of Directors, by unanimous vote,
adopted a resolution approving and recommending that the Company's shareholders
approve an Amendment to Article FOURTH of the Company's Certificate of
Incorporation which would increase the number of authorized shares of Common
Stock from 6,000,000 shares to 25,000,000 shares. The relative rights and
limitations of the Common Stock would remain unchanged under the amendment. The
Common Stock does not have preemptive rights.
At September 5, 1996, the Company is authorized to issue 6,000,000
shares of Common Stock, with 3,860,061 shares of Common Stock issued and
outstanding. In addition, 483,333 shares of Common Stock are reserved for
issuance under the Company's Stock Option Plan; 846,177 shares are reserved for
issuance in the event that the Company's remaining Common Stock Purchase
Warrants are exercised; and 270,000 shares of Common Stock are reserved for
issuance in the event that outstanding Underwriter's Unit Purchase Warrants and
the Warrants contained therein are exercised. Thus, at September 5, 1996, there
were approximately 540,429 authorized shares of Common Stock unissued and not
reserved for issuance.
- 10 -
<PAGE> 11
Management believes that the proposed amendment to Article FOURTH of
the Company's Certificate of Incorporation will provide several long-term
advantages to the Company and its stockholders. The passage of the proposal
will enable the Company to raise cash assets through sales of stock to public
and private investors. Additional authorized shares might also enable the
Company to pursue acquisitions or enter into transactions which management
believes provide for the potential for growth and profit. With the limited
number of shares currently available for such uses, it is impractical for the
Company to evaluate or seek to consummate business combinations or other
transactions which, if they could be accomplished, might enhance shareholder
value. If additional shares are available, transactions dependent upon the
issuance of additional shares would be less likely to be undermined by delays
and uncertainties occasioned by the need to obtain stockholder authorization
prior to the consummation of such transactions. The ability to issue shares, as
deemed in the Company's best interests by the Board, will also permit the
Company to avoid the expenses which are incurred in holding special
stockholders' meetings in the future.
In the event that the proposal is approved, stockholder approval for
the issuance of the 19,000,000 additional shares of Common Stock, the
authorization of which is sought hereby, will not be sought prior to the
issuance of such additional securities unless such issuances relate to a
merger, consolidation or other transaction which requires stockholder approval.
The proposal, if approved, would strengthen the position of management
and might make the removal of management more difficult. The authorization to
issue the additional shares of Common Stock would provide management with a
capacity to negate the efforts of unfriendly tender offerors through the
issuance of securities to others who are friendly or desirable to management.
The Company has in place certain provisions which have an
anti-takeover effect. The Company's Certificate of Incorporation authorizes the
issuance of up to 100,000 shares of "blank check" preferred stock in amounts
and with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company.
The submission of this proposal is not a part of any plan by the
Company's management to adopt a series of amendments to the Certificate of
Incorporation or Bylaws so as to render the takeover of the Company more
difficult. Except as indicated above, management is not aware of the existence
of any other provisions in its Certificate of Incorporation or Bylaws having an
anti-takeover effect.
The issuance of additional shares of Common Stock may have a dilutive
effect on earnings per share and on the equity and voting power of existing
holders of Common Stock. It may also adversely affect the market price of the
Common Stock. However, in the event additional shares are issued in
transactions whereby favorable business opportunities are provided or that
provide working capital sufficient to adequately capitalize the Company and
allow it to pursue its business plans, the market price may increase.
THE PROPOSED AMENDMENT
As presently authorized, Article Fourth of the Company's
Certificate of Incorporation currently reads, in pertinent part, as follows:
"FOURTH: (a) The Corporation shall be authorized to issue the
following shares:
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<PAGE> 12
<TABLE>
<CAPTION>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
Common 6,000,000 $.006
Preferred 100,000 $.01"
</TABLE>
Upon adoption of the Amendment by the shareholders and the filing
thereof, the portion of Article Fourth of the Company's Certificate of
Incorporation set forth above shall be amended to read as follows:
"FOURTH: (a) The Corporation shall be authorized to issue the
following shares:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
Common 25,000,000 $.006
Preferred 100,000 $.01"
</TABLE>
REQUIRED STOCKHOLDER VOTE
Approval of the proposed increase in the authorized Common Stock
requires the affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock.
The Board of Directors is of the opinion that the proposed Amendment,
if adopted, will provide the Company with a proper capitalization and a
sufficient number of authorized shares of Common Shares to give it flexibility
to meet any future financing needs deemed to be in the Company's best
interests. Accordingly, the Board of Directors unanimously recommends a vote
FOR approval of this Proposal and proxies solicited by the Board of Directors
will be so voted unless stockholders specify on their proxy card a contrary
choice.
PROPOSAL NO. 3 - AMENDMENT TO THE STOCK OPTION
PLAN TO INCREASE THE SHARES ISSUABLE UNDER THE PLAN
Under the Company's Stock Option Plan (the "Plan") options to purchase
a maximum of 483,333 shares of Common Stock of the Company (subject to
adjustment in the event of stock splits, stock dividends, recapitalizations and
other capital adjustments) may be granted to employees, officers and directors
of the Company and other persons who provide services to the Company.
Currently, there are 255,049 such options granted and outstanding. The options
to be granted under the Plan are designated as incentive stock options or
non-incentive stock options by the Board of Directors which also has discretion
as to the persons to be granted options, the number of shares subject to the
options and the terms of the option agreements. Only employees, including
officers and part-time employees of the Company may be granted incentive stock
options. The options are intended to receive incentive stock option tax
treatment pursuant to Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code").
The Plan provides that options granted thereunder shall be exercisable
during a period of no more than ten years (five years in the case of 10%
shareholders) from the date of grant, depending upon the specific stock option
agreement, and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair market value of the
Common Stock at the time of grant (110% in the case of 10% shareholders).
Pursuant to the provisions of the Plan, the aggregate fair market value
(determined on the date of grant) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by an employee
during any calendar year shall not exceed $100,000.
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<PAGE> 13
Submitted for ratification by shareholders is an amendment to the Plan
which was approved by the Board of Directors on September 13, 1996, allowing
for the maximum number of shares issuable under the Plan to be increased by an
additional 217,000 shares, so that the total number of shares potentially
issuable upon the exercise of all options will be increased to 700,000 shares.
Currently, there are 228,284 shares which are authorized and available as
underlying securities for new options which may be granted under the Plan.
The purpose of the Plan is to increase the ability of the Company to
attract and retain individuals of exceptional skill upon whom, in large
measure, its sustained progress, growth and ultimate profitability depend. In
addition, the Plan is intended to advance the interests of the Company by
enabling its directors, officers and employees to acquire a financial interest
in the Company through grants of options to acquire the Company's Common Stock.
The Plan is intended to provide an increased incentive to these individuals,
thereby providing such persons with an added incentive to continue in the
employ or service of the Company and to stimulate their efforts in promoting
the growth, efficiency and profitability of the Company.
The affirmative vote by a majority of the outstanding stock entitled
to vote at the annual meeting is required to ratify the amendment to the Plan.
The Board of Directors unanimously recommends a vote FOR approval of
this Proposal No. 3 and proxies solicited by the Board of Directors will be so
voted unless stockholders specify on their proxy card a contrary choice.
SHAREHOLDER PROPOSALS
Shareholders who wish to present proposals for action at the 1996
Annual Meeting of Shareholders should submit their proposals in writing to the
Secretary of the Company at the address of the Company set forth on the first
page of this Proxy Statement. Proposals must be received by the Secretary on or
before July 6, 1997 in order to be considered for inclusion in next year's
proxy materials.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report to shareholders of the Company for the year ended
June 30, 1996, including audited financial statements, has been mailed to the
shareholders concurrently herewith, but such report is not incorporated in this
Proxy Statement and is not deemed to be part of the proxy solicitation
material.
OTHER MATTERS
The Board of Directors of the Company does not know of any other
matters that are to be presented for action at the Annual Meeting of
Shareholders. If any other matters are properly brought before the meeting or
any adjournments thereof, the persons named in the enclosed proxy will have the
discretionary authority to vote all proxies received with respect to such
matters in accordance with their best judgment.
By order of the Board of Directors
Joel Girsky, Secretary
November 6, 1996
Hauppauge, New York
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