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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(2)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a- 12
BAYWOOD INTERNATIONAL, 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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] 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 filing.
1) Amount Previously Paid:
<PAGE>
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
BAYWOOD INTERNATIONAL, INC.
NOTICE OF 1998
ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
YOUR VOTE IS IMPORTANT!
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN YOUR PROXY IN THE
ENCLOSED ENVELOPE
<PAGE>
BAYWOOD INTERNATIONAL, INC.
April 29, 1998
Dear Stockholder:
On behalf of the Board of Directors, it is my pleasure to invite you to
attend the Annual Meeting of Stockholders of Baywood International, Inc. on May
29, 1998, in Scottsdale, Arizona. Information about the meeting is presented on
the following pages.
In addition to the formal items of business to be brought before the
meeting, members of management will report on the Company's operations and
answer stockholder questions.
Your vote is very important. Please ensure that your shares will be
represented at the meeting by completing, signing, and returning your proxy card
in the envelope provided, even if you plan to attend the meeting. Sending us
your proxy will not prevent you from voting in person at the meeting should you
wish to do so.
Sincerely,
/s/ Neil Reithinger
Neil Reithinger
Chairman of the Board, President & C.E.O.
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 29, 1998
The Annual Meeting of Stockholders of Baywood International, Inc. (the
"Company") will be held at the Doubletree Paradise Valley Resort, 5401 North
Scottsdale Road, Scottsdale, Arizona on May 29, 1998 at 10:00 A.M. local time
for the following purposes:
1. To elect the directors of the Company to serve for the ensuing
year;
2. To ratify the selection of King, Weber & Associates, P.C. as
independent auditors for the Company;
3. To approve the Company's 1998 Non-Employee Director Stock
Option Plan as adopted by the Board of Directors of the
Company;
Note: Within the following proposal 4 to authorize a reverse
stock split of differing ratios, only one such ratio may
ultimately be put into effect pursuant to this vote.
4. To consider and act upon a proposal to grant the Board of
Directors authority to effect a "one-for-three, four, five,
six, seven, eight, nine and ten reverse stock split" of the
Common Stock;
5. To transact any other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 10,
1998 as the record date for the determination of stockholders entitled to notice
of and to vote at the meeting. A list of such stockholders will be available
during regular business hours at the Company's office at 14950 North 83rd Place,
Suite 1, Scottsdale, Arizona, on and after April 29, 1998, for inspection by any
stockholder for any purpose germane to the meeting.
By Order of The Board of Directors,
/s/ Neil Reithinger
Neil Reithinger
Secretary
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Baywood International, Inc. (the
"Company") for use at the Annual Meeting of Stockholders of the Company to be
held at the time and place and for the purposes set forth in the foregoing
Notice of Annual Meeting of Stockholders. The address of the Company's principal
executive offices is 14950 North 83rd Place, Suite 1, Scottsdale, Arizona,
85260. This Proxy Statement and the form of proxy are being mailed to
stockholders on or about April 20, 1998.
REVOCABILITY OF PROXY AND VOTING OF PROXY
A proxy given by a stockholder may be revoked at any time before it is
exercised by giving another proxy bearing a later date, by notifying the
Secretary of the Company in writing of such revocation at any time before the
proxy is exercised, or by attending the meeting in person and casting a ballot.
Any proxy returned to the Company will be voted in accordance with the
instructions indicated thereon. If no instructions are indicated on the proxy,
the proxy will be voted for the election of the nominees for directors named
herein and in favor of all other proposals described herein. Because abstentions
with respect to any matter are treated as shares present or represented and
entitled to vote for the purposes of determining whether that matter has been
approved by the stockholders, abstentions have the same effect as negative
votes. Broker non-votes and shares as to which proxy authority has been withheld
with respect to any matter are not deemed to be present or represented for
purposes of determining whether stockholder approval of that matter has been
obtained.
The Company knows of no reason why any of the nominees named herein
would be unable to serve. In the event, however, that any nominee named should,
prior to the election, become unable to serve as a director, the proxy will be
voted in accordance with best judgment of the persons named therein. The Board
of Directors knows of no matters, other than as described herein, that are to be
presented at the meeting, but if matters other than those herein mentioned
properly come before the meeting, the proxy will be voted by the persons named
in a manner that such persons (in their judgment) consider to be in the best
interests of the Company.
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on April 10, 1998
are entitled to vote at the meeting. On such record date, the Company had
outstanding and entitled to vote 17,598,115 shares of Common Stock. Each
stockholder entitled to vote shall have one vote for each share of Common Stock
registered in such stockholder's name on the books of the Company as of the
record date.
ANNUAL REPORT ON FORM 10-KSB
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997 (the "Annual Report"), which was mailed to stockholders with
or preceding this Proxy Statement, contains financial and other information
about the Company but is not incorporated into this Proxy Statement and is not
to be considered a part of these proxy soliciting materials or subject to
Regulations 14A or 14C or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
(the"Exchange Act"). The Company will provide to each stockholder of record as
of the Record Date, a copy of any exhibits listed in the Annual Report, upon
receipt of a written request and a check for $20 to cover the Company's expense
in furnishing such exhibits. Any such requests should be directed to the
Company's Secretary at the Company's executive offices set forth in this Proxy
Statement.
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
On February 18, 1997, the Board of Directors established a Standing
Nominating Committee which shall continually be comprised of three directors.
The directors appointed to serve on the committee until their successors have
been elected or appointed and shall qualify are: Dr. Michael Shapiro, Glen Holt
and Karl Rullich. The Board of Directors, on February 18, 1997 authorized the
Nominating Committee to determine the Board's nominations for directors. On
February 26, 1998, the Nominating Committee unanimously nominated the following
persons as the recommendation of the Board of Directors for directors of the
Company:
Nominee Name Age Director Since
- ------------ --- --------------
Neil Reithinger 28 1997
Karl H. Rullich 64 1991
Glen Holt 67 1991
Michael B. Shapiro, M.D. 42 1995
David M. Franey, M.D. 46 1998
Denise Forte-Pathroff, M.D. 41 1998
Vote Required and Recommendation
The affirmative vote of a majority of the shares of common stock
present or represented by proxy and voting at the Annual Meeting of Stockholders
is required for approval of this proposal. The Board of Directors recommends
that the stockholders vote FOR all of the nominees.
Information Related to Election of Directors
All directors hold office until the Annual Meeting of Stockholders of
the Company and until their successors have been elected and qualified.
Information about each nominee for director is given below.
Mr. Neil T. Reithinger has been the Company's Chairman of the Board,
President and Chief Executive Officer since April 3, 1998 and previously served
as Interim President from December 10, 1997. He was elected as a Director on
February 18, 1997. He was elected Chief Financial Officer, Secretary and
Treasurer on October 28, 1996. Mr. Reithinger has been Controller of the Company
since January 1994. Prior to joining the Company and from July 1992 through
December 1993, Mr. Reithinger worked in branch operations for Bank of America.
He received a Bachelors degree in accounting from the University of Arizona in
1992 and his certification as a Certified Public Accountant in 1996.
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
Mr. Karl H. Rullich has been a Director since 1991. He was appointed
Vice-President on April 3, 1998 and has served as the Company's Director of
International Sales since May 1996. Prior to April 19, 1996, he served as
President, Chief Executive Officer and Treasurer of the Company. He worked as a
Marketing Director, General Manager and Vice President for Pfizer Hospital
Products Group in their international businesses and operations for over 25
years. Mr. Rullich holds a degree in economics from the Business College in
Essen, Germany. He emigrated from Germany to the United States in 1956 and
became a naturalized citizen in 1961.
Mr. Glen Holt has been a Director of the Company since 1992. As a
rancher and successful breeder for over 35 years, Mr. Holt, is an expert on
animal health and nutrition. He is a graduate from the University of Smith
Cornel. He is married to actress Annette Funicello, who is associated with the
Company's Cello by Annette(TM) fragrance line.
Dr. Michael B. Shapiro has been a Director of the Company since August
1995. Dr. Shapiro is an ophthalmologist at the University of Wisconsin, Madison.
He has also been Chairman of Davis Duehr Eye Associates, S.C. in Wisconsin since
1994 and is currently President of Eye-Deal Ocular Safety Products. Dr. Shapiro
received his degree in medicine from the Washington University in St. Louis,
Missouri. He completed his internship at Mercy Hospital and Medical Center at
the University of San Diego and his residency at the University of Wisconsin,
Madison. Dr. Shapiro has consulted for companies such as Bausch and Lomb,
Allergan and Unilens.
Dr. David M. Franey is a nominee recommended to shareholders by the
Board of Directors. Dr. Franey is Associate Medical Director for Intergroup of
Arizona. He is board certified by the American Board of Internal Medicine. Dr.
Franey received his undergraduate and medical school education from the
University of Wisconsin, Madison. He completed his residency in internal
medicine at Good Samaritan/VA Hospital Program in Phoenix. He was in private
practice from 1981 to 1985 before joining The Scottsdale Clinic. After the
acquisition of The Scottsdale Clinic by Thomas-Davis Medical Centers in 1990, he
became site medical director. He has served as Department of Medicine Chair for
SMH-North Hospital, Medical Records Committee Chair for TDMC, and a member of
the TDMC Q1 Committee. Dr. Franey is a member of the American Medical
Association, the Arizona Medical Association, Maricopa County Medical Society,
and the American College of Physician Executives.
Dr. Denise Forte-Pathroff is a nominee recommended to shareholders by
the Board of Directors. Dr. Forte-Pathroff is a dermatologist in private
practice in Bismarck, North Dakota. She is currently President of DFP, Inc., a
dermatological skin care products company, and serves on the Board of Directors
of BNC National Bank. Dr. Forte-Pathroff received her degree in medicine from
Tufts University Medical School in Boston, Massachusetts and completed her
residencies at the University of Minnesota in Minneapolis, Minnesota and Temple
University Skin & Cancer Hospital in Philadelphia, Pennsylvania. She completed
her internal medicine internship at Abington Memorial Hospital in Abington,
Pennsylvania. She has been Board Certified with the American Academy of
Dermatology since 1986 and is a Clinical Associate Professor of Internal
Medicine at the University of North Dakota.
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
Standing Audit and Compensation Committees
On August 29, 1996, the Board of Directors established Standing Audit
and Compensation Committees. The directors currently serving on the committees
until their successors have been elected or appointed and shall qualify are:
Audit Committee Compensation Committee
--------------- ----------------------
Neil Reithinger Neil Reithinger
Karl H. Rullich Dr. Michael Shapiro
Glen Holt Glen Holt
The Audit Committee's duty is to recommend for approval by the Board of
Directors a firm of certified public accountants whose duty it is to audit the
financial statements of the Company for the fiscal year in which they are
appointed, monitor the effectiveness of the audit effort, and to evaluate the
Company's internal financial and accounting organization and controls and
financial reporting. The Audit Committee met on April 10, 1997 when the
Company's auditors presented and discussed the Audit Committee Report for the
year ended December 31, 1996. On April 3, 1998, the Board of Directors of the
Company recommended the ratification of the appointment of the accounting firm
of King, Weber & Associates, P.C. of Tempe, Arizona to audit the Company's
financial statements for the Company's fiscal year ended December 31, 1997 and
appointed King, Weber & Associates, P.C. as its auditors for the fiscal year
ending December 31, 1998.
The Compensation Committee's duties include administering grants under
the 1996 Stock Option Plan, reviewing and approving salaries and other matters
relating to compensation of the executive officers of the Company. The
Compensation Committee acted by unanimous written consent in lieu of a meeting
on January 29, 1997 to grant certain options under the 1996 Incentive Stock
Option Plan, which the Compensation Committee is charged with administering. The
Compensation Committee met on February 26, 1998 to review and recommend the 1998
Non-Employee Director Stock Option Plan which was approved by the Board of
Directors of the Company on April 3, 1998 and is subject to Shareholder
approval.
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding shares of
common stock beneficially owned as of March 25, 1998 by (i) each person or
group, known to the Company, who beneficially owns more than 5% of the common
stock; (ii) each of the Company's officers and directors; and (iii) all officers
and directors as a group. The percentage of beneficial ownership is based on
17,498,115 shares outstanding on March 25, 1998 plus, for each person or group,
any securities that person or group has the right to acquire within 60 days
pursuant to options, warrants, conversion privileges or other rights. Unless
otherwise indicated, the following persons have sole voting and investment power
with respect to the number of shares set forth opposite their names:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Amount and Nature of Percent of
-------------------- ----------
Title of Class Name and Address of Beneficial Owner Beneficial Owner Class
- -------------- ------------------------------------ ---------------- -----
<S> <C> <C> <C>
Common Linda Lee (1) 2,386,147 12.96%
Hong Kong, China
Common John Shannon (2) 1,833,025 10.48%
Scottsdale, AZ
</TABLE>
(1) Ms. Lee is a citizen of Hong Kong, China and a prior Director of the
Company. Ms. Lee holds 1,466,147 common shares. She also holds 920,000
preferred shares which may each be converted to shares of common stock
on or after May 8, 1998, in a number of shares which depend upon the
average share price at the time of conversion.
(2) Mr. Shannon beneficially owns 1,833,025 common shares of which he holds
578,975 directly of record and 950,000 jointly with his wife, Darlene
Shannon through JDS Investments Limited Partnership. Mr. Shannon is the
beneficial owner of 304,050 common shares which are held of record or
beneficially by Royal Products, Inc. (7,000), Krystal Kleer, Inc.
(80,000), and Desert Health Products, Inc. (217,050). The
aforementioned beneficial ownership of Mr. Shannon was compiled from
the security holder listing of the Company as of December 31, 1997 as
Mr. Shannon has not filed with the Company any reports of his
beneficial holdings as of December 1997. The Company can provide no
assurance as to the accuracy of Mr. Shannon's beneficial holdings
beyond what is listed in the records of the Company.
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
Security Ownership of Management
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Amount and Nature of Percent of
-------------------- ----------
Title of Class Name and Address of Beneficial Owner Beneficial Owner Class
- -------------- ------------------------------------ ---------------- -----
<S> <C> <C> <C>
Common Neil Reithinger (1)(6) 44,000 (2)
Scottsdale, AZ
Common Karl H. Rullich (3)(6) 530,000 3.02%
Scottsdale, AZ
Common Stephen Kuehn (6) 117,000 (2)
St. Petersburg, FL
Common Glen Holt (4)(6) 275,000 1.57%
Encino, CA
Common Dr. Michael Shapiro (6) 160,000 (2)
Madison, WI
Common Harvey Turner (5) 670,000 3.83%
Scottsdale, AZ
Common All Officers and Directors 1,796,000 10.16%
as a Group (1) - (6)
</TABLE>
(1) Mr. Reithinger is Chairman of the Board, President, Chief Executive
Officer, Secretary, Treasurer and Chief Financial Officer of the
Company. He holds 24,000 common shares and an option, granted January
29, 1997, which expires January 29, 2007 to purchase 20,000 common
shares at $0.42 per share. Members of Mr. Reithinger's immediate family
hold an additional 200,000 common shares for which Mr. Reithinger
disclaims all beneficial interest and control.
(2) Less than one percent.
(3) Mr. Rullich beneficially owns 530,000 shares, 505,000 shares of which
are owned in joint tenancy with his wife, Florence Rullich. He also
holds an option, granted January 29, 1997, which expires January 29,
2007, to purchase 25,000 common shares at $0.42 per share.
(4) Mr. Holt directly owns 125,000 common shares. He also beneficially owns
150,000 common shares held by his wife, Annette Funicello.
(5) Mr. Turner resigned as the Chairman of the Board of Directors and the
President and Chief Executive Officer of the Company on December 10,
1997 and as a Director on February 25,
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
1998. Mr. Turner holds 670,000 common shares and held options, approved
by the Company's Shareholders on August 29, 1996, to purchase 200,000
common shares at $0.52 per share which expired on February 10, 1998.
(6) Director.
Changes in Control
The Company has previously disclosed, that on April 11, 1997, the
Company issued 800,000 shares of Preferred Stock to Linda Lee, an independent
investor and citizen of Hong Kong. The "Class B" shares of Preferred Stock were
redeemable for cash or convertible to shares of Common Stock on May 8, 1997. On
May 5, 1997, the Company reached an informal agreement with Ms. Lee, which was
later ratified by the Board of Directors resolution and a Subscription Agreement
with Ms. Lee, by which Ms. Lee would exchange all of her "Class B" shares for
920,000 "Class C" Preferred Shares, which would have no right of redemption for
cash, but which would be convertible to shares of Common Stock on or after May
8, 1998, in a number of shares which depend upon the average share price at the
time of conversion. Based on the three month average closing price of the
Company's common stock for the period ending March 13, 1998 of $.157, the number
of common shares issuable would be 5,859,873.
Certain Relationships and Related Transactions
On January 29, 1997, the Compensation Committee granted Neil Reithinger
and Karl Rullich each an option to purchase 20,000 and 25,000 shares of Common
Stock at $0.42 per share, respectively, exercisable immediately and until its
expiration on January 29, 2007. The Board of Directors ratified the grants on
the same day. The options were granted pursuant to the Company's 1996 Incentive
Option Plan which was previously approved by the Stockholders.
On May 17, 1996, the Company entered into bonus plans with Mr. Turner
and Mr. Reithinger. At the time of entry into the plans, Mr. Turner was a
Director and an officer of the Company and Mr. Reithinger was an employee. Under
these plans as part of the Company's performance in 1996, Mr. Turner and Mr.
Reithinger were paid $30,000 and $9,000, respectively. No bonuses were paid as
part of the Company's performance for 1997.
The Company contracted for freight services with M-7 Consolidation,
Inc. and paid $104,737 to this entity in the year ended December 31, 1997. The
Company's accounts payable at December 31, 1997 includes $6,555 due to M-7.
Harvey J. Turner, the Company's former Chairman of the Board, President and
Chief Executive Officer, has been a substantial stockholder of M-7 since May of
1997 and a director of M-7 since August of 1997.
Prior to becoming a director and officer of the Company, Harvey J.
Turner acted as a consultant to the prior Chairman of the Board, John A.
Shannon, from January to April 1996. As a finder's fee for his work as a
consultant in the private placement with Linda Lee, the Company paid $40,000 and
issued 100,000 common shares to Mr. Turner on May 9, 1996. As general
compensation for his work as a consultant, Mr. Turner received 500,000 common
shares from Aloe Vera
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
Development Corporation, in a private placement in satisfaction of agreements
with Mr. Shannon dated February 12, 1996. Mr. Turner and Mr. Shannon personally
guaranteed the repayment of $800,000 to Ms. Linda Lee in a letter dated April
22, 1996.
The Company shared personnel, office and warehouse space in 1996 with
Royal Products, Inc. and Krystal Kleer, Inc., two companies controlled by John
A. Shannon, the Company's single largest shareholder. These companies were
billed $8,300 during the year ended December 31, 1996. The Company recorded
sales to Royal Products, Inc. and Desert Health Products, Inc., two entities
controlled by Mr. Shannon, of $11,741 and $56,200 for the years ended December
31, 1997 and 1996, respectively. The Company sold product to these companies at
its cost plus 5% prior to July 1, 1996 and at 25% gross margin thereafter. The
Company has not shared any office and warehouse space with these unrelated
entities since the middle of 1996.
The Company paid John A. Shannon consulting fees totalling $20,000 in
the year ended December 31, 1996 and a finder's fee of $40,000 related to the
sale of common and preferred stock.
The Company issued an aggregate of 100,000 restricted shares to William
Brin on July 9, 1996 in satisfaction of past compensation owed. Mr. Brin was a
Director and the Company's National Sales Manager at the time of the issue.
On May 3, 1996, the Company paid $111,000 in cash to Dr. Michael
Shapiro in repayment of all of the principal and certain interest due under a
note payable. On September 20, 1996, the Company issued 30,000 shares to Dr.
Shapiro in satisfaction of the remaining interest payable under the note. At the
time of the payments and issuance of stock, Dr. Shapiro was a Director of the
Company.
On September 20, 1996, the Company issued 30,000 restricted shares in
satisfaction of interest due to Ronald Patterson. At the time of the issuances,
Mr. Patterson was a greater than 5% beneficial holder of the Company's common
shares.
Under the terms of a January 8, 1993 agreement between the Company and
Royal Products, Inc. ("Royal") for the sale to Royal of certain sales and
distribution rights relating to the Aurore-B beauty and hygiene line, Royal is
obligated to make annual payments to the Company including principal and
interest on July 1st of each year after July 1, 1993. John A. Shannon is a
director, officer and 70% shareholder of Royal and a substantial shareholder of
the Company.
On April 30, 1997, the Securities and Exchange Commission ("SEC")
received a complaint from Mark Dallamore regarding a certificate for 100,000
shares of Preferred Stock of the Company. The Company responded to the SEC that
the certificate did not appear in the Company's records, that the Company
received no consideration for the issuance and that the documents submitted by
Mr. Dallamore showed that John A. Shannon caused the stock to be invalidly
issued in exchange for the forgiveness of personal debts owed by Shannon and
Shanwick International Corp., a company he owns and controls. By letters dated
December 2 and 3, 1997, counsel for Mr. Dallamore demanded that the Company
recognize the Preferred certificate as valid. In further negotiations between
Dallamore and the Company, however, the Company has determined that it is not in
its best interest to defend the
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
claim against Mr. Dallamore. The Board of Directors, on April 3, 1998,
recognized the certificate and approved its conversion to 100,000 shares of
Common Stock in exchange for Dallamore's release of claims. The Dallamore
certificate remains the subject of the Company's claim against Mr. Shannon for
breaches of fiduciary duty.
Compliance with Section 16(a) of the Exchange Act
The following persons were, during the last fiscal year, either
directors, officers, or beneficial owners of more than ten percent (10%) of a
class of equity securities registered pursuant to Section 12 of the Exchange Act
of 1934 and failed to file on a timely basis the following reports required by
Section 16(a) during the most recent fiscal year or prior years and which have
not previously been disclosed:
Karl H. Rullich filed a timely Form 5 on January 22, 1998, reporting
six transactions that were not reported on a timely basis and that should have
been reported on two Forms 4.
The following persons did not file any Forms 4 during, or a Form 5 for,
the fiscal year ended December 31, 1997 and have not provided the Company with a
written representation that no such forms were required: Harvey J. Turner,
Stephen L. Kuehn, Glen Holt, Dr. Michael B. Shapiro, M.D. and John A. Shannon.
Executive Compensation
Officers
The Company paid Mr. Harvey Turner total salary compensation of
$120,750 during fiscal year 1997. Mr. Turner also held options, approved by the
Company's Shareholders on August 29, 1996, to purchase 200,000 common shares at
$0.52 per share which expired on February 10, 1998. Mr. Turner also received a
car allowance and phone allowance totalling $12,000 and $900, respectively, in
his capacity as Chairman of the Board.
Summary Compensation Table
Summary compensation information for Mr. Harvey Turner, the Company's
former Chief Executive Officer beginning April 19, 1996 (the only "named
executive officer" within the meaning of Regulation S-B, Item 402(a)(2)
Instruction (1)) is as follows:
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted
Name and Annual Stock Securities All Other
Principal Compen- Awards Underlying LTIP Payouts Compensation
Position Year Salary ($) Bonus ($) sation ($) ($) Options/SARs (#) ($) ($)
-------- ---- ---------- --------- ---------- --- ---------------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Turner (1) 97 120,750 -0- -0- -0- -0- -0- 54,567 (2)
CEO 96 81,000 30,000 -0- 26,550 200,000 -0- 49,600
95 - - - - - - -
</TABLE>
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
(1) Mr. Turner was elected Chairman of the Board and appointed as
President and Chief Executive Officer on April 19, 1996. He resigned as Chairman
of the Board, Chief Executive Officer and President on December 10, 1997 and
resigned as a Director on February 25, 1998.
(2) The Company paid Mr. Turner a car allowance and phone allowance of
$12,000 and $900, respectively, during fiscal year 1997 in his capacity as
Chairman of the Board. Under the terms of an employment agreement with its
former President and Chairman, the Company accrued the remaining compensation
remaining to be paid under that agreement through April 18, 1998. The balance of
$41,667 representing compensation from the effective employment termination date
of December 10, 1997 through April 18, 1998, was accrued at December 31, 1997.
Directors
Director Compensation Table
<TABLE>
<CAPTION>
(a) (b) (c) (1) (d) (2) (e) (f)
Number of
Securities
Annual Retainer Consulting Number of Underlying
Name Fees ($) Meeting Fees ($) Fees/Other Fees ($) Shares (#) Options/SARs (#)
---- -------- ---------------- ------------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Neil Reithinger -0- -0- 900 -0- -0-
Karl Rullich -0- -0- 900 -0- -0-
Stephen Kuehn -0- -0- -0- -0- -0-
Glen Holt -0- -0- -0- -0- -0-
Dr. Michael Shapiro -0- -0- -0- -0- -0-
Harvey Turner -0- -0- 12,900 -0- -0-
</TABLE>
(1) Each "outside" Director not residing in Arizona (Messrs. Holt and
Kuehn) each received reimbursement for travel related expenses during fiscal
year 1997 associated with their attendance at the Company's annual meeting.
(2) Mr. Reithinger and Mr. Rullich received a phone allowance of $900
in their capacity as Directors of the Company. Mr. Turner received a car
allowance and a phone allowance of $12,000 and $900, respectively, in his
capacity as Chairman of the Board.
Employment Contracts
The Company entered into an Employment Agreement with Harvey J. Turner
on July 19, 1996. On December 10, 1997, Mr. Turner resigned as the Company's
Chairman of the Board, President and Chief Executive Officer. The Company and
Mr. Turner entered a Settlement Agreement, dated January 9, 1998, which provided
that Mr. Turner would continue to receive his current monthly salary until April
18, 1998, that he would cooperate with the Company in maintaining
- 13 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
its relationships and that he would remain subject to the covenant not to
compete provisions of his original Employment Agreement.
Additional Information Concerning the Board of Directors of the Company
During 1997, the Board of Directors held four (4) meetings. All
Directors attended at least 75% of the meetings. The Audit Committee of the
Company held one (1) meeting in which all members were present. In addition to
regularly scheduled meetings, a number of Directors were involved in numerous
informal meetings with management, offering advice and suggestions on a broad
range of corporate matters.
RATIFICATION OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
(ITEM 2 ON PROXY CARD)
The Company, on January 4, 1996, engaged King, Weber & Associates, P.C.
("King, Weber") of Tempe, Arizona as its principal accountant to audit the
Company's financial statements beginning with the Company's fiscal year ended
December 31, 1995. King, Weber audited the Company's financial statements for
the fiscal years ending December 31, 1995, 1996 and 1997 and the Board of
Directors has appointed King, Weber to audit the Company's financial statements
for the fiscal year ended December 31, 1998. It is not anticipated that a
representative of King, Weber will be present at the Annual Meeting of
Stockholders to respond to questions or make a statement.
Vote Required and Recommendation
The affirmative vote of a majority of the shares of common stock
present or represented by proxy and voting at the Annual Meeting of Stockholders
is required for approval of this proposal. The Board of Directors recommends
that the stockholders vote FOR ratification of the Board of Director's
appointment of King, Weber & Associates, P.C. as the Company's independent
certified public accountants for the fiscal years ending December 31, 1997 and
1998.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
APPROVAL OF THE COMPANY'S 1998 NON-EMPLOYEE DIRECTOR STOCK OPTION
PLAN
(ITEM 3 ON PROXY CARD)
In order to advance the interests of the Company by encouraging and
enabling the acquisition of the continued contributions and financial interests
in the Company by directors, the Board of Directors has recently adopted,
subject to shareholder approval at the Annual Meeting of Stockholders, the
Company's 1998 Non-Employee Director Stock Option Plan (the "Plan"). Management
believes that this Plan will aid the Company in attracting and retaining a
strong Board of Directors upon whose judgment, interest and special efforts the
Company may depend for the successful operation of its
- 14 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
corporate structure to compete effectively with other enterprises. It is
believed that the acquisition of such option grants will stimulate the efforts
of such directors on behalf of the Company and strengthen their desires to
remain on the Board of Directors of the Company.
No options have yet been granted under the Plan and it is not
anticipated that any will be granted until the latter part of 1998. The Plan
will be administered so as to comply with Rule 16b-3 under the Securities
Exchange Act of 1934. The Company's registration statement on form S-8 will be
amended after the Annual Meeting of Stockholders to reflect the then-current
status of all authorized options under all Company plans and grants, including
the options authorized under the Plan. The complete text of the Plan is set
forth in Exhibit "A" to this Proxy Statement. The following summary of the Plan
is qualified in its entirety by reference to such Exhibit "A".
Summary of the 1998 Stock Option Plan
On April 3, 1998, the Company's Board of Directors adopted the
Company's 1998 Non- Employee Director Stock Option Plan (as previously defined,
the "Plan"), which is subject to approval by the shareholders at the Annual
Meeting of Stockholders. The Plan will be administered on behalf of the Board by
the Compensation Committee of the Board (the "Committee"). Within the limits of
the provisions of the Plan, the Committee shall have sole discretion to
determine the individuals to whom, and the time or times at which, options shall
be granted, the number of shares to be subject to each option, the duration of
each option, the option price under each option, and the time or times within
which (during the term of the option) all or portions of each option may be
exercised.
Only non-employee directors will be eligible for grants under the Plan.
The Company currently has six directors. The shares of stock available for the
grant of options under the Plan shall consist of 250,000 shares of Common Stock
of the Company. The closing sales price for the Company's Common Stock on the
record date, as quoted on the Over the Counter ("OTC") Bulletin Board on April
10, 1998, was $.11 per share. Options may be granted for terms of up to, but not
exceeding, ten years from the date the option is granted. The aggregate fair
market value (determined as of the time the option is granted) of the underlying
Common Stock as to which options are exercisable for the first time by an
eligible employee during any calendar year (under the Plan and under any other
stock option plan of the Company or any subsidiary of the Company) shall not
exceed One Hundred Thousand Dollars ($100,000).
Vote Required and Recommendation
The affirmative vote of a majority of the shares of common stock
present or represented by proxy and voting at the Annual Meeting of Stockholders
is required for approval of this proposal. The Board of Directors recommends
that the stockholders vote FOR approval of the 1998 Non- Employee Director Stock
Option Plan.
- 15 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
APPROVAL OF REVERSE STOCK SPLIT
(ITEM 4 ON PROXY CARD)
The Board of Directors believes it would be in the best interests of
the Company for the Stockholders to give consent as recommended and approve the
reverse stock split ("Reverse Stock Split") herein described. (Note: To provide
the Board with flexibility in determining the most appropriate reverse ratio if
one is ultimately effected, EIGHT proposals to authorize Reverse Stock Splits of
differing ratios from 1 for 3, up to 1 for 10, are being presented, however, a
determination by the Board to effect any one of the proposals, will act to
terminate the approved status of any other approved Reverse Stock Split
proposal(s); i.e., only one reverse ratio may be effected. This discussion is
applicable to all such proposals with the only difference in each proposal being
the ratio of the reverse which may be effected). The Reverse Stock Split will
have no effect on the number of authorized shares under the Company's Articles
of Incorporation, which should remain at 50,000,000 shares.
On April 10, 1997, the affirmative vote of a majority of the shares of
common stock present or represented by proxy and voted at the Annual Meeting of
Stockholders approved a 1 for 2 1/2 reverse stock split of the Company's Common
Shares and the redomestication of the Company from Nevada to Arizona. The Board
of Directors had reserved the right, notwithstanding Stockholder approval and
without further action by the Stockholders, to abandon or delay implementing the
reverse stock split or the redomestication until the Board of Directors, in its
sole discretion, determines that such actions would be in the best interests of
the Company and its stockholders. The Board of Directors has not yet implemented
either action and may implement one or both actions either simultaneously or
independently at any time it considers appropriate.
Background and Reasons For the Reverse Stock Split
- --------------------------------------------------
THERE CAN BE NO ASSURANCES THAT THE FOREGOING EFFECTS WILL OCCUR OR
THAT THE MARKET PRICE OF THE COMPANY'S STOCK IMMEDIATELY AFTER THE PROPOSED
REVERSE STOCK SPLIT WILL RISE, AND IF IT RISES, THAT SUCH MARKET PRICE WILL
APPROXIMATE THE PROPORTIONATE AMOUNT CHOSEN BY THE BOARD OF DIRECTORS ON THE
MARKET PRICE BEFORE THE PROPOSED REVERSE STOCK SPLIT.
No dissenting stockholder rights exist under applicable state law or
under the Company's Articles of Incorporation or Bylaws in connection with the
Reverse Stock Split, with the exception of a stockholder whose total Common
Shares will be reduced to a fraction of one share as a result of the proposed
Reverse Stock Split. The Company does not anticipate that the total holdings of
any stockholder will be reduced to a fraction of a share as a result of the
proposed Reverse Stock Split.
On April 3, 1998, the Board of Directors voted in favor of the Reverse
Stock Split and directed that the Reverse Stock Split be placed on the agenda
for stockholders' consideration at the Annual Meeting. The Board of Directors
believes that the relatively low per share market price of the Common Stock
impairs the marketability of the Common Stock to institutional investors,
members of the investing public and to any prospective acquisition candidates as
part of the Company's strategy. It also creates a negative impression with
respect to the Company when compared with the Company's
- 16 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
competitors. Another potential benefit from the Reverse Stock Split is the
effect a lower number of outstanding shares can have on many valuation formulas,
such as earnings per share, and the concurrent increase in price per share may
have the effect of increasing the attractiveness of the shares for certain
institutional investors which impose minimum price levels for inclusion in their
portfolios. While the number of shares of Common Stock outstanding should not
affect the marketability of the Common Stock, or the type of investor who
acquires it or the Company's reputation in the financial community, in practice
many investors look upon low priced stock as unduly speculative in nature and,
as a matter of policy, avoid investing in these stocks. Thus, any increase in
trading price resulting from the Reverse Stock Split is intended to be
attractive to the financial community, the investing public, and to the
Company's shareholders.
If a 1 for 3 through 10 Reverse Stock Split is approved by the
stockholders of the Company, the Board, at an appropriate time it considers
necessary, may effect the Reverse Stock Split as approved with the result that
each three through ten issued shares of the Company's Common Stock (whether
outstanding or held as treasury stock), par value $.001 per share ("Old Common
Stock") shall thereupon be combined into and reclassified as one share of Common
Stock, par value $.001 per share ("New Common Stock"). Each certificate that
theretofore represented shares of Old Common Stock shall thereupon represent the
number of shares of New Common Stock into which the shares of Old Common Stock
represented by such certificate shall be combined. The Company shall arrange for
the disposition of fractional shares on behalf of those record holders of Old
Common Stock at the close of business on the Effective Date who would otherwise
be entitled to a fractional share as a result of the Reverse Stock Split. A
Reverse Stock Split will be effected only upon determination by the Board of
Directors that a Reverse Stock Split is in the best interests of the Company and
the Stockholders. As the Reverse Stock Split does not change the number of the
Company's authorized shares, no amendment to the Company's Articles of
Incorporation will be filed.
The Board intends to examine this issue in consideration of all other
relevant economic and market factors. In determining which ratio to select, or
whether to effect any reverse ratio, the Board may consider the advice of
financial advisors and factors deemed relevant by the Board, which may include
but not be limited to belief as to future marketability and liquidity of the
Common Stock, prevailing market conditions, the likely effect on the market
price of the Common Stock and other relevant factors. The Board will also
consider the effect of the conversion privileges of its currently outstanding
Preferred Shares, and particularly the variable price conversion privileges of
Class C Preferred Shares.
- 17 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
Effects of the Reverse Stock Split
- ----------------------------------
General Effects. If the stockholders approve the Reverse Stock Split,
the number of outstanding shares of Common Stock will be reduced as set forth in
the following table:
COMMON STOCK COMMON STOCK
RATIO OF REVERSE OUTSTANDING BEFORE OUTSTANDING AFTER
STOCK SPLIT REVERSE SPLIT REVERSE SPLIT
----------- ------------- -------------
1 for 3 17,498,115 5,832,705
1 for 4 17,498,115 4,374,529
1 for 5 17,498,115 3,499,623
1 for 6 17,498,115 2,916,353
1 for 7 17,498,115 2,499,731
1 for 8 17,498,115 2,187,264
1 for 9 17,498,115 1,944,235
1 for 10 17,498,115 1,749,812
In order to avoid the expense and inconvenience of issuing and
transferring fractional shares of New Common Stock, the Company shall pay cash
to stockholders who would otherwise be entitled to receive a fractional share of
New Common Stock ("Fractional Stockholders") in lieu of issuing a fractional
share of New Common Stock. (See section on "Exchange of Shares and Payment in
Lieu of Issuance of Fractional Shares"). Please note that the Reverse Stock
Split will not change a stockholder's proportionate equity interest in the
Company, except that which may result from the elimination of a fractional
share.
Effect on Market For Common Stock. On April 10, 1998, the closing sale
price of the Common Stock was $.11 per share. By decreasing the number of shares
of Common Stock outstanding without altering the aggregate economic interest in
the Company represented by such shares, the Board of Directors believes that the
trading price will increase; however, there can be no assurance that this will
occur. The New Common Stock will continue to be traded on the Over-the-Counter
Bulletin Board under the symbol BYWD. In addition, the Company plans to seek
listing of the Company's New Common Stock on the NASDAQ SmallCap MarketSM if and
when the market price of the New Common Stock reaches the threshold required for
such listing and other requirements are satisfied.
Effect on Outstanding Options and Convertible Preferred Shares. As of
April 10, 1998, the Company had outstanding options to purchase 555,000 shares
of Common Stock with exercise prices per share that ranged from $0.42 to $1.00.
Upon the effectiveness of the Reverse Stock Split, the Compensation Committee of
the Board of Directors shall make a proportional downward adjustment to the
number of shares subject to outstanding options and convertible preferred shares
and a corresponding upward adjustment in the per share exercise or conversion
prices to reflect the Reverse Stock Split.
Changes in Stockholders' Equity. As an additional result of the Reverse
Stock Split, the Company's stated capital, which consists of the par value per
share of Common Stock multiplied by the number of shares of Common Stock issued,
will be reduced. Although the par value of the Common Stock will remain at $.001
per share following the Reverse Stock Split, stated capital will be decreased
- 18 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
because the number of shares issued and outstanding will be reduced.
Correspondingly, the Company's additional paid-in capital, which consists of the
difference between the Company's stated capital and the aggregate amount paid to
the Company upon the issuance by the Company of all currently outstanding Common
Stock, will be increased. The following table illustrates the principal effects
of the Reverse Stock Split to the Company's capital accounts on a pro forma
basis as of December 31, 1997:
<TABLE>
<CAPTION>
AFTER 1 AFTER 1 AFTER 1 AFTER 1
PRIOR TO FOR 3 FOR 4 FOR 5 FOR 6
REVERSE REVERSE REVERSE REVERSE REVERSE
STOCK STOCK STOCK STOCK STOCK
FINANCIAL DATA SPLIT SPLIT SPLIT SPLIT SPLIT
- -------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Stockholders' Equity
Common Stock, $.001 par value 17,498 5,833 4,375 3,500 2,916
Additional Paid in Capital 5,314,139 5,325,804 5,327,262 5,328,137 5,328,721
Total Stockholders' Equity 886,437 886,437 886,437 886,437 886,437
<CAPTION>
AFTER 1 AFTER 1 AFTER 1 AFTER 1
PRIOR TO FOR 7 FOR 8 FOR 9 FOR 10
REVERSE REVERSE REVERSE REVERSE REVERSE
STOCK STOCK STOCK STOCK STOCK
FINANCIAL DATA SPLIT SPLIT SPLIT SPLIT SPLIT
- -------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Stockholders' Equity
Common Stock, $.001 par value 17,498 2,500 2,187 1,944 1,750
Additional Paid in Capital 5,314,139 5,329,137 5,329,450 5,329,693 5,329,887
Total Stockholders' Equity 886,437 886,437 886,437 886,437 886,437
</TABLE>
The financial data represented above does not reflect the issuance of
100,000 common shares to Mr. Dallamore on April 3, 1998 upon conversion of
preferred shares.
Exchange of Shares and Payment in Lieu of Issuance of Fractional Shares
- -----------------------------------------------------------------------
On or after the date that the Board determines to implement the Reverse
Stock Split, provided that the Board of Directors does not abandon the Reverse
Stock Split as provided for above, the Company will mail to each stockholder a
letter of transmittal. A stockholder will be able to receive his or her shares
of New Common Stock and, if applicable, cash in lieu of a fractional share of
New Common Stock only by transmitting to the Company's Transfer Agent such
stockholders' stock certificate(s) evidencing shares of Old Common Stock
outstanding prior to the Reverse Stock Split, together with the properly
completed and executed letter of transmittal and such evidence of ownership of
such shares as the Company may require. Stockholders will not receive
certificates for shares of New Common Stock unless and until the certificates
representing their shares of Old Common Stock outstanding prior to the Reverse
Stock Split are surrendered. Stockholders should not forward their
certificate(s) to the Company's Transfer Agent until they have received the
letter of transmittal, and should surrender their certificate(s) only with such
letter of transmittal.
- 19 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
No scrip or fractional share certificates for New Common Stock will be
issued in connection with the Reverse Stock Split. The Board of Directors has
authorized the Company's officers to pay to the Company's Transfer Agent an
amount of cash equal to the prevailing share price of New Common Stock as of the
Effective Date, multiplied by the total number of fractional shares that would
result from the Reverse Stock Split, plus a transaction fee charged by the
Transfer Agent for preparing a check to each Fractional Shareholder. The Company
estimates that the total payments arising from payment to Fractional
Shareholders in lieu of issuing a fractional share (including transaction fees)
will be less than One Hundred Dollars ($100.00). A payment in lieu of a
fractional share of New Common Stock will be made to a Fractional Stockholder
promptly after receipt of a properly completed letter of transmittal and stock
certificate(s) representing all of his or her shares of Old Common Stock
outstanding prior to the Reverse Stock Split.
Each stockholder will be responsible for paying a total service fee of
approximately Fifteen Dollars ($15.00) upon surrender of his or her
certificate(s) in exchange for New Common Stock certificate(s). However, as
noted above, as of the Effective Date, shares of the Company's Old Common Stock
shall automatically (i.e., without further stockholder action) be combined into
and reclassified into shares of New Common Stock. Each certificate that
theretofore represented shares of Old Common Stock shall thereupon represent the
number of shares of New Common Stock into which the shares of Old Common Stock
represented by such certificate shall be combined.
Federal Income Tax Consequences
- -------------------------------
The following is a summary of the material anticipated federal income
tax consequences of the Reverse Stock Split to stockholders of the Company. This
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Department Regulations (the "Regulations")
issued pursuant thereto, and published rulings and court decisions in effect as
of the date hereof, all of which are subject to change. This summary does not
take into account possible changes in such laws or interpretations, including
amendments to the Code, applicable statutes, Regulations and proposed
Regulations or changes in judicial or administrative rulings, some of which may
have retroactive effect. No assurance can be given that any such changes will
not adversely affect the discussion in this summary.
This summary is provided for general information only and does not
purport to address all aspects of the possible federal income tax consequences
of the Reverse Stock Split and IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. In
particular, and without limiting the foregoing, this summary does not consider
the federal income tax consequences to stockholders of the Company in light of
their individual investment circumstances or to holders subject to special
treatment under the federal income tax laws (for example, life insurance
companies, regulated investment companies and foreign taxpayers). In addition,
this summary does not address any consequence of the Reverse Stock Split under
any state, local or foreign tax laws. As a result, it is the responsibility of
each stockholder to obtain and rely on advice from his or her personal tax
advisor as to: (i) the effect on his or her personal tax situation of the
Reverse Stock Split, including the application and effect of state, local and
foreign income and other tax laws; (ii) the effect of possible changes in
judicial or administrative interpretations of existing legislation and
Regulations, as well as possible future legislation and Regulations; and (iii)
the reporting of information required in connection with the Reverse Stock Split
on his or her own tax
- 20 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
returns. It will be the responsibility of each stockholder to prepare and file
all appropriate federal, state and local tax returns.
No ruling from the Internal Revenue Service ("Service") or opinion of
counsel will be obtained regarding the federal income tax consequences to the
stockholders of the Company as a result of the Reverse Stock Split. ACCORDINGLY,
EACH STOCKHOLDER IS ENCOURAGED TO CONSULT HIS OR HER TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO SUCH STOCKHOLDER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
The receipt of shares of New Common Stock (excluding fractional shares
of New Common Stock) in Reverse Stock Split should be a nontaxable transaction
under the Code for federal income tax purposes. Consequently, a stockholder
receiving shares of New Common Stock should not recognize either gain or loss,
or any other type of income, with respect to whole shares of New Common Stock
received as a result of the Reverse Stock Split. In addition, the tax basis of
such stockholder's shares of Common Stock prior to the Reverse Stock Split will
carry over as the tax basis of the stockholder's shares of New Common Stock.
Each Stockholder will be required to allocate his basis in his shares of Common
Stock ratably among the total number of shares of New Common Stock owned
following the Reverse Stock Split. The holding period of the shares of New
Common Stock will also include the holding period during which the stockholder
held the Old Common Stock, provided that such Old Common Stock was held by the
stockholder as a capital asset on the Effective Date.
The receipt by a Fractional Stockholder of cash in lieu of a fractional
share of New Common Stock pursuant to the Reverse Stock Split will be a taxable
transaction for federal income tax purposes. The receipt of cash in lieu of
fractional shares of New Common Stock will result in gain or loss (rather than
dividend income) to the Fractional Stockholders assuming, as the Company
believes, that such cash distribution is undertaken solely for the purpose of
saving the Company the expense and inconvenience of issuing and transferring
fractional shares of New Common Stock. Gain or loss will be recognized by each
Fractional Stockholder equal to the difference between the amount of cash
received by such Stockholder and the portion of the aggregate tax basis in his
Common Stock allocable to his fractional share interest in New Common Stock. If
a Fractional Stockholder's shares of Common Stock are held as a capital asset on
the Effective Date, then such Fractional Stockholder's gain or loss will be a
capital gain or loss. Such capital gain or loss will be long-term capital gain
or loss if on the Effective Date the shares of Common Stock have been held by
the Fractional Stockholder for longer than one year.
Based on certain exceptions contained in the regulations issued by the
Internal Revenue Service, the Company does not believe that it or Fractional
Stockholders will be subject to backup withholding or informational reporting
with respect to the cash distributed to a Fractional Stockholder.
The Company's common stock under the registered name of Baywood
International, Inc. was first quoted in May of 1992, and began trading on the
Over-the-Counter ("OTC") Bulletin Board under the symbol "BYWD". On the Record
Date, the reported closing price of the Common Stock was $.11 per share. No
assurance can be made as to the future price of New Common Stock.
- 21 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
Vote Required and Recommendation
The affirmative vote of a majority of the shares of common stock
present or represented by proxy and voting at the Annual Meeting of Stockholders
is required for approval of this proposal. The Board of Directors recommends
that the stockholders vote FOR approval of the Reverse Stock Split.
STOCKHOLDER PROPOSALS FOR 1998
Proposals of security holders intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company by no later
than January 29, 1999.
OTHER MATTERS
The cost of soliciting proxies will be borne by the Company and will
consist primarily of printing, postage and handling, including the expenses of
brokerage houses, custodians, nominees, and fiduciaries in forwarding documents
to beneficial owners. Solicitations also may be made by the Company's officers,
directors, or employees, personally or by telephone.
Scottsdale, Arizona
April 29, 1998
- 22 -
<PAGE>
BAYWOOD INTERNATIONAL, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. The purpose of 1998 Non-Employee Director Stock Option Plan
(the "Plan") is to compensate Non-Employee Directors (as that term is defined in
Paragraph 4 herein) of Baywood International, Inc. (the "Company") by
encouraging and enabling the acquisition of a financial interest in the Company
through options granted under the Plan. Management believes that this Plan will
aid the Company in attracting and retaining high-quality Directors upon whose
judgment the Company depends.
2. The Stock. The shares of stock available for the grant of options
under this Plan shall consist of 250,000 shares of the Company's Common Stock,
$0.001 par value (the "Stock") or the number and kind of shares of stock or
other securities which shall be substituted for such shares or to which such
shares shall be adjusted as provided in Section 6 hereof. Such Stock may be set
aside out of the authorized but unissued shares of Common Stock of the Company
not reserved for any other purposes or out of shares of Common Stock held in or
acquired for the treasury of the Company. All or any Stock subjected under this
Plan to an option which, for any reason, terminates, expires, or is cancelled
unexercised as to such shares, may again be subjected to an option grant under
this Plan.
3. Administration. The Plan shall be administered on behalf of the
Board of Directors of the Company (the "Board") by the Compensation Committee of
the Board (the "Committee"). The members of the Committee shall be appointed by
the Board.
The Committee shall determine, within the limits of the express
provisions of the Plan, the individuals to whom, and the time or times at which,
options shall be granted, the number of shares to be subject to each option, the
duration of each option, the option price under each option, and the time or
times within which (during the term of the option) all or portions of each
option may be exercised. In making such determinations, the Committee may take
into account any and all factors as the Committee in its discretion shall deem
relevant. Each Director to whom an option is granted shall enter into a written
agreement ("Option Agreement") with the Company setting forth the terms and
conditions of the option granted to him, which agreement shall contain such
terms and conditions consistent with the Plan as the Committee shall approve.
Subject to the express provisions of the Plan, the Committee may
interpret the Plan, prescribe, amend, and rescind rules and regulations relating
to it, determine the terms and provisions of the respective Option Agreements
(which need not be identical), and make all other determinations necessary or
advisable for the administration of the Plan.
The determination of the Committee on the matters referred to in this
Section 3 shall be conclusive.
4. Eligibility. Options may be granted only to members of the Board who
are not otherwise employed by the Company and/or a subsidiary thereof
("Non-Employee Directors").
<PAGE>
The term "subsidiary" shall mean any corporation which the Company controls
either directly or indirectly through ownership of fifty percent (50%) or more
of the total combined voting power of all classes of stock of such corporation.
5. Grant, Terms and Conditions of Options. Options may be granted at
any time and from time to time prior to the termination of the Plan. The day on
which the Committee approves the granting of an option shall for all purposes of
this Plan be considered the date on which such option is granted. Except as
hereinafter provided, Options granted pursuant to the Plan shall be subject to
the following terms and conditions:
(a) Price. The purchase price of the shares of Stock shall be
determined by the Committee. In no event shall the initial exercise price of an
option be less than the fair market value of such Stock on the date of grant.
The term "fair market value" shall mean as applied to the Stock on any day as
shall be determined in good faith by the Committee without regard to any
restriction other than a restriction which, by its terms, never lapses. The
purchase price shall be paid in full on the date of exercise, in cash, by check
or in such other consideration (including stock of the Company) as expressly
permitted by the terms of the particular option.
(b) Withholding of Taxes. The Company's obligation to deliver
shares of Stock pursuant to this Plan shall be subject to any and all applicable
federal, state and local tax withholding requirements.
(c) Duration of Options. Options may be granted for terms of
up to but not exceeding ten (10) years from the date the particular option is
granted.
(d) Cancellation of Options. In the event that the fair market
value of Stock subject to option under the Plan shall be less than the option
price for such Stock, the Committee may, in its discretion and with the consent
of the optionee, cancel such options and grant new options consistent with the
terms of the Plan.
(e) Limitation on Grant of Options. The aggregate fair market
value (determined as of the time the option is granted) of the Stock as to which
options are exercisable for the first time by a grantee during any calendar year
(under the Plan and under any other stock option plan of the Company or any
subsidiary of the Company) shall not exceed One Hundred Thousand Dollars
($100,000).
(f) Transferability of Options. No option granted under the
Plan shall be transferable by a grantee, other than by will or the laws of
descent and distribution, and all such options shall be exercisable, during such
grantee's lifetime, only by such grantee.
6. Adjustment in Number of Shares and in Option Price. In the event
there is any change in the shares of the Company's Common Stock through the
declaration of stock dividends or a stock split-up, or through recapitalization,
resulting in share split-ups, or combinations or
- 2 -
<PAGE>
exchange of shares, or otherwise, the number of shares of the Stock available
for option, as well as the shares subject to any option and the option price
thereof, shall be commensurately adjusted by the Committee.
7. Amendment. The Board may alter or amend the Plan and may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option in the manner and to the extent it shall deem desirable to carry the
Plan into effect without further action on the part of the stockholders of the
Company; but the Board may not without the approval of the Company's
stockholders make any alteration or amendment thereof which (a) makes any change
in the class of eligible participants as defined in Section 4 hereof; (b)
increases the total number of shares of Stock for which options may be granted
under the Plan; or (c) extends the terms of the Plan or the maximum option
period provided under the Plan.
The Committee may, with the consent of the grantee, amend an option or
otherwise modify an option in any manner, provided that the terms of the amended
option are consistent with the principles of this Plan.
It is intended that this Plan will comply with the requirements of
Section 16(b) under the 1934 Act and Rule 16b-3 thereunder, as applicable during
the term of the Plan. Should such requirements change, as interpreted by the
Committee and its counsel, the Board may amend this Plan or the Committee may
amend any rules or practices adopted hereunder accordingly, without the
necessity for stockholder approval, consistent with applicable law.
8. Effective Date and Termination of Plan. All provisions of this Plan
are effective as of April 3, 1998. This Plan shall terminate on the earliest of
(a) the date when all shares of the Stock shall have been acquired through
exercise of options granted under the Plan; (b) ten (10) years after the date of
adoption of the Plan by the Board, or April 3, 2008; or (c) such earlier date as
the Board may determine. Any option outstanding under the Plan at the time of
the Plan's termination shall remain in effect in accordance with its terms and
conditions and those of the Plan.
9. Use of Proceeds. The proceeds from the sale of Stock pursuant to the
Plan will be used for general corporate purposes.
10. Governing Law. The Plan shall be governed by and interpreted
according to the laws of the State of Arizona.
Date of Adoption by Board of Directors: April 3, 1998.
Date of Approval by Shareholders: ________________, 1998.
- 3 -
<PAGE>
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
---------------------------------------------------
BAYWOOD INTERNATIONAL, INC. ANNUAL MEETING TO BE HELD ON 05/29/98 FOR HOLDERS AS
OF 04/10/98
CUSIP: 073260101
THE UNDERSIGNED HEREBY APPOINTS NEIL T. REITHINGER AND KARL H. RULLICH AS
PROXIES, EACH WITH THE POWER TO APPOINT HIS OR HER SUBSTITUTE, AND HEREBY
AUTHORIZES THEM TO REPRESENT AND TO VOTE, AS DESIGNATED, ALL OF THE SHARES OF
COMMON STOCK OF BAYWOOD INTERNATIONAL, INC. HELD BY THE UNDERSIGNED ON APRIL 10,
1998, AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 29, 1998 AT 10:00
A.M. AT THE DOUBLETREE PARADISE VALLEY RESORT, 5401 NORTH SCOTTSDALE ROAD,
SCOTTSDALE, ARIZONA OR ANY ADJOURNMENT THEREOF. IF NO INSTRUCTIONS ARE INDICATED
ON THE PROXY, THE PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR
DIRECTORS NAMED HEREIN AND IN FAVOR OF ALL PROPOSALS DESCRIBED HEREIN.
PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE: |X|
<TABLE>
<CAPTION>
DIRECTORS DIRECTORS
- --------- ---------
(MARK X FOR ONLY ONE BOX - IF
NOT SPECIFIED, WILL BE VOTED
FOR ALL NOMINEES)
<S> <C> <C>
1. DIRECTORS RECOMMEND: A VOTE FOR |_| FOR ALL NOMINEES
ELECTION OF THE FOLLOWING DIRECTORS:
01-NEIL REITHINGER, 02-KARL RULLICH |_| WITHHOLD ALL NOMINEES
03-GLEN HOLT, 04-DR. MICHAEL SHAPIRO
05-DR. DAVID FRANEY, 06-DR. DENISE |_| WITHHOLD AUTHORITY TO
FORTE-PATHROFF VOTE FOR ANY INDIVIDUAL
NOMINEE. WRITE NUMBER(S) OF
NOMINEE(S) BELOW.
USE NUMBER ONLY
--------------------
<CAPTION>
DIRECTORS
PROPOSAL(S) RECOMMENDED FOR AGAINST ABSTAIN
- ----------- ----------- --- ------- -------
<S> <C> <C> <C> <C> <C>
2. RATIFICATION OF KING, WEBER & FOR |_| |_| |_|
ASSOCIATES, P.C. AS INDEPENDENT
AUDITORS AS DESCRIBED IN THE
PROXY STATEMENT.
3. APPROVAL OF 1998 NON-EMPLOYEE FOR |_| |_| |_|
DIRECTOR STOCK OPTION PLAN AS
DESCRIBED IN THE PROXY STATEMENT.
4. APPROVAL OF REVERSE STOCK SPLIT FOR |_| |_| |_|
AS DESCRIBED IN THE PROXY STATEMENT.
5. AUTHORITY TO VOTE ON ANY FOR |_| |_| |_|
BUSINESS THAT MAY PROPERLY
COME BEFORE THE MEETING.
</TABLE>
- -------------------------------------------------------------- ---------------
SIGNATURE(S) DATE
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS ON YOUR STOCK CERTIFICATE. JOINT
OWNERS SHOULD EACH SIGN. WHEN SIGNING AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
