<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ x ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FIBERCHEM, INC.
(Name of Registrant as Specified In Its Charter)
FIBERCHEM, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(l)(ii), 14a-6(I)(1), 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:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1)Amount Previously Paid:
(2)Form, Schedule or Registration Statement No.:
(3)Filing Party:
(4)Date Filed:
- ----------
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
FiberChem, Inc. A Delaware Corporation
[LOGO] 1181 Grier Drive, Suite B, Las Vegas, NV 89119
(702) 361-9873
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
MAY 30, 1997
To the Stockholders of FiberChem, Inc.:
You are cordially invited to attend the Annual Meeting of the Stockholders
(the "Annual Meeting") of FiberChem, Inc., which will be held at the Company's
offices, 1181 Grier Drive, Suite B, Las Vegas, Nevada at 10:00 a.m., Pacific
time, on May 30, 1997, to consider and act upon the following matters:
(1) To elect three Class A members to the Board of Directors to hold
office for a three-year term and until their successors are duly
elected and qualified. The persons nominated by the Board of
Directors (Messrs. Geoffrey F. Hewitt, Irwin J. Gruverman and Dale W.
Conrad) are described in the accompanying Proxy Statement.
(2) To consider and act upon a proposal to authorize, if necessary,
reverse stock splits of the Company's Common Stock.
(3) To consider and act upon a proposal to amend the Company's Certificate
of Incorporation to increase the number of authorized shares of Common
Stock of the Company, $.0001 par value ("Common Stock"), by two (2)
million shares of common stock (or, if proposal 2 is not passed, by
ten (10) million shares of common stock).
(4) To consider and act upon a proposal to ratify the adoption of the
FiberChem, Inc. 1997 Employee Stock Option Plan.
(5) To ratify the appointment of Goldstein Golub Kessler & Company, P.C.
as the Company's auditors for the fiscal year ending September 30,
1997.
(6) To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on April 11, 1997,
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournments thereof.
Stockholders are cordially invited to attend the Annual Meeting. Whether or
not you expect to attend the Annual Meeting in person, please complete, date and
sign the accompanying proxy card and return it without delay in the enclosed
postage prepaid envelope. Your proxy will not be used if you are present and
prefer to vote in person or if you revoke the proxy.
Dated: April __, 1997
BY ORDER OF THE BOARD OF DIRECTORS,
MELVIN W. PELLEY, SECRETARY
<PAGE>
FIBERCHEM, INC.
1181 GRIER DRIVE, SUITE B
LAS VEGAS, NEVADA 89119
(702) 361-9873
---------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 30, 1997
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of FiberChem, Inc., a Delaware corporation
(the "Company"), for use at the Fiscal 1996 Annual Meeting of Stockholders of
the Company and for any adjournment or adjournments thereof (the "Annual
Meeting"), to be held at the Company's offices, 1181 Grier Drive, Suite B, Las
Vegas, Nevada at 10:00 a.m., Pacific time, on May 30, 1997, for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders. A Board of
Directors' proxy (the "Proxy") for the Annual Meeting is enclosed, by means of
which you may indicate your votes as to each of the proposals described in this
Proxy Statement.
All Proxies which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will be
voted in accordance with the stockholder's instructions contained in such
Proxy. The affirmative vote by holders of a majority of the Common Stock and
Preferred Stock voting together represented at the Annual Meeting is required
for the election of Directors, for the approval of the proposal to authorize
reverse stock splits of the Company's Common Stock. for amending the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock of the Company, $.0001 par value ("Common Stock"), by two (2)
million shares of common stock (or, if proposal 2 is not passed, by ten (10)
million shares of common stock), for ratifying the adoption of the FiberChem,
Inc. 1997 Employee Stock Option Plan, and for ratifying the appointment of
Goldstein Golub Kessler & Company, P.C. as the Company's auditors. Directors
and Officers of the Company beneficially own approximately 22% of the
outstanding voting shares. In the absence of contrary instructions, shares
represented by such Proxy will be voted FOR the election of the nominees for
Directors as set forth herein, FOR the ratification of the authorization of the
reverse stock splits, FOR the amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock of the
Company, FOR the adoption of the Company's 1997 Employee Stock Option Plan, and
FOR the ratification of the appointment of the Company's auditors for the fiscal
year ending September 30, 1997. Shares represented by proxies which are marked
"abstain" for Proposals 2, 3, 4 and 5 on the proxy card and proxies which are
marked to deny discretionary authority on all other matters will not be included
in the vote totals, and therefore will have no effect on the vote. In addition,
where brokers are prohibited from exercising discretionary authority for
beneficial owners who have not provided voting instructions (commonly referred
to as "broker non-votes"), those shares will not be included in the vote totals.
The Board of Directors does not anticipate that any of its nominees will be
unavailable for election and does not know of any other matters that may be
brought before the Annual Meeting. In the event that any other matter shall
come before the Annual Meeting or any nominee is not available for election, the
persons named in the enclosed Proxy will have discretionary authority to vote
all Proxies not marked to the contrary with respect to such matter in accordance
with their best judgment.
A stockholder may revoke his Proxy at any time before it is exercised by
filing with the Secretary of the Company at its executive offices in Las Vegas,
Nevada, either a written notice of revocation or a duly executed Proxy bearing a
later date, or by appearing in person at the Annual Meeting and expressing a
desire to vote his or her shares in person. All costs of this solicitation are
to be borne by the Company.
A list of stockholders entitled to vote at the Annual Meeting will be open
to examination by any stockholder, for any purpose genuine to the meeting, at
the executive offices of the Company, 1181 Grier Drive, Suite B, Las
<PAGE>
Vegas, Nevada 89119, during ordinary business hours for ten days prior to the
Annual Meeting. Such list shall also be available during the Annual Meeting.
This Proxy Statement and the accompanying Notice of Annual Meeting of
Stockholders, the Proxy, and the 1996 Annual Report to Stockholders are expected
to be mailed commencing on or about April____, 1997 to stockholders of record on
April 11, 1997.
VOTING SECURITIES
April 11, 1997, has been fixed as the record date for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting or any
adjournment or adjournments thereof. As of that date, the Company had
outstanding 25,719,259 shares of Common Stock, $.0001 par value, and 228,998
shares of Preferred Stock, or an aggregate of 28,009,239 voting securities (the
"Voting Securities") outstanding. Holders of Preferred Stock have ten votes per
share of Preferred Stock held and Common Stockholders have one vote per share of
Common Stock held, upon all matters to be considered at the Annual Meeting.
Holders of Preferred Stock vote together with the holders of Common Stock as one
class on all matters submitted to a vote of stockholders, except where a class
vote of Preferred Stockholders may be required by law.
The following table sets forth, as of April 8, 1997, certain information
concerning those persons known to the Company, based on information obtained
from such persons, with respect to the beneficial ownership (as such term
is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of shares of
Common Stock, $.0001 par value, of the Company by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock, (ii) each nominee and Director of the Company, (iii) each executive
officer named in the Summary Compensation Table and (iv) all Officers and
Directors as a group:
Amount and
Nature of
Name and Address of Beneficial Percentage of
Beneficial Owner Ownership (1) Class (2)
- ---------------------- ----------------- ----------------
Scott J. Loomis 1,089,690 (5) 4.2%
P.O. Box 35238
Tucson, AZ 85740
Walter Haemmerli 3,720,847 (6) 12.9%
Manport AG
Basteiplatz 3, CH 8001
Zurich, Switzerland
Gerald T. Owens 189,823 (7) (4)
32 Los Robles Road
Carmel Valley, CA 93924
Irwin J. Gruverman 275,470 (8) 1.1%
30 Ossipee Road
Newton, MA 02164
Dale W. Conrad 566,597 (9) 2.2%
7204 Wellington Point Road
McKinney, TX 75070
2
<PAGE>
Amount and
Nature of
Name and Address of Beneficial Percentage of
Beneficial Owner Ownership (1) Class (2)
- ---------------------- ----------------- ----------------
Byron A. Denenberg 65,000 (10) (4)
RCT Systems, Inc.
327 Messner Drive
Wheeling, IL 60090
Geoffrey F. Hewitt (3) 444,779 (11) 1.7%
Melvin W. Pelley (3) 198,863 (12) (4)
David R. LeBlanc 105,000 (13) (4)
416 Starwood Pass
Lake in the Hills, IL 60102
Thomas A. Collins (3) 100,000 (14) (4)
Liviakis Financial 1,818,750 7.1%
Communications, Inc.
2118 P. Street Suite C
Sacramento, CA 95816
All Directors and Officers as 6,861,069 22.8%
a Group (10 persons)
- ---------------
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole investment power with respect to all shares of Common Stock
beneficially owned by them. A person is deemed to be the beneficial owner
of securities that can be acquired by such person within 60 days from the
date hereof upon the exercise of warrants or options or upon the conversion
of convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants or shares of Convertible
Preferred Stock that are held by such person (but not those held by any
other person) and which are exercisable or convertible within 60 days from
the date hereof have been exercised or converted.
(2) Based on 25,719,259 shares issued and outstanding as of April 11, 1997.
(3) The address of this person is c/o FCI Environmental, Inc., 1181 Grier
Drive, Suite B, Las Vegas, Nevada 89119.
(4) Represents less than one percent ownership.
(5) Includes 32,353 Class D Common Stock Purchase Warrants and an aggregate of
45,000 shares of Common Stock issuable upon exercise of a like number of
options. Includes 452,140 shares of Common Stock held in escrow against
promissory notes for the exercise of options. Also includes 486,668 shares
of Common Stock, and 151,590 Class D Common Stock Purchase Warrants held by
Agri Research and Development, Inc., of which Mr. Loomis is a Director and
principal stockholder.
(6) Includes 32,000 Class D Common Stock Purchase Warrants, 3,586 shares of
Convertible Preferred Stock convertible into 35,860 shares of Common Stock,
and an aggregate of 34,250 shares of Common Stock issuable upon exercise of
a like number of options. Also includes 604,000 shares of Common Stock,
963,800 Class D Common Stock Purchase Warrants, and 165,286 shares of
Convertible Preferred Stock convertible into 1,652,860 shares of Common
Stock, all held by Privatbank Vermag A.G., Chur, Switzerland, as custodian
for certain customers, of which company Mr. Haemmerli is Vice-Chairman.
Also includes $150,000 of Senior Convertible 8% notes convertible into
367,827 shares of Common Stock held by Manport AG, of which company Mr.
Haemmerli is Chief Executive Officer.
(7) Includes 39,965 Class D Common Stock Purchase Warrants and an aggregate of
45,000 shares of Common Stock issuable upon exercise of a like number of
options. Includes 26,866 shares of Common Stock held in escrow against
promissory notes for the exercise of options.
3
<PAGE>
(8) Includes 43,680 shares of Common Stock issuable upon exercise of a like
number of options. Also includes 67,500 shares of Common Stock held by G&G
Diagnostics, L.P. I, 48,200 shares of Common Stock held by G&G Diagnostics,
L.P. II, and 8,161 shares of Convertible Preferred Stock convertible into
81,610 shares of Common Stock held by G&G Diagnostics, L.P. III, all of
which Mr. Gruverman is a principal.
(9) Includes an aggregate of 95,000 shares of Common Stock issuable upon
exercise of a like number of options. Includes 402,477 shares of Common
Stock held in escrow against promissory notes for the exercise of options.
(10) Includes an aggregate of 33,142 shares of Common Stock issuable upon
exercise of a like member of options.
(11) Includes an aggregate of 370,830 shares of Common Stock issuable upon
exercise of a like number of options.
(12) Includes an aggregate of 72,120 shares of Common Stock issuable upon
exercise of a like number of options. Includes 80,000 shares of Common
Stock held in escrow against promissory notes for the exercise of options.
(13) Includes an aggregate of 98,350 shares of Common Stock issuable upon
exercise of a like number of options.
(14) Includes an aggregate of 100,000 shares of Common Stock issuable upon
exercise of a like number of options.
PROPOSAL 1
ELECTION OF DIRECTORS
Pursuant to Section 2 of Article III of the Company's By-Laws, as amended,
the Board of Directors is divided into three classes, each of which is to be
elected for three-year terms. The Company's Board of Directors currently
has seven (7) Directors, three (3) of which are to be elected as Class A
Directors at the Annual Meeting to hold office, subject to the provisions of the
Company's By-Laws, for a three-year term and until their successors are duly
elected and qualified. The three Class A nominees (the "Nominees") are Geoffrey
F. Hewitt, Irwin J. Gruverman and Dale W. Conrad, who have served as Directors
since 1996, 1994 and 1995, respectively. Of the remaining, four (4) members of
the Board of Directors, two (2) were elected in May 1995 and two (2) were
elected in May of 1996 for their respective staggered terms with the ending date
of their terms of office set forth below.
It is intended that the accompanying form of Proxy will be voted FOR the
election as Directors of the three (3) Nominees named below, unless the Proxy
contains contrary instructions. Proxies which direct the Proxy holders
to abstain and do not direct the Proxy holders to vote for or withhold authority
in the matter of electing Directors will be voted for the election of the three
(3) Nominees named below. Proxies cannot be voted for a greater number of
persons than the number of nominees named in the Proxy Statement.
Management has no reason to believe that any of the Nominees will not be a
candidate or will be unable to serve. However, in the event that any of the
Nominees should become unable or unwilling to serve as a Director, the Proxy
will be voted for the election of such person or persons as shall be designated
by the Directors.
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are currently serving as Executive Officers and/or
Directors of the Company for their respective staggered terms, with the ending
date of their terms of directorship set forth below:
Name Age Position Term
- ---- --- -------- ----
Scott J. Loomis 48 Chairman of the Board and May 1999
Class B Director
Geoffrey F. Hewitt* 53 President, Chief Executive May 2000
Officer and Class A Director
Walter Haemmerli 67 Class B Director May 1999
Gerald T. Owens 69 Class C Director May 1998
Irwin J. Gruverman* 63 Class A Director May 2000
4
<PAGE>
Dale W. Conrad* 57 Class A Director May 2000
Byron A. Denenberg 62 Class C Director May 1998
Melvin W. Pelley 52 Chief Financial Officer and --
Secretary
*Nominees for election at the Annual Meeting
The names, ages and respective positions of the Executive Officers and
Directors of FCI Environmental, Inc. ("Environmental"), a wholly-owned
subsidiary of the Company, are as follows:
Name Age Position
- ---- --- --------
Dale W. Conrad 57 Chairman of the Board and Director
Geoffrey F. Hewitt 53 Chief Executive Officer and Director
Thomas A. Collins 50 President
Melvin W. Pelley 52 Chief Financial Officer and Secretary
Scott J. Loomis 48 Director
SCOTT J. LOOMIS has served as Chairman of the Board of Directors since
August 1995 and as a Director of the Company since June 1989. He served as
President of the Company from April 1994 to August 1995. Mr. Loomis has
served as a Director of FCI Environmental since January 1990. Mr. Loomis has
served as a Director of AgriBioTech, Inc. ("ABT"), formerly a subsidiary of the
Company, since January 1988, as Vice President of ABT since April 1994 and as
President from June 1992 until March 1994. Mr. Loomis spends a small percentage
of his business time on the Company's affairs. Since 1985, Mr. Loomis has been
President of AgriResearch and Development, Inc. From 1979 until July 1986, Mr.
Loomis was President of MLM Properties Ltd., engaged in real estate investments.
Mr. Loomis has been a licensed attorney in the State of Arizona since 1974.
GEOFFREY F. HEWITT has served as President and Chief Executive Officer of
the Company, as well as Chief Executive Officer of FCI Environmental since
August 1995. Mr. Hewitt was appointed as a Director of the Company on September
11, 1996. He has also served as a Director of FCI Environmental since April
1994 and as its President from April 1994 to November 1996. He served as Chief
Operating Officer of FCI Environmental from April 1994 to August 1995. Prior
thereto, from 1977 until March 1994, Mr. Hewitt served as Vice President of
worldwide sales and marketing for H.N.U. Systems, Inc., a manufacturer of
environmental and material analysis instrumentation.
WALTER HAEMMERLI has served as a Director of the Company since February
1990. Mr. Haemmerli has been the Chief Executive Officer since 1978 of Manport
AG, Zurich, Switzerland, an investment management company owned by him. Mr.
Haemmerli was employed by Union Bank of Switzerland, Geneva, Basle and Zurich
form 1960 to 1978, holding the position of Vice President from 1970. Mr.
Haemmerli serves on the Board of Directors and is Vice-Chairman of Privatbank
Vermag AG, Chur, Switzerland, and is a Member of the Board of Directors for
American Cold Storage, Inc., Louisville, Kentucky.
GERALD T. OWENS has served as a Director of the Company since December
1987. Mr. Owens served with Mobil Oil from 1962 to 1983 when he retired. At
retirement, he was President of Mobil Sales and Supply Corporation, a
wholly-owned subsidiary of Mobil Oil, and he was a Vice President of Mobil Oil.
From 1951 to 1961, Mr. Owens practiced law with the law firm of Andrews and
Kurth in Houston, Texas. Mr. Owens received an L.L.B. degree from the
University of Texas in 1950 and a B.A. degree in history in 1948 from the
University of Texas. He
5
<PAGE>
serves as Chairman of the Board of Trustees for the Kenny Stout Memorial Golf
Foundation, and as a member of the Board of Trustees for the Monterey Institute
of International Studies.
IRWIN J. GRUVERMAN has served as a Director of the Company since May 1994.
Since 1990, Mr. Gruverman has served as the General Partner for G&G Diagnostics
Funds, a venture capital business, and in 1982 founded and currently serves as
Chairman of the Board of Directors and Chief Executive Officer of Microfluidics
Corporation, an equipment manufacturer and process research and development
company.
DALE W. CONRAD has served as a Director of the Company since August 1995.
He has also served as Chairman of the Board of Directors of FCI Environmental
since March 1993, as President of Environmental from March 1993 until April
1994, and as Chief Executive Officer of FCI Environmental from March 1993 until
August 1995. Prior thereto, from 1988 to 1991, he was President and Chief
Executive Officer of Biotope, Inc., Redmond, Washington, a defunct company
engaged in the design and manufacturing of blood diagnostic equipment. From
1983 to 1988 he was President of Advanced Technology Laboratories, Inc. ("ATL"),
Bothell, Washington, which manufactures and markets real-time ultrasound medical
diagnostic equipment. From 1981 to 1983 Mr. Conrad was Executive Vice President
and General Manager for Advanced Diagnostic Research Corporation ("ADR"), Tempe,
Arizona, a designer, manufacturer and marketer of diagnostic ultrasound
scanners. From 1965 to 1981, he held various positions at Texas Instruments,
Inc., including Site Manager for the College Station, Texas plant from 1979
to 1981.
BYRON A. DENENBERG has served as a Director of the Company since August
1995. Mr. Denenberg has been a private investor since 1991. Mr. Denenberg was
co-founder in 1969 of MDA Scientific, Inc. ("MDA"), a manufacturer and marketer
of toxic gas monitoring systems, where he was CEO from inception until 1991.
MDA was purchased by Zwellweger Uster AG in 1988. Mr. Denenberg received a B.S.
degree in Mechanical Engineering from Bucknell University, Lewisburg,
Pennsylvania. He currently serves as a Director of RCT Systems, Inc., MST
Measurement Systems, Inc., FPM Analytics, Inc., and Microsensor Technologies,
GmbH.
MELVIN W. PELLEY has been the Chief Financial Officer and Secretary of the
Company since April 1994 and has been Chief Financial Officer and Secretary of
FCI Environmental since June 1993. Prior thereto, from 1988 he was Vice
President of Finance and Administration of Acoustic Imaging Technologies
Corporation, Phoenix, Arizona, a manufacturer of diagnostic ultrasound medical
equipment. From 1983 to 1988 he was Director of Costs, Financial Planning and
Analysis of ATL. From 1977 to 1983, Mr. Pelley was Chief Financial and
Administrative Officer for ADR.
THOMAS A. COLLINS has served as President of FCI Environmental since
November 1996 and as Vice President of International Marketing and Product
Development from March 1996 to November 1996. Prior thereto, from 1992 he was
Director of International Sales and Product Marketing of Arizona Instrument
Corporation, a manufacturer of environmental and control instrumentation; from
1990 to 1992 he was Director of Marketing of Wayne Division, Dresser Industries,
Inc., a manufacturer of dispensing equipment for the gasoline industry; from
1986 to 1989 he was Manager of Domestic Retail Marketing for Diebold, Inc., a
manufacturer of transaction terminals in the petroleum retailing market; and
from 1968 to 1986 he held marketing and engineering positions at ARCO Petroleum
Products Co.
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS
- -----------------------------------------------------
Officers serve at the discretion of the Board of Directors. All Directors
hold office until the expiration of their terms and the election and
qualification of their successors. The Company's Board of Directors is divided
into three classes of approximately equal size with the members of each class
elected, after an initial phase-in-period, to three-year terms expiring in
consecutive years. Mr. Loomis and Mr. Haemmerli were elected to three-year
terms as Directors at the Company's May 1996 Annual Meeting of Stockholders, and
Mr. Owens was elected to a three-year term as Director at the Company's May 1995
Annual Meeting of Stockholders. Mr. Gruverman was appointed to the Board of
Directors in May 1994; Mr. Conrad and Mr. Denenberg were appointed to the Board
of Directors in August 1995; and Mr. Hewitt was appointed to the Board of
Directors in September 1996.
6
<PAGE>
In January 1993, the Company established a Stock Option Committee. The
Stock Option Committee is responsible for the granting of stock options under
the Company's Stock Option Plans. The Company also established a Compensation
Review Committee, which is responsible for reviewing the compensation of the
Company's executives and employees. In August 1995, Mr. Owens and Mr. Haemmerli
were appointed to a single Compensation Review and Stock Option Committee.
Also, in August 1995, Mr. Loomis and Mr. Owens were appointed to a newly
established Audit Committee. The Board of Directors did not have a standing
nomination committee or committee performing similar functions during the fiscal
year ended September 30, 1996.
The Company held four (4) meetings of the Board of Directors during Fiscal
1996 and conducted other business by unanimous written consent. Each member of
the Board of Directors (at the time of such meeting) attended all of the
meetings either in person or telephonically, except that Mr. Haemmerli was
absent from one (1) meeting.
EXECUTIVE COMPENSATION
- ----------------------
The compensation paid and/or accrued to each of the Executive Officers of
the Company and its subsidiaries and of all executive officers as a group, whose
annual compensation exceeds $100,000, for services rendered to the Company
during the three fiscal years ended September 30, 1996, was as follows:
(a) SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------------
Annual Compensation Awards Payouts
---------------------------- ----------------------- ------------
--
Long-Term
Other Restricted Securities Incentive All
Name of Individual Fiscal Annual Stock Underlying Plan Other
and Principal Position Year Salary($) Bonus($) Compensation($) Awards($) Options/SARs(#) Payouts($) Compensation($)
- ---------------------- ------ --------- -------- --------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Geoffrey F. Hewitt 1996 $195,768 $ -- $ -- -- 100,000 $ -- $ --
President and CEO of 1995 $177,596 $ -- $ -- -- 75,000 $ -- $ --
FiberChem, Inc. and CEO 1994 $ 94,792 $ -- $ -- -- 300,000 $ -- $ --
of FCI Environmental, Inc.
Dale W. Conrad 1996 $ 18,730 $ -- $13,594 (1) -- 35,000 $ -- $ --
Chairman of the Board of 1995 $112,535 $ -- $ -- -- 60,000 $ -- $ --
FCI Environmental, Inc. 1994 $222,261 $ -- $ -- -- 205,822 (2) $ -- $ --
Melvin W. Pelley 1996 $126,461 $ -- $ -- -- 50,000 $ -- $ --
Chief Financial Officer of 1995 $113,346 $ -- $ -- -- 25,000 $ -- $ --
FiberChem, Inc. and of 1994 $110,000 $ -- $ -- -- 40,000 (2) $ -- $ --
FCI Environmental, Inc.
David R. LeBlanc 1996 $125,000(3) $ -- $ -- -- 5,000 $ -- $ --
Vice President - Sales and 1995 $123,558 $ -- $ -- -- 5,000 $ -- $ --
Marketing of 1994 $ 25,080 $ -- $ -- -- 100,000 $ -- $ --
FCI Environmental, Inc.
Thomas A. Collins 1996 $ 70,192(4)$ -- $ -- -- 100,000 $ -- $ --
President of 1995 $ -- $ -- $ -- -- -- $ -- $ --
FCI Environmental, Inc. 1994 $ -- $ -- $ -- -- -- $ -- $ --
</TABLE>
(1) Directors' compensation of $11,194 and consulting fees of $2,400 paid
during Fiscal 1996. Amounts earned, net of applicable taxes, have reduced
the promissory notes issued by Mr. Conrad to the Company for the exercise
of options.
(2) Options granted in connection with the early incentive option plan
discussed below.
(3) Resigned July 1996; compensated at the rate of $125,000 annually through
October 5, 1996.
7
<PAGE>
(4) Hired March 1, 1996 as Vice President of International Marketing and
Product Development; President of FCI Environmental since November 1996.
(b) OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
Securities Percent of Total
Underlying Options/SARs Granted Exercise
Options/SARs to Employees or Base Expiration
Name of Individual Granted In Fiscal Year Price($/Share) Date
- ------------------ ------------ -------------------- -------------- ------------------
<S> <C> <C> <C> <C>
Geoffrey F. Hewitt 100,000 15.0% $ 1.00 April 8, 2001
Dale W. Conrad 10,000 1.5% $ 1.00 April 8, 2001
25,000 3.7% $ 0.93 January 30, 2005
Melvin W. Pelley 50,000 7.5% $ 1.00 April 8, 2001
David R. LeBlanc 5,000 0.7% $ 1.00 April 8, 2001
Thomas A. Collins 100,000 15.0% $ 1.00 September 30, 1999
</TABLE>
(c) AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options/SARs Options/SARs
Acquired on Value at Fiscal Year End (#) at Fiscal Year End ($)
Name of Individual Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------ ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Geoffrey F. Hewitt 27,092 $ 205 380,208 / 0 $ (83,171) (2) / $0
Dale W. Conrad 6,638 $ (141) (1) 95,000 / 0 $ (20,781) (2) / $0
Melvin W. Pelley 7,488 $ 57 74,712 / 0 $ (16,343) (2) / $0
David R. LeBlanc 0 $ 0 98,350 / 0 $ (21,514) (2) / $0
Thomas A. Collins 0 $ 0 100,000 / 0 $ (21,875) (2) / $0
</TABLE>
(1) Certain options were exercised at exercise prices which exceeded fair
market value at the time of exercise, resulting in negative "Value
Realized."
(2) The options' exercise price exceeded their fair market value as of
September 30, 1996, resulting in negative "Value of Unexercised
In-The-Money Options."
(d) LONG-TERM INCENTIVE PLANS
Effective January 1, 1994, the Company implemented an Internal Revenue Code
Section 401(k) Profit Sharing Plan (the "Plan"). The Plan provides for
voluntary contributions by employees into the Plan subject to the limitations
imposed by Internal Revenue Code Section 401(k). The Company will match
employee contributions at a rate of 50% of the employee's contribution up to a
maximum of 2% of the employee's compensation. The Company matching funds are
determined at the discretion of management and are subject to a five-year
vesting schedule from the date of original employment.
(e) DIRECTORS COMPENSATION
In September 1996, the existing base compensation fee of $10,000 per year
for non-management directors was eliminated, replaced by the granting of options
to purchase 25,000 shares of Common Stock of the Company. Fees for attendance
at Board meetings and for committee service were suspended.
During Fiscal 1996, the Company expensed an aggregate of $99,000 in
Directors' compensation for the Company's six non-management Directors, applying
$42,451 to the payment of promissory notes and interest, $35,272 to the exercise
of 35,272 stock options and $21,277 of payroll taxes. In addition, on April 8,
1996, the Company granted to each of its six non-management Directors options to
purchase 10,000 shares of Common Stock at $1.00 per share, which was the market
value of Common Stock on that date and on September 11, 1996, the Company
granted to each of its six non-management Directors options to purchase 25,000
shares of Common Stock at $0.93 per share, which was the market value of the
Common Stock on that date.
8
<PAGE>
(f) EMPLOYMENT CONTRACTS
Geoffrey F. Hewitt serves under an employment agreement with FCI
Environmental, effective March 14, 1994. Mr. Hewitt is currently compensated at
a rate of $205,000 per annum and is entitled to receive bonuses, if any, at the
discretion of the Board of Directors. The employment contract is terminable
without cause with 90 days notice. In addition, Mr. Hewitt applies $28,000 of
his salary towards the exercise of employee stock options.
Melvin W. Pelley serves under an employment agreement with FCI
Environmental, effective June 14, 1993. Mr. Pelley is currently compensated at
a rate of $132,000 per annum, and is entitled to receive bonuses, if any, at the
discretion of the Board of Directors. The employment contract is terminable
without cause with 90 days notice. In addition, Mr. Pelley applies 5% of his
net pay to the payment on the promissory notes held by the Company for the
exercise of options and applies $7,500 of his salary towards the exercise of
employee stock options.
Thomas A. Collins serves under an employment agreement with FCI
Environmental, effective March 1, 1996. Mr. Collins is currently compensated at
a rate of $125,000 per annum, and is entitled to receive bonuses, if any, at the
discretion of the Board of Directors. The employment contract is terminable
without cause with 90 days notice.
David R. LeBlanc served until October 5, 1996 under an employment agreement
with FCI Environmental, effective July 18, 1994. Mr. LeBlanc was compensated at
a rate of $125,000 per annum and was entitled to receive bonuses, if any,
at the discretion of the Board of Directors. The employment contract was
terminable without cause with 90 days notice.
(g) CONSULTING AGREEMENTS
In November 1993, the Company entered into an agreement with Irwin J.
Gruverman to provide consulting services to the Company and its subsidiaries
for a two year period. These services include, but are not limited to,
medical applications of FCI's FOCS -Registered Trademark- technology, funding
and business relationships, personnel recommendations, technology review and
financial consulting. Mr. Gruverman was granted options to purchase 150,000
shares of FCI's Common Stock at $2.00 per share, exercisable until September
15, 1996. In April 1994, Mr. Gruverman was granted options to purchase
20,000 shares of FCI's Common Stock under the same terms for agreeing to
serve on the Board of Directors of the Company. On September 15, 1996,
146,840 unexercised options expired.
In August 1995, the Company entered into an agreement with Dale W. Conrad
to provide consulting services to the Company on an as requested basis at an
hourly rate. The services include advice and assistance in technical,
operational, and administrative matters. From August through September, 1995,
the Company paid Mr. Conrad $8,394 under this agreement, all of which was
applied to promissory notes and to the exercise of stock options. From October
1995 through September 1996, the Company paid Mr. Conrad $18,730 under this
agreement, all of which was applied to promissory notes, the exercise of stock
options and payment for group insurance benefits paid by the Company. The
agreement is terminable by either party upon written notice.
On February 14, 1996, the Company entered into an agreement, superseding
earlier verbal and letter agreements, with European Capital Advisors, Ltd.
("ECA") pursuant to which ECA would be compensated for marketing strategy and
business and financial planning services for the Company. In consideration for
these services, ECA was paid $30,000 in cash and was granted warrants to
purchase 75,000 shares of Common Stock of the Company at $0.90 per share,
exercisable until February 13, 2001.
(h) STOCK OPTIONS
In October 1993, the Board of Directors approved a plan to encourage early
exercise of stock options held by employees and Directors and all holders of
Class D Warrants. Forty holders who owned an aggregate of 3,028,954 options
were granted one new option to purchase one share of FCI's Common Stock at $1.50
per share until September 15, 1996 for each two options then owned. These new
options become exercisable, pro-rata, when existing options are exercised;
however, 50% of the new options expired March 15, 1994 for the pro-rata portion
of old options that were not exercised by that date, and the remaining 50% of
the new options expired on May 27, 1994 for the pro-rata portion of the old
options that were not exercised by that date. As of May 27, 1994, 174,071 of
the 1,514,477 new options issued had expired. As of
9
<PAGE>
September 15, 1996, 162,553 of the new options had been exercised and the
remaining 1,177,853 had expired. All owners of Class D Warrants were granted a
right to receive one new Class D Warrant to purchase one share of FCI's Common
Stock at $1.50 per share until September 15, 1996 for each four Class D Warrants
then owned. These new warrant rights become exercisable, pro-rata, when
existing Class D Warrants are exercised; however, the new warrant rights expired
March 15, 1994 if the existing Class D Warrants were not then exercised.
Accordingly, as of March 15, 1994, 104,203 new Class D Warrants were issued and
477,047 rights to Class D Warrants expired.
On August 1, 1995, the Company's Board of Directors resolved that the
exercise price of all outstanding Class D Warrants be changed from $1.50 per
share to $1.00 per share, which price was above the fair market value of the
Common Stock as of the last quoted market trade on August 1, 1995. During
Fiscal 1996, the Company received $1,031 for the exercise of 1,031 Class D
Warrants. During Fiscal 1995, no Class D Warrants were exercised. On August
21, 1996, the Board of Directors extended the expiration date of the Class D
Warrants from their original expiration date of September 15, 1996, to September
15, 2000, and changed the exercise price from $1.00 to $1.10 from September 16,
1996 through September 15, 1997; then $1.15 through September 15, 1998; then
$1.20 through September 15, 1999; then $1.25 through September 15, 2000.
In March 1994, the Company's Board of Directors approved a plan by which
employees and Directors of the Company and its subsidiaries would be given an
opportunity to exercise stock options eligible under the early incentive plan
described above through the execution of promissory notes. As of March 15,
1994, the Company received promissory notes aggregating $1,815,099 for the
exercise of 1,210,066 stock options. The promissory notes bear interest at 5%
per annum until September 15, 1994, and at 7% per annum thereafter, and were
initially due on or before September 15, 1995. Employees have agreed to apply
5% or more of their net paycheck each pay period toward payment of their
respective note until the note is paid in full. On April 7, 1995, the Board of
Directors extended the due date of the notes to March 15, 1998. The underlying
Common Stock is being held in escrow, as collateral, until payment is made on
the promissory notes. As of September 30, 1996, an aggregate of $271,449 has
been paid on these notes.
On April 7, 1995, the Company's Board of Directors resolved that all
options to purchase shares of the Company's Common Stock granted prior to April
7, 1995, and which had an exercise price in excess of $1.00 per share, would as
of April, 7, 1995 have an exercise price of $1.00 per share, which price was
above the fair market value of the Common Stock as of the last quoted market
trade on April 7, 1995. Options to purchase an aggregate of 2,309,479 shares at
prices ranging from $1.125 to $2.15 per share were accordingly changed to $1.00
per share.
In April 1995, the Company's Board of Directors adopted a 1995 Employee
Stock Option Plan ("1995 Plan"), approved by the stockholders at the May 8, 1995
Annual Stockholders Meeting, covering an aggregate of 1,000,000 shares of FCI
Common Stock. As of September 30, 1996, the Company has issued 841,547 stock
options (with initial and current exercise prices ranging from $0.93 per share
to $1.38 per share) under the 1995 Plan to employees of FCI Environmental and
Directors of the Company.
The Company's Board of Directors has decided to recommend the adoption of a
new 1997 Employee Stock Option Plan, described under Proposal 4 herein, and to
discontinue any grant or re-grant of options under the Company's previous
stock option plans. Effective April 4, 1997, the per share exercise price (the
"Exercise Price") of all employee stock options, Class D Warrants (subject to
Securities and Exchange approval), and escrowed shares underlying promissory
notes shall be decreased as follows: to $0.32 from April 4, 1997 through April
11, 1997, and thereafter be adjusted weekly to the average closing bid price for
the five prior trading days less a discount of 10% (but never to a price less
than $0.30) through May 16, 1997, when the prices revert to the original
exercise prices.
(i) STOCK BONUS PLANS
On February 20, 1990, the Company's stockholders authorized the Board of
Directors to design and implement a stock bonus plan providing for the issuance
of up to 143,000 shares of Common Stock which have been registered and
reserved for issuance. In May 1990, the Board of Directors adopted the
Company's Employee Stock Bonus Plan ("Bonus Plan"). Pursuant to the Bonus Plan,
full-time employees of the Company will be granted a stock bonus equivalent to
15% of their annual salary. The stock granted under the Bonus Plan is vested at
a rate of 20% per year. However, an employee must work 12 consecutive months
before any stock is vested. All employees of the Company, including, but not
limited to,
10
<PAGE>
its executive officers, received shares under the Bonus Plan. As of September
30, 1996, all 143,000 shares of Common Stock were issued to and vested by
employees. For the fiscal years ended September 30, 1996 and 1995, no executive
officer received any shares of Common Stock under the Bonus Plan. In addition,
an aggregate of 15,000 shares of Common Stock are available to be granted as
bonus compensation at the discretion of the Managing Committee ("Discretionary
Bonus Plan"). As of September 30, 1996, 8,500 Discretionary Bonus Plan shares
have been issued to employees of the Company. For the fiscal years ended
September 30, 1996 and 1995, no shares of Common Stock under the Discretionary
Bonus Plan were granted to any executive officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------
See "Executive Compensation - Stock Options; Employment Agreements; and
Consulting Agreements" for information concerning stock options granted and
employment and consulting agreements entered into during Fiscal 1995
and Fiscal 1996 with officers and Directors of the Company.
The Company entered into an agreement effective June 30, 1992, to sell its
wholly-owned subsidiary, AgriBioTech, Inc. ("ABT"), to the Company's former
President, its former Vice-President, its current Chairman of the Board and a
fourth individual (collectively, the "Purchaser"). The Purchaser agreed to
purchase all of the issued and outstanding shares of common stock of ABT, which
were all owned by the Company, for the approximate book value of ABT. The net
sales price of $425,559 was payable in four equal installments of principal plus
interest at a rate of 8% per annum, commencing on July 1, 1993 and annually
thereafter until paid in full. As of September 30, 1995, the principal balance
due the Company was $106,390, and as of September 30, 1996 the entire principal
and accrued interest had been paid in full.
In March 1994, the Company's Board of Directors approved a plan by which
employees and directors of the Company and its subsidiaries would be given an
opportunity to exercise stock options eligible under the Company's early
incentive plan through the execution of promissory notes. As of March 15, 1994,
the Company received promissory notes aggregating $1,815,099 for the exercise of
1,210,066 stock options. The promissory notes bear interest at 5% per annum
until September 15, 1994, and at 7% per annum thereafter, and were initially due
on September 15, 1995. On April 7, 1995. The Board of Directors extended the
due date of the notes to March 15, 1998. Employees have agreed to apply 5% or
more of their net paycheck each pay period toward payment of their respective
note until the note is paid in full. The underlying Common Stock is being held
in escrow, as collateral, until payment is made on the promissory notes. As of
September 30, 1996, an aggregate of $271,449 has been paid on these notes. In
conjunction with the temporary reduction in the exercise price of options and
warrants effective April 4, 1997 (as described above), the remaining unpaid
principal may be fully paid in an amount determined by multiplying the unpaid
balance by a fraction, the numerator of which is the revised exercise price, and
the denominator of which is $1.50 (the original exercise price). If the unpaid
principal is not so paid by May 16, 1997, the underlying collateral shares will
be forfeited and all unpaid principal and accrued interest (approximately
$250,000) will be extinguished.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, Directors and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
Directors and ten percent shareholders are required by regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on the
Company's copies of such forms received or written representations from certain
reporting persons that no Form 5's were required for those persons, the Company
believes that, during the time period from October 1, 1995 to September 30,
1996, all filing requirements applicable to its officers, Directors and greater
than ten percent beneficial owners were complied with.
PROPOSAL 2
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO AUTHORIZE, IF
NECESSARY, A ONE-FOR-FIVE REVERSE STOCK SPLIT AND TO AUTHORIZE A SUBSEQUENT
REVERSE STOCK SPLIT, IF NECESSARY, OF NOT MORE THAN ONE-FOR-FOUR.
11
<PAGE>
GENERAL
- -------
The Board of Directors has approved a proposal to amend the Company's
Certificate of Incorporation (i) to authorize, if necessary, a one-for-five
reverse stock split of the presently issued and outstanding shares of the
Company's Common Stock (the "Reverse Split") to maintain listing of the Common
Stock on the Nasdaq SmallCap Market ("Nasdaq SmallCap"), by changing each five
issued and outstanding shares of Common Stock into one issued and outstanding
share of Common Stock, (ii) to reduce the Company's stated capital $.0001 for
each share of Common Stock changed into one-fifth share of Common Stock as a
result of the Reverse Split, (iii) to authorize the Board of Directors, without
further action by the Shareholders, to effect one further reverse stock split
(the "Additional Reverse Split") of not more than one-for-four by changing not
more than each four (4) issued and outstanding shares of Common Stock into one
share of Common Stock, if the Board of Directors determines that such Additional
Reverse Split is necessary and/or advisable to increase the marketability and
liquidity of the Company's Common Stock by attracting an increased number of
market makers and a wide following. Many investment banking firms are
prohibited from trading securities of issuers that trade below $3.00 per share
although they are traded on Nasdaq, and (iv) to reduce the Company's stated
capital in proportion to the reduction of the number of issued and outstanding
shares of Common Stock after the Additional Reverse Split is effected. If the
Shareholders approve Proposal 2, the Reverse Split will be authorized and the
Additional Reverse Split will be authorized even if none of the other Proposals
is adopted.
REASONS FOR THE REVERSE SPLIT
- -----------------------------
The shares of the Company's Common Stock have been listed, and have
traded, on the Nasdaq SmallCap Market ("Nasdaq") since April 28, 1989. For
continued listing on Nasdaq, it is necessary that, among other things, the
minimum bid price of the Company's shares of Common Stock exceed $1.00. Under
current Nasdaq SmallCap listing rules, however, the $1.00 per share minimum bid
price need not be maintained if the market value of the public float of the
Company's shares of Common Stock exceeds $1,000,000 and the Company's capital
and surplus exceed $2,000,000 (the "Alternative Listing Criteria").
Although the bid price for the Common Stock has not exceeded $1.00 since
on/or about August 9, 1996, the Company has been able to maintain its Nasdaq
listing since that time by satisfying the Alternative Listing Criteria. As part
of an overall evaluation of the Nasdaq listing criteria by the National
Association of Securities Dealers, Inc. (the "NASD"), however, a proposal has
been made to eliminate the Alternative Listing Criteria. If such proposal is
adopted by the NASD in current form, the Company's shares of Common Stock, as of
now, would be delisted from Nasdaq. The Board of Directors believes that if
Proposal 2 is approved, the Company's shares of Common Stock will have a minimum
bid price in excess of $1.00 per share and, therefore, continue to be listed and
traded on Nasdaq.
If Proposal 2 is not approved by the Shareholders, then it is possible
that the Company's shares of Common Stock will cease to be listed and traded on
the Nasdaq SmallCap market. The Company's shares of Common Stock would likely
be quoted on the NASD's OTC Bulletin Board or in the "pink sheets" maintained by
the National Quotation Bureau, Inc. In such event, the spread between the bid
and ask prices of the shares of Common Stock is likely to be greater than at
present, and Shareholders may experience a greater degree of difficulty in
engaging in trades of shares of Common Stock.
EXCHANGE OF SHARES
- ------------------
If the Shareholders approve the Reverse Split and it is determined by
the Board of Directors that the Reverse Split is necessary, upon the filing
of the following amendment to the Company's Certificate of Incorporation with
the Secretary of State of Delaware, the Reverse Split will be deemed
effective. The Reverse Split will be formally implemented by amending the
present Article Fourth of the Company's Certificate of Incorporation, as
amended, to add the following Section C:
Fourth: (C) Effective as of 5:00 p.m., Pacific time, on ______, 1997, all
outstanding shares of Common Stock held by each holder of record on such
date shall be automatically combined at the rate of one-for-five without
any further action on the part of the holders thereof or this
Corporation. No fractional shares shall be issued. All fractional
shares shall be increased to the next higher whole number of shares.
Following the effectiveness of the amendment, each certificate
representing shares of Common Stock outstanding immediately prior to the
Reverse Split (the "Old Shares") will be deemed automatically, without any
action on the part of the Shareholders, to represent 1/5 of the number of
shares of Common Stock after the Reverse Split (the "New Shares"). However,
no fractional New Shares will be issued as a result of the Reverse Split. In
lieu thereof, each Shareholder whose Old Shares are not evenly divisible by
five (5) will receive one additional New Share for the fractional New Share
that such Shareholder would otherwise be entitled to receive as a result of
the Reverse Split. After the Reverse Split becomes effective, Shareholders
will be asked to surrender certificates representing Old Shares in accordance
with the procedures set forth in a letter of transmittal to be sent by the
Corporation. SHAREHOLDERS SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL REQUESTED
TO DO SO. Upon such surrender, a certificate representing the New Shares
will be issued and forwarded to
12
<PAGE>
the shareholders. However, each certificate representing Old Shares will
continue to be valid and represent New Shares equal to 1/5 of the number of Old
Shares (plus one additional New Share where such Old Shares are not evenly
divisible by 5).
If the Shareholders approve Proposal 2, an Additional Reverse Split will
be effected only upon a determination by the Board of Directors that an
Additional Reverse Split is necessary and/or advisable to increase the
marketability and liquidity of the Company's Common Stock by attracting an
increased number of market members and a wide following. Many investment
banking firms are prohibited from trading securities of issuers that trade below
$3.00 per share although they are traded on Nasdaq. In connection with any
determination by the Board of Directors to such effect, the Board will also in
its discretion, determine the ratio of an Additional Reverse Split based on
prevailing market conditions, the likely effect on the market price of the
Common Stock, and other relevant factors. Upon the effectiveness of an
Additional Reverse Split, each issued and outstanding share of Common Stock will
be changed into the appropriate fractional share of Common Stock, and the
Company will exchange certificates representing "Old Shares" of Common Stock
outstanding prior to the Additional Reverse Split for certificates representing
"New Shares" outstanding after the Additional Reverse Split in the manner
described above with respect to the Reverse Split.
Shareholders may approve or reject Proposal 2 in whole, but not in part.
If approved by the shareholders and determined by the Board of Directors that
the Reverse Split is necessary, the Reverse Split will become effective upon
filing a Certificate of Amendment of the Certificate of Incorporation with the
Secretary of State of Delaware, which, if necessary, will occur shortly after
the Annual Meeting. Any Additional Reverse Split will become effective on any
date selected by the Board of Directors on or prior to the Company's next Annual
Meeting of Shareholders. If no Additional Reverse Split is effected by such
date, the Board of Directors will have no further right to effect any Additional
Reverse Split.
PRINCIPAL EFFECTS OF THE REVERSE SPLIT AND THE ADDITIONAL REVERSE SPLIT
- -----------------------------------------------------------------------
Shareholders have no right under the Delaware General Corporation Law
(the "DGCL") or under the Company's Certificate of Incorporation or Bylaws to
dissent from the Reverse Split or the Additional Reverse Split (together, the
"Reverse Splits") or to dissent from the rounding to the nearest whole share of
any fractional share resulting from the Reverse Splits in lieu of issuing
fractional shares.
The authorized capital stock of the Company will not be reduced or
otherwise affected by the Reverse Splits. The number of issued and outstanding
shares of Common Stock of the Company on April 8, 1997, was 25,719,259 and the
number of issued and outstanding shares of Preferred Stock was 228,998. The
Company's stated capital was $2,801. Based upon these figures, the aggregate
number of shares of Common Stock and Preferred Stock that will be issued and
outstanding if the Reverse Split is effected will be approximately 5,143,852 and
228,998, respectively, and the stated capital will be approximately $743.
Although the authorized shares of Preferred Stock will not be affected by the
Reverse Splits, the number of shares of Common Stock issuable upon conversion of
the Preferred Stock will be adjusted in the same proportion.
Because an Additional Reverse Split may be effected, the Company cannot
now predict the number of shares of Common Stock that will be outstanding after
an Additional Reverse Split. In general, however, the number of issued and
outstanding shares of Common Stock after an Additional Reverse Split will be
equal to the number of issued and outstanding shares of Common Stock immediately
before an Additional Reverse Split multiplied by a fraction, the numerator of
which is one and the denominator of which is the number of shares of Common
Stock changed into one share of Common Stock on the effective date of an
Additional Reverse Split. Except in the case of Shareholders that own
fractional shares of Common Stock after an Additional Reverse Split, the
proportionate ownership interests of holders of Common Stock will not be
affected by an Additional Reverse Split. On the effective date of an Additional
Reverse Split, the Company's stated capital will be equal to the number of
issued and outstanding shares of Common Stock after the Additional Reverse Split
multiplied by $.0001.
The Reverse Splits may result in some shareholders owning "odd-lots" of
less than 100 shares of Common Stock. Brokerage commissions and other costs of
transactions in odd-lots are generally somewhat higher than the costs of
transactions in "round-lots" of even multiples of 100 shares.
There can be no assurance that any or all of the foregoing effects will
occur. In particular, there can be no guarantee that the market price for each
New Share after the Reverse Split will be its sum multiple of the market price
(per Old Share)
13
<PAGE>
before the Reverse Split and the number of shares of Common Stock charged for
one share of Common Stock, or that such price will either exceed or remain in
excess of the current market price. Furthermore, there can be no assurance that
the market for shares of Common Stock will be improved or that the Common Stock
will not be delisted from Nasdaq. The Board of Directors cannot predict what
effect the Reverse Splits will have on the market for or the market price of the
Common Stock.
DILUTION
- --------
The Company has suffered recurring losses from operations. The Company
may issue additional shares of its Common Stock on an ongoing basis in order to
satisfy all or a portion of its need for cash. If and to the extent that the
Company issues additional shares of Common Stock, either prior or subsequent to
the implementation of the Reverse Splits, each Shareholder's percentage
ownership interest in the Company and proportional voting power will be
proportionately reduced.
The Company has previously issued, and has outstanding, various options,
warrants, and rights to purchase an aggregate of approximately 8,127,771 shares
of Common Stock. If Proposal 2 is approved, in general, both the exercise price
and the number of shares subject to each such option, warrant and right will be
affected by the Reverse Splits.
The Company has previously issued and has outstanding Convertible
Preferred Stock and Convertible Notes currently convertible into approximately
6,897,386 shares of Common Stock. If Proposal 2 is approved, in general, both
the conversion price and the number of shares subject to such Preferred Stock
and Convertible Notes will be affected by the Revenue Splits.
As a result, if the Reverse Split is implemented, it is possible that the
holders of all or a substantial number of the outstanding options, warrants,
rights, Preferred Stock and Convertible Notes to purchase or convert to shares
of the Company's Common Stock will determine that it is not in their best
interests to exercise or convert such options, warrants, rights, stock or notes.
If and to the extent that such is the case, each Shareholder's percentage
ownership interest in the Company and proportional voting power will not be
proportionately maintained as the result of the exercise of such outstanding
options, warrants, and rights.
FEDERAL INCOME TAX CONSEQUENCES
- -------------------------------
The following description of federal income tax consequences is based
upon the Internal Revenue Code of 1986, as amended, the applicable Treasury
Regulations promulgated thereunder, judicial authority, and current
administrative rulings and practices as in effect on the date of this Proxy
Statement. This discussion is for general information only and does not discuss
consequences that may apply to special classes of taxpayers (e.g., non-resident
aliens, broker-dealers or insurance companies). Shareholders are urged to
consult their own tax advisors to determine the particular consequences to them.
The exchange of Old Shares of Common Stock for New Shares of Common Stock
will not result in recognition of gain or loss. The holding period for the New
Shares will include the Shareholder's holding period for the Old Shares
exchanged therefor, provided that the Old Shares were held as a capital asset.
The adjusted basis of the New Shares will be the same as the adjusted basis of
the Old Shares exchanged therefor.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF AND URGES YOU TO VOTE "FOR" THE
PROPOSED AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION IN THE
FOREGOING PROPOSAL 2.
14
<PAGE>
PROPOSAL 3
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE AMOUNT
OF AUTHORIZED COMMON STOCK.
At the Annual Meeting, Stockholders will be asked to ratify an amendment
to the Company's Certificate of Incorporation (the "Certificate") proposed by
resolution of the Board of Directors which would increase the number of
authorized shares of Common Stock by two (2) million shares of common stock
(or, if proposal 2 is not passed, by ten (10) million shares of common stock).
The Company's authorized capital stock currently consists of 40,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock. As of the
Record Date, 25,719,259 shares of Common Stock were outstanding, 1,695,009
shares were issuable under the 1994 and 1995 Employee Option Plans, 1,998,354
shares were issuable upon exercise of Class D Warrants, 3,333,333 shares were
issuable upon exercise of the May 1996 Unit Warrants; 4,107,406 shares were
issuable upon the conversion of 8% Senior Convertible Notes; 1,101,095 shares
were issuable upon the exercise of certain Placement Agent and other warrants of
which 333,33 are subject to adjustment in number of shares issuable based on
market price of the common stock during May, 1997. Also as of the Record Date,
228,998 shares of Preferred Stock were issued and outstanding, convertible into
2,289,980 shares of Common Stock. If all options and warrants currently
outstanding were exercised, and if all Preferred Stock and Senior Convertible
Notes were converted to Common Stock, the Company would exceed its authorized
common shares of 40,000,000 by 244,416 shares; and if additional options already
authorized were granted and exercised, would exceed its authorized common shares
by an additional 675,359 shares. The Common Stock has no preemptive or other
subscription rights.
The additional shares of Common Stock proposed to be authorized would be
available and provide to the Board of Directors flexibility to meet future
capital requirements, including but not limited to, providing for issuance in
connection with financing and acquisition opportunities and for stock dividends
or splits should the Board decide that it would be desirable, in light of market
conditions then prevailing, taking advantage of propitious market conditions, to
broaden the public ownership of, and to enhance the market for, the Common
Stock. Additional shares would also be available for issuance for these and
other purposes, which include employee benefit programs, at the discretion of
the Board of Directors of the Company, without the delays and expenses
ordinarily attendant upon obtaining further stockholder approval. To the
extent required by Delaware law, stockholder approval will be solicited in the
event shares of stock are to be issued in connection with a merger, but, in
general, the additional authorized shares may be issued by the Board of
Directors without stockholder approval. The issuance of such shares would
dilute the voting power and, in many cases, the liquidation value of the
outstanding shares.
The affirmative vote of the majority of shares represented and entitled
to vote at the Annual Meeting is required to ratify the amendment to the
Certificate.
The proposed Amendment to the Certificate is as follows:
"FOURTH: (a) The Corporation is authorized to issue 20,000,000 shares,
consisting of 10,000,000 shares of common stock, $.0001 par value ("Common
Stock"), and 10,000,000 shares of preferred stock, $.001 par value ("Preferred
Stock")....."
In the event that Proposal 2 is not approved (or is not made
effective) the proposed Amendment to the Certificate is as follows:
"FOURTH: (a) The Corporation is authorized to issue 60,000,000 shares,
consisting of 50,000,000 shares of common stock, $.0001 par value ("Common
Stock"), and 10,000,000 shares of preferred stock, $.001 par value ("Preferred
Stock")....."
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF AND URGES YOU TO VOTE "FOR" THE
PROPOSED AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION IN THE
FOREGOING PROPOSAL 3.
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PROPOSAL 4
ADOPTION OF THE COMPANY'S 1997 EMPLOYEE STOCK OPTION PLAN
The Board of Directors of the Company has adopted, subject to the
approval of Stockholders, the Company's 1997 Stock Option Plan (the "Plan"),
which authorizes the grant of options to purchase an aggregate of 300,000 shares
(or if proposal 2 is not adopted, 1,500,000 shares) of Common Stock, and which
is intended to replace the Company's previous stock option plans (the "Existing
Plans") under which no further grants or re-grants of approximately 675,000
options will be made.
Management recommends voting "FOR" approval of the Company's 1997
Employee Stock Option Plan. The affirmative vote of a majority of the shares
present at the Annual Meeting and entitled to vote is necessary for such
approval.
GENERAL
The Board of Directors has deemed it in the best interest of the Company
to establish the Plan so as to provide employees and other persons involved in
the continuing development and success of the Company and its subsidiaries an
opportunity to acquire a proprietary interest in the Company by means of grants
of options to purchase Common Stock. The Plan is intended to replace the
Company's Existing Plans, and there will be no new grants of options issued
under the Existing Plans and no re-grants of previously issued options under the
Existing Plans, which were previously approved by the Company's Stockholders.
Options for approximately 675,000 shares are currently authorized under
Existing Plans and these will not be granted if Proposal 4 is approved. It is
the opinion of the Board of Directors that by rewarding the Company's
employees and other individuals contributing to the Company and its subsidiaries
with the opportunity to acquire an equity investment in the Company, the Plan
will maintain and strengthen their desire to remain with the Company, stimulate
their efforts on the Company's behalf, and also attract other qualified
personnel to provide services on behalf of the Company.
The following statements summarize certain provisions of the Plan. All
statements are qualified in their entirety by reference to the text of the Plan,
copies of which are available for examination at the Securities and Exchange
Commission and at the principal office of the Company, 1181 Grier Drive, Suite
B, Las Vegas, NV 89119.
The Plan allows the Company to grant incentive stock options ("ISOs"), as
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), Non-Qualified Stock Options ("NQSOs") not intended to qualify under
Section 422(b) of the Code, and Stock Appreciation Rights ("SARs"). The Plan is
intended to provide the employees, directors, independent contractors and
consultants of the Company with an added incentive to continue their services to
the Company and to induce them to exert their maximum efforts toward the
Company's success. The Board has deemed it in the best interest of the Company
to establish the Plan so as to provide employees and the other persons listed
above the opportunity to acquire a proprietary interest in the Company by means
of grants of options to purchase Common Stock. The Plan is not subject to
ERISA.
ELIGIBILITY FOR PARTICIPATION
Under the Plan, ISOs or ISOs in tandem with SARs, subject to the
requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a)-(e), may be
granted, from time to time, to employees of the Company, including officers, but
excluding directors who are not otherwise employees of the Company. ISOs, NQSOs
and SARs (collectively, "Options") may be granted from time to time under the
Plan to employees of the Company, officers, directors, independent contractors,
consultants and other individuals who are not employees of, but are involved in
the continuing development and success of, the Company (persons entitled to
receive Options are referred to herein as "Participants"). ISOs and ISOs in
tandem with SARs may not be granted under the Plan to any person for whom shares
first become exercisable under the Plan or any other stock option plan of the
Company in any calendar year having an aggregate fair market value (measured
at the respective time of grant of such Options) in excess of $100,000.
Any grant in excess of such amount will be deemed a grant of an NQSO.
Furthermore, not more than 150,000 Options (300,000 if Proposal 2 is not
adopted) may granted to a Participant in any calendar year. The Company
cannot presently determine the number of non-employees who may be entitled
to NQSO's under the Plan.
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ADMINISTRATION
The Plan is to be administered by the Board of Directors or by the
Compensation Committee of the Board of Directors of the Company (the Plan
administrator being referred to as the "Committee"), which must be composed of
at least two "outside directors" (as defined under Section 162(m) of the Code).
The Committee has the authority, in its discretion, to determine the persons to
whom Options will be granted, the character of such Options, the manner of
exercising and making payment for shares of Common Stock and the number of
shares of Common Stock to be subject to each Option. If the Compensation
Committee administers the Plan, it will be required to administer the Plan with
respect to employees included within the term "covered employee" under Section
162(m) of the Code. In addition, in order to comply with Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, the Compensation Committee will be
composed of at least two non-employee directors, as defined therein. Compliance
with Rule 16b-3 will allow Participants under the Plan to avoid the application
of the "short-swing" profit rules of Section 16(b) of the Securities Exchange
Act of 1934 with respect to the exercise of Options granted under the Plan.
TERMS OF OPTIONS
The terms of options granted under the Plan will be determined by the
Committee. Each Option is to be evidenced by a stock option agreement between
the Company and the employee to whom such Option is granted, and is subject to
the following additional terms and conditions:
(a) EXERCISE OF THE OPTION: The Committee will determine the time
periods during which Options granted under the Plan may be exercised. An Option
must be granted within ten (10) years from the date the Plan was adopted by the
Board and may not have an expiration date later than ten (10) years from the
date of grant. Unless otherwise provided in any option agreement issued under
the Plan, any Option granted under the Plan may be exercisable in whole or in
part at any time during the exercise period and, other than performance-based
options, must become fully exercisable within five years from the date of its
grant, and no less than 20% of the Option may become exercisable in any of the
first five years of the Option. The Committee may, in its sole discretion,
accelerate any such vesting period after the grant thereof. The vesting of one
or more Options granted under the Plan may also be based on the attainment of
specified performance goals of the Participant or the performance of the
Company, one or more subsidiaries, parent and/or division of one or more of the
above. Notwithstanding the above, ISOs or SARs granted in tandem with ISOs,
granted to Participants owning directly or through attribution more than 10% of
the Company's Common Stock are subject to the additional restriction that the
expiration date may not be later than five (5) years from the date of grant. An
Option is exercised by giving written notice of exercise to the Company
specifying the number of full shares of Common Stock to be purchased and
tendering payment of the purchase price to the Company in cash or certified
check. At the discretion of the Committee, the exercise price may also be paid
by delivery of shares of Common Stock having a fair market value equal to the
option price, an interest-bearing promissory note in the principal amount of the
exercise price and bearing interest at a rate not less than the imputed interest
rate under the Code, or a combination of a cash payment and/or delivery or
shares and/or an interest-bearing promissory note. Furthermore, in the case of
an NQSO, at the discretion of the Committee, the Participant may have the
Company withhold from the Common Stock to be issued upon exercise of the Option
that number of shares having a fair market value equal to the exercise price
and/or the withholding amount due.
(b) OPTION PRICE: The option price of an NQSO or an SAR or in tandem
with an NQSO granted pursuant to the Plan will be determined by the Committee in
its sole discretion, but in no event may such price be less than 85% of the fair
market value of the Company's Common Stock on the date of grant. In no event
may the option price of an ISO be less than the fair market value of the
Company's Common Stock on the date of grant. Such fair market value of an ISO
will be determined by the Committee and, if the shares of Common Stock are
listed on a national securities exchange or traded on the over-the-counter
market, the fair market value will be the closing price on such exchange, or the
mean of the reported bid and asked prices of the Common Stock on the
over-the-counter market as reported by NASDAQ, the NASD OTC Bulletin Board or
the National Quotation Bureau, Inc., as the case may be, on such date. ISOs or
SARs granted in tandem with ISOs granted to holders of more than 10% of the
Company's Common Stock are subject to the additional restriction that the option
price must be at least 110% of the fair market value of the Company's Common
Stock on the date of grant.
(c) TERMINATION OF EMPLOYMENT OR CONSULTING AGREEMENT; DEATH: Except as
provided in the Plan, or otherwise determined by the Committee in its sole
discretion, upon voluntary termination of employment with the Company or
17
<PAGE>
termination of a consultant's consulting agreement prior to expiration of its
term, a Participant may exercise his Option to the extent such Option was
exercisable as of the date of termination or at any time within three (3) months
after the date of such termination. However, unless otherwise determined by the
Committee in its sole discretion, any Options granted under the Plan will
immediately terminate if the Participant's employment is terminated as a result
of his not having adequately performed the services for which he was hired.
Unless extended by the Committee, if a Participant dies (i) while employed
by the Company or a subsidiary or parent corporation or (ii) within three (3)
months after the termination of his employment, his Options may be exercised by
a legatee or legatees of such Options under such individual's last will or by
such individual's estate, to the extent such Option was exercisable as of the
date of death or date of termination of employment, whichever date is earlier,
but in no event later than six (6) months after the date of death.
If a Participant becomes disabled within the definition of section
22(e)(3) of the Code while employed by the Company or a subsidiary or parent
corporation, his Options may be exercised at any time within six months after
the termination of his employment due to the disability.
An Option may not be exercised except to the extent that the Participant
was entitled to exercise the Option at the time of termination of employment or
death, unless otherwise extended by the Committee in its sole discretion, and in
any event it may not be exercised after the original expiration date of the
Option.
(d) NONTRANSFERABILITY OF OPTIONS; NO LIENS: ISOs and SARs granted in
tandem with ISOs are not transferable or assignable, except by will or the laws
of intestacy, and any ISO or SAR granted in tandem with an ISO is exercisable
during the lifetime of the Participant only by the Participant, or in the event
of his or her death, by a person who acquires the right to exercise the Option
by bequest or inheritance or by reason of the death of the Participant. The
Committee has the right to grant options other than ISO's or SAR's in tandem
with ISO's which may or may not be transferable or assignable.
The option agreement may contain such other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the Board of
Directors or the Compensation Committee.
TERMINATION, MODIFICATION AND AMENDMENT OF THE PLAN
The Plan (but not Options previously granted under the Plan) will
terminate ten years from the date of its adoption by the Board of Directors. No
Option will be granted after termination of the Plan.
The Board of Directors of the Company may terminate the Plan at any time
prior to its expiration date, or from time to time make such modifications or
amendments of the Plan as it deems advisable. However, the Board may not,
without the approval of a majority of the then outstanding shares of the Company
entitled to vote thereon, except under conditions described under "Adjustments
Upon Changes in Capitalization," increase the maximum number of shares as to
which Options may be granted under the Plan, materially change the standards of
eligibility under the Plan, or adopt a new plan.
No termination, modification or amendment of the Plan may adversely affect
the terms of any outstanding options without the consent of the holders of such
Options.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the number of outstanding shares of Common Stock of the
Company is changed by reason of recapitalization, reclassification, stock split,
stock dividend, combination, exchange of shares, or the like, the Board of
Directors of the Company will make an appropriate adjustment in the aggregate
number of shares of Common Stock available under the Plan, in the number of
shares of Common Stock reserved for issuance upon the exercise of then
outstanding Options and in the exercise prices of such Options. Any adjustment
in the number of shares will apply proportionately only to the unexercised
portion of Options granted under the Plan. Fractions of shares resulting from
any such adjustment shall be revised to the next higher whole number of shares.
18
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In the event of the proposed dissolution or liquidation of substantially
all of the assets of the Company, all outstanding Options will automatically
terminate, unless otherwise provided by the Board.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is only a summary of the principal Federal income
tax consequences of the Options granted under the Plan and is based on existing
federal law, which is subject to change, in some cases retroactively. This
discussion is also qualified by the particular circumstances of individual
Participants, which may substantially alter or modify the Federal
income tax consequences herein discussed.
Generally, under present law, when an option qualifies as an ISO under
Section 422 of the Code, (i) an employee will not realize taxable income either
upon the grant or the exercise of the option, (ii) the amount by which the fair
market value of the shares acquired by the exercise of the option at the time of
exercise exceeds the option price is included in alternative minimum taxable
income for purposes of determining the employee's alternative minimum tax, (iii)
any gain or loss (the difference between the net proceeds received upon the
disposition of the shares and the option price paid therefor), upon a
qualifying disposition of the shares acquired by the exercise of the option will
be treated as capital gain or loss if the stock qualifies as a capital asset in
the hands of the employee, and (iv) no deduction will be allowed to the Company
for federal income tax purposes in connection with the grant or exercise of an
incentive stock option or a qualifying disposition of the shares. A disposition
by an employee of shares acquired upon exercise of an ISO will constitute a
qualifying disposition if it occurs more than two years after the grant of the
option and one year after the issuance of the shares to the employee. If
such shares are disposed of by the employee before the expiration of those time
limits, the transfer would be a "disqualifying disposition" and the employee, in
general, will recognize ordinary income (and the Company will receive an
equivalent deduction) equal to the aggregate fair market value of the shares as
of the date of exercise less the option price. Ordinary income from a
disqualifying disposition will constitute compensation for which withholding may
be required under federal and state law. Currently under the Code, the maximum
rate of tax on ordinary income is greater than the rate of tax on long-term
capital gains. Many proposals have been made to reduce the marginal rate of tax
on capital gains. However, to date, no such proposals have been enacted into
law. Furthermore, in the future, the rate of tax on such gains may be
increased. No assurance can be given of when, if ever, new tax legislation will
be enacted into law, and the effective date of any such legislation.
In the case of an NQSO granted under the Plan, no income generally is
recognized by the Participant at the time of the grant of the Option assuming
such NQSO does not have a readily ascertainable fair market value. The
Participant generally will recognize ordinary income when the NQSO is exercised
equal to the aggregate fair market value of the shares acquired less the option
price. Ordinary income from NQSOs will constitute compensation for which
withholding may be required under federal and state law, and the Company will
receive an equivalent deduction subject to the limitations of Section 162(m) of
the Code ,which limits the amount a publicly held corporation may deduct with
respect to remuneration generally paid to an executive officer of the
Corporation to $1,000,000. Income recognized by such executive officer on the
exercise of a NQSO or SAR would be deemed remuneration. However, there are
certain requirements which, if met, will allow income from the exercise of a
NQSO or SAR to be excluded from remuneration for such purposes. Even though the
Company and the Plan satisfy such requirements, no assurance can be given that
they will be met in the future.
Shares acquired upon exercise of NQSOs will have a tax basis equal to
their fair market value on the exercise date or other relevant date on which
ordinary income is recognized and the holding period for the shares generally
will begin on the date of the exercise or such other relevant date. Upon
subsequent disposition of the shares, the Participant will recognize capital
gain or loss if the stock is a capital asset in his hands. Provided the shares
are held by the Participant for more than one year prior to disposition, such
gain or loss will be long-term capital gain or loss. As set forth above, the
maximum rate of tax on ordinary income is currently greater than the rate of tax
on long-term capital gains. To the extent an Participant recognizes
a capital loss, such loss may currently generally offset capital gains and
$3,000 of ordinary income. Any excess capital loss is carried forward
indefinitely.
The grant of an SAR is generally not a taxable event for the Participant.
Upon the exercise of an SAR, the Participant will recognize ordinary income in
an amount equal to the amount of cash and the fair market value of any Common
Stock received upon such exercise, and the Company will be entitled to a
deduction equal to the same amount. However, if the sale of any shares received
would be subject to Section 16(b) of the Securities Exchange Act of 1934,
ordinary income
19
<PAGE>
attributable to such shares received will be recognized on the date such sale
would not give rise to a Section 16(b) action, valued at the fair market value
at such later time, unless the Participant has made an election under Section
83(b) of the Code within 30 days after the date of exercise to recognize
ordinary income as of the date of exercise based on the fair market value at the
date of exercise.
The foregoing discussion is only a brief summary of the applicable
federal income tax laws as in effect on this date and should not be relied
upon as being a complete statement. The federal tax laws are complex, and
they are subject to legislative changes and new or revised judicial or
administrative interpretations at any time. In addition to the federal
income tax consequences described herein, a Participant may also be subject
to state and/or local income tax consequences in the jurisdiction in which
the Participant works and/or resides.
NEW PLAN BENEFITS.
No options to purchase shares of Common Stock have been granted or allocated
under the Plan.
The favorable vote of a majority of stockholders voting is required for approval
of the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF
THE COMPANY'S 1997 STOCK OPTION PLAN.
PROPOSAL 5
RATIFICATION OF THE APPOINTMENT OF AUDITORS
On January 24, 1997, KPMG Peat Marwick LLP (the "Former Accountant")
resigned as the Company's principal accountants.
The Former Accountant did not state any reason for resigning in its
resignation letter to the Company. However, in its letter to the Audit
Committee and its Material Weakness letter both dated January 10, 1997 and
delivered January 23, 1997, the Former Accountant reported "Disagreements with
Management" on financial accounting and reporting matters and auditing scope
concerning revenue recognition that, if not satisfactorily resolved (which all
were ) would have caused a modification of their report on the 1996 consolidated
financial statements. The disagreements, aggregating approximately $1,800,000,
concerned certain transactions termed "consignments" by the Former Accountant,
products warehoused for customers, and a research and development effort, none
of which met the requirements for revenue recognition under generally accepted
accounting principles.
The Audit Committee of the Board of Directors met with and discussed the
subject matter of the disagreements with the Former Accountant.
The Former Accountant's report on the consolidated financial statements for
the fiscal years ended September 30, 1995 and 1996 contained an explanatory
paragraph concerning the Company's ability to continue as a going concern.
Management plans in regard to these matters are described in Note 1 to the
Consolidated Financial Statements for September 30, 1996. The consolidated
financial statements do not include any adjustment that might result from the
ultimate outcome of these uncertainties.
The Company has authorized the Former Accountant to respond fully to
inquiries of the successor accountant concerning the subject matter of such
disagreements.
On April 9, 1997, the Board of Directors appointed Goldstein Golub Kessler
& Company, P.C., certified public accountants, as the Company's successor
accountant and to audit the books of account and other records of the Company
for the fiscal year ending September 30, 1997.
20
<PAGE>
Representatives of Goldstein Golub Kessler & Company, P.C. are expected to
be present at the Annual Meeting to respond to appropriate questions from
stockholders and to make a statement if they desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF THE COMPANY'S AUDITORS.
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at the
Annual Meeting except the matters set forth in the Notice and described in this
Proxy Statement. Unless otherwise directed, all shares represented by Board of
Directors' Proxies will be voted in favor of the proposal of the Board of
Directors described in this Proxy Statement. If any other matters come before
the Annual Meeting, the persons named in the accompanying Proxy will vote on
those matters according to their best judgment.
EXPENSES
The entire cost of preparing, assembling, printing and mailing this Proxy
Statement, the enclosed Proxy and other materials, and the cost of soliciting
Proxies with respect to the Annual Meeting, will be borne by the Company. The
Company will request banks and brokers to solicit their customers who
beneficially own shares listed of record in names of nominees, and will
reimburse those banks and brokers for the reasonable out-of-pocket expenses of
such solicitations. The original solicitation of Proxies by mail may be
supplemented by telephone and telegram by officers and other regular employees
of the Company, but no additional compensation will be paid to such individuals.
STOCKHOLDER PROPOSALS
No person who intends to present a proposal for action at a forthcoming
stockholders' meeting of the Company may seek to have the proposal included in
the proxy statement or form of proxy for such meeting unless that person (a) is
a record beneficial owner of at least 1% or $1,000 in market value of shares of
Common Stock, has held such shares for at least one year at the time the
proposal is submitted, and such person shall continue to own such shares through
the date on which the meeting is held, (b) provides the Company in writing with
his name, address, the number of shares held by him and the dates upon which he
acquired such shares with documentary support for a claim of beneficial
ownership, (c) notifies the Company of his intention to appear personally at the
meeting or by a qualified representative under Delaware law to present his
proposal for action, and (d) submits his proposal timely. A proposal to be
included in the proxy statement or proxy for the Company's next annual meeting
of stockholders, will be submitted timely only if the proposal has been received
at the Company's executive offices no later than December __, 1997. If the date
of such meeting is changed by more than 30 calendar days from the date such
meeting is scheduled to be held under the Company's By-Laws, or if the proposal
is to be presented at any meeting other than the next annual meeting of
stockholders, the proposal must be received at the Company's principal executive
office at a reasonable time before the solicitation of proxies for such meeting
is made.
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Even if the foregoing requirements are satisfied, a person may submit only
one proposal of not more than 500 words with a supporting statement if the
latter is requested by the proponent for inclusion in the proxy materials, and
under certain circumstances enumerated in the Securities and Exchange
Commission's rules relating to the solicitation of proxies, the Company may be
entitled to omit the proposal and any statement in support thereof from its
proxy statement and form of proxy.
BY ORDER OF THE BOARD OF DIRECTORS
LAS VEGAS, NEVADA MELVIN W. PELLEY
APRIL____, 1997 SECRETARY
Copies of the Company's Annual Report on Form 10-KSB for the year ended
September 30, 1996, as amended, as filed with the Securities and Exchange
Commission, including the financial statements (but without exhibits), can be
obtained without charge by stockholders (including beneficial owners of the
Company's Common Stock) upon written request to Melvin W. Pelley, the Company's
Secretary, FiberChem, Inc., 1181 Grier Drive, Suite B, Las Vegas, Nevada 89119.
22
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EXHIBIT A
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FIBERCHEM, INC.
1997 EMPLOYEE STOCK OPTION PLAN
1. Purposes.
The FIBERCHEM, INC. 1997 EMPLOYEE STOCK OPTION PLAN (the "Plan") is
intended to provide the employees, directors, independent contractors and
consultants of FiberChem, Inc. (the "Company") and/or any subsidiary or parent
thereof with an added incentive to commence and/or continue their services to
the Company and to induce them to exert their maximum efforts toward the
Company's success. By thus encouraging employees, directors, independent
contractors and consultants and promoting their continued association with the
Company, the Plan may be expected to benefit the Company and its stockholders.
The Plan allows the Company to grant Incentive Stock Options ("ISOs") (as
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), Non-Qualified Stock Options ("NQSOs") not intended to qualify under
Section 422(b) of the Code and Stock Appreciation Rights ("SARs") (collectively
the "Options"). The vesting of one or more Options granted hereunder may be
based on the attainment of specified performance goals of the participant or the
performance of the Company, one or more subsidiaries, parent and/or division of
one or more of the above.
2. Shares Subject to the Plan.
The total number of shares of Common Stock of the Company, $.0001 par
value per share, that may be subject to Options granted under the Plan shall be
three hundred thousand (300,000) in the aggregate, subject to adjustment as
provided in Paragraph 8 of the Plan; however, the grant of an ISO to an employee
together with a tandem SAR or any NQSO to an employee together with a tandem SAR
shall only require one share of Common Stock available subject to the Plan to
satisfy such joint Option. The Company shall at all times while the Plan is in
force reserve such number of shares of Common Stock as will be sufficient to
satisfy the requirement of outstanding Options granted under the Plan. In the
event any Option granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject thereto shall
again be available for granting of Options under the Plan.
3. Eligibility.
ISO's or ISO's in tandem with SAR's (provided the SAR meets the
requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a) through (e)
inclusive) may be granted from time to time under
<PAGE>
the Plan to one or more employees of the Company or of a "subsidiary" or
"parent" of the Company, as the quoted terms are defined within Section 424 of
the Code. An Officer is an employee for the above purposes. However, a
director of the Company who is not otherwise an employee is not deemed an
employee for such purposes. NQSOs and SARs may be granted from time to time
under the Plan to one or more employees of the Company, Officers, members of the
Board of Directors, independent contractors, consultants and other individuals
who are not employees of, but are involved in the continuing development and
success of the Company and/or of a subsidiary of the Company, including persons
who have previously been granted Options under the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the
Company as such Board of Directors may be composed from time to time and/or by a
Stock Option Committee or Compensation Committee (the "Committee") which shall
be comprised of solely of at least two Outside Directors (as such term is
defined in regulations promulgated from time to time with respect to Section
162(m)(4)(C)(i) of the Code) appointed by such Board of Directors of the
Company. As and to the extent authorized by the Board of Directors of the
Company, the Committee may exercise the power and authority vested in the Board
of Directors under the Plan. Within the limits of the express provisions of the
Plan, the Board of Directors or Committee shall have the authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, Options shall be granted, the character of such Options (whether ISOs,
NQSOs, and/or SARs in tandem with NQSOs, and/or SARs in tandem with ISOs) and
the number of shares of Common Stock to be subject to each Option, the manner
and form in which the optionee can tender payment upon the exercise of his
Option, and to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of
Option agreements that may be entered into in connection with Options (which
need not be identical), subject to the limitation that agreements granting ISOs
must be consistent with the requirements for the ISOs being qualified as
"incentive stock options" as provided in Section 422 of the Code, and to make
all other determinations and take all other actions necessary or advisable for
the administration of the Plan. In making such determinations, the Board of
Directors and/or the Committee may take into account the nature of the services
rendered by such individuals, their present and potential contributions to the
Company's success, and such other factors as the Board of Directors and/or the
Committee, in its discretion, shall deem relevant. The Board of Directors'
and/or the Committee's determinations on the matters referred to in this
Paragraph shall be conclusive.
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<PAGE>
(b) Notwithstanding anything contained herein to the contrary, at anytime
during the period the Company's Common Stock is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934 (the "1934 Act), the Committee, if
one has been appointed to administer all or part of the Plan, shall have the
exclusive right to grant Options to Covered Employees as defined under Section
162(m)(3) of the Code (generally executive officers subject to Section 16 of the
1934 Act) and set forth the terms and conditions thereof. With respect to
persons subject to Section 16 of the 1934 Act, transactions under the Plan are
intended, to the extent possible, comply with all applicable conditions of Rule
16b-3, as amended from time to time, (and its successor provisions, if any)
under the 1934 Act and Section 162(m)(4)(C) of the Code of 1986, as amended. To
the extent any provision of the Plan or action by the Board of Directors or
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Board of Directors and/or such
Committee.
5. Terms of Options.
Within the limits of the express provisions of the Plan, the Board of
Directors or the Committee may grant either ISOs or NQSOs or SARs in tandem with
NQSOs or SARs in tandem with ISOs. An ISO or an NQSO enables the optionee to
purchase from the Company, at any time during a specified exercise period, a
specified number of shares of Common Stock at a specified price (the "Option
Price"). The optionee, if granted a SAR in tandem with a NQSO or ISO, may
receive from the Company, in lieu of exercising his option to purchase shares
pursuant to his NQSO or ISO, at one of the certain specified times during the
exercise period of the NQSO or ISO as set by the Board of Directors or the
Committee, the excess of the fair market value upon such exercise (as determined
in accordance with subparagraph (b) of this Paragraph 5) of one share of Common
Stock over the Option Price per share specified upon grant of the NQSO or
ISO/SAR multiplied by the number of shares of Common Stock covered by the SAR so
exercised. The character and terms of each Option granted under the Plan shall
be determined by the Board of Directors and/or the Committee consistent with the
provisions of the Plan, including the following:
(a) An Option granted under the Plan must be granted within 10 years from
the date the Plan is adopted, or the date the Plan is approved by the
stockholders of the Company, whichever is earlier.
(b) The Option Price of the shares of Common Stock subject to each ISO
and each SAR issued in tandem with an ISO shall not be less than the fair market
value of such shares of Common Stock at the time such ISO is granted. Such fair
market value shall be determined by the Board of Directors and, if the shares of
Common Stock are listed on a national securities exchange or traded on the
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over-the-counter market, the fair market value shall be the closing price on
such exchange, or the mean of the closing bid and asked prices of the shares of
Common Stock on the over-the-counter market, as reported by the Nasdaq Stock
Market, the National Association of Securities Dealers OTC Bulletin Board or the
National Quotation Bureau, Inc., as the case may be, on the day on which the
Option is granted or, if there is no closing price or bid or asked price on that
day, the closing price or mean of the closing bid and asked prices on the most
recent day preceding the day on which the Option is granted for which such
prices are available. If an ISO or SAR in tandem with an ISO is granted to any
individual who, immediately before the ISO is to be granted, owns (directly or
through attribution) more than 10% of the total combined voting power of all
classes of capital stock of the Company or a subsidiary or parent of the
Company, the Option Price of the shares of Common Stock subject to such ISO
shall not be less than 110% of the fair market value per share of the shares of
Common Stock at the time such ISO is granted.
(c) The Option Price of the shares of Common Stock subject to an NQSO or
an SAR in tandem with a NQSO granted pursuant to the Plan shall be determined by
the Board of Directors or the Committee, in its sole discretion, but in no event
less than 85% of the fair market value per share of the shares of Common Stock
at the time of grant.
(d) In no event shall any Option granted under the Plan have an expiration
date later than 10 years from the date of its grant, and all Options granted
under the Plan shall be subject to earlier termination as expressly provided in
Paragraph 6 hereof. If an ISO or an SAR in tandem with an ISO is granted to any
individual who, immediately before the ISO is granted, owns (directly or through
attribution) more that 10% of the total combined voting power of all classes of
capital stock of the Company or of a subsidiary or parent of the Company, such
ISO shall by its terms expire and shall not be exercisable after the expiration
of five (5) years from the date of its grant.
(e) An SAR may be exercised at any time during the exercise period of the
ISO or NQSO with which it is granted in tandem and prior to the exercise of such
ISO or NQSO. Notwithstanding the foregoing, the Board of Directors and/or the
Committee shall in their discretion determine from time to time the terms and
conditions of SAR's to be granted, which terms may vary from the afore-described
conditions, and which terms shall be set forth in a written stock option
agreement evidencing the SAR granted in tandem with the ISO or NQSO. The
exercise of an SAR granted in tandem with an ISO or NQSO shall be deemed to
cancel such number of shares subject to the unexercised Option as were subject
to the exercised SAR. The Board of Directors or the Committee has the
discretion to alter the terms of the SARS if necessary to comply
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<PAGE>
with Federal or state securities law. Amounts to be paid by the Company in
connection with an SAR may, in the Board of Director's or the Committee's
discretion, be made in cash, Common Stock or a combination thereof.
(f) An Option granted under the Plan shall become exercisable, in whole at
any time or in part from time to time, but in no event may an Option (i) be
exercised as to less than one hundred (100) shares of Common Stock at any one
time, or the remaining shares of Common Stock covered by the Option if less than
one hundred (100), and (ii) except with respect to performance based Options,
become fully exercisable more than five years from the date of its grant nor
shall less than 20% of the Option become exercisable in any of the first five
years of the Option, if not terminated as provided in Section 6 hereof. The
Board of Directors or the Committee, if applicable, shall, in the event it so
elects in its sole discretion, set one or more performance standards with
respect to one or more Options upon which vesting is conditioned (which
performance standards may vary among the Options).
(g) An Option granted under the Plan shall be exercised by the delivery by
the holder thereof to the Company at its principal office (to the attention of
the Secretary) of written notice of the number of full shares of Common Stock
with respect to which the Option is being exercised, accompanied by payment in
full, which payment at the option of the optionee shall be in the form of (i)
cash or certified or bank check payable to the order of the Company, of the
Option Price of such shares of Common Stock, or, (ii) if permitted by the
Committee or the Board of Directors, as determined by the Committee or the Board
of Directors in its sole discretion at the time of the grant of the Option with
respect to an ISO and at or prior to the time of exercise with respect to a
NQSO, by the delivery of shares of Common Stock having a fair market value
equal to the Option Price or the delivery of an interest-bearing promissory note
having an original principal balance equal to the Option Price and an interest
rate not below the rate which would result in imputed interest under the Code
(provided, in order to qualify as an ISO, more than one year shall have passed
since the date of grant and one year from the date of exercise), or (iii) at the
option of the Committee or the Board of Directors, determined by the Committee
or the Board of Directors in its sole discretion at the time of the grant of the
Option with respect to an ISO and at or prior to the time of exercise with
respect to a NQSO, by a combination of cash, promissory note and/or such shares
of Common Stock (subject to the restriction above) held by the employee that
have a fair market value together with such cash and principal amount of any
promissory note that shall equal the Option Price, and, in the case of a NQSO,
at the discretion of the Committee or Board of Directors by having the Company
withhold from the shares of Common Stock to be issued upon exercise of the
Option that number of shares having a fair market value equal to
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<PAGE>
the exercise price and/or the tax withholding amount due, or otherwise provide
for withholding as set forth in Paragraph 9(c) hereof, or in the event an
employee is granted an ISO or NQSO in tandem with an SAR and desires to exercise
such SAR, such written notice shall so state such intention. To the extent
allowed by applicable Federal and state securities laws, the Option Price may
also be paid in full by a broker-dealer to whom the optionee has submitted an
exercise notice consisting of a fully endorsed Option, or through any other
medium of payment as the Board of Directors and/or the Committee, in its
discretion, shall authorize.
(h) The holder of an Option shall have none of the rights of a stockholder
with respect to the shares of Common Stock covered by such holder's Option until
such shares of Common Stock shall be issued to such holder upon the exercise of
the Option.
(i) All ISOs or SARs in tandem with ISOs granted under the Plan shall
not be transferable otherwise than by will or the laws of descent and
distribution and may be exercised during the lifetime of the holder thereof only
by the holder. The Board or the Committee, in its sole discretion, shall
determine whether an Option other than an ISO or SAR in tandem with an ISO shall
be transferable. No Option granted under the Plan shall be subject to
execution, attachment or other process.
(j) The aggregate fair market value, determined as of the time any ISO or
SAR in tandem with an ISO is granted and in the manner provided for by
Subparagraph (b) of this Paragraph 5, of the shares of Common Stock with respect
to which ISOs granted under the Plan are exercisable for the first time during
any calendar year and under incentive stock options qualifying as such in
accordance with Section 422 of the Code granted under any other incentive stock
option plan maintained by the Company or its parent or subsidiary corporations,
shall not exceed $100,000. Any grant of Options in excess of such amount shall
be deemed a grant of a NQSO.
(k) Notwithstanding anything contained herein to the contrary, an SAR
which was granted in tandem with an ISO shall (i) expire no later than the
expiration of the underlying ISO; (ii) be for no more than 100% of the spread at
the time the SAR is exercised; (iii) shall only be transferable when the
underlying ISO is transferable; (iv) only be exercised when the underlying ISO
is eligible to be exercised; and (v) only be exercisable when there is a
positive spread.
(l) In no event shall an employee be granted Options for more than 150,000
shares of Common Stock during any calendar year period; provided, however, that
the limitation set forth in this Section 5(l) shall be subject to adjustment as
provided in Section 8 herein.
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<PAGE>
6. Death or Termination of Employment/Consulting Relationship.
(a) Except as provided herein, or otherwise determined by the Board of
Directors or the Committee in its sole discretion, upon termination of
employment with the Company voluntarily by the employee or termination of a
consulting relationship with the Company prior to the termination of the term
thereof, a holder of an Option under the Plan may exercise such Options to the
extent such Options were exercisable as of the date of termination at any time
within thirty (30) days after termination, subject to the provisions of
Subparagraph (d) of this Paragraph 6. Except as provided herein, or otherwise
determined by the Board of Directors or the Committee in its sole discretion, if
such employment or consulting relationship shall terminate for any reason other
than death, voluntary termination by the employee or for cause, then such
Options may be exercised at anytime within three (3) months after such
termination. Notwithstanding anything contained herein to the contrary, unless
otherwise determined by the Board of Directors or the Committee in its sole
discretion, any options granted hereunder to an Optionee and then outstanding
shall immediately terminate in the event the Optionee is terminated for cause,
and the other provisions of this Section 6 shall not be applicable thereto. For
purposes of this Section 6, termination for cause shall be deemed the decision
of the Company, in its sole discretion, that Optionee has not adequately
performed the services for which he/she/it was hired.
(b) If the holder of an Option granted under the Plan dies (i) while
employed by the Company or a subsidiary or parent corporation or while providing
consulting services to the Company or a subsidiary or parent corporation or (ii)
within three (3) months after the termination of such holder's
employment/consulting, such Options may, subject to the provisions of
subparagraph (d) of this Paragraph 6, be exercised by a legatee or legatees of
such Option under such individual's last will or by such individual's personal
representatives or distributees at any time within such time as determined by
the Board of Directors or the Committee in its sole discretion, but in no event
less than six months after the individual's death, to the extent such Options
were exercisable as of the date of death or date of termination of employment,
whichever date is earlier.
(c) If the holder of an Option under the Plan becomes disabled within the
definition of section 22(e)(3) of the Code while employed by the Company or a
subsidiary or parent corporation, such Option may, subject to the provisions of
subparagraph (d) of this Paragraph 6, be exercised at any time within six months
less one day after such holder's termination of employment due to the
disability.
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<PAGE>
(d) Except as otherwise determined by the Board of Directors or the
Committee in its sole discretion, an Option may not be exercised pursuant to
this Paragraph 6 except to the extent that the holder was entitled to exercise
the Option at the time of termination of employment, consulting relationship or
death, and in any event may not be exercised after the original expiration date
of the Option. Notwithstanding anything contained herein which may be to the
contrary, such termination or death prior to vesting shall, unless otherwise
determined by the Board of Directors or Committee, in its sole discretion, be
deemed to occur at a time the holder was not entitled to exercise the Option.
(e) The Board of Directors or the Committee, in its sole discretion, may
at such time or times as it deems appropriate, if ever, accelerate all or part
of the vesting provisions with respect to one or more outstanding options. The
acceleration of one Option shall not infer that any Option is or to be
accelerated.
7. Leave of Absence.
For the purposes of the Plan, an individual who is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
Government) shall be considered as remaining in the employ of the Company or of
a subsidiary or parent corporation for ninety (90) days or such longer period as
such individual's right to reemployment is guaranteed either by statute or by
contract.
8. Adjustment Upon Changes in Capitalization.
(a) In the event that the outstanding shares of Common Stock are hereafter
changed by reason of recapitalization, reclassification, stock split-up,
combination or exchange of shares of Common Stock or the like, or by the
issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Board of Directors, as determined by the Board
of Directors and/or the Committee, in the aggregate number of shares of Common
Stock available under the Plan, in the number of shares of Common Stock issuable
upon exercise of outstanding Options, and the Option Price per share. In the
event of any consolidation or merger of the Company with or into another
company, where the Company is not the surviving entity, or the conveyance of all
or substantially all of the assets of the Company to another company for solely
stock and/or securities, each then outstanding Option shall upon exercise
thereafter entitle the holder thereof to such number of shares of Common Stock
or other securities or property to which a holder of shares of Common Stock of
the Company would have been entitled to upon such consolidation, merger or
conveyance; and in any such case appropriate adjustment, as determined by the
Board of Directors of the Company (or successor entity) shall be made as set
forth above with respect to any future changes in the
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<PAGE>
capitalization of the Company or its successor entity. In the event of the
proposed dissolution or liquidation of the Company, or, except as provided in
(b) below, the sale of substantially all the assets of the Company for other
than stock and/or securities, all outstanding Options under the Plan will
automatically terminate, unless otherwise provided by the Board of Directors of
the Company or any authorized committee thereof.
(b) Any Option granted under the Plan, may, at the discretion of the Board
of Directors of the Company and said other corporation, be exchanged for options
to purchase shares of capital stock of another corporation which the Company,
and/or a subsidiary thereof is merged into, consolidated with, or all or a
substantial portion of the property or stock of which is acquired by said other
corporation or separated or reorganized into. The terms, provisions and
benefits to the optionee of such substitute option(s) shall in all respects be
identical to the terms, provisions and benefits of optionee under his Option(s)
prior to said substitution. To the extent the above may be inconsistent with
Sections 424(a)(1) and (2) of the Code, the above shall be deemed interpreted so
as to comply therewith.
(c) Any adjustment in the number of shares of Common Stock shall apply
proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any such
adjustment, the adjustment shall be revised to the next higher whole number of
shares of Common Stock.
9. Further Conditions of Exercise.
(a) Unless the shares of Common Stock issuable upon the exercise of an
Option have been registered with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended, prior to the exercise of the Option,
an optionee must represent in writing to the Company that such shares of Common
Stock are being acquired for investment purposes only and not with a view
towards the further resale or distribution thereof, and must supply to the
Company such other documentation as may be required by the Company, unless in
the opinion of counsel to the Company such representation, agreement or
documentation is not necessary to comply with said Act.
(b) The Company shall not be obligated to deliver any shares of Common
Stock until they have been listed on each securities exchange on which the
shares of Common Stock may then be listed or until there has been qualification
under or compliance with such state or federal laws, rules or regulations as the
Company may deem applicable.
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<PAGE>
(c) The Board of Directors or Committee may make such provisions and take
such steps as it may deem necessary or appropriate for the withholding of any
taxes that the Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to withhold in
connection with the exercise of any Option, including, but not limited to, (i)
the withholding of payment of all or any portion of such Option and/or SAR until
the holder reimburses the Company for the amount the Company is required to
withhold with respect to such taxes, or (ii) the cancelling of any number of
shares of Common Stock issuable upon exercise of such Option and/or SAR in an
amount sufficient to reimburse the Company for the amount it is required to so
withhold, (iii) the selling of any property contingently credited by the Company
for the purpose of exercising such Option, in order to withhold or reimburse the
Company for the amount it is required to so withhold, or (iv) withholding the
amount due from such employee's wages if the employee is employed by the Company
or any subsidiary thereof.
10. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the earliest of the date of its adoption by the
Board of Directors, or the date the Plan is approved by the stockholders of the
Company, or such date of termination, as hereinafter provided, and no Option
shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time, prior to ten
(10) years from the earlier of the date of the adoption of the Plan by such
Board of Directors or the date the Plan is approved by the stockholders,
terminate the Plan or from time to time make such modifications or amendments of
the Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without approval by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the Company entitled to
vote thereon, increase (except as provided by Paragraph 8) the maximum number of
shares of Common Stock as to which Options or shares may be granted under the
Plan, or materially change the standards of eligibility under the Plan. Any
amendment to the Plan which, in the opinion of counsel to the Company, will be
deemed to result in the adoption of a new Plan, will not be effective until
approved by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company entitled to vote thereon.
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(d) No termination, modification or amendment of the Plan may adversely
affect the rights under any outstanding Option without the consent of the
individual to whom such Option shall have been previously granted.
11. Effective Date of the Plan.
The Plan shall become effective upon adoption by the Board of Directors of
the Company. The Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote thereon within one year before or after adoption of the
Plan by the Board of Directors.
12. Not a Contract of Employment.
Nothing contained in the Plan or in any option agreement executed pursuant
hereto shall be deemed to confer upon any individual to whom an Option is or may
be granted hereunder any right to remain in the employ of the Company or of a
subsidiary or parent of the Company or in any way limit the right of the
Company, or of any parent or subsidiary thereof, to terminate the employment of
any employee.
13. Other Compensation Plans.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company, nor
shall the Plan preclude the Company from establishing any other form of stock
option plan, incentive plan or any other compensation plan.
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<PAGE>
FIBERCHEM, INC.
1181 Grier Drive, Suite B
Las Vegas, Nevada 89119
PROXY
The undersigned, a holder of Common Stock of FiberChem, Inc. a Delaware
corporation (the "Company"), hereby appoints SCOTT J. LOOMIS and MELVIN W.
PELLEY, and each of them, the proxies of the undersigned, each with full
power of substitution, to attend, represent and vote for the undersigned, all of
the shares of the Company which the undersigned would be entitled to vote, at
the Annual Meeting of Stockholders of the Company to be held on May 30, 1997
and any adjournments thereof, as follows:
1. The election of three Class A members to the Board of Directors to hold
office for a three year term and until their successors are duly elected and
qualified, as provided in the Company's Proxy Statement:
[ ] FOR all nominees listed below
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below. (Instructions:
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH OR OTHERWISE STRIKE OUT HIS OR HER NAME BELOW)
Geoffrey F. Hewitt, Irwin J. Gruverman and Dale W. Conrad.
2. The adoption of the proposal to amend the Certificate of Incorporation to
authorize, if necessary, reverse stock splits of the Company's Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. The adoption of the proposal to amend the Certificate of Incorporation to
increase the authorized shares of the Company's Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. The ratification of the proposal to adopt the FiberChem, Inc. 1997 Employee
Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. The ratification of the appointment of Goldstein Golub Kessler & Company,
P.C. as the Company's auditors for the fiscal year ending September 30, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Upon such other matters as may properly come before the meeting or any
adjournments thereof.
The undersigned hereby revokes any other proxy to vote at such Annual Meeting,
and hereby ratifies and confirms all that said attorneys and proxies, and each
of them, may lawfully do by virtue hereof. With respect to matters not known
at the time of the solicitations hereof, said proxies are authorized to vote in
accordance with their best judgment.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE OTHER SIDE HEREOF. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE THREE DIRECTORS NAMED IN PROPOSAL 1, FOR THE
ADOPTION OF PROPOSALS 2, 3, 4 AND 5; AND AS SAID PROXIES SHALL DEEM ADVISABLE ON
SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING.
<PAGE>
The undersigned acknowledges receipt of a copy of the Notice of Annual Meeting
and accompanying Proxy Statement dated April ____, 1997 relating to the Annual
Meeting, and the 1996 Annual Report to Stockholders.
------------------------------
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Signature(s) of Stockholder(s)
The signature(s) hereon should correspond exactly with the name(s) of the
Stockholder(s) appearing on the Stock Certificate. If stock is jointly held,
all joint owners should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If signer
is a corporation, please sign the full corporate name, and give title of signing
officer.
Date: _____________, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
FIBERCHEM, INC.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
