<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:
[ ] Preliminary Proxy Statement
[ x ] 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>
FCI FiberChem, Inc. A Delaware Corporation
1181 Grier Drive, Suite B, Las Vegas, NV 89119
(702) 361-9873
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
JUNE 23, 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 June 23, 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 May 12, 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: May 20, 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
JUNE 23, 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 June 23, 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 23% 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 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.
1
<PAGE>
This Proxy Statement and the accompanying Notice of Annual Meeting of
Stockholders, the Proxy, the 1996 Annual Report to Stockholders, and the
Quarterly Report on Form 10-QSB for March 31, 1997 are expected to be mailed
commencing on or about May 20, 1997 to stockholders of record on May 12, 1997.
VOTING SECURITIES
May 12, 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 25,744,342 shares of Common Stock, $.0001 par value, and 228,998
shares of Preferred Stock, or an aggregate of 28,034,322 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 May 12, 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 1,074,130 (5) 4.1%
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)
147 Paddington Way
San Antonio, TX 78209
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
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%
2
<PAGE>
Amount and
Nature of
Name and Address of Beneficial Percentage of
Beneficial Owner Ownership (1) Class (2)
- ------------------------ ----------- -------------
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 Communications, Inc. 1,818,750 7.1%
2118 P. Street Suite C
Sacramento, CA 95816
All Directors and Officers as 6,845,509 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 25,744,342 shares issued and outstanding as of May 12, 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 436,580 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.
(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 202,477 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 361,247 shares of Common Stock issuable upon
exercise of a like number of options.
3
<PAGE>
(12)Includes an aggregate of 72,120 shares of Common Stock issuable upon
exercise of a like number 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* 54 President, Chief Executive May 2000
Officer and Class A
Director
Walter Haemmerli 67 Class B Director May 1999
Gerald T. Owens 70 Class C Director May 1998
Irwin J. Gruverman* 63 Class A Director May 2000
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
4
<PAGE>
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 54 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 Agri Research 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, Basel and Zurich
from 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 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.
5
<PAGE>
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.
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)
6
<PAGE>
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 $125,000 annually through
October 5, 1996.
(4) Hired March 1, 1996 as Vice President of International Marketing and
Product Development; President of FCI Environmental since November 1996.
(b) OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options/SARs Granted
Underlying Exercise
Options/SARs to Employees or Base Expiration
Name of Individual Granted In Fiscal Year Price($/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>
7
<PAGE>
(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.
(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.
8
<PAGE>
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 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
9
<PAGE>
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. If Proposal 4 is approved, then options for
approximately 135,000 shares of common stock (675,000 shares of if Proposal 2
is not approved) authorized under previous stock option plans could not and
would not be granted.
Effective April 4, 1997, the per share exercise price (the "Exercise
Price") of all employee stock options, all unit and other warrants (except
Class D Warrants), and escrowed shares underlying promissory notes were
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. As of May 12, 1997, the Company had received approximately $8,000
for the exercise of 25,083 options at prices ranging from $0.30 to $0.32.
Effective April 17, 1997 the per share exercise price of Class D Warrants was
decreased to $0.30 through May 16, 1997, when the exercise price reverts to
its prior $1.10 per share. In accordance with Securities Exchange Act of
1934 rules, offers to exercise D Warrants may be withdrawn at any time
through May 16, 1997; therefore, no Class D Warrants have yet been exercised
since April 17, 1997.
(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, 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.
10
<PAGE>
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, warrants and escrowed shares
underlying promissory notes 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. As of May 12,
1997 the Company had received $142,208 in payment for $457,892 escrowed
shares at prices ranging from $0.30 to $0.32 per share.
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 forms 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.
11
<PAGE>
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.
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:
12
<PAGE>
Fourth: (c) Effective as of 5:00 p.m., Pacific time, on (DATE TO BE
DETERMINED), 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 share.
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 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 May 12, 1997, was
25,744,342 and the number of issued and outstanding shares of Preferred Stock
was 228,998. The Company's stated capital was $2,803. 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 5,148,868 and 228,998, respectively, and the stated capital
will be approximately $744. 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
13
<PAGE>
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) 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 8,102,688
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
14
<PAGE>
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.
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, 25,744,342 shares of Common Stock were outstanding, 1,669,926
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; 1,101,075
shares were issuable upon the exercise of certain Placement Agent and other
warrants of which 333,333 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:
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"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.
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.
The Board of Directors 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")
(collectively, "Options"). The vesting of one or more Options granted under
the Plan may be based on the attainment of specified performance goals of the
Participant, as defined below, or the performance of the Company, one or more
subsidiaries/parent and/or divisions of one or more of the above. 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.
NQSOs and SARs may be granted from time to time
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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 a NQSO. Furthermore, not more than 30,000
Options (150,000 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.
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
"Compensation Committee), which must be composed solely of at least two
"outside directors" (as defined under Section 162(m) of the Code). The Plan
Administrator, whether the Board of Directors or Compensation Committee,
being herewith referred to as the "Committee," unless the context otherwise
requires. The Committee has the authority, in its discretion, but subject to
the express terms of the Plan, 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.
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 in
the aggregate 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 in tandem with ISOs, granted to
Participants owning directly or through attribution more than 10% of the
Company's or any subsidiary'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 a 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 a NQSO or a SAR or in
tandem with a 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
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with ISOs granted to holders of more than 10% of the Company's or any
subsidiary'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 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 thirty (30) days after the date of such termination. 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 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 not less than six (6) months after the date of
death; provided, however, the Option in no event may be exercised after the
original expiration date thereof.
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
ISOs or SARs 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.
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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.
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. In addition, holders of Options granted after August 10, 1993 may
be entitled to exclude up to 50% of the gain on any such sale occurring 5
years after the date of exercise. The availability of such exclusion is
dependent upon the Company not (i) having in excess of $50 million of
aggregate gross assets at any time before the exercise of the Options; (ii)
being in the trade or business of operating hotels, motels, restaurants or
similar businesses; or (iii) being in a trade or business where the principal
asset is the reputation or skill of one or more of its employees. Currently
any capital gains recognized on a disposition would be of a type entitled to
the exclusion referred to in the preceding sentence. It is unknown whether
such tests will be met in the future. To the extent that a portion of such
gain is so excluded, one-half of the excluded gain is a tax preference for
alternative minimum tax purposes. 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 a 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,
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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 a
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 a SAR is generally not a taxable event for the Participant.
Upon the exercise of a 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 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
fiscal 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.
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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.
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 January 20, 1998. 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
MAY 20, 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.
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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 June 23,
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.
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The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated May 20, 1997 relating to the
Annual Meeting, the 1996 Annual Report to Stockholders, and the Quarterly Report
on Form 10-QSB for March 31, 1997.
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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.
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