<PAGE> 1
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) 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:
<TABLE>
<S> <C>
[ ] Preliminary Information Statement [ ] Confidential, for Use of
[X] Definitive Information Statement the Commission Only (as
permitted by Rule 14c-5(d)(2))
</TABLE>
PVC CONTAINER CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Information Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PVC CONTAINER CORPORATION
401 Industrial Way West
Eatontown, New Jersey 07724
(908) 542-0060
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A Special Meeting of the stockholders of PVC Container
Corporation (the "Company"), a Delaware corporation, will be held at the offices
of the Company at 401 Industrial Way West, Eatontown, New Jersey 07724, on
January 16, 1997 at 10:00 o'clock in the forenoon E.S.T. to act upon the
following:
1. To elect four additional Directors to serve until the next
Annual Meeting and until their respective successors shall be elected and
qualify;
2. To approve the of the Company's 1996 Stock Option Plan
which provides for the granting of options to purchase up to 500,000 shares of
the Company's common stock, par value $.01 per share, to employees, officers or
directors of the Company (the "1996 Option Plan"); and
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only stockholders of record as of the close of business on
December 13, 1996 will be entitled to vote at the meeting.
By Order of the Board of
Directors
/s/ JOHN C. D'AVELLA
----------------------------
John C. D'Avella
Secretary
Eatontown, New Jersey
December 20, 1996
<PAGE> 3
PVC CONTAINER CORPORATION
-----------------------------------------------------
-----------------------------------------------------
INFORMATION STATEMENT
-----------------------------------------------------
-----------------------------------------------------
This Information Statement is being furnished to you in
connection with a special meeting of stockholders of PVC Container Corporation
(the "Company") to be held on January 16, 1997 at 10:00 o'clock in the forenoon
E.S.T. at 401 Industrial Way West, Eatontown, New Jersey 07724.
WE ARE NOT ASKING YOU FOR
A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY
The address of the principal executive offices of the Company
is 401 Industrial Way West, Eatontown, New Jersey 07724. The approximate date
this Information Statement is first being sent to stockholders is December 20,
1996.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Common Stock is the only authorized voting security of the
Company. The record date for determining holders of Common Stock entitled to
consent to such Corporate action, is December 13 1996. On that date, 7,004,705
shares of Common Stock were outstanding, each of which is entitled to one vote.
The Common Stock does not have cumulative voting rights.
The following table sets forth, as of December 13, 1996, the
record date, the beneficial ownership of Common Stock of (i) any person who is
known by the Company to own more than 5% of the voting securities of the
Company, (ii) the Chief Executive Officer and each of the Company's other four
most highly compensated executive officers whose salary and bonus exceed
$100,000 for the fiscal year ended June 30, 1996 (collectively, the "Named
Executive Officers"), (iii) each director, and (iv) all directors and executive
officers of the Company as a group. Except as otherwise indicated, the Company
believes, based on information furnished by such owners, that the beneficial
owners of the Company's common stock listed below have sole investment voting
power with respect to such shares, subject to any applicable community property
laws:
<PAGE> 4
<TABLE>
<CAPTION>
Name of Beneficial Amount of Nature of
Owner Beneficial Ownership Percent of Class
- ------------------ -------------------- ----------------
<S> <C> <C>
Kirtland Capital Partners II 4,367,415 62.4%
L.P.
Phillip L. Friedman 496,666 7%
All directors and executive 588,593 8%
officers as a group (3 in
number)
</TABLE>
Kirtland Capital Partners II L.P. and an affiliate thereof ("Kirtland") acquired
privately and for investment on December 12, 1996 for cash from its capital an
aggregate of 4,367,415 shares of common stock of the Company from Rimer Anstalt
in consideration of the payment to Rimer Anstalt of the sum of $17,469,660. In
connection with such acquisition and pursuant to the Stock Purchase Agreement
among the Company, Kirtland and Rimer Anstalt dated December 3, 1996 ("Stock
Purchase Agreement"), the Company agreed to increase the Board of Directors of
the Company to seven persons and to include five persons designated by Kirtland
and to be nominated by the Company. A description of such persons is set forth
below under the heading "Additional Directors". Neither Kirtland nor any of the
Additional Directors beneficially owned any shares of the Common Stock of the
Company prior to December 12, 1996.
Pursuant to the Stock Purchase Agreement, the Company granted
to Kirtland certain registration rights under the Securities Act of 1933, as
amended, with respect to the shares of common stock of the Company acquired by
Kirtland. Also, pursuant to the Stock Purchase Agreement, the Company agreed to
and has entered into a Consulting Agreement with Kirtland Capital Corporation,
which is a general partner of Kirtland Capital Partners II L.P., and pursuant to
which Kirtland Capital Corporation has agreed to provide certain consulting,
financial and other advisory services to the Company in consideration of the
payment by the Company to Kirtland Capital Corporation of the sum of $250,000
per annum. Raymond A. Lancaster, one of the Additional Directors, is the
President of Kirtland Capital Corporation.
Kirtland has agreed to acquire on January 3, 1997 from Mr.
Friedman 100,000 shares of common stock of the Company in consideration of the
payment by Kirtland to Mr. Friedman of $400,000 and, as a result thereof, the
above figures relating to the beneficial holders of Kirtland, Mr. Friedman and
all directors as a group will change in order to reflect such acquisition. In
addition and following the election of the Additional Directors described below
the ownership of common stock of the Company by Kirtland and its affiliates may
be attributed to certain Additional Directors. Giving effect to such acquisition
from Mr. Friedman, Kirtland will own 4,467,415 shares of common stock of the
Company or 64% and Mr. Friedman will own 396,666 shares of common stock of the
Company or 6% of the issued and outstanding shares of the Company and the
directors and officers as a group will own 488,543 shares or 7%.
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<PAGE> 5
There are no material legal proceedings to which the Company
or any of its subsidiaries is a party to and none of the existing officers and
directors, Additional Directors or any owner of 5% or more of the common stock
of the Company is involved in any legal proceedings adverse to the Company.
ELECTION OF DIRECTORS
At the Special Meeting, four additional directors will be
elected to serve as Directors of the Company until their successors have been
duly elected and qualified as provided in the Certificate of Incorporation, as
amended, and the By-Laws of the Company, as amended. The following persons have
consented to be nominated and, if elected, to serve as Directors of the Company.
Messrs. Friedman and D'Avella, who are described below, were previously elected
as directors of the Company by the stockholders at the annual meeting of the
stockholders held on October 30, 1996. None of the existing or the Additional
Directors are related by blood, marriage or adoption to any other Director or
Executive Officer nor is a party adverse to the Company or any of its
subsidiaries in any material proceeding nor has any beneficial interest adverse
to the Company or any of its subsidiaries. For information as to existing
Directors' beneficial ownership of the Company's Common Stock as at December 13,
1996, see the foregoing "Security Ownership of Certain Beneficial Owners and
Management."
Existing Directors:
PHILLIP L. FRIEDMAN Company Director since 1981
Age: 49
Mr. Friedman, since 1981, has served as President and Chief Executive of the
Company. He was employed by Occidental Chemical Corporation (formerly Hooker
Chemical Corporation), a leading manufacturer and supplier of polyvinyl chloride
resins and compounds, from 1969 until December 1981, when he joined the Company.
During his last five years with Occidental, Mr. Friedman was Manager of Business
Development and Director of Commercial Development for the Polyvinyl Chloride
Plastics Division. As the Director of Commercial Development he was responsible
for coordinating and reducing to commercial practice various research and
development projects within the plastics industry.
JOHN C. D'AVELLA Company Director since 1988
Age: 48
Mr. D'Avella was first employed by the Company from September 1975 to 1978 as
Sales Manager of the Company, and he has been continuously employed by the
Company since 1975. He is
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<PAGE> 6
presently the Executive Vice President in Charge of Sales, Secretary and a
Director of the Company.
Additional Directors:
GEORGE R. BEGLEY Age: 54
Mr. Begley is an independent investment advisor and a director of North Coast
Energy.
RAYMOND A. LANCASTER Age: 50
Mr. Lancaster is the Managing Partner of Kirtland Capital Partners II L.P. (see
"Security Ownership of Certain Beneficial Owners and Management") and was the
managing partner of Kirtland Capital Partners from 1995 to 1996 and of Key Corp.
from 1990 to 1995. He is a director of STERIS Corporation and Unifrax
Corporation.
MICHAEL SHERWIN Age: 55
Mr. Sherwin is the Vice Chairman of Mid-West Forge Corporation and Chairman and
C.E.O. of Columbiana Boiler Company.
JOHN F. TURBEN Age 61
Mr. Turben is the Managing Partner and founder of Kirtland Capital Partners and
its predecessor firms. He is a director of Unifrax Corporation.
------------------------------------
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<PAGE> 7
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended June 30, 1996 the Board of
Directors held no meetings. Because of the present composition of the Board,
action is generally approved and undertaken by unanimous consent under the
applicable provisions of the Delaware Corporation Law. The Board of Directors
has had no Audit Committee, Nominating Committee or Management Compensation
Committee nor any committee performing similar functions. No fees have been paid
to directors. It is anticipated that in the future there will be regular
meetings of the Board of Directors and committees thereof and that directors
will be compensated for their services as such.
The following table sets forth the Directors and Executive
Officers of the Company as at December 20, 1996. Each Director holds office
until his successor is elected and qualified.
<TABLE>
<CAPTION>
Held
Office Offices with
Name Age Since the Company
---- --- ----- ------------
<S> <C> <C> <C>
Phillip L. Friedman 49 1982 President, Chief Executive,
Officer and Director
John C. D'Avella 48 1978 Executive Vice President,
Secretary and Director
Bertram D. Berkowitz 58 1989 Vice President
Finance
Joel Francis Roberts 52 1989 Vice President
Operations
William Del Pizzo 39 1996 Chief Financial Officer
</TABLE>
EXECUTIVE COMPENSATION AND
TRANSACTIONS WITH MANAGEMENT
The following table sets forth for the fiscal years ended June
30, 1996, 1995 and 1994 compensation paid by the Company to the chief executive
officer and to each of the four most highly compensated officers of the Company
whose total annual salary and bonus exceed $100,000:
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<PAGE> 8
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
LTIP All Other
Name and Principal Salary Bonus Payouts Compensation
Position Year ($) ($) $ (2) ($) (1)
- ------------------ ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Phillip L. Friedman 1996 165,000 223,200 23,234 20,396
1995 150,000 143,100 17,211 26,687
1994 150,000 56,900 0 8,526
John C. D'Avella 1996 101,148 167,400 21,179 12,446
1995 97,406 107,300 15,249 15,366
1994 94,479 42,700 0 5,882
Joel Francis Roberts 1996 92,198 50,000 18,444 9,460
1995 85,273 35,000 13,249 12,004
1994 82,381 16,000 0 4,776
Bertram D. Berkowitz 1996 79,493 27,000 16,623 8,079
1995 76,553 20,000 11,940 9,085
1994 74,251 9,700 0 3,822
</TABLE>
Profit Sharing Savings Plan(1)
On September 29, 1983 the Board of Directors of the Company
adopted the PVC Container Corporation Profit Sharing Savings Plan (the "Plan"),
which Plan became effective July 1, 1984. The Plan supersedes the 1980 PVC
Container Corporation Profit Sharing Pension Plan. All employees of the Company
who have completed one year of service and are not covered by a collective
bargaining agreement are eligible for participation in the Plan.
The Plan has been drafted to comply with Section 401(k) of the
Internal Revenue Code. Each participating employee can defer from 1% to 6% of
his salary into his Plan account, and the Company makes a matching contribution.
Such contribution for the fiscal year ended June 30, 1996 was equal to 25% of
the amount deferred by the employee. Contributions are made by the Company on a
monthly basis. In addition to matching contributions the Company, at its option,
may make payments based on a percentage of quarterly profits. Such payments can
be made directly to or for the Plan account of participating employees and are
based on a percentage of the employee's compensation. The Company made
discretionary payments during the fiscal year ended June 30, 1996 of $520,123
which amount includes the 25% contribution referred to above. All amounts
deferred by and paid to the officers of the Company pursuant to the Plan have
been included
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<PAGE> 9
in "Remuneration of Directors, Executive Officers and Transactions with
Management and Others."
Deferred Compensation Plan(2)
On June 4, 1986, the Board of Directors approved the
establishment of a Deferred Compensation Plan, effective July 1, 1986, under
which executives of the Company may defer and accrue for three years a certain
amount of the compensation due them. Twenty percent of the salary as at June 30,
1992 was accrued as deferred compensation payable July 1, 1995 if employed at
that time. The Company will retain the right to use such deferred compensation
during such period for working capital or plant investment.
Employee Stock Ownership Plan
The Company adopted on June 28, 1996 an Employee Stock Option
Ownership Plan ("ESOP") effective as of July 1, 1995. The ESOP is designed to
enable participating employees to share in the growth of the Company through
ownership of common stock of the Company. Employees eligible to participate in
the ESOP include all employees who have attained he age of twenty-one years of
age and have completed at least one year of service with the Company except that
certain employees (such as "leased employees" and employees covered by
collective bargaining agreements) are not eligible to participate in the ESOP.
Contributions to the ESOP will be made from time to time in amounts determined
by the Company on behalf of the eligible participants and will be invested
primarily in common stock of the Company In general, participants will become
fully vested in their account balances under the ESOP after completing five
years of service with the Company. Vested benefits are payable after termination
of employment in the form of common stock of the Company, cash or a combination
of both as more fully described in the ESOP. The Company makes all contributions
to the ESOP and employees are neither required nor allowed to contribute to the
ESOP and no contributions have been made as of the date hereof.
Employment Agreement
The directors of the Company have approved an Amended and
Restated Employment Agreement between Phillip L. Friedman and the Company and
such agreement became effective as of July 1, 1996. The employment agreement
provides for, among other things, compensation consisting of a base salary of
$165,0000 per annum and incentive compensation equal to 4% of the Company's net
income before taxes as finally determined by the regularly employed certified
public accountants of the Company. Such compensation is identical to that
contained in the existing employment agreement between the Company and Phillip
L. Friedman. The initial term of the amended employment agreement will expire on
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<PAGE> 10
June 30, 1999 and shall be automatically renewed for successive two year periods
unless Mr. Friedman elects for good reason not to renew or the Company
terminates for cause as defined in the agreement. The agreement also provides
for certain benefits payable to Mr. Friedman in the event of death or
disability of Mr. Friedman.
Directors of the Company are not presently paid any
compensation for their performance as directors. They may be reimbursed for the
expenses they incur in performing their duties as such. It is anticipated that
directors will be compensated in the future for their services as directors.
REPORT ON EXECUTIVE COMPENSATION
BY THE BOARD OF DIRECTORS
Compensation Policy
The Company's Board of Directors (the "Board") is responsible
for setting and administering the policies which govern annual executive
salaries, raise and bonuses and the award of stock options under the Company's
Incentive Stock Option Plan. The Board is presently composed of two members,
both of whom are executive officers of the Company.
The general policy of the Board is to provide compensation to
the Chief Executive Officer and the Company's other executive officers which
reflects the contribution of such executives, the Company's growth in sales and
earnings, the enhancement of shareholder value as reflected in the growth of the
Company's market capitalization and the implementation of the strategic plans
consistent with the long term growth objectives of the Company. Contributions to
specific Company objectives which include development of new product
opportunities, the successful marketing of the Company's principal products and
research and development work which is the basis for some new products are
evaluated in setting compensation policy. Growth in sales and earnings is the
primary factor in the consideration of compensation at the executive levels. In
addition, and in order to assure the Company's ability to attract and retain
managerial talent, an attempt is made to keep compensation competitive with
compensation offered by other companies of comparable size and performance.
Executive compensation decisions have traditionally been made on a calendar year
basis.
Company Performance and Chief
Executive Officer Compensation
The Company's net sales and income increased during the fiscal
year ended June 30, 1996 as compared to the previous fiscal year. The Chief
Executive's Compensation is determined primarily by his employment agreement
with the Company which as indicated
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<PAGE> 11
above relates in part to net income before taxes of the Company, and it is
believed to be fair and reasonable in light of compensation paid to chief
executive officers of companies which have comparable sales and earnings, and
also considering the growth of the Company during the Chief Executive Officer's
employment by the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Phillip L. Friedman, the Company's President and Chief
Executive Officer and John C. D'Avella, the Company's Executive Vice President
and Secretary, are presently the sole members of the Board and participate in
deliberations concerning executive compensation. However, each abstains
decisions voting with respect to their own compensation.
APPROVAL OF THE ADOPTION OF
THE 1996 STOCK OPTION PLAN
GENERAL
Subject to the approval of the Company's stockholders, the
Board of Directors of the Company adopted on November 19, 1996 the 1996 Stock
Option Plan (the "1996 Option Plan"). The 1996 Option Plan is intended to help
the Company to attract, retain and motivate key employees (including officers)
of the Company.
The 1996 Option Plan provides for the grant of options
("Options") to purchase Common Stock that are intended to qualify as incentive
stock options ("Incentive Options") under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") as well as options that do not so qualify
("Non-Qualified Options").
BACKGROUND OF SHAREHOLDER APPROVAL REQUIREMENT
Shareholder approval of the 1996 Option Plan is required in
order for options granted to qualify as Incentive Options under Section 422 of
the Code. For this purpose, shareholders must approve a plan that designates the
aggregate number of shares which may be issued under the plan and the class of
employees eligible to receive options under the plan. Shareholder approval must
be obtained within twelve months after adoption of the plan by the Board of
Directors.
Section 162(m) of the Code disallows a tax deduction for
compensation in excess of $1 million that is paid to certain employees of a
corporation whose common stock is subject to the registration requirements of
Section 12 of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act"). However, this limitation does not apply to
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<PAGE> 12
"qualified performance-based compensation." Pursuant to Treasury Regulation
Section 1.162-27 promulgated under Section 162(m) of the Code, in order for
grants under the 1996 Option Plan to satisfy the requirements to be "qualified
performance-based compensation," it is necessary to obtain shareholder approval
of the class of employees eligible to receive grants under the 1996 Option Plan,
the business criteria to be used in making such grants, the maximum number of
shares with respect to which grants can be made to any one employee under the
1996 Option Plan and the exercise price of any Options. Another requirement for
"qualified performance-based compensation" is that grants under the plan be made
by a compensation or option committee consisting solely of two or more "outside
directors," within the meaning of Treasury Regulation Section 1.162-27(e)(3).
The following description of the 1996 Option Plan summarizes
the principal features of the 1996 Option Plan and sets forth those matters as
to which shareholder approval is required as described above. A vote in favor of
the 1996 Option Plan shall be treated as the shareholder's approval of the 1996
Option Plan and, specifically, the description below of the class of employees
eligible to receive grants, the maximum number of shares as to which grants can
be made to any one employee and the aggregate number of shares that can be
issued in each case under the 1996 Option Plan.
Any such options that are granted will not satisfy the
"qualified performance-based compensation" exception to Section 162(m) absent
shareholder approval of the business criteria to be used in making such grants.
DESCRIPTION OF THE 1996 OPTION PLAN
The following is a summary of the principal features of the
1996 Option Plan. This summary is qualified in its entirety by reference to the
specific provisions of the plan, the full text of which is set forth in Exhibit
B to this Proxy Statement.
ADMINISTRATION OF THE 1996 OPTION PLAN
The 1996 Option Plan will be administered by the Board of
Directors or by a committee (the "Committee") which is appointed by the Board of
Directors. The Committee will consist of two non-employee members of the
Company's Board of Directors, neither of whom is eligible at any time for the
grant of Incentive Options under the 1996 Option Plan and each of whom is a
"non-employee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act and an "outside director" within the meaning of Treasury Regulation
Section 1.162-27(e)(3). The Company's Board of Directors or the Committee is
authorized to interpret the 1996 Option Plan, adopt and amend rules and
regulations relating to the 1996 Option Plan, and determine the recipients,
form, and terms of Options granted under the 1996 Option Plan. All Options must
be evidenced by a written agreement.
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<PAGE> 13
SHARES AVAILABLE
Under the 1996 Option Plan, the maximum number of shares of
Common Stock that may be subject to Options may not exceed an aggregate of
500,000 shares. The maximum number of shares will be adjusted in certain events,
such as a stock split, reorganization or recapitalization.
ELIGIBILITY
Employees (including officers and directors who are employees)
of the Company or its subsidiaries are eligible for the grant of Incentive
Options under the 1996 Option Plan. Directors who are not employees or officers
are not eligible to participate. In the event of Incentive Options, the
aggregate fair market value (determined at the time the Option is granted) of
the Common Stock with respect to which Incentive Options become exercisable for
the first time by the Option holder (i.e., vest) during any calendar year cannot
exceed $100,000. This limit does not apply to Non-Qualified Options. To the
extent an Option that otherwise would be an Incentive Option exceeds this
$100,000 threshold, it will be treated as a Non-Qualified Option.
EXERCISE PRICE OF OPTIONS
The Company will receive no monetary consideration for the
grant of Options under the 1996 Option Plan. In case of an Incentive Option, the
exercise price cannot be less than the fair market value (as defined in the 1996
Option Plan) of the shares on the date the Option is granted, and if an optionee
is a shareholder who beneficially owns 10% or more of the outstanding Common
Stock, the exercise price of Incentive Options cannot be less than 110% of such
fair market value. The exercise price of Non-Qualified Options shall be
determined by the Company's Board of Directors or the Committee. The exercise
price of Options will be adjusted in certain events, such as a stock split,
reorganization or recapitalization.
PAYMENT UPON EXERCISE OF OPTIONS
Payment for shares purchased by exercising an Option is to be
made by cash or check, or by any other means which the Board of Directors
determines are consistent with the purposes of the 1996 Option Plan and with
applicable laws and regulations.
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<PAGE> 14
TERM OF OPTIONS
The term of an Option cannot exceed ten years, and in the case
of an optionee who owns 10% or more of the outstanding Common Stock, cannot
exceed five years.
TERMINATION OF EMPLOYMENT
Individual option agreements generally will provide that the
Options will expire upon termination of employment except that (i) in the case
of termination that is not for cause or otherwise attributable to a breach by
the optionee of an employment or confidentiality or non-disclosure agreement,
the Option will be exercisable for three months after termination to the same
extent that it was exercisable prior to termination, (ii) in the case of
termination due to disability, the Option will be exercisable for one year after
termination (or within such lesser period as may be specified in the applicable
option agreement) to the same extent that it was exercisable prior to
termination and (iii) in the case of death while in the employ of the Company
or, within the three month period referred to in (i), the Option will be
exercisable for one year after death (or within such lesser period as may be
specified in the applicable option agreement). After the death of an optionee,
the Option is exercisable by the legal representative of the optionee or by the
person that acquired the Option by reason of the death of the Optionee.
NON-TRANSFERABILITY OF OPTIONS
Options are not transferable by the optionee except by will or
by the laws of descent and distribution. The disposition of shares acquired
pursuant to the exercise of an Option will be subject to any applicable
restrictions on transferability imposed by the Commission's regulations.
EFFECTIVE DATE
The 1996 Option Plan became effective when adopted by the
Board of Directors, but no Incentive Option granted under the plan shall become
exercisable unless and until the plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board of Director's adoption of the plan, no options
previously granted under the plan shall be deemed to be Incentive Options and no
Incentive Options shall be granted thereafter.
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<PAGE> 15
DURATION OF THE 1996 OPTION PLAN
The 1996 Option Plan will terminate automatically and no
Options may be granted after ten years have elapsed from the date the 1996
Option Plan was approved by the Company's Board of Directors. The 1996 Option
Plan may be terminated at any prior time by the Board of Directors. Termination
of the 1996 Option Plan will not affect Options that were granted prior to the
termination date.
AMENDMENTS OR MODIFICATIONS
The 1996 Option Plan may be amended or modified from time to
time by the Company's Board of Directors. However, if at any time the approval
of the shareholders of the Company is required under Section 422 of the Code or
Rule 16b-3, the Board of Directors may not effect such modification or amendment
without such approval.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary outlines certain federal income tax
consequences of the 1996 Option Plan to the Company and participants under
present law.
INCENTIVE OPTIONS
A participant will not recognize income for federal income tax
purposes upon the grant of an Incentive Option. A participant also will not be
taxed on the exercise of an Incentive Option, provided that the Common Stock
acquired upon exercise of the Incentive Option is not sold by the participant
within two years after the Option was granted and one year after the Option is
exercised (the "required holding period").
However, for alternative minimum tax ("AMT") purposes, the
difference between the exercise price of the Incentive Option and the fair
market value of the Common Stock acquired upon exercise is an item of tax
preference in the year the Incentive Option is exercised. The participant is
required to include such amount in AMT income in such year and to compute the
tax basis of the shares so acquired in the same manner as if a Non- Qualified
Option had been exercised, including the availability of a Section 83 election
(discussed below). Whether a participant will be liable for AMT in the year the
Incentive Option is exercised will depend on the participant's particular tax
circumstances. AMT paid in such year will be allowed as a credit to the extent
regular tax exceeds AMT in subsequent years.
On a sale, after the required holding period, of Common Stock
that was acquired by exercising an Incentive Option, the difference between the
participant's tax basis
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<PAGE> 16
in the Common Stock and the amount received in the sale is taxed as long-term
capital gain or loss.
If Common Stock acquired upon the exercise of an Incentive
Option is disposed of by the participant during the required holding period (a
"disqualifying disposition"), the excess, if any, of (i) the amount realized on
such disposition (up to the fair market value of the Common Stock on the
exercise date) over (ii) the exercise price, will be taxed to the participant as
ordinary income. If a participant pays the exercise price of an Incentive Option
by delivering Common Stock that was previously acquired by exercising an
Incentive Option and such delivery occurs before the end of the required holding
period of such Common Stock, the participant is treated as making a disqualified
disposition of the Common Stock so delivered.
The Code puts a $100,000 limit on the value of stock subject
to Incentive Options that first become exercisable in any one year, based on the
fair market value of the underlying Common Stock on the date of grant. To the
extent Options exceed this limit, they are taxed as Non-Qualified Options.
NON-QUALIFIED OPTIONS
A participant who receives a Non-Qualified Option does not
recognize taxable income on the grant of the Option. Upon exercise of a
Non-Qualified Option, a participant generally has ordinary income in an amount
equal to the excess of the fair market value of the shares at the time of
exercise over the exercise price paid for the shares.
However, if the participant (i) is an officer or director of
the Company or the beneficial owner of more than 10% of the Company's equity
securities (in each case, within the meaning of Section 16 of the Exchange Act
- -- as so defined, an "Insider"), (ii) does not make a Section 83 election and
(iii) receives shares upon the exercise of a Non-Qualified Option, the
recognition of income (and the determination of the amount of income) is
deferred until the earlier of (a) six months after the shares are acquired or
(b) the earliest date on which the Insider could sell the shares at a profit
without being subject to liability under Section 16(b) of the Exchange Act (six
months after the Non-Qualified Option is granted, in the case of an
"in-the-money" Option). If the participant makes a Section 83 election, income
is not deferred. Rather, income is recognized on the date of exercise of the
Non-Qualified Option in an amount equal to the excess of the fair market value
of the shares acquired upon exercise over the exercise price. A Section 83
election must be filed with the Internal Revenue Service within thirty (30) days
after an Option is exercised.
A participant's tax basis in shares received upon exercise of
a Non-Qualified Option is equal to the amount of ordinary income recognized on
the receipt of the shares plus the amount of cash, if any, paid upon exercise.
The holding period for the shares begins on the day after the shares are
received or, in the case of an Insider that has not made a Section
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83 election, on the day after the date on which income is recognized by the
Insider on account of the receipt of the shares.
If a participant exercises a Non-Qualified Option by
delivering previously held shares in payment of the exercise price, the
participant does not recognize gain or loss on the delivered shares, even if
their fair market value is different from the participant's tax basis in the
shares. The exercise of the Non-Qualified Option is taxed however, and the
Company generally is entitled to a deduction, in the same amount and at the same
time as if the participant had paid the exercise price in cash. Provided the
participant receives a separate identifiable stock certificate therefor, his tax
basis in the number of shares received that is equal to the number of shares
surrendered on exercise will be the same as his tax basis in the shares
surrendered. His holding period for such number of shares will include his
holding period for the shares surrendered. The participant's tax basis and
holding period for the additional shares received upon exercise will be the same
as it would if the participant had paid the exercise price in cash.
If a participant receives shares upon the exercise of a
Non-Qualified Option and thereafter disposes of the shares in a taxable
transaction, the difference between the amount realized on the disposition and
the participant's tax basis in the shares is taxed as capital gain or loss
(provided the shares are held as a capital asset on the date of disposition),
which is long-term or short-term depending on the participant's holding period
for the shares.
DEDUCTION BY THE COMPANY
The Company is not allowed a federal income tax deduction on
the grant or exercise of an Incentive Option or the disposition, after the
required holding period, of shares acquired by exercising an Incentive Option.
On a disqualifying disposition of such shares, the Company is allowed a federal
income tax deduction in an amount equal to the ordinary income recognized by the
participant as a result of the disqualifying disposition, provided that such
amount constitutes an ordinary and necessary business expense of the Company, is
reasonable in amount and is not disallowed by Section 162(m) of the Code
(discussed above).
The ordinary income recognized by an employee of the Company
on account of the exercise of a Non-Qualified Option is subject to both wage
withholding and employment taxes. A deduction for federal income tax purposes is
allowed to the Company in an amount equal to the amount of ordinary income
taxable to the participant, provided that such amount constitutes an ordinary
and necessary business expense of the Company, that such amount is reasonable,
and that the Company satisfies any tax reporting obligation that it has with
respect to such income.
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REQUIRED AFFIRMATIVE VOTE
Approval of the adoption of the 1996 Option Plan requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. The Board of Directors believes that the proposal is in the best
interests of the Company and its shareholders and recommends that the
shareholders vote FOR the adoption of the 1996 Option Plan as described herein.
OTHER MATTERS
The Board of Directors is not aware of any other matters which
are to be presented at the Special Meeting. However, if any other matter should
properly come before the Special Meeting, the persons entitled to vote on that
matter will be given the opportunity to do so.
The above notice and Information Statement are sent by order
of the Board of Directors.
John C. D'Avella
Secretary
Eatontown, New Jersey
December 20, 1996
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