SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. _______)
X Filed by the Registrant
_____ Filed by a Party other than the Registrant
Check the appropriate box:
_____ Preliminary Proxy Statement
_____ Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
X Definitive Proxy Statement
_____ Definitive Additional Materials
_____ Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
GALAXY FOODS COMPANY, a Delaware corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the approximate box)
X No fee required.
_____ Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and O-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 O-11 (set
forth the amount on which the filing fee is
calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
<PAGE> 2
_____ Fee paid previously with preliminary materials.
_____ Check box if any part of the fee is offset as
provided by Exchange Act Rule O-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:
<PAGE> 3
GALAXY FOODS COMPANY
2441 Viscount Row
Orlando, Florida 32809
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, OCTOBER 15, 1997
To the Shareholders:
The Annual Meeting of Shareholders of Galaxy Foods Company (the
"Company"), will be held Wednesday, October 15, 1997 at 10:00
a.m. at the offices of the Company in Orlando, Florida for the
following purposes:
1. To fix the number of directors at four and to elect a
Board of Directors for the ensuing year.
2. To ratify the retention of BDO Seidman L.L.P. as the
independent auditors of the Company for the fiscal year
ended March 31, 1998.
3. To transact such other business as may properly come
before the meeting and any adjournment thereof.
Shareholders of record at the close of business on September 8,
1997 will be entitled to vote at the meeting or any adjournment
thereof.
By Order of the Board of Directors
/s/Cynthia L. Hunter
Cynthia L. Hunter
Corporate Secretary
Orlando, Florida
August 20, 1997
SHAREHOLDERS ARE REQUESTED TO SIGN THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL. IF YOU
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
<PAGE> 4
GALAXY FOODS COMPANY
2441 Viscount Row
Orlando, Florida 32809
August 20, 1997
PROXY STATEMENT
FOR
THE ANNUAL MEETING OF SHAREHOLDERS
to be held Wednesday, October 15, 1997
Proxies in the form enclosed with this proxy statement are
solicited by the Board of Directors of Galaxy Foods Company (the
"Company"), a Delaware corporation, for the use at the Annual
Meeting of Shareholders to be held Wednesday, October 15th, 1997
at 10:00 a.m. at the offices of the Company in Orlando, Florida.
Only shareholders of record as of September 8, 1997 will be
entitled to vote at the meeting and any adjournment thereof. As
of August 20, 1997, 60,677,202 shares of Common Stock, par value
$.01 per share, of the Company were issued and outstanding. Each
share of Common Stock outstanding as of the record date will be
entitled to one vote, and shareholders may vote in person or by
proxy. Execution of a proxy will not, in any way, affect a
shareholders' right to revoke it by written notice to the
Secretary of the Company at any time before it is exercised or by
delivering a later executed proxy to the Secretary of the Company
at any time before the original proxy is exercised.
All properly executed proxies returned in time to be cast at the
meeting will be voted and, with respect to the election of a
Board of Directors, will be voted as stated below under "Election
of Directors". Any shareholder giving a proxy has the right to
withhold authority to vote for any individual nominee to the
Board of Directors by writing that nominee's name in the space
provided on the proxy. In addition to the election of directors,
the shareholders will consider and vote upon a proposal to ratify
the retention of BDO Seidman L.L.P. as the Company's auditors for
the fiscal year ending March 31, 1998. Where a choice has been
specified on the proxy with respect to the foregoing matters, the
shares represented by the proxy will be voted in accordance with
the specification, and will be voted FOR if no specification is
indicated.
The Board of Directors knows of no other matter to be presented
at the meeting. If any other matter should be presented at the
meeting upon which a vote might be taken, shares represented by
all proxies received by the Board of Directors will be voted with
respect thereto in accordance with the judgment of the persons
named as attorneys in the proxies. This proxy statement and the
form of proxy were first mailed to shareholders on or about
September 11, 1997.
<PAGE> 5
PRINCIPAL SHAREHOLDERS
The following table sets forth to the knowledge of
Management, each person of entry who is the beneficial owner of
more than 5% of the 60,677,202 shares of the Company's Common
Stock, $.01 par value ("Common Stock") outstanding as of August
20, 1997, the number of shares owned by each such person and the
percentage of the outstanding shares represented thereby.
Amount and
Name and Address Nature of Percent
of Beneficial Owner Beneficial Ownership(1) of Class(2)
Angelo S. Morini
2441 Viscount Row
Orlando, Florida 32809 25,197,374 (3) 38.8%
Cede & Co.
Box #20
Bowling Green Station
New York, New York 31,743,911 (4) 48.9%
(1) The inclusion herein of any shares deemed beneficially owned
does not constitute an admission of beneficial ownership of these
shares.
(2) The total number of shares outstanding assuming the exercise
of all currently exercisable and vested options and warrants held
by all executive officers, current directors, and holders of 5%
or more of the Company's issued and outstanding Common Stock is
64,965,091 shares. Does not assume the exercise of any other
options or warrants.
(3) Includes options to acquire 1,091,500 shares of the
Company's Common Stock. These options include an option issued
on October 1, 1991 to acquire 91,500 shares of the Company's
stock at $3.575 per share. The original exercise price of this
option was reduced by the Board of Directors to $.50 per share on
August 31, 1993. The term to exercise this option was extended
to October 1, 2001 on October 1, 1996. On July 1, 1997, Mr.
Morini was granted an option to acquire 1,000,000 shares of the
Company's Common Stock at an exercise price of $0.75 per share
under the terms of his employment agreement, which option expires
on July 1, 2002. The closing bid price of the Company's stock on
the inter-dealer quotation system operated by Nasdaq, Inc. (the
"NASDAQ System") on June 30, 1997 was $0.75. Also includes 5,000
shares owned by Mr. Morini that are held in a nominee name and
2,000 shares held in joint tenancy.
(4) Cede & Co. is a share depository used by shareholders to
hold stock in street name. Does not include 5,000 shares
beneficially owned by Angelo S. Morini and held by Cede & Co. in
street name.
<PAGE> 6
SHARE OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth, as of August 20, 1997, the number
of shares owned directly, indirectly and beneficially by each
executive officer and each director and director-nominee of the
Company, and by all executive officers and directors as a group:
Amount and
Name and Address Nature of Percent of
of Beneficial Owner Beneficial Ownership (1) Class (2)
Angelo S. Morini
Galaxy Foods Company
2441 Viscount Row
Orlando, Florida 32809 25,197,374 (3) 38.8%
Earl G. Tyree
240 North Line Drive
Apopka, Florida 32703 20,000 (4) *
Douglas A. Walsh
607 Tamiami Trail
Ruskin, Florida 33570 20,667 (5) *
Marshall K. Luther
Galaxy Foods Company
2441 Viscount Row
Orlando, Florida 32809 125,333 (6) *
Cynthia L. Hunter
Galaxy Foods Company
2441 Viscount Row
Orlando, Florida 32809 17,000 (7) *
All executive officers and
directors as a group 25,380,374 39.1%
* Less than 1%.
(1) The inclusion herein of any shares deemed beneficially owned
does not constitute an admission of beneficial ownership of these
shares.
(2) The total number of shares outstanding assuming the exercise
of all currently exercisable and vested options and warrants held
by all executive officers, directors, and holders of 5% or more
of the Company's issued and outstanding Common Stock is
64,965,091 shares. Does not assume the exercise of any other
options or warrants.
<PAGE> 7
(3) Includes options to acquire 1,091,500 shares of the Company's
Common Stock. These options include an option issued on October
1, 1991 to acquire 91,500 shares of the Company's stock at $3.575
per share. The original exercise price of this option was
reduced by the Board of Directors to $.50 per share on August 31,
1993. The term to exercise this option was extended to October
1, 2001 on October 1, 1996. On July 1, 1997, Mr. Morini was
granted an option to acquire 1,000,000 shares of the Company's
Common Stock at an exercise price of $0.75 per share under the
terms of his employment agreement, which option expires on July
1, 2002. The closing bid price of the Company's stock as quoted
on the NASDAQ System on June 30, 1997 was $0.75. Also includes
5,000 shares owned by Mr. Morini that are held in a nominee name
and 2,000 shares held in joint tenancy.
4) Mr. Tyree, a current member of the Board of Directors, was
granted an option to acquire 15,000 shares of Common Stock on
September 11, 1992 for an exercise price of $2.88 per share.
This option expires on September 11, 2002. The closing bid price
of the Company's Common Stock as reported on the electronic inter
dealer quotation system operated the NASDAQ System on September
10, 1992 was $2.875 per share. Mr. Tyree was granted an
additional option on October 1, 1993 to acquire 1,000 shares of
Common Stock at an exercise price of $2.125 per share. This
option expires on October 1, 2003. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on
September 30, 1993 was $2.00 per share. The exercise price of
all of Mr. Tyree's then existing options was reduced to $2.00 per
share on January 31, 1994. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on January
28, 1994 was $4.625 per share. On October 1, 1994, Mr. Tyree was
granted an option to acquire 1,000 shares at an exercise price of
$2.75 per share. The closing bid price of the Company's Common
Stock as quoted on the NASDAQ System on September 30, 1994, was
$2.875 per share. This option expires on October 1, 2004. On
October 1, 1995, Mr. Tyree was granted an option to acquire 1,000
shares at an exercise price of $0.59 per share. The closing bid
price of the Company's Common Stock as quoted on the NASDAQ
System on September 29, 1995, was $0.59375 per share. This
option expires on October 1, 2005. On October 1, 1996, Mr. Tyree
was granted an option to acquire 2,000 shares at an exercise
price of $1.47 per share which expires on October 1, 2006. The
closing bid price of the Company's Common Stock as quoted on the
NASDAQ System on September 30, 1996 was $1.50 per share. All of
Mr. Tyree's options currently are exercisable.
(5) Dr. Walsh, a current member of the Board of Directors, was
granted an option to acquire 15,000 shares of Common Stock on
January 31, 1992 for an exercise price of $3.00 per share. This
option expires on January 31, 2002. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on January
30, 1992 was $2.50 per share. Dr. Walsh was granted an
additional option on October 1, 1992 to acquire 667 shares of
Common Stock at an exercise price of $2.875 per share. This
option expires on October 1, 2002. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on
September 30, 1992 was $2.625 per share. Dr. Walsh was granted
an additional option on October 1, 1993 to acquire 1,000 shares
of Common Stock at an exercise price of $2.125 per share. This
option expires on October 1, 2003. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on
September 30, 1993 was $2.00 per share. The exercise price of
all of Dr. Walsh's then existing options was reduced to $2.00 per
share on January 31, 1994. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on January
28, 1994 was $4.625 per share. On October 1, 1994, Dr. Walsh was
granted an option to acquire 1,000 shares at an exercise price of
$2.75 per share. The closing bid price of the Company's Common
Stock as quoted on the NASDAQ System on September 30, 1994, was
$2.875 per share. This option expires on October 1, 2004. On
October 1, 1995, Dr. Walsh was granted an option to acquire 1,000
shares at an exercise price of $.59 per share. The closing bid
price of the Company's Common Stock as quoted on the NASDAQ
System on September 29, 1995, was $.59375 per share. This option
expires on October 1, 2005. On October 1, 1996, Dr. Walsh was
granted an option to acquire 2,000 shares at an exercise price of
$1.47 per share which expires on October 1, 2006. The closing
bid price of the Company's Common Stock as quoted on the NASDAQ
System on September 30, 1996 was $1.50 per share. All of Dr.
Walsh's options currently are exercisable.
<PAGE> 8
(6) Mr. Luther, a current member of the Company's Board of
Directors, holds warrants to acquire 50,000 shares of Common
Stock at a price of $0.6407 per share. These warrants were
granted as compensation for work per the terms of Mr. Luther's
agreement with the Company to serve as Senior Vice President of
Marketing for a term of one year. In addition, Mr. Luther was
granted options to acquire 15,000 shares of the Company's Common
Stock on January 31, 1996, for an exercise price of $.8125 per
share, which option expires on January 31, 2006. On October 1,
1996, Mr. Luther was granted an option to acquire 1,333 shares at
an exercise price of $1.47 per share which expires on October 1,
2006. The closing bid price of the Company's Common Stock was
quoted on the NASDAQ System on September30, 1996 was $1.50 per
share. All of Mr. Luther's options are currently exercisable.
Also includes 59,000 shares owned by Mr. Luther and held in
nominee name.
(7) Includes options to acquire 15,000 shares of the Company's
Common Stock granted to Ms. Hunter on June 18, 1997 pursuant to
the Company's 1996 Stock Plan. Such options are exercisable at
$0.78 per share and expire on June 18, 2007. The closing bid
price of the Company's Common Stock as listed on the NASDAQ
System on June 18, 1997 was $0.75. Ms. Hunter has 5,000 options
currently exercisable. Also includes 2,000 shares owned by Ms.
Hunter and held in nominee name.
PROPOSAL ONE: ELECTION OF DIRECTORS
The directors of the Company are elected annually and hold office
until the next annual meeting of shareholders and until their
successors shall have been elected and qualified. Shares
represented by all proxies received by the Board of Directors and
not so marked as to withhold authority to vote for any individual
director or for all directors will be voted (unless one or more
nominees are unable or unwilling to serve) for fixing the number
of directors for the ensuing year at four and for the election of
the nominees named in the following table. The Board of Directors
knows of no reason why any such nominee should be unable or
unwilling to serve, but if such be the case, proxies will be
voted for the election of some other person or for fixing the
number of directors at a lesser number.
Officers and Directors
The following table sets forth the current and proposed directors
and executive officers of the Company as of August 20, 1997, and
the ages of and positions with the Company held by each of such
persons:
Name Age Positions
Angelo S. Morini (1) 54 Chairman of the Board of Directors,
President, and Chief Executive Officer
Cynthia L. Hunter 27 Chief Financial Officer and
Corporate Secretary
Earl G. Tyree (1) 76 Director
Douglas A. Walsh (1) 52 Director
Marshall K. Luther (1) 44 Director
(1) Nominee for Director. The current directors of the Company
are the sole nominees for election to the Board of Directors for
the ensuing year.
<PAGE> 9
Each director is elected to hold office until the next annual
meeting of shareholders and until his successor is chosen and
qualified. The officers of the Company are elected annually at
the first Board of Directors meeting following the annual meeting
of shareholders, and hold office until their respective
successors are duly elected and qualified, unless sooner
displaced.
Angelo S. Morini has been President of the Company since its
inception and is the inventor of formagg. He was elected
Chairman of the Board of Directors, President, and Chief Executive
Officer in 1987. Between 1974 and 1980, Mr. Morini was the general
manager of Galaxy Cheese Company, which operated as a sole proprietorship
until its incorporation in May 1980. Prior to 1974, he was associated with
the Food Service Division of Pillsbury Company and the Post Division of
General Foods Company. In addition, he worked in Morini Markets, his
family-owned and operated chain of retail grocery stores in the
New Castle, Pennsylvania, area. Mr. Morini received a B.S.
degree in Business Administration from Youngstown State
University in 1968.
Cynthia L. Hunter, CPA was elected Chief Financial Officer and
Assistant Secretary on June 30, 1997 and Corporate Secretary on
August 6, 1997. Prior to joining the Company, Ms. Hunter worked
as an senior auditor for Coopers & Lybrand L.L.P. in Orlando,
Florida from December 1994 to June 1997 and an associate auditor
for Coopers and Lybrand from October 1993 to December 1994.
Prior to her experience at Coopers, Ms. Hunter worked as a Cost
Accountant at Pratt & Whitney, a division of United Technologies.
During her years in public accounting, Ms. Hunter was responsible
for coordinating and overseeing audits on a variety of clients
including manufacturing and electronics companies. Ms. Hunter
earned a B.S. in Accounting from Florida State University,
Tallahassee, Florida in May 1991 and a Masters in Accountancy
also from Florida State University, in May 1992.
Earl G. Tyree has been a director of the Company since September
1992. From 1980 to 1994, Mr. Tyree served as President of Bruce
Novograd Advertising, Incorporated, a company he co-founded.
From 1975 to 1979, Mr. Tyree was President of the John F. Murray
advertising division of American Home Products Corporation and
from 1972 to 1975, Mr. Tyree served as President of Sterling
Drug, Incorporated, whose subsidiaries included the Bayer Company
(Bayer Aspirin), the Charles H. Phillips Company (Milk of
Magnesia), and Glenbrook Laboratories. Mr. Tyree attended the
University of Richmond where he majored in accounting.
Douglas A. Walsh, D.O., has been a director of the Company since
January 1992. Dr. Walsh has been a practicing physician since
1970, specializing in Family Practice and Sports Medicine. From
1984 to present, he has been affiliated with Family Doctors, a
four-physician group located in Tampa, Florida. From 1971 to
1984, he was the Health Commissioner for Mahoning County, Ohio,
and from 1983 to 1985, he was the Clinic Commander for the U.S.
Air Force 911 Tac Clinic in Pittsburgh, Pennsylvania. From 1985
to 1988, he was a flight surgeon at Patrick Air Force Base, Cocoa
Beach, Florida. Dr. Walsh's teaching appointments include
Associate Professor of Family Practice (Clinical) at Ohio
University and Clinical Preceptor at the University of Health
Sciences, Kansas City, Missouri. Dr. Walsh received a B.S.
degree in Microbiology from the University of Houston, Houston,
Texas, in 1965, and a D.O. degree from the University of Health
Sciences, Kansas City, Missouri, in 1970. Dr. Walsh also serves
as a team physician for the Pittsburgh Pirates organization.
<PAGE> 10
Marshall K. Luther was elected to the Board of Directors on
January 31, 1996. From 1993 to 1995, Mr. Luther served as Senior
Vice President, Marketing of Tropicana Products, Inc. and from
1975 to 1992, he served in various marketing positions for
General Mills International Restaurants. Mr. Luther received his
B.S. in Engineering from Brown University in 1974 and his M.B.A.
in Marketing from the Wharton Graduate School of Business in
1976.
To the knowledge of the Company, no executive officer or director
of the Company is a party adverse to the Company or has material
interest adverse to the Company in any legal proceeding.
Certain Relationships and Related Party Transactions
On October 1, 1991, Mr. Morini was issued an option to acquire
91,500 shares of the Company's stock at $3.575 per share. The
original exercise price of this option was reduced by the Board
of Directors to $.50 per share on August 31, 1993. The term to
exercise this option expired as of October 1, 1996. On October
1, 1996, the Board of Directors extended the expiration date of
such option to October 1, 2001.
On August 28, 1995, the Company entered into a one year agreement
with Marshall K. Luther for Mr. Luther to serve in the capacity
of Senior Vice President of Marketing. Mr. Luther will be
overseeing marketing of the Company's product as well as
identifying new markets and products. He is a former senior
marketing executive with companies such as Tropicana Products
Inc. and General Mills, Inc. Under the terms of this contract,
Mr. Luther received the right to purchase 50,000 shares of the
Company's Common Stock at a price of $0.6407 per share. The
Company has also agreed to pay a standard broker commission to
Mr. Luther for any sales generated by him. Mr. Luther became a
member of the Board of Directors of the Company on January 31,
1996.
On October 10, 1995, the Company entered into an employment
agreement with Angelo S. Morini. The agreement increases Mr.
Morini's base salary to $250,000 per year from $200,000.
Additionally, the agreement details additional noncash
compensation based on the performance of the Company. The
agreement also grants the rights to purchase up to 18,000,000
shares of the Company's Common Stock by Mr. Morini.
As of October 11, 1995, Mr. Morini exercised the option with
respect to all 18,000,000 shares of Common Stock. Pursuant to
the terms of the Employment Agreement, Mr. Morini executed in
favor of the Company a balloon promissory note in the principal
amount of $11,572,200 to evidence the purchase price for the
shares of Common Stock. The note bears interest at the rate of
seven percent per annum and is due and payable in full on October
11, 2000, subject to Mr. Morini's option to extend the note for
up to five additional years provided that he pays at least one-
third of the then accrued but unpaid interest, with any remaining
unpaid interest to be added to principal. In order to secure the
note, Mr. Morini executed in favor of the Company a stock pledge
and security agreement pursuant to which Mr. Morini granted the
Company a first priority security interest in all of the shares
obtained upon the exercise of his option. See "Executive
Compensation - Employment Agreement with Chief Executive
Officer".
On July 1, 1997, Mr. Morini was granted an option to acquire
1,000,000 shares of the Company's Common Stock at an exercise
price of $0.75 per share under the terms of his employment
agreement, which option expires on July 1, 2002. The closing bid
price of the Company's stock as quoted on the NASDAQ System on
June 30, 1997 was $0.75.
<PAGE> 11
Angelo S. Morini's brother, Christopher Morini, works for the
Company as Vice President of Marketing. On May 16, 1996,
Christopher Morini was issued an option to purchase 50,000 shares
of the Company's Common Stock at a price of $1.21 per share.
This option expires on May 16, 2006 and is currently exercisable
for 20,000 of the 50,000 shares under this option.
Meetings of the Board of Directors and Committees
The Board of Directors met one time during the fiscal year ended
March 31, 1997 and all the Directors were present.
The Board of Directors previously appointed a Compensation and
Benefits Committee to administer the Company's stock plans and
make such recommendations to the Board regarding other
compensation and benefits for employees, consultants and
directors of the Company as the Committee deems advisable. The
Committee administers the Company's 1987 Stock Plan, 1991 Non-
Employee Director Stock Option Plan and 1991 Employee Stock
Purchase Plan. This Committee did not meet during the fiscal year
ended March 31, 1996. As of August 1, 1996, the Committee was
comprised of Messrs. Morini, Tyree and Walsh. On August 5, 1996,
the Board of Directors elected to terminate the Compensation and
Benefits Committee and shall undertake the duties thereof.
The Board of Directors previously appointed an Audit Committee to
oversee the accounting and financial functions of the Company,
including matters relating to the appointment and activities of
the Company's auditors. The Committee did not meet during fiscal
year ended March 31, 1996. As of August 1, 1996, the Committee
was comprised of Messrs. Morini, Luther and Walsh. On August 5,
1996, the Board of Directors elected to terminate the Audit
Committee and shall undertake the duties thereof.
The Company does not currently have a standing Nominating
Committee.
Executive Compensation
The following table sets forth the compensation of the Company's
Chief Executive Officer for the fiscal years ended March 31,
1997, 1996, and 1995 (no other executive officer of the Company
was compensated in an amount in excess of $100,000 for any such
fiscal years):
<PAGE> 12
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Rest. Under- Other
Name and Compen Stock lying LTIP Compen-
Principal Fiscal Salary Bonus sation Award Options/ Payout sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
Angelo Morini(1) 1997 250,000 -- 16,262(2) -- 91,500(5) -- --
Chairman of the 1996 227,917 -- 14,704(3) -- 18,000,000 -- --
Brd. of Directors 1995 196,999 -- 14,496(4) -- 2,400,000 -- --
President, and Chief
Executive Officer
(1) For the fiscal years ended March 31, 1996 and 1995, Mr.
Morini was also paid $8,208 and $33,577, respectively, for
interest on three loans, aggregating $1,035,652, made to the
Company by Mr. Morini. The interest rates on these loans ranged
from 12% to 14% per annum. These loans were paid in full by June
7, 1995. On October 10, 1995, the Company entered into an
employment agreement with Mr. Morini upon terms and conditions
approved by the Board of Directors. In accordance with the terms
of such employment agreement, Mr. Morini was granted the right to
purchase up to 18,000,000 shares of the Company's Common Stock at
a per share price of 110% of the average closing bid price as
reported on the NASDAQ System for the ten trading days preceding
the receipt by the Company of written notice of Mr. Morini's
election to purchase shares. Mr. Morini exercised this option on
October 11, 1995, for a price per share of $0.6429 and currently
owes $11,572,200 for a note payable to the Company. On August
11, 1993, the Board of Directors approved the issuance to Angelo
S. Morini of an option to purchase 2,400,000 shares of the
Company's Common Stock for a purchase price of $.50 per share in
consideration for Mr. Morini's past services to the Company, the
pledge by Mr. Morini of all of then-current shares owned by Mr.
Morini to the Company's then principal lender, J&C Resources,
Inc. ("J&C"), to secure loans made to the Company, and the
subordination of all loans made by Mr. Morini to the Company to
payment of the sums due J&C. Mr. Morini exercised this option on
November 4, 1994 and currently owes $1,200,000 for a note payable
to the Company. See "Certain Relationships and Related Party
Transactions."
(2) For the fiscal year ended March 31, 1997, the Company paid
$9,107 in lease payments for Mr. Morini's automobile and $7,155
in club dues for Mr. Morini.
(3) For the fiscal year ended March 31, 1996, the Company paid
$9,107 in lease payments for Mr. Morini's automobile and $5,597
in club dues for Mr. Morini.
(4) For the fiscal year ended March 31, 1995, the Company paid
$9,107 in lease payments for Mr. Morini's automobile and $5,389
in club dues for Mr. Morini.
(5) On October 1, 1991, Mr. Morini was issued an option to
acquire 91,500 shares of the Company's stock at $3.575 per share.
The original exercise price of this option was reduced by the
Board of Directors to $.50 per share on August 31, 1993. The
term to exercise this option expired as of October 1, 1996. On
October 1, 1996, the Board of Directors extended the expiration
date of such option to October 1, 2001.
<PAGE> 13
The following table sets forth information concerning each grant
of stock options and freestanding stock appreciation rights
during the fiscal year ended March 31, 1997 by each of the
executive officers named in the Summary of Compensation Table
above, and the fiscal year-end value of unexercised options and
SARs.
OPTION/SAR GRANTS
For the Fiscal Year Ended March 31, 1997
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Value
Shares Realized
Name Granted(#) ($) Exercisable/Unexer. Exercisable/Unexer.
Angelo Morini 91,500 -- 91,500 -- 28,594(1) --
(1) The value of the unexercised shares at March 31, 1997 is
based on the difference between the closing sales price of the
Company's Common Stock of $0.8125 on March 31, 1997 and an
exercise price of $0.50.
Compensation of Directors
Each non-employee director who served on the Board of
Directors during the last fiscal year received a fee of $500
plus expenses for his services.
Additionally, each non-employee director of the Company is
entitled to receive on October 1 of each year, options to
purchase a number of shares of Common Stock equal to (i)
1,000 shares, if such director served for a full year prior
to the October 1 anniversary date, or (ii) a pro rated
amount equal to 83.33 shares for each full month served
during the year prior to such anniversary date, if such
director did not serve for a full year prior to the
anniversary date. Such options are granted pursuant to the
Company's 1991 Non-Employee Director Stock Option Plan (the
"1991 Plan") which was adopted by the Board of Directors on
October 1, 1991, and approved by the shareholders of the
Company on January 31, 1992. As originally adopted, 33,500
shares of Common Stock were reserved for issuance under the
1991 Plan. Of these 33,500 shares, Dr. Richard Gentile, a
former director, and Mr. Earl Tyree and Dr, Douglas Walsh,
current directors, each received options on October 1, 1995
to purchase 1,000 shares of Common Stock. Dr. Douglas
Walsh, Mr. Earl Tyree and Mr. Marshall Luther, all current
directors, each received options on October 1, 1996 to
purchase 2,000, 2,000 and 1,333 shares respectively of
Common Stock. The remaining 22,617 shares are available for
issuance pursuant to options granted under the 1991 Plan.
<PAGE> 14
Employment Agreement of Chief Executive Officer
As of October 10, 1995, the Company entered into an
Employment Agreement (the "Agreement") with Angelo S.
Morini, the Company's President and Chief Executive Officer.
The Agreement has a term of five years and provides for an
annual base salary of $250,000. Additionally, Mr. Morini
will receive an annual bonus in an amount equal to five
percent of the Company's pre-tax net income for book
purposes, as determined by the Company's independent
certified public accounting firm. Other material provisions
of the Agreement are as follows:
1. Mr. Morini shall have the right to purchase (the
"Purchase Rights") up to 18,000,000 shares of the Company's
Common Stock, at a per share price of 110% of the average
closing bid price as reported on the NASDAQ System for the
ten trading days preceding the receipt by the Company of
written notice of Mr. Morini's election to purchase shares.
The purchase price for such shares may be evidenced by a
promissory note executed by Mr. Morini in favor of the
Company, which note shall bear interest at a rate at least
equal to the applicable federal rate established by the
United States Internal Revenue Service. The promissory note
shall have a term of five years. Mr. Morini shall have the
option to extend the note for up to five additional years
provided that he pays at least one-third of the then accrued
but unpaid interest, with any remaining unpaid interest to
be added to principal. Any such promissory note shall be
secured by a first priority security interest in all shares
purchased by Mr. Morini in conjunction with the exercise of
the Purchase Rights as evidenced by a stock pledge and
security agreement executed by Mr. Morini in favor of the
Company.
2. Mr. Morini shall be granted certain options to
purchase Common Stock upon the Company's achievement of each
of the following milestone events:
Milestone Event Number of Options Granted
Reaching break-even for a 1,000,000
calendar quarter
Annual net operating income 1,000,000
of $1,000,000 or more
Each increment of $1,000,000 1,000,000
of annual net operating income
in excess of $1,000,000
Each of the options granted as aforesaid shall have a term
of five years from the date granted and shall be exercisable
in whole or in part upon the delivery by Mr. Morini to the
Company of written notice of exercise. The exercise price
for each of the options shall be the closing bid price of
the Company's Common Stock on the trading day immediately
<PAGE> 15
preceding the Company's achievement of the related milestone
event as established by the NASDAQ System. The exercise
price for any such option shares may be evidenced by a
promissory note executed by Mr. Morini in favor of the
Company and bearing interest at a rate at least equal to the
applicable federal rate established by the United States
Internal Revenue Service. The promissory note shall have a
term of five years. Mr. Morini shall have the option to
extend the note for up to five additional years provided
that he pays at least one-third of the then accrued but
unpaid interest, with any remaining unpaid interest to be
added to principal. Any such promissory note shall be
secured by a first priority security interest in all shares
purchased by Mr. Morini in conjunction with the exercise of
the options as evidenced by a stock pledge and security
agreement executed by Mr. Morini in favor of the Company.
3. The Agreement is terminable by Mr. Morini upon
the delivery of written notice of termination in the event
that a majority of the Company's Board of Directors is at
any time comprised of persons for whom Mr. Morini did not
vote in his capacity as a director or a shareholder of the
Company (a "Change of Control"). If Mr. Morini abstains
from voting for any person as a director, such abstention
shall be deemed to be an affirmative vote by Mr. Morini for
such person as a director.
4. If the Agreement is terminated, regardless of
the reason for such termination, Mr. Morini shall be
entitled to retain all unexercised Purchase Rights and
options granted under the Agreement and all shares of Common
Stock issued in connection with the exercise of such
Purchase Rights and options, and shall receive all earned
but unpaid base salary through the effective date of
termination and all accrued but unpaid bonuses for the
fiscal year(s) ending prior to the effective date of
termination. Additionally, in the event that Mr. Morini's
employment is terminated without cause or due to his death,
total disability or legal incompetence, or if Mr. Morini
terminates his employment upon a change of control, the
Company shall pay to Mr. Morini or his estate severance pay
equal to three times the amount of Mr. Morini's annual base
salary (before deductions for withholding, employment and
unemployment taxes), and a bonus for the year of termination
and the following two years equal to the average of the two
bonuses paid to Mr. Morini under the Agreement.
5. In the event of a change of control, Mr.
Morini may, at any time thereafter, require that the Company
purchase up to 1,638,564 shares of his Common Stock at a
purchase price of $.50 per share, subject to adjustment for
any increase or decrease in the number of outstanding shares
of the Company's Common Stock or in the event that the
Common Stock is changed into or exchanged for a different
number or class or kind of shares or securities of the
Company, by reason of merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock
split, combination of shares, exchange of shares, change in
corporate structure or the like.
6. The Company extended the maturity date of that
certain Promissory Note dated as of November 4, 1994,
executed by Mr. Morini in favor of the Company in the
principal amount of $1,200,000 in conjunction with his
exercise of options previously granted by the Company for
two additional years until November 4, 2001.
<PAGE> 16
7. Mr. Morini has agreed that in the event he
voluntarily terminates his employment with the Company or if
he is terminated for "cause" (as defined in the Agreement),
he will not compete with the Company for a period of one
year following the date of termination of his employment
with the Company, whether as an employee, officer, director,
partner, shareholder, consultant or independent contractor
in any business substantially similar to that conducted by
the Company within those areas in the United States in which
the Company is doing business as of the date of termination.
As of October 11, 1995, Mr. Morini exercised the Purchase
Rights with respect to all 18,000,000 shares of Common Stock
subject thereto (the "Purchase Right Shares"). In
connection with the exercise of such Purchase Rights, Mr.
Morini executed in favor of the Company a balloon promissory
note (the "Note") in the principal amount of $11,572,200.
The Note bears interest at the rate of seven percent per
annum and is due and payable in full on October 11, 2000,
subject to Mr. Morini's option to extend the Note for up to
five additional years provided that he pays at least one-
third of the then accrued but unpaid interest, with any
remaining unpaid interest to be added to principal. In
order to secure the Note, Mr. Morini executed in favor of
the Company a stock pledge and security agreement pursuant
to which Mr. Morini granted the Company a first priority
security interest in all of the Purchase Right Shares.
On July 1, 1997, Mr. Morini was granted an option to acquire
1,000,000 shares of the Company's Common Stock at an
exercise price of $0.75 per share under the terms of his
employment agreement, which option expires on July 1, 2002.
The closing bid price of the Company's stock as quoted on
the NASDAQ System on June 30, 1997 was $0.75.
PROPOSAL TWO: TO RATIFY THE RETENTION OF BDO
SEIDMAN L.L.P. AS THE COMPANY'S AUDITORS
The Board of Directors has selected the firm of BDO Seidman
L.L.P. as the Company's independent certified public
accountants for the current fiscal year. BDO Seidman has
served as the Company's independent public accountants for
each of the last four years. It is expected that a
representative of BDO Seidman L.L.P. will be present during
the Annual Meeting. The representative will have an
opportunity to make a statement if he or she so desires and
is expected to be available to respond to appropriate
questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE RETENTION OF BDO SEIDMAN L.L.P. AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE CURRENT
FISCAL YEAR.
<PAGE> 17
SHAREHOLDER PROPOSALS
It is anticipated that the Company's next annual meeting of
shareholders will be held in October 1998, and proposals of
shareholders intended for inclusion in the proxy statement
will be furnished to all shareholders entitled to vote at
the next annual meeting of the Company, and must be received
at the Company's principal executive offices no later than
July 30, 1998, or a reasonable time before the solicitation
is made. It is suggested that proponents submit their
proposals by Certified Mail-Return Receipt Requested.
OTHER BUSINESS
The Board of Directors knows of no business which will be
presented for consideration at the meeting other than stated
above. If any other business should come before the meeting,
votes may be cast pursuant to proxies in respect to any such
business in the best judgment of the person or persons
acting under the proxies.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the
Company. In addition to soliciting shareholders by mail of
by its regular employees, the Company may request banks and
brokers to solicit their customers who have stock of the
Company registered in the name of a nominee and, if so, will
reimburse such banks and brokers for their reasonable out-of-
pocket costs. Solicitation by officers and employees of the
Company, none of whom will receive additional compensation
therefor, may also be made of some shareholders in person or
by mail, telephone or telegraph, following the original
solicitation.
