SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
EQUIVEST FINANCE, INC.
................................................................................
(Name of Registrant as Specified in Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 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:
.........................................................................
|_| Fee paid previously by written 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 the 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>
EQUIVEST FINANCE, INC.
2 CLINTON SQUARE
SYRACUSE, NEW YORK 13202
RICHARD C. BREEDEN
Chief Executive Officer
November 24, 1998
Dear Stockholder and Series 2 Preferred Stockholder:
You are cordially invited to attend Equivest's 1998 annual
meeting of stockholders to be held on Tuesday, December 8, 1998, at 10:00 a.m.,
local time, at Long Wharf Resort, 5 Washington Street, Newport, Rhode Island.
The enclosed notice and proxy statement contain details concerning the business
to be acted upon at the meeting. A proxy card is also enclosed, and we hope that
you will attend the meeting either in person or by proxy.
In addition to the election of directors, approval of
amendments to the Company's 1997 Long-Term Incentive Plan and ratification of
the appointment of Firley, Moran, Freer & Eassa, P.C. to serve as independent
auditors of the Company, you are being asked to consider a proposal giving the
Board of Directors authorization to effect a reverse stock split of the issued
and outstanding common stock of the Company.
You will note that the Board of Directors of the Company
recommends a vote FOR the election of directors, a vote FOR the authorization of
a reverse stock split amendment to the certificate of incorporation of the
Company, a vote FOR the proposed amendments to the Company's 1997 Long-Term
Incentive Plan and a vote FOR the ratification of the appointment of Firley,
Moran, Freer & Eassa, P.C. to serve as the independent auditors of the Company.
Please sign and return your proxy card in the enclosed
postage-paid envelope at your earliest convenience to assure that your shares
will be represented and voted at the meeting even if you cannot attend.
To help us plan for the meeting, please mark the appropriate
box on the accompanying proxy card telling us if you will be attending.
Sincerely,
/s/ Richard C. Breeden
-----------------------------------
Richard C. Breeden
Chief Executive Officer
<PAGE>
EQUIVEST FINANCE, INC.
(the "Company")
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS
OF EQUIVEST FINANCE, INC.
The annual meeting of stockholders of the Company will be
held at Long Wharf Resort, 5 Washington Street, Newport, Rhode Island, on
Tuesday, December 8, 1998, at 10:00 a.m., local time, for the following
purposes:
(i) to elect five directors;
(ii) to consider the proposed amendment to the 1997
Long-Term Incentive Plan (a) increasing the number
of shares of Common Stock that may be issued from
1.6 million to 3.5 million and (b) increasing the
limit on the number of shares that may be awarded to
a participant in any calender year from 400,000 to 1
million;
(iii) to consider amending the certificate of
incorporation of the Company to provide for a
reverse stock split in accordance with exchange
ratio alternatives of three to one, four to one or
five to one, to be authorized, of the issued and
outstanding common stock of the Company;
(iv) to ratify the appointment of Firley, Moran, Freer &
Eassa, P.C. to serve as the independent auditors of
the Company; and
(v) to transact such other business as may properly come
before the meeting and any adjournments thereof.
Holders of record of the Company's Common Stock, par value
$.05 per share, and Series 2 Class A Preferred Stock at the close of business on
October 15, 1998 are entitled to notice of, and to vote at, the meeting and any
adjournments thereof.
EACH STOCKHOLDER IS URGED TO EXECUTE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY. IN THE EVENT A STOCKHOLDER DECIDES TO ATTEND THE MEETING,
HE OR SHE MAY, IF SO DESIRED, REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.
By Order of the Board of Directors
/s/ Eric. C. Cotton
--------------------------------------
Eric C. Cotton
Secretary
Syracuse, New York
November 24, 1998
3
<PAGE>
EQUIVEST FINANCE, INC.
2 CLINTON SQUARE
SYRACUSE, NEW YORK 13202
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 8, 1998
This proxy statement (the "Proxy Statement") is furnished in
connection with the solicitation of proxies by the board of directors (the
"Board of Directors") of Equivest Finance, Inc. (the "Company"), a Florida
corporation to be reincorporated as a Delaware corporation prior to the date of
the annual meeting of stockholders of the Company (the "Annual Meeting"), for
use at the Annual Meeting or any adjournments thereof. The Annual Meeting is to
be held at Long Wharf Resort, 5 Washington Street, Newport, Rhode Island, on
Tuesday, December 8, 1998, at 10:00 a.m., local time. The approximate date on
which this Proxy Statement and form of proxy are being first sent to
stockholders is November 24, 1998.
The presence, either in person or by properly executed proxy,
of the owners of a majority of the outstanding shares of common stock, par value
$.05 per share (the "Common Stock"), and the outstanding shares of Series 2
Class A Preferred Stock (the "Series 2 Preferred Stock") of the Company, voting
together as one class, is necessary to constitute a quorum at the Annual Meeting
and to permit action to be taken by the stockholders at such meeting. Only
holders of record of shares of the Common Stock and Series 2 Preferred Stock at
the close of business on October 15, 1998 (the "Record Date") are entitled to
vote at the Annual Meeting (such shares being collectively referred to as the
"Voting Stock") or any adjournments thereof. The Series 2 Preferred Stock
holders on the Record Date account for 20% of voting power of the Voting Stock.
Holders of the Common Stock on the Record Date account for 80% of voting power
of the Voting Stock, and each such holder is entitled to one vote for each share
of Common Stock so held. The Series 2 Preferred Stock holders shall vote with
the Common Stock holders (such holders of record on the Record Date shall,
collectively, be referred to as the "Stockholders") as a single class on all
matters presented at the Annual Meeting. As of September 30, 1998, there were
25,198,368 shares of Common Stock and 10,000 shares of Series 2 Preferred Stock
of the Company outstanding. The Bennett Funding Group, Inc. ("BFG"), Bennett
Management & Development Corp. ("BMDC") and certain other related debtors
(collectively, the "Estate"), currently involved in proceedings under Chapter 11
of the United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the Northern District of New York (the "Bankruptcy
Court"), own 80.2% of the Common Stock, and BFG owns 100% of the Series 2
Preferred Stock. Together, the Common Stock ownership of the Estate and the
Series 2 Preferred Stock ownership of BFG represent approximately 84.2% of the
voting power entitled to vote at the Annual Meeting. Richard C. Breeden, the
trustee for the Estate (the "Trustee"), has indicated that he will vote in favor
of each of the proposals presented at the Annual Meeting, subject to
authorization by the Bankruptcy Court.
All properly executed proxies delivered pursuant to this
solicitation and not revoked will be voted at the Annual Meeting in accordance
with the directions given. Stockholders voting by proxy for the election of
directors may vote in favor of all nominees, withhold their votes as to all
nominees or withhold their votes as to specific nominees. The elected nominees
for director will hold office until the 1999 annual meeting and until their
respective successors are elected and qualify. Stockholders voting by proxy
regarding any of the following may vote for or against each and any of the
proposals or may withhold their vote as to any of them:
(i) the approval of the proposed amendments to the
Company's 1997 Long-Term Incentive Plan
(the "LTIP");
1
<PAGE>
(ii) the approval of the proposed amendment to the
certificate of incorporation to provide for a
reverse stock split in accordance with exchange
ratio alternatives of three to one, four to one or
five to one, to be authorized, of the issued and
outstanding Common Stock (the "Reverse Stock Split
Amendment"); and
(iii) the ratification of the appointment of Firley,
Moran, Freer & Eassa, P.C. ("FMFE") to serve as the
independent auditors of the Company.
Stockholders should specify their choices on the enclosed
form of proxy. If no specific instructions are given with respect to the matters
to be acted upon, the shares represented by a signed proxy will be voted FOR (i)
each of the nominees for election for director to serve until the 1999 annual
meeting of stockholders, (ii) the approval of the proposed amendments to the
Company's 1997 LTIP, (iii) the Reverse Stock Split Amendment and (iv) the
ratification of the appointment of FMFE to serve as the independent auditors of
the Company.
Directors will be elected by a plurality of the voting power
of the Voting Stock, whether cast by the Stockholders voting in person or by
proxy at the Annual Meeting. Each other matter subject to a vote at the Annual
Meeting requires the affirmative vote of a majority of the voting power of the
Voting Stock, whether cast by the Stockholders in person or by proxy.
Abstentions and broker non-votes will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business at the Annual
Meeting and will not affect the outcome of the vote for the election of
directors. However, abstentions and broker non-votes will have the same
practical effect as votes cast against each of (i) the approval of the proposed
amendments to the Company's 1997 LTIP, (ii) the Reverse Stock Split Amendment
and (iii) the ratification of the appointment of FMFE to serve as the
independent auditors of the Company.
The Board of Directors of the Company knows of no business
that will be presented for consideration at the Annual Meeting other than the
matters described in this Proxy Statement. If any other matters are presented at
the Annual Meeting, the persons named in the proxy card will vote in accordance
with their judgment.
All proxies delivered pursuant to this solicitation are
revocable at any time at the option of the persons executing them by giving
written notice of revocation to the Secretary of the Company at the address set
forth above before the Annual Meeting, by delivering another proxy bearing a
later date or by attending the Annual Meeting and voting in person.
2
<PAGE>
PROPOSAL NO. I:
ELECTION OF DIRECTORS
Board of Directors
The Board of Directors has set the number of directors of the
Company at five. The directors nominated for election at the Annual Meeting are
Richard C. Breeden, Thomas J. Hamel, R. Perry Harris, George W. Carmany, III and
John R. Petty.
The elected nominees for directors will hold office until the
1999 annual meeting of stockholders and until their respective successors are
elected and qualify.
Should any one or more of these nominees become unable to
serve, or for good cause will not serve, the Board of Directors may designate a
substitute nominee or nominees, in which event the shares represented by all
valid proxies received may be voted for such substitute nominee or nominees. The
Board of Directors knows of no reason why any nominee may be unable to serve as
a director.
Recommendation of the Board of Directors Concerning the Election of Directors
The Board of Directors recommends a vote FOR Richard C.
Breeden, Thomas J. Hamel, R. Perry Harris, George W. Carmany, III and John R.
Petty to serve as directors of the Company. Proxies received by the Board of
Directors will be so voted unless a contrary choice is specified.
- --------------------------------------------------------------------------------
Nominees for Election to Board of Directors
- --------------------------------------------------------------------------------
Richard C. Breeden Director since: 1997
Age: 48
Richard C. Breeden has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since October 1997. Since 1996, Mr. Breeden has
also been President and CEO of Richard C. Breeden & Co., Inc., in Greenwich,
Connecticut, and Trustee for the Estate. Breeden & Co. provides consulting and
management services in turnarounds, bankruptcies and other corporate distress
situations, as well as consulting on global and domestic capital markets. A
graduate of Stanford University and the Harvard Law School, Mr. Breeden served
in the White House as a senior economics and financial advisor to President
George Bush, where he was the principal architect of the government's program to
restructure the savings and loan industry and to create the Resolution Trust
Corporation. From 1989-1993 he served as Chairman of the U.S. Securities and
Exchange Commission (the "SEC"), following appointment by President Bush and
unanimous confirmation by the U.S. Senate. From 1993-1996, Mr. Breeden served as
Chairman of the worldwide financial services practice of Coopers and Lybrand
L.L.P. Mr. Breeden has served on numerous boards and commissions, including the
North American Advisory Board of Daimler-Benz A.G., The Philadelphia Stock
Exchange, Inc., W.P. Stewart & Co., Ltd., the German-American Chamber of
Commerce, and advisory commissions on capital markets in Italy, China and
Russia. Mr. Breeden is a trustee of St. Paul's Cathedral Trust in America and
the National Policy Association in Washington, D.C. Mr. Breeden serves as a
director of the Company in his capacity as Trustee and as a representative of
the Estate.
3
<PAGE>
Thomas J. Hamel Director since: 1996
Age: 40
Thomas J. Hamel has been a director of the Company since 1996, and served as
President and Chief Operating Officer of the Company during fiscal year 1997.
Mr. Hamel is also the President and Chief Operating Officer of Resort Funding,
Inc. ("RFI"), a wholly owned subsidiary of the Company, and has held those
positions since February 1996. From 1992 through October 1996, Mr. Hamel served
as Executive Vice-President of RFI and was responsible for business development.
- --------------------------------------------------------------------------------
R. Perry Harris Director since: 1998
Age: 59
R. Perry Harris founded Eastern Resorts Corporation ("ERC"), a wholly-owned
subsidiary of the Company, in 1981. A graduate of the University of
Massachusetts, Mr. Harris began his early career at Digital Equipment
Corporation. Mr. Harris founded First Data Corporation in 1970 and served as a
director and its President until 1977. Mr. Harris has spent the last 16 years as
the Chief Executive Officer of ERC. He is a trustee of the American Resort
Development Association ("ARDA") and is a Registered Professional within ARDA.
Mr. Harris is also past chairman of ARDA New England.
- --------------------------------------------------------------------------------
George W. Carmany, III Director since: 1997
Age: 58
George W. Carmany, III has been a director of the Company since October 1997,
has served as Chairman of the compensation committee of the Board of Directors
(the "Compensation Committee") since October 1997 and is a member of the audit
committee of the Board of Directors (the "Audit Committee"). Since 1995, Mr.
Carmany has served as President of The G.W. Carmany Co., Inc. in Boston,
Massachusetts, advisors to and investors in small companies. A graduate of
Amherst College, Mr. Carmany began his business career with Bankers Trust
Company as an officer in its International Banking Department in New York, and
later as Executive Director of its merchant banking subsidiary in Australia.
From 1975-1995 he served in a variety of senior positions with American Express
Company, including Senior Vice President, Corporate Strategic Planning. At
American Express Bank, Mr. Carmany served as Senior Executive Vice President and
Chief Administrative Officer before joining American Express' subsidiary The
Boston Company as Senior Executive Vice President, Treasurer and Director, a
position he held until the sale of that company to Mellon Bank Corporation. Mr.
Carmany subsequently served as Chairman of the Olympia and York Noteholder's
Steering Committee from 1996-1997. Mr. Carmany is the former Chairman of the New
England Medical Center, Inc., and since 1997 has served as Vice Chairman of
Lifespan Inc., a regional healthcare system based in Providence, Rhode Island,
and as a director or trustee of numerous organizations, including Ekco Group,
Inc., Bentley College, the U.S.S. Constitution Museum and The South Street
Seaport Museum. Mr. Carmany's family owned and operated resort hotels in various
locations in the United States.
- --------------------------------------------------------------------------------
4
<PAGE>
John R. Petty Director since: 1997
Age: 68
John R. Petty has been a director of the Company since October 1997, has served
as Chairman of the Audit Committee since October 1997 and is a member of the
Compensation Committee. Mr. Petty was the former Chairman and Chief Executive
Officer of Marine Midland Bank and Chairman of Federal National Payables, Inc.,
Bethesda, Maryland. Since 1997, Mr. Petty has served as Chairman of TECSEC,
Inc., Vienna, Virginia. Following his graduation from Brown University and a
tour in the US Navy, Mr. Petty joined the Chase Manhattan Bank, where he worked
until serving in the U.S. Treasury Department from 1966-1972, primarily as
Assistant Secretary of the Treasury for International Affairs. After five years
as a partner of Lehman Brothers, Mr. Petty joined Marine Midland, serving as
President and/or Chairman and CEO from 1976-1988. Since retiring from Marine
Midland, Mr. Petty has pursued a variety of interests including serving as
Chairman of the Nippon Credit Trust Company from 1993-1998. He has formed and
managed finance companies and is a principal in high technology ventures. Mr.
Petty has served as a director of numerous public companies, including Hongkong
and Shanghai Banking Corporation, RCA, NBC, Hercules, Inc., Anixter
International Corporation, ANTEC Corporation and others. He is a trustee of
American University, a member of the Council on Foreign Relations and of the
Inter-American Dialogue and President of the Foreign Bondholders Protective
Council.
- --------------------------------------------------------------------------------
5
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS,
MEETINGS AND COMPENSATION OF DIRECTORS
The composition of the Board of Directors was reconfigured in
October 1997, and prior to that time Thomas Hamel was the sole director of the
Company. Since then, the Board of Directors held three meetings for fiscal year
1997. Each of the directors who was appointed in October 1997 attended all the
meetings of the Board of Directors during the periods that he served.
The Board of Directors has an Audit Committee and a
Compensation Committee. The Company does not have a Nominating Committee.
The Audit Committee. The Audit Committee of the Board of
Directors was established on October 29, 1997 and is responsible for the review
and examination of matters which primarily relate to a financial audit of the
Company and its subsidiaries, including the audit and certification by the
Company's independent auditors of the Company's financial statements, the
accounting principles used by the Company for corporate and tax reporting
purposes, the adequacy of financial and accounting controls of the Company, the
financial and performance audit of the Company's retirement plan, the
recommendation to the Board of Directors of a firm of Certified Public
Accountants to serve as independent auditor of the Company, and such other
matters which, in the view of the Audit Committee, could affect the financial
value of the Company. Members of the Audit Committee are George W. Carmany, III
and John R. Petty, who were appointed as members on October 29, 1997. John R.
Petty was appointed to serve as Chairman of the Audit Committee on October 29,
1997. The Audit Committee did not hold any meetings during fiscal year 1997
since its establishment in October 1997.
The Compensation Committee. The Compensation Committee of the
Board of Directors was established on October 29, 1997 and is responsible for
the administration of the 1997 LTIP, including the determination of the terms
and conditions thereunder, such as the exercise price for the stock options
granted to employees and directors of the Company. Members of the Compensation
Committee are George W. Carmany, III and John R. Petty, who were appointed as
members on October 29, 1997. George W. Carmany, III was appointed to serve as
Chairman of the Compensation Committee on October 29, 1997. The Compensation
Committee held one meeting during fiscal year 1997 since its establishment in
October 1997.
Compensation of Directors. For fiscal year 1997, Mr. Carmany,
III and Mr. Petty were each granted stock options to purchase an aggregate of
100,000 shares of Common Stock each, at an exercise price of $5.05 per share,
for their services as directors. The directors of the Company are not otherwise
compensated by the Company for their services as directors. The directors are,
however, reimbursed for expenses incurred on behalf of the Company in the
performance of their duties as directors of the Company.
6
<PAGE>
OWNERSHIP OF STOCK BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth information as of September
30, 1998 with respect to persons known to the Company to be the beneficial
owners of more than five percent of the outstanding shares of Common Stock and
Series 2 Preferred Stock of the Company, and with respect to the beneficial
ownership of the outstanding shares of Common Stock and Series 2 Preferred Stock
of the Company held by (i) each director or nominee for director, (ii) Thomas J.
Hamel and Gerald L. Klaben (together, the "Named Executive Officers"), and (iii)
the directors and executive officers as a group. Except as otherwise noted
below, each director or nominee for director and Mr. Klaben has sole voting and
investment power with respect to the shares he or she owns.
<TABLE>
<CAPTION>
Number of Shares Percent
Title of Class Name Beneficially-Owned of-Class(1)
- ------------------ ----------------------------------------------------------- ---------------------- -----------------
<S> <C> <C> <C>
Common Stock, Richard C. Breeden, as Trustee for.......................
par value $.05 The Bennett Funding Group, Inc.,
per share Bennett Management & Development Corp.
and certain other related debtors 20,214,248 79.62%
Thomas J. Hamel (2)...................................... 150,000 0.59%
George W. Carmany, III .................................. -0- -0-
John R. Petty............................................ -0- -0-
R. Perry Harris (3) ..................................... 3,200,000 12.60%
Gerald L. Klaben, Jr. (2)................................ 37,500 0.15%
All directors and executive officers as a group
(6 persons).................................... 23,601,748 92.96%
Series 2 Richard C. Breeden, as trustee for.......................
Class A The Bennett Funding Group, Inc. 10,000 100.00%
Preferred Stock
</TABLE>
(1) The percentage ownership is based upon 25,385,868 shares, comprised of
25,198,368 shares of Common Stock issued and outstanding, and options
to purchase 187,500 shares of Common Stock granted pursuant to the
1997 LTIP that are exercisable within 60 days from the date hereof.
(2) Consists of options granted pursuant to the 1997 LTIP that are
exercisable within 60 days from the date hereof.
(3) Includes 160,000 shares owned by Mr. Harris' wife, Karen Harris.
Mr. Harris disclaims beneficial ownership of these shares.
7
<PAGE>
CERTAIN TRANSACTIONS AND LEGAL PROCEEDINGS
Acquisition of Resort Funding, Inc.
On February 16, 1996, pursuant to an Agreement and Plan of
Exchange (the "Exchange Agreement"), the Company acquired RFI, which was then a
wholly owned subsidiary of BFG known as Bennett Funding International, Ltd. The
Company acquired all of the common stock of RFI from BFG in exchange for the
issuance to BFG of 10,000 shares of the Company's Series 2 Preferred Stock and
3,000 shares of the Company's Convertible Preferred Stock (the "Convertible
Preferred Stock"). As a result of the Exchange Agreement and certain prior
investments, BFG and BMDC acquired beneficial ownership of approximately 86% of
the Company's voting shares. In October 1997, the Board of Directors approved an
amendment to the Company's certificate of incorporation, which increased the
number of authorized shares of Common Stock to 50,000,000 shares. This increase
in authorized shares of Common Stock also resulted in the automatic conversion
of the 3,000 shares of Convertible Preferred Stock into 7,500,000 shares of
Common Stock. Between October 1997 and September 1998, the Company issued
280,254 shares of Common Stock in payment of dividends on its Convertible
Preferred Stock and Series 2 Preferred Stock.
Bankruptcy of Affiliated Companies and Related Litigation
On March 29, 1996, subsequent to the closing of the transactions
contemplated by the Exchange Agreement, BFG and BMDC filed voluntary petitions
(the "Petitions") for reorganization (Case Nos. 96-61376 and 96-61379,
respectively) under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
At the time the Petitions were filed, BFG and BMDC together owned approximately
86% of the Company.
The Petitions were filed after (i) the SEC filed a civil
complaint (the "Civil Complaint") in the United States District Court for the
Southern District of New York (the "District Court") against BFG, BMDC, certain
of their affiliates and Patrick R. Bennett, the former Chief Financial Officer
of BFG (Case No. 96 Civ. 2237 (JES)) and (ii) the United States Attorney for the
Southern District of New York filed a criminal complaint (the "Criminal
Complaint") in the District Court against Patrick Bennett alleging perjury and
criminal violations of the anti-fraud provisions of the federal securities laws.
The Civil Complaint alleged numerous violations of the anti-fraud provisions of
the federal securities laws, based in part on allegations of sales of fictitious
equipment leases, fraudulent misrepresentations to investors in private
placements of debt securities, and misappropriation of corporate assets.
On April 18, 1996, the U.S. Department of Justice appointed,
and the Bankruptcy Court approved, the Hon. Richard C. Breeden as Trustee in
bankruptcy for the Estate. Mr. Breeden was subsequently appointed Trustee of
Aloha Capital Corporation ("ACC"), The Processing Center ("TPC") and certain
other affiliates of BFG.
In June 1996, the Trustee filed an adversary proceeding seeking
more than $1 billion in damages from, among others, prior controlling
stockholders of BFG and its affiliates and certain of their business associates,
BFG's previous auditing firm and others.
On June 26, 1997, a federal grand jury issued a 43-count
indictment against Patrick Bennett, his brother Michael, and two associates on
charges ranging from conspiracy to obstruction of justice. The defendants were
arraigned on July 3, 1997, and were released to await criminal trials after
posting personal recognizance bonds.
In addition to the Civil Complaint and the Criminal Complaint,
several of BFG's affiliates, including the Company and RFI, were named as
defendants in several federal and state class actions in which creditors of the
Estate allege private damages stemming from the fraudulent transactions alleged
in the Civil and Criminal Complaints. The federal class actions were
subsequently consolidated in the District Court (the "Consolidated Class
Actions"). In October 1998, the Trustee and class counsel for the plaintiffs in
the Consolidated Class Actions signed a Memorandum of Understanding (the "MOU")
to settle certain major litigation. The MOU requires approval of both the
District Court and the Bankruptcy Court, as well as satisfaction of other
conditions. The Company has not participated in negotiations concerning the MOU,
and it is not a party to the MOU.
8
<PAGE>
In September 1996, the Trustee submitted a motion on behalf of
BFG and ACC (collectively, the "Debtors") pursuant to Federal Rule of Bankruptcy
Procedure 9019 for approval of the compromise and settlement of the claims of
certain lenders (the "Banks") against the Debtors arising out of certain
lease-financing agreements pursuant to which the Banks made loans to the
Debtors. The settlements, which were approved by the Bankruptcy Court, required
the Banks to make several new, interest-only term loans to RFI at 1/2% to 4%
interest rates (the "Settlement Loans"). Under the terms of the settlements, a
large portion of the proceeds of the Settlement Loans, approximately
$19,000,000, was on-loaned to the Trustee to purchase the Banks' original loans
to the Debtors. RFI's loan to the Trustee bears interest at 10% per annum and is
non-recourse to the Trustee and the Estate. The Trustee pledged certain lease
payment collateral to RFI to secure the loan. RFI is obligated to pay an
arrangement fee of 3% per annum to the Trustee based on the unpaid principal
balance of the Settlement Loans. At December 31, 1997, RFI's outstanding balance
on the Settlement Loans was approximately $22,600,000, on which interest is
payable in monthly installments, and the Trustee had repaid approximately
$15,000,000 of the on-loan. As of September 30, 1998, the Trustee had repaid all
but $1,456,000 of the on-loan.
By an order dated November 24, 1997 (the "Debt/Equity Swap
Order"), the Bankruptcy Court approved the issuance of 4,645,596 shares, at
$5.375 per share, of Common Stock to the Estate. In exchange for the 4,645,596
shares of Common Stock, the Estate canceled $24,970,078.55 in debt owed to BFG
through intercompany notes. An order of the Bankruptcy Court dated September 8,
1998 (corrected September 11, 1998) authorized acceptance by the Trustee of
issuance of 67,113 additional shares of Common Stock in exchange for $360,732.51
of additional debt of RFI to BFG. This debt was inadvertently excluded from the
Debt/Equity Swap Order. The order of the Bankruptcy Court dated September 8,
1998 also authorized the Trustee to transfer to RFI, title to all consumer
receivables and development loans to which RFI claimed to be the true owner. The
order in effect confirmed the Company's title to approximately $27 million of
consumer receivables and development loans without further cost to the Company,
and authorized the Trustee to execute any and all documents necessary to release
all potential claims of the Estate in or to such assets.
By an order dated September 24, 1998, the Bankruptcy Court
approved the Trustee's motion to sell all shares of Common Stock held by the
Estate in a public offering. The order dated September 24, 1998 also deals with
certain aspects of the anticipated employment arrangements between the Trustee
and the Company relating to his employment as a director, Chairman and Chief
Executive Officer of the Company. See "Employment and Consulting Agreements" and
"Proposal No. II: Approval of Amendments to The 1997 LTIP" hereafter for
discussion of the status of the negotiations between the Company and Mr. Breeden
with respect to such arrangements. The Company has not filed a registration
statement with the SEC in connection with a public offering and there can be no
assurance that the Company will file such a registration statement, or that a
public offering will be completed. The Bankruptcy Court also authorized the
Trustee to either (i) exchange the 10,000 shares of Series 2 Preferred Stock
into 1,860,465 shares of Common Stock (the "Exchange"), or (ii) sell the 10,000
shares of Series 2 Preferred Stock to the Company for a sum which is the
multiple of 1,860,465 times the public offering price for the Common Stock minus
the underwriter's discount (the "Sale of Preferred Stock"). The information
contained in this Proxy Statement is presented as of a date prior to the
Exchange or the Sale of Preferred Stock, as the case may be. If the Reverse
Stock Split Amendment discussed in this Proxy Statement is effected, appropriate
adjustments would be required with respect to the number of shares of Common
Stock received in the Exchange or in the calculation of the sum received in the
event of a Sale of Preferred Stock, as the case may be.
Administrative Services Provided by The Bennett Funding Group, Inc.
Under an agreement which expired March 31, 1996, the Company
paid BFG $422,115 in 1996 for various administrative services including billing,
collection, legal and management services. In April 1996, the Company negotiated
with BFG and hired all the employees responsible for such services from BFG. The
Company currently receives administrative services from BFG relating to the
mailing of invoices to customers for amounts due under vacation interval
contracts.
9
<PAGE>
Office Facilities
The Company's five-year lease of its office facilities from BFG
was terminated without penalty in 1997 when the Company relocated within the
same property. Rent expense paid to BFG amounted to $146,399 in 1997. The
Company currently leases its office facilities from BFG on a month-to-month
basis at a monthly rate of $6,782.30. The Company will continue to lease its
office facilities from BFG on a month-to-month basis until a new lease agreement
with BFG is finalized.
Subject to approval by the Bankruptcy Court, pursuant to a
proposed employment contract currently being negotiated with Mr. Breeden, the
Company may sublet an office in Greenwich, Connecticut from Mr. Breeden at a
monthly rate of approximately $4,100. This is the same price that Mr. Breeden
pays the landlord under the existing lease agreement. If the Bankruptcy Court
approval is not obtained under the proposed contract, the Company would lease
other office facilities in Greenwich, which may be at a cost higher than the
cost of the proposed sublet space.
Legal Proceeding Involving Former Executive Officer and Director
In May, 1995, Joseph Mooney resigned from the Company as Senior
Executive Vice President and Director pursuant to a termination agreement
effective May 19,1995, the terms of which provided for Mr. Mooney to be retained
on a consulting basis through November 19, 1995 at the rate of $2,500 per month.
In addition, Mr. Mooney was to receive $75,000 in severance pay, plus certain
other benefits totaling approximately $7,000 through May 31, 1996.
In January 1996, Joseph Mooney, former Senior Executive Vice
President and Director of the Company, filed a lawsuit in the Circuit Court of
Broward County, Florida against the Company, Murray Bacal (the former Chairman
of the Board of the Company), and another defendant alleging, among other
things, that the Company breached its obligations to him under a termination
agreement and a prior letter of intent that Mr. Mooney claims would have
permitted him to acquire certain assets of the Company. Mr. Mooney alleged that
the Company tortously interfered with certain business opportunities he had. Mr.
Mooney's suit seeks certain declaratory and equitable relief, compensatory
damages in excess of $1,050,000, plus prejudgment interest, court costs,
reasonable attorney's fees and such other relief as the court may deem
appropriate. On February 4, 1997, the court granted partial summary judgment to
Mr. Mooney. The damages awarded to Mr. Mooney in the summary judgment were not
material and were covered by insurance. The Company believes that it has
meritorious defenses to the remaining allegations in the complaint and intends
to defend the matter vigorously. In addition, the Company filed certain
counterclaims against Mr. Mooney alleging that Mr. Mooney had wrongfully
retained certain Company property and had wrongfully interfered with the
Company's conduct of its business, all in violation of the terms of the
termination agreement. The counterclaims further allege that Mr. Mooney
knowingly and feloniously obtained, or converted to his own use and benefit, at
least $250,000 of the Company's money. The counterclaims seek compensatory
damages, treble damages, pre- and post-judgment interest, costs, attorney's fees
and such further relief as the court deems appropriate. Mr. Mooney has answered,
denying liability on the Company's counterclaims. The Company intends to
vigorously defend its interests against Mr. Mooney's claims, and pursue its
counterclaims.
10
<PAGE>
INFORMATION REGARDING EXECUTIVE COMPENSATION
The following table summarizes compensation information for
the last three fiscal years for (i) Mr. Breeden, the Chief Executive Officer of
the Company, and (ii) the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Other
Annual Securities
Compen- Underlying All Other
Name and Principal Fiscal Salary Bonus sation (2) Options Compensation
Position (1) Year ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Richard C. Breeden (3)
Chief Executive Officer 1997 -0- -0- -0- -0- (5) -0-
Thomas J. Hamel
President and
Chief Operating Officer 1997 227,463 80,000 -0- 300,000 2,250 (4)
1996 217,958 -0- -0- -0- -0-
1995 224,019 -0- -0- -0- -0-
Gerald L. Klaben, Jr.
Treasurer and
Chief Financial Officer 1997 149,819 50,000 -0- 75,000 900 (4)
1996 58,385 -0- -0- -0- 375 (4)
</TABLE>
(1) Messrs. Hamel and Klaben became executive officers of the Company
during fiscal year 1996 and Mr. Breeden became Chief Executive Officer
during fiscal year 1997. Prior to 1996, Mr. Hamel was an executive
officer of RFI.
(2) Excludes certain perquisites which do not exceed the lesser of $50,000
or 10% of the named individual's aggregate salary and bonus.
(3) For the period ending December 31, 1997, the Company did not
compensate Mr. Breeden for his services as Chief Executive Officer.
Mr. Breeden serves as Chief Executive Officer in his capacity as
Trustee, and is not separately compensated by the Estate for his
services to the Company.
(4) The amount represents Company-paid life insurance premiums.
(5) The Estate is the beneficial holder of 200,000 stock options issued in
the name of Mr. Breeden as Trustee.
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<PAGE>
Option Grants in Last Fiscal Year
The following table provides information about option grants
to the Named Executive Officers during fiscal year 1997.
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Percent of Total Exercise
Number of Securities Options Granted to or Base
Underlying Options Employees in Fiscal Price Expiration
Name Granted (#) Year ($/Sh) Date
Mr. Breeden -0- (1) 0% n/a n/a
Mr. Hamel 300,000 (2) 35.0% $1.00 5/29/02
Mr. Klaben 75,000 (2) 8.7% $1.00 5/29/02
(1) The Estate is the beneficial holder of 200,000 stock options issued in the
name of Mr. Breeden as Trustee.
(2) Options will expire on the fifth anniversary of the date of grant and 50%
will vest 18 months following the date of the agreement and, as to the
remaining 50%, on the third anniversary of the agreement date. Options
will expire 60 days after termination of employment where they have vested
but have not been exercised. If the employee resigns for "Good Reason" (as
defined in the agreement) arising following a "Change of Control" (as
defined in the agreement), or is terminated for any reason other than for
"Cause" (as defined in the agreement), all outstanding options will
immediately vest.
12
<PAGE>
Options Exercised and Year-End Option Holdings
The following table provides information about stock option
exercises by the Named Executive Officers during fiscal year 1997 and stock
options held by each of them at fiscal year-end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at Fiscal
Shares Acquired Value at Fiscal Year-End (#) Year-End ($) (1)
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Mr. Breeden (2) -0- -0- -0- -0- -0- -0-
Mr. Hamel -0- -0- -0- 300,000 -0- 1,314,000
Mr. Klaben -0- -0- -0- 75,000 -0- 328,500
</TABLE>
(1) Values for "in-the money" outstanding options represent the positive
spread between the respective exercise prices of the outstanding
options and the value of the Common Stock as of December 31, 1997.
(2) The Estate is the beneficial holder of 200,000 stock options issued in
the name of Mr. Breeden as Trustee.
Employment and Consulting Agreements
RFI entered into an employment agreement with Thomas Hamel on
May 29, 1997 pursuant to which he is serving as RFI's President and Chief
Operating Officer for a three-year term and thereafter for successive one-year
renewal terms unless either party elects not to renew the agreement, pursuant to
the terms set forth therein. The said agreement provides for an annual base
salary of $220,000 during the first year, increased annually at the discretion
of the board of directors of RFI (but not less than the percentage increase in
the urban consumer price index). The agreement also provides for a bonus of
$80,000 in 1997, and a bonus each year thereafter based on performance measures
agreed to by the parties (but not less than $80,000). The Trustee is a party to
the agreement solely for the purpose of agreeing (i) to recommend to the board
of directors of RFI the issuance of stock options ("Options") to Mr. Hamel
covering 300,000 shares of Common Stock (the "Option Shares"); (ii) to take
related actions intended to facilitate issuance of the Option Shares; and (iii)
at the initial meeting following a reconstitution of the board of directors of
RFI with at least two duly elected members other than Mr. Hamel, to recommend
and to seek the opinion of such board as to the level and nature of stock
incentives that should be provided to Mr. Hamel. RFI and Mr. Hamel agreed that
for the years after 1997, Mr. Hamel's total compensation should include an
incentive component and both parties agreed to revisit this issue one year from
the date of the agreement to negotiate a mutually agreeable incentive
compensation structure. The issue has been revisited but, as yet, no
determination has been made. The employment agreement provides that the Options
(i) shall have an exercise price of $1.00 per share; (ii) shall expire on the
fifth anniversary of the date of grant; (iii) shall vest as to 150,000 Option
Shares 18 months following the date of the agreement and, as to the remaining
150,000 Option Shares, on the third anniversary of the agreement (provided Mr.
Hamel is employed by RFI on each such date); and (iv) shall expire 60 days after
Mr. Hamel's employment terminates (if Mr. Hamel's employment terminates after
the vesting of such Options but before the exercise thereof). Mr. Hamel will be
released from his obligations under the agreement if the issuance of such
Options is not approved by the board of directors of RFI within 90 days after
their initial meeting following reconstitution of such board with at least two
duly elected members other than Mr. Hamel.
In addition, the agreement provides Mr. Hamel with employee
benefits on the same terms as those available to senior executive officers of
RFI. RFI has also agreed to provide at least $600,000 of life insurance for Mr.
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<PAGE>
Hamel. Under the agreement, RFI may terminate Mr. Hamel's employment at any time
for any reason, and Mr. Hamel may terminate his employment for any reason at any
time upon 90 days' prior written notice. If, prior to the agreement termination
date then in effect, Mr. Hamel resigns for "Good Reason" (as defined in the
agreement) arising following a "Change of Control" (as defined in the
agreement), or is terminated by RFI for any reason other than for "Cause" (as
defined in the agreement), then Mr. Hamel (provided he executes a release) will
be entitled to receive a cash severance amount equal to 100% of the remaining
then-current base salary and bonus due through the end of the term of his
employment agreement (or due for the year of termination, if the termination or
resignation occurs subsequent to the third anniversary of the agreement), plus
the immediate vesting of all outstanding Options. "Change of Control" is defined
in the agreement so as to include the filing by RFI of a case under the
Bankruptcy Code (other than a pre-packaged bankruptcy filed on the motion of Mr.
Breeden, in which it is proposed that the agreement be continued), provided a
bankruptcy trustee is appointed for RFI. In such event, prior to the filing of
such case, RFI agrees to confess judgment in Mr. Hamel's favor in an amount
equal to the outstanding compensation then due under the agreement. RFI also has
agreed that if it should entertain a formal offer for the acquisition of a
controlling stake of its voting shares or all or substantially all of its
assets, then it will inform Mr. Hamel of such offer and invite him to submit a
competing offer.
Mr. Hamel has agreed to preserve the confidentiality of
information regarding RFI. Mr. Hamel has also agreed that, during the period
commencing on the date of the agreement and ending on the date of the later of
the third anniversary of the date of the agreement or the date his employment
terminates (or one year following such later date if he terminates his
employment without Good Reason following the second anniversary of the date of
the agreement), he will not become employed by, consult with or otherwise become
involved with any "Prohibited Entity" (as defined in the agreement). During such
period, Mr. Hamel has further agreed not to employ any employee, agent or
representative of RFI or its affiliates, or to seek to influence any such
individual to terminate his or her relationship with such entity. Such
non-compete and non-solicitation covenants will become void, however, if, prior
to the third anniversary of the agreement but subsequent to the reconstitution
of the board of directors of RFI with at least two duly elected members other
than Mr. Hamel, the Trustee ceases to be a member of such board other than by
reason of his death, disability or voluntary resignation. In such event, Mr.
Hamel may terminate his employment upon 90 days' notice, but will not be
entitled to any severance payments. RFI also has agreed to indemnify Mr. Hamel
if he incurs any liabilities as a result of his affiliation with RFI, unless his
employment terminates for "Cause", as defined in the agreement.
RFI entered into an employment agreement with Gerald Klaben
on July 15, 1996 pursuant to which he is serving as RFI's Chief Financial
Officer for a three-year term and thereafter for successive one-year renewal
terms unless either party elects not to renew the agreement at least 90 days
prior to the end of the original term or any renewal term. The Company
subsequently agreed to provide an annual base salary of $150,000 during the
first year, increased annually by the same percentage increase as the urban
consumer price index and a bonus of $50,000. The Company also subsequently
agreed to the granting of 75,000 Option Shares to Mr. Klaben. The terms of the
Option Shares for Mr. Klaben are substantially similar to those set forth in Mr.
Hamel's employment agreement. Mr. Klaben's compensation includes $1,500 for
coverage of medical premiums, which will be increased only in the event of an
increase in such premiums and will receive medical family coverage at a cost as
provided to other employees of RFI. He may participate in RFI's pension,
profit-sharing and retirement plans, including a 401(k) plan, on the same basis
as those plans are made available to other senior executives of RFI. Mr. Klaben
has agreed to preserve the confidentiality of information regarding RFI.
Under the agreement, Mr. Klaben may terminate his employment
upon 30 days' prior written notice to RFI but where Mr. Klaben resigns for "Good
Reason" (as defined in the agreement), he may terminate his employment upon 45
days' notice to RFI. RFI may terminate Mr. Klaben's employment agreement for
"Cause" (as defined in the agreement) upon 30 days' prior notice to Mr. Klaben.
If Mr. Klaben resigns for Good Reason or is terminated by RFI for any reason
other than for Cause on or after July 16, 1998 but before July 16, 1999, Mr.
Klaben is entitled to a cash severance amount equal to the remaining salary due
through the end of the term of the agreement plus 50% multiplied by Mr. Klaben's
then-current base salary. Following the third anniversary of the employment
agreement, Mr. Klaben is entitled to a cash lump sum severance of 50% multiplied
by Mr. Klaben's then-current base salary.
14
<PAGE>
ERC entered into an employment agreement with R. Perry Harris
on August 24, 1998, pursuant to which he is serving as ERC's Chief Executive
Officer for a five-year term and thereafter for successive one-year renewal
terms unless either party elects not to renew the agreement pursuant to the
terms set forth therein. The agreement provides for an annual base salary of
$300,000 during the first year, increased annually at the discretion of the
Board of Directors of ERC (but not less than the percentage increase in the
urban consumer price index). The agreement also provides for an annual bonus
(the "Target Annual Bonus") and the terms of payment of this bonus are outlined
in the agreement. The Company is a party to the agreement solely for the purpose
of (i) the issuance of Options to Mr. Harris covering (1) 30,000 Option Shares
if the Company reaches at least 100%, but less than 125%, of the "Pre-Tax Profit
Target" (as defined in this agreement) for any fiscal year, and (2) 60,000
Option Shares if the Company equals or exceeds 125% of the Pre-Tax Profit Target
for a fiscal year; (ii) taking related actions intended to facilitate issuance
of the Common Stock; (iii) seeking the opinion of the Board of Directors of the
Company as to the level of pre-tax profits of the Company; and (iv) guaranteeing
the performance by ERC of all of its obligations under the agreement. The
agreement provides that Options granted will have an exercise price of the fair
market value of the Option Shares on the date of grant of such Options and will
expire on the tenth anniversary from their date of grant. The Options granted
will vest and become exercisable at a rate of 20% per year for a five-year
period but will immediately expire upon the termination of Mr. Harris'
employment unless Mr. Harris resigns for "Good Reason" (as defined in the
agreement) or his employment terminates for "Cause" (as defined in his
agreement), in which case Mr. Harris will become immediately vested and will
retain the right to exercise all outstanding Options for one year from the date
of such termination.
In addition, the agreement provides Mr. Harris with employee
benefits on the same terms as those available to senior executive officers of
ERC. Under the agreement, ERC may terminate Mr. Harris' employment at any time
for any reason, and Mr. Harris may terminate his employment for any reason upon
90 days' prior written notice to ERC. If prior to the agreement termination date
then in effect, Mr. Harris resigns for Good Reason or is terminated by ERC for
any reason other than for Cause, then Mr. Harris (provided he executes a
release) will be entitled to receive (i) a cash severance amount equal to 100%
of the remaining then-current base salary until the end of the employment period
as then in effect; (ii) the Target Annual Bonus due for any completed fiscal
year that ended prior to the date of termination; (iii) a pro rata Target Annual
Bonus where Mr. Harris' employment is terminated after June 30th of a fiscal
year in which it is subsequently determined that the applicable Pre-Tax Profit
Target has been met; (iv) the immediate vesting of all outstanding Options; (v)
continuation in all employee benefits on the same terms as those available to
senior executive officers of ERC until the earlier of the expiration of the
remaining term of the employment period or until Mr. Harris becomes eligible for
coverage under comparable plans of a subsequent employer; (vi) earned but unpaid
base salary through the date of termination; and (vii) any unreimbursed business
expenses and all payments, rights and benefits due under the terms of ERC's
employee and fringe benefit plans. Notwithstanding this, ERC will have the right
to terminate Mr. Harris' employment agreement where pre-tax profits of ERC fall
below 75% of the Pre-Tax Profit Target for fiscal year 2000 or 2001 and Mr.
Harris will only be entitled to the benefits had his employment terminated for
Cause or other than Good Reason, that is (i) earned but unpaid base salary
through the date of termination; (ii) earned but unpaid Target Annual Bonus for
any completed fiscal year that ended prior to the date of termination; and (iii)
any unreimbursed business expenses.
Mr. Harris has agreed to preserve the confidentiality of
information regarding ERC. Mr. Harris has also agreed to preserve the
non-compete and non-solicitation covenants detailed in his employment agreement
for a maximum period of seven years with certain geographical limitations
outlined in his employment agreement. A breach of such non-compete and
non-solicitation covenants by either Mr. Harris or by Mr. Harris' wife, Karen
Harris, will be treated as a breach of the agreement by Mr. Harris and ERC will
be entitled to equitable relief and all severance payments otherwise payable to
Mr. Harris and discussed above, will cease. In the event of any controversy or
claim arising out of, or relating to the agreement, the losing party will bear
the cost of all reasonable attorney fees and expenses of both parties.
Currently, Richard C. Breeden serves as Chief Executive
Officer of the Company and as Trustee on behalf of the Estate. He is not
compensated by the Company. The Board of Directors expects that the Company will
have to enter into an employment contract to secure the services of a chief
executive officer when the Estate disposes of its shares in the Company. The
Board of Directors has entered into discussions with Mr. Breeden about serving
as Chief Executive Officer and a related employment contract. Discussions are
ongoing, and while the Company expects
15
<PAGE>
an agreement to be reached, there is no assurance arrangements will be finalized
and that Mr. Breeden will continue to serve as Chief Executive Officer. See also
"Proposal No. II: Approval of Amendments to The 1997 LTIP" hereafter for
discussion of the status of the Company's negotiations with Mr. Breeden with
respect to such contract.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), as amended, requires the Company's directors and executive
officers and persons who own more than 10% of the Company's Common Stock to
report their ownership and changes in their ownership of the Company's Common
Stock or Series 2 Preferred Stock to the SEC. Directors, officers and greater
than 10% stockholders also are required to furnish the Company with copies of
all Section 16(a) forms they file. Specific due dates for these reports have
been established by the SEC and the Company is required to report in this proxy
statement any failure of its directors, executive officers and greater than 10%
stockholders to file by these dates.
During fiscal year 1997, with respect to Thomas J. Hamel,
John R. Petty, Richard C. Breeden (individually), George W. Carmany III, Gerald
L. Klaben Jr., James R. Petrie, Lisa M. Henson and Eric C. Cotton, a Form 5
report relating to one transaction was not filed on a timely basis. In addition,
during the fiscal year 1997, in the case of Richard C. Breeden in his capacity
as Trustee, a Form 5 report relating to eight transactions was not filed on a
timely basis.
16
<PAGE>
PROPOSAL NO. II:
APPROVAL OF AMENDMENTS TO THE 1997 LTIP
Proposed Action
The Stockholders are being asked to approve an amendment,
approved by the Board of Directors, to the 1997 LTIP (i) increasing the number
of shares of Common Stock that may be issued under the 1997 LTIP from 1.6
million to 3.5 million and (ii) increasing the limit on the number of shares
that may be awarded to a participant in any calendar year from 400,000 to 1
million. It is the understanding of the Board of Directors that the Trustee
intends to vote the Estate's shares in favor of the amendment to the 1997 LTIP.
As discussed under the heading "Employment and Consulting Agreements," the
Company is currently negotiating an employment contract with Mr. Breeden to
serve as Chief Executive Officer. The Company's negotiations with Mr. Breeden
include proposals on the grant of equity incentives under the 1997 LTIP, which
grant as currently proposed would exceed the current limitation on annual grant
to an individual and require more shares than currently authorized to be issued
under the 1997 LTIP. Mr. Breeden, therefore, has an interest in the approval of
the amendments to the 1997 LTIP.
Description of the 1997 LTIP and Proposed Amendments
The following is a brief summary of the terms of the 1997
LTIP and the proposed amendments. The summary does not purport to be complete
and is qualified in its entirety by the full text of the 1997 LTIP, as amended,
set forth in Schedule A to this Proxy Statement.
The purpose of the 1997 LTIP is to provide selected key
employees and directors of the Company and its subsidiaries an opportunity to
benefit from the appreciation in the value of the Common Stock, thus providing
an increased incentive for such employees to contribute to the future success
and prosperity of the Company, enhancing the value of the Common Stock for the
benefit of the Stockholders and increasing the ability of the Company and its
subsidiaries to attract and retain individuals of exceptional skill.
If the amendment is approved by the Stockholders, the total
number of shares of Common Stock that may be issued under the 1997 LTIP is 3.5
million shares. In addition, if the amendment is approved by the Stockholders,
the maximum number of shares of Common Stock for which awards may be granted
during a calendar year to any participant will be 1 million. The closing price
of a share of Common Stock on the Nasdaq SmallCap Market on November 19, 1998
was $4.50.
The 1997 LTIP is administered by the Compensation Committee.
The Compensation Committee has the authority to select the participants to be
granted awards under the 1997 LTIP, to determine the size and terms of an award
and to determine the time when grants of awards will be made. The Compensation
Committee is authorized to interpret the 1997 LTIP, to establish, amend and
rescind any rules and regulations relating to the 1997 LTIP, and to make any
other determinations that it deems necessary or desirable for the administration
of the 1997 LTIP.
Awards under the 1997 LTIP may be options (which may be
incentive stock options or non-qualified options), stock appreciation rights, or
other awards that are valued in whole or in part by reference to, or are
otherwise based on, the fair market value of shares of Common Stock. Awards may
be paid in shares of Common Stock, cash or a combination thereof. The option
price per share of Common Stock is determined by the Compensation Committee.
Options granted under the 1997 LTIP are exercisable at such time and upon such
terms and conditions as may be determined by the Compensation Committee, but in
no event will an option be exercisable more than ten years after the date it is
granted.
The Compensation Committee may grant a stock appreciation
right independent of an option, or, in conjunction with an option or designated
portion thereof at the time the related option, if any, is granted or at any
time prior to the exercise or cancellation of the related option and will cover
the same shares covered by the option or as the Compensation Committee may
determine and shall be subject to the same terms and conditions as such option.
The exercise price shall be an amount determined by the Compensation Committee
but in no event shall such amount be less
17
<PAGE>
than the greater of (i) the fair market value of a share of Common Stock on the
date the stock appreciation right is granted or, in the case of a stock
appreciation right granted in conjunction with an option or a portion thereof,
the option price of the related option and (ii) an amount permitted by
applicable laws, rules, by-laws or policies of regulatory authorities or stock
exchanges. Each stock appreciation right granted independently of an option will
entitle a participant upon exercise to an amount equal to (i) the excess of (A)
the fair market value on the exercise date of one share of Common Stock over (B)
the exercise price per share of Common Stock, times (ii) the number of shares of
Common Stock covered by the stock appreciation right. Each stock appreciation
right granted in conjunction with an option, or a portion thereof, will entitle
a participant to surrender to the Company the unexercised option, or any portion
thereof, and to receive from the Company in exchange thereof an amount equal to
(i) the excess of (A) the fair market value on the exercise date of one share of
Common Stock over (B) the option price per share of Common Stock, times (ii) the
number of shares of Common Stock covered by the option, or portion thereof,
which is surrendered. The Compensation Committee may impose conditions upon the
exercisability of stock appreciation rights.
The Compensation Committee may grant other awards of shares
of Common Stock and awards that are valued in whole or in part by reference to,
or are otherwise based on the fair market value of, shares of Common Stock.
Certain of such other awards may be granted in a manner that is deductible by
the Company or a subsidiary of the Company under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), and will be determined based on
the attainment of written objective performance goals approved by the
Compensation Committee for a performance period established by the Compensation
Committee (i) while the outcome for that performance period is substantially
uncertain and (ii) no more than 90 days after the commencement of the
performance period to which the performance goal relates or, if less, the number
of days which is equal to 25 percent of the relevant performance period. The
performance goals will be based upon one or more of the following criteria: (i)
consolidated earnings before or after taxes; (ii) net income; (iii) operating
income; (iv) earnings per share of Common Stock; (v) book value per share of
Common Stock; (vi) improvements in capital structure; (vii) profitability of an
identifiable business unit or product; (viii) maintenance or improvement of
profit margins; (ix) stock price; (x) market share; (xi) revenues or sales;
(xii) costs; (xiii) cash flow; (xiv) working capital and (xv) return on assets.
Except as otherwise provided in the 1997 LTIP or in an award
agreement, an award may be exercised for all, or from time to time any part, of
the shares of Common Stock for which it is then exercisable. The purchase price
for the shares of Common Stock as to which an award is exercised shall be paid
to the Company in full at the time of exercise at the election of the
participant (i) in cash, (ii) in shares of Common Stock having a fair market
value equal to the aggregate option price for the shares of Common Stock being
purchased and satisfying such other requirements as may be imposed by the
Compensation Committee, (iii) partly in cash and partly in such shares of Common
Stock, (iv) through the withholding of shares of Common Stock (which would
otherwise be delivered to the participant) with an aggregate fair market value
on the exercise date equal to the aggregate option price or (v) through the
delivery of irrevocable instructions to a broker to deliver promptly to the
Company an amount equal to the aggregate option price for the shares of Common
Stock being purchased.
Each award is generally non-transferable during the lifetime
of the participant.
The Board of Directors may amend, alter or discontinue the
1997 LTIP, but no amendment, alteration or discontinuation will be made which,
(a) without the approval of the stockholders of the Company, would (i) increase
the total number of shares of Common Stock reserved for the purposes of the 1997
LTIP, (ii) change the maximum number of shares of Common Stock for which awards
may be granted to any participant, (iii) materially increase the benefits
accruing to participants under the 1997 LTIP, or (iv) materially modify the
eligibility requirements for participation in the 1997 LTIP, or (b) without the
consent of a participant, would impair any of the rights or obligations under
any award granted to such participant under the 1997 LTIP; provided, however,
that the Compensation Committee may amend the 1997 LTIP in such manner as it
deems necessary to permit the granting of awards meeting the requirements of the
Code, as amended, or other applicable (United States or foreign) laws.
In the event of any change in the outstanding shares of
Common Stock by reason of any share dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
shares of Common Stock or other corporate exchange, or any distribution to
stockholders of shares of Common Stock other than regular
18
<PAGE>
cash dividends, the Compensation Committee in its sole discretion and without
liability to any person may make such substitution or adjustment, if any, as it
deems to be equitable, as to (i) the number or kind of shares or other
securities issued or reserved for issuance pursuant to the 1997 LTIP or pursuant
to outstanding awards, (ii) the option price and/or (iii) any other affected
terms of such awards.
The Compensation Committee will have the right to require
payment of any federal, state, local or foreign income or other taxes required
to be withheld with respect to the exercise or payment of an award. Unless the
Compensation Committee specifies otherwise, the participant may elect to pay a
portion or all of such withholding taxes by (a) delivery in shares of Common
Stock or (b) having shares of Common Stock withheld by the Company from any
shares of Common Stock that would have otherwise been received by the
participant. The number of shares of Common Stock so delivered or withheld shall
have an aggregate fair market value sufficient to satisfy the applicable
withholding taxes.
The Board of Directors believes that the proposed amendments
to the 1997 LTIP are necessary to provide the Company with sufficient
flexibility under the Plan to attract and retain executive officers. Currently,
Richard C. Breeden serves as Chief Executive Officer of the Company and as
Trustee on behalf of the Estate. He is not compensated by the Company. The Board
of Directors expects that the Company will have to enter into an employment
contract to secure the services of a chief executive officer when the Estate
disposes of its shares in the Company. The Board of Directors has entered into
discussions with Mr. Breeden about serving as Chief Executive Officer and a
related employment contract. Discussions are ongoing, and while the Company
expects an agreement to be reached, there is no assurance arrangements will be
finalized and that Mr. Breeden will continue to serve as Chief Executive
Officer.
As of the date of this Proxy Statement, the Company had not
determined the amount of future awards under the 1997 LTIP other than that may
be specified in employment contracts discussed under "Employment and Consulting
Agreements" and the negotiations with Mr. Breeden discussed above. Certain
option grants under the 1997 LTIP are described in the Summary Compensation
Table and the Option Grant Table of this Proxy Statement.
Recommendation of the Board of Directors Concerning the Amendments to the
1997 LTIP
The Board of Directors recommends a vote FOR the proposed
amendments to the 1997 LTIP. Proxies received by the Board of Directors will be
so voted unless Stockholders specify a contrary choice in their proxy.
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PROPOSAL NO. III
REVERSE STOCK SPLIT AMENDMENT
Proposed Action
The Reverse Stock Split Amendment would effect a reverse
split of the outstanding shares of Common Stock (the "Reverse Stock Split"),
whereby the Company would issue one (1) new share of Common Stock in exchange
for one of the alternatives of three (3), four (4) or five (5) shares of
presently outstanding Common Stock. The Board of Directors requests stockholder
approval of three alternative exchange ratios, as opposed to approval of a
specified exchange ratio, in which the Reverse Stock Split may be effected. The
Board of Directors believes that three alternatives will provide it with maximum
flexibility to achieve the intended purpose of the Reverse Stock Split and is in
the best interests of the Company and its stockholders.
Reasons for the Proposed Reverse Stock Split
As discussed under "Certain Transactions and Legal
Proceedings -- Bankruptcy of Affiliated Companies and Related Litigation," the
Bankruptcy Court approved the Trustee's motion to sell all of the shares of
Common Stock owned by the Estate in a public offering. The Board of Directors
has determined that it may be desirable to effect the Reverse Stock Split prior
to any public offering. The reduction in the number of issued and outstanding
shares of Common Stock caused by the Reverse Stock Split is expected to increase
the price at which the Common Stock trades. The potential price per share
increase resulting from the Reverse Stock Split may enable the Company to
achieve a market price that would be more acceptable to investors.
If the Stockholders approve this proposal, the Board of
Directors will be authorized to select one of three alternative exchange ratios
in the event that the Board of Directors determines to effect the Reverse Stock
Split. The Board of Directors has not yet determined to effect the Reverse Stock
Split but seeks stockholder authorization to do so in the event it is deemed to
be in the best interests of the Company and its stockholders.
If the Reverse Stock Split is effected, there can be no
assurance that the market price of each share of Common Stock received in the
Reverse Stock Split will actually increase in an amount proportionate to the
decrease in the number of outstanding shares, or that such market price will
either exceed or remain in excess of the current market price. Further, there is
no assurance that the market for the Common Stock will improve as a result of
the Reverse Stock Split. Additionally, the Reverse Stock Split may leave certain
stockholders with "odd lots" of the Common Stock, i.e., stock in amounts of less
than 100 shares. These shares may be more difficult to sell, or require greater
commission per share to sell, than shares in even multiples of 100.
Effect of the Reverse Stock Split
Based on the 25,198,368 shares of Common Stock that were
outstanding as of September 30, 1998, the following table reflects the
percentage reduction in the outstanding shares of Common Stock and the number of
shares of Common Stock that would be outstanding as a result of the Reverse
Stock Split:
Shares of Common Stock
Proposed Reverse Stock Split Percentage Reduction to be Outstanding
- ----------------------------- ------------------------ -------------------------
three to one 66% 8,399,456
four to one 75% 6,299,592
five to one 80% 5,039,673
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Assuming that the Reverse Stock Split Amendment is approved,
upon filing of a certificate of amendment to the certificate of incorporation of
the Company with the Secretary of State of the State of Delaware, the Reverse
Stock Split will be effective as of 5:00 p.m., local time, on the date of such
filing (the "Effective Date"), and each certificate representing shares of
Common Stock outstanding immediately prior to the Reverse Stock Split (the "Old
Shares") will automatically be deemed after the Reverse Stock Split without any
action on the part of the stockholders to represent one third, one quarter or
one fifth, as the case may be, in accordance with the applicable exchange ratio,
of the number of the Old Shares (the "New Shares"). See also "Exchange of Stock
Certificates" below.
The Reverse Stock Split would not affect the proportionate
equity interest in the Company of any holder of Common Stock, except as may
result from the provisions for the treatment of fractional shares as described
below. Following the Reverse Stock Split, each share of Common Stock will
entitle the holder thereof to one vote per share and will otherwise be identical
to the Common Stock prior to such event.
No fractional New Shares will be issued as a result of the
Reverse Stock Split. In lieu thereof, each stockholder whose Old Shares are not
evenly divisible by three, four or five, in accordance with the applicable
exchange ratio, will receive cash in an amount equal to the fair market value of
a share of Common Stock on the Effective Date multiplied by the fractional share
the stockholder would otherwise be entitled to receive as a result of the
Reverse Stock Split. A certificate or certificates evidencing the aggregate of
all fractional shares otherwise issuable (rounded, if necessary, to the next
higher whole share) will be issued to the Company's transfer agent (the
"Transfer Agent"), or its nominee, as agent for the accounts of all holders of
shares of Common Stock otherwise entitled to have a fraction of a share issued
to them in connection with the Reverse Stock Split. Sales of fractional
interests will be effected by the Transfer Agent as soon as practicable on the
basis of prevailing market prices of the Common Stock on the Nasdaq Stock Market
or such other market on which the Common Stock is then trading at the time of
the sale. After the Reverse Stock Split is effected, the Transfer Agent will pay
to such stockholders their pro rata share of the net proceeds derived from the
sale of their fractional interests upon surrender of their stock certificates.
Stockholders should be aware that, under the escheat laws of
the various jurisdictions where stockholders reside, where the Company is
domiciled and where funds will be deposited, sums due for fractional interests
that are not timely claimed after the Effective Date may be required to be paid
to the designated agent for each such jurisdiction, unless correspondence has
been received by the Company or its Transfer Agent, as the case may be,
concerning ownership of such funds within the time period permitted in such
jurisdictions. Thereafter, stockholders otherwise entitled to receive such funds
will have to seek to obtain them directly from the state to which they are paid.
Stockholders have no right under the DGCL to seek appraisal
rights in connection with the Reverse Stock Split.
Exchange of Stock Certificates
As soon as practicable after the Effective Date, the Company
will send a letter of transmittal to each holder of record of Old Shares of
Common Stock outstanding on the Effective Date. The letter of transmittal will
contain instructions for the surrender of certificate(s) representing Old
Shares. Upon proper completion and execution of the letter of transmittal and
the surrender of certificate(s) representing Old Shares, a stockholder will be
entitled to receive cash in lieu of any fractional share issuable to such
stockholder as a result of the Reverse Stock Split and a certificate
representing the number of whole New Shares of Common Stock into which such
stockholder's Old Shares have been reclassified and changed as a result of the
Reverse Stock Split.
Stockholders should not submit any certificate until
requested to do so. No certificate representing New Shares will be issued to a
stockholder until such stockholder has surrendered his outstanding
certificate(s) representing Old Shares together with the appropriately completed
and executed letter of transmittal, in accordance with the instructions
contained therein.
21
<PAGE>
Until surrender in accordance with the procedures set forth
in the letter of transmittal, each certificate representing Old Shares will
continue to be valid and represent New Shares equal to one half, one third or
one quarter of the number of Old Shares, as the case may be, in accordance with
the applicable exchange ratio.
Effect on Outstanding Options and Warrants
As of September 30, 1998, there were outstanding options to
purchase an aggregate of 858,400 shares of Common Stock pursuant to Company
employee stock plans and warrants to purchase an aggregate of 430,000 shares of
Common Stock. All of the outstanding options and warrants are subject to
provisions for adjustments in the number of shares covered thereby, and the
exercise price thereof, in the event of a Reverse Stock Split. If the Reverse
Stock Split Amendment is approved and effected, there will be a proportionate
reduction in the number of shares of Common Stock subject to outstanding options
and warrants, depending on the exchange ratio selected by the Board of
Directors, and the exercise price per share would be proportionately increased.
Certain Federal Income Tax Consequences
The following is a summary of the federal income tax
consequences of the Reverse Stock Split. This summary is for general information
only and does not address all the tax consequences that may be relevant to a
particular stockholder (such as non-resident aliens, broker-dealers or insurance
companies). Further, this summary also does not discuss any consequence of the
Reverse Stock Split under any state, local, foreign, gift or estate tax laws.
EACH STOCKHOLDER IS ENCOURAGED TO CONSULT HIS TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REVERSE STOCK SPLIT TO
SUCH STOCKHOLDER.
The exchange of Old Shares for New Shares will not result in
a recognition of gain or loss, except in the case of cash received for
fractional shares. The holding period of the New Shares will include the
stockholder's holding period for the Old Shares, and the aggregate tax basis of
the New Shares will be the same as the aggregate tax basis of the Old Shares,
reduced by the tax basis allocable to the receipt of cash in lieu of fractional
shares. If cash is received by a stockholder as a result of the sale of a
fractional share interest, the Company will be treated as distributing the
fractional share to the stockholder and the stockholder will be treated as
selling the fractional share interest. Such stockholder will recognize gain or
loss, as the case may be, measured by the difference between the amount of cash
received and the basis of such stockholder's Old Shares allocable to such
fractional share. Such gain or loss will be capital gain or loss (if such stock
were held as a capital asset), and any of such capital gain or loss will
generally be long-term capital gain or loss, to the extent that such
stockholder's holding period for his stock exceeds 12 months. Under recently
enacted legislation, the maximum regular individual U.S. federal income tax rate
on capital gains is 20% for property held for more than 1 year. Capital gains on
the sale of property held for one year or less are subject to U.S. federal
income tax at ordinary income rates.
Miscellaneous
The Board of Directors reserves the right, notwithstanding
stockholder approval and without further action by the stockholders, to elect
not to proceed with the proposed Reverse Stock Split Amendment if, at any time
prior to the Effective Date, the Board of Directors, in its sole discretion,
determines that the Reverse Stock Split is no longer in the best interests of
the Company and its stockholders. Without limitation, the Board of Directors may
consider abandoning the proposed Reverse Stock Split Amendment if the Board of
Directors determines, in its sole discretion, that the Reverse Stock Split is
unnecessary or would adversely affect the ability of the Company to raise
capital or adversely affect the liquidity of the Common Stock. Additionally, the
Board of Directors may make any and all changes to the Reverse Stock Split
Amendment that it deems necessary to give effect to the Reverse Stock Split and
cause the Reverse Stock Split Amendment to be acceptable for filing with the
Secretary of State of Delaware.
The full text of the Reverse Stock Split Amendment is
contained in Exhibit A to this Proxy Statement.
22
<PAGE>
Recommendation of the Board of Directors Concerning the Reverse Stock Split
Amendment to the Certificate of Incorporation of the Company
The Board of Directors recommends a vote FOR the proposed
Reverse Stock Split Amendment to the certificate of incorporation of the
Company. Proxies received by the Board of Directors will be so voted unless
Stockholders specify a contrary choice in their proxy.
23
<PAGE>
PROPOSAL NO. IV:
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Based on the recommendation of its Audit Committee, the Board
of Directors has appointed FMFE to retain their position as the Company's
independent auditors for 1998. FMFE has been the Company's independent auditors
since October 1996. The Company's prior independent accountants were Puritz &
Weintraub. If the appointment of FMFE is not ratified, the Board of Directors
will review its future selection of auditors.
On March 29, 1996, Mahoney Cohen Rashba & Pokart, P.C.
("Mahoney Cohen") sent a letter to BFG resigning as BFG's auditor and
withdrawing its reports on all financial statements of BFG and its related
entities, including RFI, a wholly owned subsidiary of the Company. In the
letter, Mahoney Cohen stated that such financial statements were based on, among
other things, information supplied by Patrick Bennett and, in light of the
allegations in the civil complaint filed by the SEC in the District Court
against BFG, BMDC and certain of their affiliates (the "Civil Complaint"),
including allegations that Mr. Bennett had provided Mahoney Cohen with false and
materially misleading information relating to BFG and BMDC, Mahoney Cohen
claimed it had no choice but to withdraw its reports on such financial
statements. Although there were no allegations in the Civil Complaint that Mr.
Bennett had provided false or materially misleading information regarding RFI to
Mahoney Cohen in connection with its reports on the financial statements of RFI,
Mahoney Cohen nevertheless subsequently confirmed that its letter of resignation
and withdrawal covered reports on financial statements of RFI as well. Prior to
such resignation and withdrawal of reports, RFI had no disagreements with
Mahoney Cohen as to any matter of accounting principles or practices, financial
statement disclosure or audit scope or procedure, and Mahoney Cohen's reports on
its financial statements did not contain any adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
On April 5, 1996, the Company received a letter from Puritz &
Weintraub, the Company's independent accountants, stating that such firm was
resigning as the Company's auditor effective as of the date of such letter. The
opinions of Puritz & Weintraub with respect to the financial statements of the
Company for the periods ended August 31, 1994 and 1995 and December 31, 1995 did
not contain any adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principles, nor has
there been any disagreement as to any matter of accounting principles or
practices, financial statement disclosure or audit scope or procedure during the
Company's two most recent fiscal years or any subsequent interim period.
In October 1996, the Company engaged FMFE to audit the
financial statements and FMFE was the Company's independent auditors for 1997.
FMFE audited the Company's financial statements for the years ended December 31,
1997, December 31, 1996 and December 31, 1995.
FMFE is expected to have a representative at the Annual
Meeting. This representative will be available to respond to appropriate
questions at that time and will have an opportunity to make a statement, if he
or she so desires.
Recommendation of the Board of Directors Concerning Ratification of the
Appointment of FMFE to Serve As Independent Auditors for 1998
The Board of Directors recommends a vote FOR ratification of
the appointment of FMFE to serve as independent auditors of the Company for
1998. Proxies received by the Board of Directors will be so voted unless
Stockholders specify a contrary choice in their proxy.
24
<PAGE>
EXPENSES OF SOLICITATION
Proxies may be solicited by the Company's directors, officers
or other employees, without additional compensation, personally or by written
communication, telephone or other electronic means. All expenses incurred in
connection with the solicitation of proxies will be borne by the Company. The
Company will also request brokerage houses, custodians, fiduciaries and nominees
to forward proxy materials to their principals and will reimburse them for their
reasonable expenses in doing so.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the
1999 annual meeting of stockholders must be received by the Company on or before
January 4, 1999, to be eligible for inclusion in the Company's proxy statement
and proxy relating to that meeting. Proposals should be addressed to Eric C.
Cotton, Equivest Finance, Inc., Secretary, 2 Clinton Square, Syracuse, New York
13202.
OTHER INFORMATION
As to any other matter or proposal that may properly come
before the meeting, including voting for the election of any person as a
director in place of a nominee named herein who becomes unable to serve or for
good cause will not serve, and voting on proposals omitted from the proxy
statement pursuant to the rules of the SEC, it is intended that proxies received
will be voted in accordance with the discretion of the proxy holders.
The Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997, Quarterly Report on Form 10-QSB for the period
ended September 30, 1998, Report on Form 8-K in relation to the Company's
acquisition of ERC, filed with the SEC on September 11, 1998, and Report on Form
8-K/A which contains financial information relating to the Company's acquisition
of ERC, filed with the SEC on November 12, 1998, are enclosed for your further
information. None of the above filings of the Company under the Exchange Act
form any part of the material for the solicitation of proxies.
--------------------------------
November 24, 1998
25
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APPENDIX I
FORM OF PROXY
- --------------------------------------------------------------------------------
Attached
26
<PAGE>
REVOCABLE PROXY
EQUIVEST FINANCE, INC.
PLEASE MARK VOTES
AS IN THIS EXAMPLE [X]
ANNUAL MEETING OF STOCKHOLDERS
December 8, 1998
The undersigned hereby appoints Eric C. Cotton and Richard G. Winkler, and
each of them, as the true and lawful agents and proxies of the undersigned, with
full power of substitution, to represent the undersigned and to vote all shares
of stock which the undersigned is entitled in any capacity to vote at the annual
meeting of stockholders of EQUIVEST FINANCE, INC. (the "Company") to be held at
Long Wharf Resort, 5 Washington Street, Newport, Rhode Island at 10:00 am local
time, on Tuesday, December 8, 1998 and at any and all adjournments and
postponements thereof, on the matters set forth below, and, in their discretion,
upon all matters incident to the conduct of the annual meeting and upon such
other matters as may properly be brought before the meeting. This proxy revokes
all prior proxies given by the undersigned.
1. The election as directors of all nominees listed (except as marked to the
contrary below):
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
Richard C. Breeden, Thomas J. Hamel, R. Perry Harris, George W.
Carmany, III, and John R. Petty.
INSTRUCTION: To withhold authority for any individual nominee, mark "For All
Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
2. The approval of the proposed amendments to the 1997 LTIP.
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
3. The ratification of the appointment of Firley, Moran, Freer & Eassa, P.C. to
serve as independent auditors of the Company.
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
4. The approval of the proposed amendment to the certificate of incorporation of
the Company to effect a reverse stock split of the issued and outstanding shares
of common stock of the Company.
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
<PAGE>
(continued from other side)
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned noteholder. If no direction is made, this Proxy will
be voted FOR all items set forth herein.
Please be sure to sign and date this
Proxy on the line below.
Date ___________________________________
________________________________________
Stockholder sign above
________________________________________
Co-holder (if any) sign above
Receipt of Notice of said meeting and of the proxy statement and annual
report of EQUIVEST FINANCE, INC. is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. The
Directors recommend a vote FOR items 1, 2, 3 and 4.
Please sign this proxy exactly as your name appears hereon. Joint owners
should each sign. Trustees, executors, administrators and others signing in a
representative capacity should indicate this capacity. An authorized officer may
sign on behalf of a corporation and should indicate the name of the corporation
and his capacity.
Please indicate whether you will be
attending the annual meeting in person
___ WILL ATTEND ___ WILL NOT ATTEND
<PAGE>
SCHEDULE A
THE 1997 LONG-TERM INCENTIVE PLAN
AS AMENDED AND RESTATED
- --------------------------------------------------------------------------------
1. Purpose of the Plan
The purpose of the Plan is to attract, retain and motivate
selected employees and directors who are in a position to have an impact on the
results of the operations of the business of the Company or one or more of its
Subsidiaries. The Company expects that it will benefit from the additional
incentive which such employees and directors will have to increase the value of
the Company's Shares as a result of the Plan.
2. Definitions
The following capitalized terms used in the Plan have the
respective meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or
any successor thereto.
(b) Award: An Option, Stock Appreciation Right, or
Other Stock-Based Award granted pursuant to the
Plan.
(c) Board: The Board of Directors of the Company.
(d) Code: The Internal Revenue Code of 1986, as amended, or
any successor thereto.
(e) Committee: The Compensation Committee of the Board.
(f) Company: Equivest Finance, Inc.
(g) Disability: Except as otherwise provided by the
Committee, the inability to engage in any substantial
gainful activity by reason of a medically determinable
physical or mental impairment which constitutes a
permanent and total disability, as defined in Section
22(e)(3) of the Code (or any successor section thereto).
The determination whether a Participant has suffered a
Disability shall be made by the Committee based upon such
evidence as it deems necessary and appropriate. A
Participant shall not be considered disabled unless he or
she furnished such medical or other evidence of the
existence of the Disability as the Committee, in its sole
discretion, may require.
(h) Effective Date: September 1, 1997.
(i) Fair Market Value: On a given date, the arithmetic mean
of the high and low prices of the Shares as reported on
such date on the Composite Tape of the principal national
securities exchange on which such Shares are listed or
admitted to trading, or, if no Composite Tape exists for
such national securities exchange on such date, then on
the principal national securities exchange on which such
Shares are listed or admitted to trading, or, if the
Shares are not listed or admitted on a national
securities exchange, the arithmetic mean of the per Share
closing bid price and per Share closing asked price
on such date as quoted on the National Association of
Securities Dealers Automated Quotation System (or such
market in which such prices are regularly quoted), or,
if there is no market on which the Shares are regularly
quoted, the Fair Market Value shall be
S-1
<PAGE>
the value established by the Committee in good faith. If
no sale of Shares shall have been reported on such
Composite Tape or such national securities exchange on
such date or quoted on the National Association of
Securities Dealers Automated Quotation System on such
date, then the immediately preceding date on which sales
of the Shares have been so reported or quoted shall be
used.
(j) ISO: An Option that is also an incentive stock
option granted pursuant to Section 6(d) of the
Plan.
(k) LSAR: A limited stock appreciation right granted pursuant
to Section 7(d) of the Plan.
(l) Option: A stock option granted pursuant to Section 6 of
the Plan.
(m) Option Price: The purchase price per Share of an
Option, as determined pursuant to Section 6(a) of
the Plan.
(n) Other Stock-Based Awards: Awards granted pursuant to
Section 8 of the Plan.
(o) Participant: An individual who is selected by the
Committee to participate in the Plan pursuant to
Section 5 of the Plan.
(p) Performance-Based Awards: Certain Other
Stock-Based Awards granted pursuant to Section
8(b) of the Plan.
(q) Plan: The Equivest Finance, Inc. 1997 Long Term
Incentive Plan, (amended and restated as of
September 11, 1998).
(r) Shares: shares of common stock, par value $0.05 per
share, of the Company.
(s) Stock Appreciation Right: A stock appreciation
right granted pursuant to Section 7 of the Plan.
(t) Subsidiary: A subsidiary corporation of the
Corporation, as defined in Section 424(f) of the
Code (or any successor section thereto).
3. Shares Subject to the Plan
The total number of Shares that may be issued under the Plan
is 3.5 million shares. The maximum number of Shares for which Awards may be
granted during a calendar year to any one Participant shall be 1 million. The
Shares may consist, in whole or in part, of unissued Shares or treasury Shares.
The issuance of Shares or the payment of cash upon the exercise of an Award
shall reduce the total number of Shares available under the Plan, as applicable.
Shares which are subject to Awards which terminate or lapse may be granted again
under the Plan.
4. Administration
The Plan shall be administered by the Committee, which may
delegate its duties and powers in whole or in part to any subcommittee thereof
consisting solely of at least two individuals who are each (a) "non-employee
directors" within the meaning of Rule 16b-3 under the Act (or any successor rule
thereto) and (b) "outside directors" within the meaning of Section 162(m) of the
Code (or any successor section thereto). The Committee shall have the authority
to select the Participants to be granted Awards under the Plan, to determine the
size and terms of an Award and to determine the time when grants of Awards will
be made. The Committee is authorized to interpret the Plan, to establish, amend
and rescind any rules and regulations relating to the Plan, and to make any
other determinations
S-2
<PAGE>
that it deems necessary or desirable for the administration of the Plan. Any
decision of the Committee shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned.
5. Eligibility
The Committee may, in its sole discretion, designate those
person(s) who shall be Participant(s) in the Plan. Participants shall be
selected from among the employees and directors of the Company and any of its
Subsidiaries who are in a position to have an impact on the results of the
operations of the Company or one or more of its Subsidiaries; provided that ISOs
may only be granted to employees of the Company or its Subsidiaries.
6. Terms and Conditions of Options
Opinions granted under the Plan shall be, as determined by
the Committee, non-qualified, incentive or other stock options for federal
income tax purposes, as evidenced by the related Option agreements. Options
granted under the Plan shall be subject to the following terms and conditions:
(a) Option Price. The Option Price per Share shall be
determined by the Committee.
(b) Exercisability of Options. Options granted under the Plan
shall be exercisable at such time and upon such terms and conditions as may be
determined by the Committee, but in no event shall an Option be exercisable more
than ten years after the date it is granted.
(c) Method of Exercise. Except as otherwise provided in the
Plan or in an Award agreement, an Option may be exercised for all, or from time
to time any part, of the Shares for which it is then exercisable. For purposes
of this Section 6 of the Plan, the exercise date of an Option shall be the later
of the date a notice of exercise is received by the Company and, if applicable,
the date payment is received by the Company pursuant to clause (i), (ii) or
(iii) in the following sentence. The purchase price for the Shares as to which
an Option is exercised shall be paid to the Company in full at the time of
exercise at the election of the Participant (i) in cash, (ii) in Shares having a
Fair Market Value equal to the aggregate Option Price for the Shares being
purchased and satisfying such other requirements as may be imposed by the
Committee, (iii) partly in cash and partly in such Shares, (iv) through the
withholding of Shares (which would otherwise be delivered to the Participant)
with an aggregate Fair Market Value on the exercise date equal to the aggregate
Option Price or (v) through the delivery of irrevocable instructions to a broker
to deliver promptly to the Company an amount equal to the aggregate Option Price
for the Shares being purchased. No Participant shall have any rights to
dividends or other rights of a stockholder with respect to Shares subject to an
Option until the Shares have been issued to the Participant. A Participant may,
if and to the extent permitted by the Committee, elect to defer payment of an
Award.
(d) ISOs. The Committee may grant Options under the Plan that
are intended to be ISOs. Such ISOs shall comply with the requirements of Section
422 of the Code (or any successor section thereto). No ISO may be granted to any
Participant who at the time of such grant owns more than ten percent of the
total combined voting power of all classes of stock of the Company or of any
Subsidiary, unless (i) the Option Price for such ISO is at least 110% of the
Fair Market Value of a Share on the date the ISO is granted and (ii) the date on
which such ISO terminates is a date not later than the day preceding the fifth
anniversary of the date on which the ISO is granted. Any Participant who
disposes of Shares acquired upon the exercise of an ISO either (i) within two
years after the date of grant of such ISO or (ii) within one year after the
transfer of such Shares to the Participant shall notify the Company of such
disposition and of the amount realized upon such disposition.
(e) Deferral. The Committee may develop procedures for a
Participant to defer receipt of Shares otherwise subject to Options granted
hereunder.
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7. Terms and Conditions of Stock Appreciation Rights
(a) Grants. The Committee also may grant (i) a Stock
Appreciation Right independent of an Option or (ii) a Stock Appreciation Right
in connection with an Option, or a portion thereof. A Stock Appreciation Right
granted pursuant to clause (ii) of the preceding sentence (A) may be granted at
the time the related Option is granted or at any time prior to the exercise or
cancellation of the related Option, (B) shall cover the same Shares
covered by an Option (or such lesser number of Shares as the Committee may
determine) and (C) shall be subject to the same terms and conditions as such
Option except for such additional limitations as are contemplated by this
Section 7 (or such additional limitations as may be included in an Award
agreement).
(b) Terms. The exercise price per Share of a Stock
Appreciation Right shall be an amount determined by the Committee but in no
event shall such amount be less than the greater of (i) the Fair Market Value of
a Share on the date the Stock Appreciation Right is granted or, in the case of a
Stock Appreciation Right granted in conjunction with an Option, or a portion
thereof, the Option Price of the related Option and (ii) an amount permitted by
applicable laws, rules, by-laws or policies of regulatory authorities or stock
exchanges. Each Stock Appreciation Right granted independent of an Option shall
entitle a Participant upon exercise to an amount equal to (i) the excess of (A)
the Fair Market Value on the exercise date of one Share over (B) the exercise
price per Share, times (ii) the number of Shares covered by the Stock
Appreciation Right. Each Stock Appreciation Right granted in conjunction with an
Option, or a portion thereof, shall entitle a Participant to surrender to the
Company the unexercised Option, or any portion thereof, and to receive from the
Company in exchange therefor an amount equal to (i) the excess of (A) the Fair
Market Value on the exercise date of one Share over (B) the Option Price per
Share, times (ii) the number of Shares covered by the Option, or portion
thereof, which is surrendered. The date a notice of exercise is received by the
Company shall be the exercise date. Payment shall be made in Shares or in cash,
or partly in Shares and partly in cash, valued at such Fair Market Value, all as
shall be determined by the Committee. Stock Appreciation Rights may be exercised
from time to time upon actual receipt by the Company of written notice of
exercise stating the number of Shares subject to an exercisable Option with
respect to which the Stock Appreciation Right is being exercised. No fractional
Shares will be issued in payment for Stock Appreciation Rights, but instead cash
will be paid for a fraction or, if the Committee should so determine, the number
of Shares will be rounded downward to the next whole Share.
(c) Limitations. The Committee may impose, in its discretion,
such conditions upon the exercisability or transferability of Stock Appreciation
Rights as it may deem fit.
(d) Limited Stock Appreciation Rights. The Committee may
grant LSARs that are exercisable upon the occurrence of specified contingent
events. Such LSARs may provide for a different method of determining
appreciation, may specify that payment will be made only in cash and may provide
that any related Awards are not exercisable while such LSARs are exercisable.
Unless the context otherwise requires, whenever the term "Stock Appreciation
Right" is used in the Plan, such term shall include LSARs.
8. Other Stock-Based Awards
(a) Generally. The Committee, in its sole discretion, may
grant Awards of Shares, Awards of restricted Shares and Awards that are valued
in whole or in part by reference to, or are otherwise based on the Fair Market
Value of, Shares ("Other Stock-Based Awards"). Such Other Stock-Based Awards
shall be in such form, and dependent on such conditions, as the Committee shall
determine, including, without limitation, the right to receive one or more
Shares (or the equivalent cash value of such Shares) upon the completion of a
specified period of service, the occurrence of an event and/or the attainment of
performance objectives. Other Stock-Based Awards may be granted alone or in
addition to any other Awards granted under the Plan. Subject to the provisions
of the Plan, the Committee shall determine to whom and when Other Stock-Based
Awards will be made, the number of Shares to be awarded under (or otherwise
related to) such Other Stock-Based Awards, whether such Other Stock-Based Award
shall be settled in cash, Shares or a combination of cash and Shares, and all
other terms and conditions of such Awards (including, without limitation, the
vesting provisions thereto).
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(b) Performance-Based Awards. Notwithstanding anything to the
contrary herein, certain Other Stock-Based Awards granted under this Section 8
may be granted in a manner which is deductible by the Company under Section
162(m) of the Code (or any successor section thereto) ("Performance-Based
Awards"). A Participant's Performance-Based Award shall be determined based on
the attainment of written performance goals approved by the Committee for a
performance period established by the Committee (i) while the outcome for that
performance period is substantially uncertain and (ii) no more than 90 days
after the commencement of the performance period to which the performance goal
relates or, if less, the number of days which is equal to 25 percent of the
relevant performance period. The performance goals, which must be objective,
shall be based upon one or more of the following criteria: (i) consolidated
earnings before or after taxes (including earnings before interest, taxes,
depreciation and amortization); (ii) net income; (iii) operating income; (iv)
earnings per Share; (v) book value per Share; (vi) return on stockholders'
equity; (vii) expense management; (viii) return on investment; (ix) improvements
in capital structure; (x) profitability of an identifiable business unit or
product; (xi) maintenance or improvement of profit margins; (xii) stock price;
(xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow;
(xvii) working capital; and (xviii) return on assets. The foregoing criteria may
relate to the Company, one or more of its Subsidiaries or one or more of its
divisions or units, or any combination of the foregoing, and may be applied on
an absolute basis and/or be relative to one or more peer group companies or
indices, or any combination thereof, all as the Committee shall determine. In
addition, to the degree consistent with Section 162(m) of the Code (or any
successor section thereto), the performance goals may be calculated without
regard to extraordinary items. The maximum amount of a Performance-Based Award
to any Participant with respect to a fiscal year of the Company shall be 400,000
Shares. The Committee shall determine whether, with respect to a performance
period, the applicable performance goals have been met with respect to a given
Participant and, if they have, to so certify and ascertain the amount of the
applicable Performance-Based Award. No Performance-Based Awards will be paid for
such performance period until such certification is made by the Committee. The
amount of the Performance-Based Award actually paid to a given Participant may
be less than the amount determined by the applicable performance goal formula,
at the discretion of the Committee. The amount of the Performance-Based Award
determined by the Committee for a performance period shall be paid to the
Participant at such time as determined by the Committee in its sole discretion
after the end of such performance period; provided, however, that a Participant
may, if and to the extent permitted by the Committee and consistent with the
provisions of Sections 162(m) of the Code, elect to defer payment of a
Performance-Based Award.
9. Tax Withholding
The Committee shall have the right to require payment of any
federal, state, local or foreign income or other taxes required to be withheld
with respect to the exercise or payment of an Award. Unless the Committee
specifies otherwise, the Participant may elect to pay a portion or all of such
withholding taxes by (a) delivery in Shares or (b) having Shares withheld by the
Company from any Shares that would have otherwise been received by the
Participant. The number of Shares so delivered or withheld shall have an
aggregate Fair Market Value sufficient to satisfy the applicable withholding
taxes.
10. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which (a) without the
approval of the stockholders of the Company, would (except as is provided in
Section 11 of the Plan) (i) increase the total number of Shares reserved for the
purpose of the Plan, (ii) change the maximum number of Shares for which Awards
may be granted to any Participant, (iii) materially increase the benefits
accruing to Participants under the Plan or (iv) materially modify the
eligibility requirements for participation in the Plan or (b) without the
consent of a Participant, would impair any of the rights or obligations under
any Award theretofore granted to such Participant under the Plan; provided,
however, that the Committee may amend the Plan in such manner as it deems
necessary to permit the granting of Awards meeting the requirements of the Code
or other applicable (United States or foreign) laws.
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11. No Right to Employment
The granting of an Award under the Plan shall impose no
obligation on the Company or any Subsidiary to continue the employment of a
Participant or to make any additional Awards to the Participant and shall not
lessen or affect the Company's or Subsidiary's right to terminate the employment
of such Participant.
12. Successors and Assigns
The Plan shall be binding on all successors and assigns of
the Company and a Participant, including, without limitation, the estate of such
Participant and the executor, administrator or trustee of such estate, or any
receiver or trustee in bankruptcy or representative of the Participant's
creditors.
13. Nontransferability of Awards
Unless otherwise so provided by the Committee, an Award shall
not be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or by operation of law by judgment, levy, attachment, garnishment or any other
legal or equitable proceedings (including bankruptcy), and any attempted
disposition thereof shall be null and void and of no effect.
14. Adjustments Upon Certain Events
Notwithstanding any provision in the Plan to the contrary, in
the event of any change in the outstanding Shares by reason of any Share
dividend or split, reorganization, recapitalization, merger, consolidation,
spin-off, combination or exchange of Shares or other corporate exchange, or any
distribution to stockholders of Shares other than regular cash dividends, the
Committee in its sole discretion and without liability to any person may make
such substitution or adjustment, if any, as it deems to be equitable as to (i)
the number or kind of Shares or other securities issued or reserved for issuance
pursuant to the Plan or pursuant to outstanding Awards, (ii) the Option Price
and/or (iii) any other affected terms of such Awards.
15. Choice of Law
The Plan shall be governed by and construed and in accordance
with the laws of the State of New York, without regard to the choice of law
provisions thereof.
16. Term of the Plan
The Plan shall be effective as of the Effective Date. No
Award may be granted under the Plan after the tenth anniversary of the date the
Plan is adopted by the Board, but Awards theretofore granted may extend beyond
that date.
17. Amendment and Restatement of the Plan
This amendment and restatement of the Plan, effective as of
September 11, 1998, is conditional upon the approval by the shareholders of the
Company at the first meeting of the shareholders to occur after September 11,
1998 of the amendments to the Plan adopted by the Board at the September 11,
1998 meeting of the Board, and, if such amendments are not so approved, the
terms of the Plan prior to September 11, 1998 shall remain in full force and
effect.
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EXHIBIT A
TEXT OF REVERSE STOCK SPLIT AMENDMENT
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Article III of the certificate of incorporation of the Company
shall be amended by redesignating the section currently titled "Capitalization"
as "Section 1. Authorized Capital Stock." and inserting after Section 1 thereof
a new Section 2 as follows:
"Section 2. Reclassification of Common Stock. Effective as of
the close of business day on the day that the Certificate of
Amendment which contains this provision is filed with the
Office of the Secretary of State of the State of Delaware (the
"Effective Date"), each whole share of Common Stock issued and
outstanding at such time shall be and hereby is automatically
reclassified and changed into [___](1) of one share of Common
Stock (the "Reverse Stock Split"); provided, however, that (i)
no fractional share shall be issued pursuant to the Reverse
Stock Split; and (ii) no such fractional share interest will
entitle the holder thereof to vote, or to any rights of a
stockholder of the Company. In lieu of any such fractional
shares, a certificate or certificates evidencing the aggregate
of all fractional shares otherwise issuable (rounded, if
necessary, to the next higher whole share) shall be issued to
the Company's exchange agent, Continental Stock Transfer &
Trust Company (the "Transfer Agent"), or its nominee, as agent
for the accounts of all holders of shares of Common Stock
otherwise entitled to have a fraction of a share of Common
Stock issued to them. Sales of fractional interests of Common
Stock shall be effected by the Transfer Agent as soon as
practicable on the basis of prevailing market prices of the
Common Stock on the market on which the Common Stock is listed
at the time of sale. After the Effective Date, the Transfer
Agent will pay to such stockholders their pro rata share of
net proceeds derived from the sale of their fractional
interests in the Common Stock."
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1 The amendment will contain one of the following three ratios: one third,
one fourth or one fifth.
A-1
