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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14(a)-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14(a)-11(c) or Rule 14(a)-12
SKOLNIKS, 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 14(a)-6(I)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
______________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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:_______________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount previously paid:_______________________________________________
2) Form, Schedule, or Registration Number:_______________________________
3) Filing Party:_________________________________________________________
4) Date Filed:___________________________________________________________
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 16, 1999
May 20, 1999
The Annual Meeting of Stockholders of Skolniks, Inc., a Delaware
corporation (the "Company"), will be held at the Courtyard by Marriott at 17010
North Scottsdale Road, Scottsdale, Arizona 85255 on Friday, July 16, 1999 at
9:00 a.m. local time, to act upon the following matters:
1. To elect six Directors of the Company for the ensuing year and until
the next Annual Meeting of the Stockholders or until their successors
are duly elected and qualified.
2. To ratify the appointment of Toback CPAs, P.C. as the independent
auditors of the Company for the fiscal years ending July 31, 1999 and
2000.
3. To approve an amendment to the Company's Restated Articles of
Incorporation to increase the number of shares of the Company's Common
Stock, par value $ .001 per share, that are authorized for issuance
from the current maximum of 10,000,000 shares to a maximum of
30,000,000 shares.
4. To approve the Quasi-Reorganization of the Company's financial
statements. A Quasi-Reorganization is an accounting procedure which
allows the Company to restructure its capital accounts to remove the
deficit in retained earnings from past unprofitable operations and
establish a new retained earnings account for the accumulation of
future earnings without undergoing a legal reorganization.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on May 17, 1999
are entitled to notice of and to vote at the meeting.
A copy of the Company's 1998 Annual Report to Stockholders, which
includes audited financial statements for fiscal years 1998 and 1997, is
enclosed. You are cordially invited to attend the Annual Meeting, but whether or
not you expect to attend in person, you may sign, date, and mail the enclosed
proxy card in the postage-paid envelope provided. Instructions regarding both
methods of voting are contained on the proxy card. Any stockholder of record
attending the meeting may vote in person even if he or she previously has
returned a proxy.
By Order of the Board of Directors
Gary D. Mallery
Secretary
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THIS MEETING.
PLEASE VOTE YOUR SHARES BY COMPLETING, SIGNING, DATING AND MAILING THE ENCLOSED
PROXY CARD IN THE ENCLOSED RETURN ENVELOPE AS SOON AS POSSIBLE. THE PROMPT
VOTING OF YOUR SHARES WILL HELP THE COMPANY REDUCE THE EXPENSE OF PROXY
SOLICITATION.
<PAGE>
PROXY STATEMENT
OF
SKOLNIKS, INC.
------------------------------
7755 East Gray Road, Suite 100
Scottsdale, Arizona 85260
------------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 16, 1999
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors and management of Skolniks, Inc. (the "Company") of
proxies for use at the Annual Meeting of Stockholders to be held at Courtyard by
Marriott at 17010 North Scottsdale Road, Scottsdale, Arizona 85255 on Friday,
July 16, 1999 at 9:00 a.m. local time, or any adjournment thereof, for the
purpose set forth in the accompanying Notice of Meeting.
This Proxy Statement, Notice of Annual Meeting, and Annual Report
accompanying the Proxy Card are first being mailed to stockholders on or about
May 20, 1999.
VOTING RIGHTS AND REVOCABILITY
When your Proxy Card is returned properly signed, the shares
represented will be voted in accordance with your directions. You can specify
your choices by marking the appropriate boxes on the enclosed Proxy Card. If
your Proxy Card is signed and returned without specifying choices, the shares
will be voted as recommended by the Board of Directors. The Board of Directors
recommends a vote (i) "for" the election of the director nominees; (ii) "for"
the ratification of the appointment of Toback CPA's, P.C. as the independent
auditors of the Company for the fiscal years ending July 31, 1999 and 2000;
(iii) "for" approval of the proposal to amend the Company's Restated Articles;
and (iv) "for" the approval of the Quasi-Reorganization plan.
The election inspectors will tabulate the returned proxies and
determine if a quorum is present. The election inspectors will treat abstentions
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any matter submitted to the stockholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
Any person giving a proxy may revoke the proxy at any time before its
use by delivering to the Company written notice of revocation or a duly executed
proxy bearing a later date or by attending the Meeting and voting in person.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP
Stockholders of record for the Company's Common Stock at the close of
business on May 17, 1999 are entitled to notice of and to vote at the Meeting or
any adjournments thereof. On May 17, 1999, there were issued and outstanding
9,343,187 shares of the Company's Common Stock, par value $.001 per share (the
"Common Stock"). Each stockholder voting at the Meeting, either in person or by
proxy, may cast one vote per share of Common Stock held on all matters to be
voted on at the Meeting. For the election of directors, the shares may be voted
cumulatively if a candidate's or candidates' name(s) have been properly placed
in nomination prior to the voting and a stockholder present at the meeting has
given notice of his or her intention to vote his or her shares cumulatively. If
1
<PAGE>
a stockholder has given such notice, than all stockholders entitled to vote for
the election of directors may cumulate their votes, and discretionary authority
to cumulate votes, if necessary, is being solicited. Cumulative voting entitles
a stockholder to give one or more nominees as many votes as is equal to the
number of directors to be elected multiplied by the number of shares owned by
such stockholder, or to distribute his or her votes on the same principle
between two or more nominees as he or she deems fit. In the election of
directors, the six (6) nominees receiving the highest number of votes will be
elected. If cumulative voting occurs, proxies provided to management's
proxyholders will be voted to elect as many Company nominees as possible.
The following table sets forth certain information regarding the shares
of the Company's outstanding Common Stock beneficially owned as of March 31,
1999 by (i) each of the Company's directors and executive officers, (ii) all
directors and executive officers as a group, and (iii) each other person who is
known by the Company to own beneficially or exercise voting or dispositive
control over more than 5% of the Company's Common Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES (2) OUTSTANDING SHARES(2)
- --------------------------------------- ----------- ---------------------
DIRECTORS AND EXECUTIVE OFFICERS:
Louis F. Pignatelli(3) 485,000 5.2 %
Russell K. Swartz (4) -- --
Gary D. Mallery(5) 2,500 *
W. Sam Dennis(6) 852,998 9.1 %
Dennis DesLauriers(7) -- --
Nicholas A. Fegen(8) 24,000 *
Ronald Russell, Sr.(9) 1,306,500 14.0 %
Anga Allen 2,000 *
Skolnik's Creditors' Trust 500,000 5.4 %
All directors and officers
as a group (six persons) 2,672,998 28.6 %
- --------------
* Less than 1% of outstanding shares of Common Stock
(1) Each person named in the table has sole voting and dispositive power with
respect to all Common Stock beneficially owned by him or her, subject to
applicable community property law, except as otherwise indicated. Except
as otherwise indicated, each of such persons may be reached through the
Company at 7755 E. Gray Road, Suite 100, Scottsdale, Arizona 85260.
(2) The percentages shown are calculated based upon 9,343,176 shares of Common
Stock outstanding on March 31, 1999. The numbers and percentages shown
include the shares of Common Stock actually owned as of March 31, 1999 and
the shares of Common Stock that the identified person or group had the
right to acquire within 60 days of such date. In calculating the
percentage of ownership, all shares of Common Stock that the identified
person or group had the right to acquire within 60 days of March 31, 1999
upon the exercise of options or warrants are deemed to be outstanding for
the purpose of computing the percentage of the shares of Common Stock
owned by such person or group, but are not deemed to be outstanding for
the purpose of computing the percentage of the shares of Common Stock
owned by any other person. Members of the Board of Directors have agreed
not to exercise any warrants until the Company's authorized share capital
is increased. Therefore, these warrants were not deemed to be outstanding
for the purpose of calculating the percentage of shares of Common Stock
owned.
(3) Represents 485,000 shares of Common Stock and does not include 1,366,000
shares issuable upon exercise of Common Stock Purchase Warrants held by
Mr. Pignatelli.
(4) Does not include 450,000 shares issuable upon exercise of Common Stock
Purchase Warrants held by Mr. Swartz. (5) Represents 2,500 shares of
Common Stock and does not include 300,000 shares issuable upon exercise of
Common Stock Purchase Warrants held by Mr. Mallery.
(5) Represents 852,998 shares of Common Stock and does not include 2,136,000
shares issuable upon exercise of Common Stock Purchase Warrants held by
Dr. Dennis.
2
<PAGE>
(6) Does not include 316,000 shares issuable upon exercise of Common Stock
Purchase Warrants held by Mr. DesLauriers.
(7) Represents 24,000 shares of Common Stock and does not include 600,000
shares issuable upon exercise of Common Stock Purchase Warrants held by
Mr. Fegen.
(8) Represents 1,257,500 shares of Common Stock and does not include 1,776,000
shares issuable upon exercise of Common Stock Purchase Warrants held by
Mr. Russell.
SOLICITATION AND COST
The Board of Directors of the Company makes this proxy solicitation.
The cost of the solicitation is borne by the Company. Solicitation is being made
by this Proxy Statement and may also be made by directors or officers of the
Company with no additional compensation. They may communicate with stockholders
or their representatives in person, by telephone or facsimile, or by additional
mailings in connection with proxies.
ANNUAL REPORT AND OTHER MATTERS
The 1998 Annual Report to Stockholders, which was mailed to
stockholders with this Proxy Statement, contains financial and other information
about the activities of the Company but is not incorporated into this Proxy
Statement and is not to be considered a part of these proxy solicitation
materials.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Stockholder proposals that are intended to be presented by such
Stockholders at the Annual Meeting of Stockholders of the Company to be held
during calendar year 2000 must be received by the Company no later than February
22, 2000 in order to be included in the Proxy Statement and Form of Proxy
relating to such meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting.
If any matters properly come before the Meeting, it is the intention of the
persons named in the enclosed proxy to vote the shares they represent as the
Board of Directors may recommend.
PROPOSAL #1: ELECTION OF DIRECTORS
----------------------------------
The Company's Restated Articles and Amended and Restated Bylaws provide
that the number of directors shall be fixed from time to time by resolution of
the Board of Directors and shall consist of not less than three (3) and not more
than twelve (12). The Board of Directors currently consists of seven directors.
All directors are elected at each annual meeting of the Company's stockholders
and hold office until the Company's next annual meeting of stockholders or until
their successors are elected and qualified or until their earlier resignation or
removal.
NOMINEES
A board of six directors is to be elected at the Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
"for" each of the nominees named below. In the event that any such nominee is
unable or declines to serve as a director at the time of the Meeting, the
proxies will be voted for any nominee designated by the current Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director.
3
<PAGE>
All of the nominees listed below currently are directors of the
Company. There are no family relationships between any nominees, directors, or
executive officers of the Company. The nominees for director as proposed by
management, their ages, term of office, principal occupations, and other
qualifying information for the past five years are:
LOUIS F. PIGNATELLI, 54, was elected to the Board of Directors in
February 1995. On July 18, 1997, Mr. Pignatelli was elected Chairman of the
Board. For the past six years, Mr. Pignatelli has been a principal in the law
firm of Pignatelli, Liston and Mertes, P.C. in Rock Falls, Illinois. Mr.
Pignatelli is a graduate of the University of Notre Dame and received a Juris
Doctorate degree from the University of Illinois in 1971.
RUSSELL K. SWARTZ, 54, was elected to the Board of Directors in August
1998 and has served as President and Chief Executive Officer since December
1997. Mr. Swartz joined the Company in May 1997 after a successful career in the
packaged goods and food industries with The Dial Corp., Universal Foods, and
General Host Corporation's Cudahy Foods Division. Mr. Swartz is a faculty
associate at Arizona State University-West Campus where he teaches in the School
of Management. He holds a Masters of Business Administration from Babson College
and a Bachelor of Science in Food Science from the University of Massachusetts.
GARY D. MALLERY, CPA, 59, was elected to the Board of Directors in
March 1995 and served as Chief Financial Officer from March 1995 until February
1998. Prior thereto, from 1986 to 1993, Mr. Mallery served as the managing
partner of the Deloitte & Touche office located in Baltimore, Maryland. Mr.
Mallery received a Bachelor of Science and a Master of Science degree from the
University of Oregon in 1968.
DR. W. SAM DENNIS, 54, was elected to the Board of Directors in January
1997. Dr. Dennis has been a physician practicing radiology in Houston, Texas
since 1980. He received his M.D. from Baylor College of Medicine in 1976.
DENNIS DESLAURIERS, 54, was elected to the Board of Directors in
January 1997. He is Executive Vice President of Armour Swift-Eckrich, a Division
of Con Agra, the largest food company in the U.S. Mr. DesLauriers is responsible
for all domestic operations in the U.S. as well as all International Sales of
Armour Swift-Eckrich. Prior to this, he served as President of the Butterball
Turkey Company. Mr. DesLauriers has had over 20 years of experience with his
Company as well as five years experience in acquisitions and business
turnarounds. He is a graduate of the Culinary Institute of America and attended
Southeastern Massachusetts University.
RONALD RUSSELL, SR., 64, was elected to the Board of Directors in
January 1997. Mr. Russell is a real estate developer in St. Charles, Illinois.
EXECUTIVE OFFICERS
Russell K. Swartz, 54, has served as President and Chief Executive
Officer since December 1997 and Director of the Company since August 1998. Mr.
Swartz joined the Company in May 1997 after a successful career in the packaged
goods and food industries with The Dial Corp., Universal Foods, and General Host
Corporation's Cudahy Foods Division. Mr. Swartz is a faculty associate at
Arizona State University-West Campus where he teaches in the School of
Management. He holds a Masters of Business Administration from Babson College
and a Bachelor of Science in Food Science from the University of Massachusetts.
Anga Allen, 27, has served as Chief Financial Officer since February
1999. Ms. Allen previously served as Controller for Skolniks. She recently
passed the CPA Exam with the highest score in the State of Arizona. Ms. Allen
holds a Bachelor of Science degree in Accountancy from Arizona State University
West.
4
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From March 1995 through October 1998, members of the Board of Directors
have loaned the Company $1,231,000. In connection with these loans, the Board
members have been issued warrants to purchase 1,350,000 shares at $0.50,
1,524,000 shares at $0.25, 920,000 shares at $0.125, and 600,000 shares at
$0.10.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and officers, and persons who
own more than 10 percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors, and greater
than 10 percent stockholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon the
Company's review of the copies of such forms received by it during the fiscal
year ended July 31, 1998 and inquiry of related parties, and representations
that no other reports were required, the Company believes that each person who,
at any time during such fiscal year, was a director, officer, or beneficial
owner of more than 10 percent of the Company's Common Stock complied with all
Section 16(a) filing requirements during such fiscal year except that (i) Dennis
DesLauriers filed a late report on Form 5 covering one late Form 4 transaction;
(ii) Louis F. Pignatelli filed a late report on Form 4 covering one transaction
and has informed the Company that he will be filing a late report on Form 5
covering three late Form 4 transactions; (iii) W. Sam Dennis filed a late report
on Form 5 covering three late Form 4 transactions; (iv) Russell K. Swartz filed
a late report on Form 5 covering one late Form 3 transaction and one late Form 4
transaction each occurring in fiscal 1997; and (v) Ronald Russell, Sr. has
informed the Company that he will be filing a late report on Form 5 covering one
late Form 3 transaction and ten late Form 4 transactions.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's bylaws authorize the Board of Directors to appoint among
its members one or more committees composed of one or more directors. The Board
of Directors has appointed an Executive Committee and a Compensation and Audit
Committee. The Compensation and Audit Committee reviews the annual financial
statements, the significant accounting issues, and the scope of the audit with
the Company's independent auditors and is available to discuss with the auditors
any other audit-related matters that may arise during the year. This Committee
also reviews and acts on matters relating to compensation levels and benefit
plans for key executives of the Company. Messrs. DesLauriers and Mallery were
appointed to serve on the Executive Committee. Messrs. Dennis, Pignatelli, and
Russell were appointed to serve on the Compensation and Audit Committee.
The Board of Directors of the Company held two meetings during the
fiscal year ended July 31, 1998. No nominee for director, while serving as a
Director of the Company during fiscal year 1998, attended fewer than 75% of the
total number of meetings of the Board of Directors.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
All directors were granted warrants to purchase 300,000 shares of
Common Stock at the current market price in effect at the time of their election
or appointment. Of these warrants, 50% vest immediately upon appointment, and
50% vest in two years providing the recipient of the warrants has in good faith
continued to work for the benefit of Skolniks.
The following table sets forth certain information concerning the
compensation for the fiscal years ended July 31, 1998 and 1997 earned by the
Company's Chief Executive Officer. No other officer of the Company received
compensation of $100,000 or more during fiscal 1998.
5
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------- -------- -------------------------------- ----------------------------------
Annual Compensation Long-Term Compensation
Awards
Name and Securities Underlying
Principal Positions Held Year Salary ($) Bonus ($) Warrants (#)(1) Payouts
- ------------------------------- -------- ---------------- --------------- ------------------------ ---------
<S> <C> <C> <C> <C> <C>
Russell K. Swartz
President and Chief 1998 $ 75,000 -- 50,000 --
Executive Officer 1997 20,192 -- 50,000 --
1996 -- -- -- --
Gary D. Mallery 1998 25,721 -- -- --
Prior President and Chief 1997 40,000 -- -- --
Financial Officer 1996 40,000 -- -- --
Nicholas A. Fegen 1998 -- -- -- --
Prior President and Chief 1997 96,923 10,000 -- --
Executive Officer 1996 120,000 30,000 -- --
- ------------------------------- -------- ---------------- --------------- ------------------------ ---------
</TABLE>
(1) The exercise price of all stock warrants granted were equal to or greater
than the fair market value of the Company's Common Stock on the date of
grant.
- --------------------------------------------------------------------------------
The following table provides information on stock warrants granted to
the Company's Named Officers during the fiscal year ended July 31, 1998.
WARRANT GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------------
Number of Securities % of Total Warrants
Underlying Warrants Granted to Employees in Exercise Price
Granted (#) Fiscal Year ($/Share) Expiration Date
Name
- ---------------------- --------------------- ----------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Russell K. Swartz (1) 100,000 100% $0.375 2002
- ---------------------- --------------------- ----------------------- ----------------- ----------------
</TABLE>
(1) These warrants were part of a grant of 150,000 in fiscal 1997 of which
50,000 were vested and reported on the Company's Form 10KSB for the
fiscal year ended July 31, 1997. They were granted at or above the fair
market value of the shares on the date of grant and have a 5-year term.
One third of the warrants vested at the date of award, May 1, 1997, one
third vested on May 1, 1998, and the remaining one third vested on May
1, 1999. Mr. Swartz has waived his right to exercise these warrants
until the authorized share capital has been increased.
- --------------------------------------------------------------------------------
6
<PAGE>
The following table provides information on the value of the Company's
Named Officers unexercised warrants at July 31, 1998.
<TABLE>
<CAPTION>
WARRANT VALUES AS OF JULY 31, 1998
- ----------------------- ------------------------------------- -----------------------------------
Number of Securities Underlying Value of Unexercised
Unexercised Warrants at In-the Money Warrants at Fiscal
Fiscal Year-End (#) Year-End ($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Russell K. Swartz 100,000 50,000 $ 0 $ 0
Gary D. Mallery 150,000 150,000 $ 0 $ 0
- ----------------------- --------------- ---------------- ------------------- --------------------
</TABLE>
(1) Calculated based upon the average bid and ask price as reported on the
over the counter market on September 24, 1998 of $0.066 per share.
- --------------------------------------------------------------------------------
INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Company's Amended and Restated Bylaws require the Company to
indemnify its directors and officers against liabilities that they may incur
while serving in such capacities, to the fullest extent permitted under Section
145 of the General Corporation Law of the State of Delaware. Pursuant to these
provisions, the Company will indemnify its directors and officers against any
losses incurred in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or officer of the Company
or served with another corporation, partnership, joint venture, trust or other
enterprise at the request of the Company. In addition, the Company will provide
advances for expenses incurred in defending any such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such advances if it is ultimately determined that he or she is not
entitled to indemnification by the Company.
PROPOSAL #2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
----------------------------------------------------------------
The Board of Directors has appointed Toback CPAs, P.C., independent
public accountants, to audit the consolidated financial statements of the
Company for the fiscal years ending July 31, 1999 and 2000, and recommends that
the stockholders of the Company vote in favor of the ratification of such
appointment. The Board of Directors anticipates that representatives of Toback
will be present at the Meeting, will have the opportunity to make a statement if
they desire, and will be available to respond to appropriate questions.
The Board of Directors recommends a vote "for" the ratification of the
appointment of Toback CPAs, P.C. for the fiscal years ending July 31, 1999 and
2000. In the event of a negative vote on such ratification, the Board of
Directors will reconsider its selection.
PROPOSAL#3: AMEND THE COMPANY'S RESTATED ARTICLES OF INCORPORATION
------------------------------------------------------------------
The Board of Directors has approved a proposal to amend the Company's
Restated Articles to increase the number of shares of the Company's Common Stock
that are authorized for issuance from the current maximum of 10,000,000 shares
to a maximum of 30,000,000 shares.
The Board of Directors recommends a vote "for" the proposal to amend
the Restated Articles. The full text of the proposed amendment to the Restated
Articles is included as "Appendix A" to this Proxy Statement. If approved by the
7
<PAGE>
Company's stockholders, the proposed amendment will become effective upon filing
of Articles of Amendment with the Delaware Secretary of State, which will occur
as soon as practicable following the Meeting.
The Board of Directors believes that the approval of the proposed
amendment to the Restated Articles is necessary to promote the welfare of the
Company and its stockholders. The Board of Directors believes that increasing
the number of shares of Common Stock authorized for issuance will provide
additional flexibility. The increase in the number of authorized shares of
Common Stock will enable the Company to raise capital, refinance indebtedness,
make acquisitions, and accomplish other corporate objectives in response to
market conditions or growth opportunities as and when they become available.
The proposed increase in the number of shares authorized for issuance
recognizes the growth of the Company's operations and the increase in the number
of outstanding shares of the Company's Common Stock as a result of (a) the
Company's public offerings; (b) conversion of preferred stock and exercise of
warrants, (c) the issuance of 1,000,000 shares of Common Stock to fund the
Bankruptcy Plan in December 1996; (d) the issuance of 500,000 shares of Common
Stock to the Creditors' Trust; and (e) the issuance of 531,000 shares to fund
operations subsequent to the bankruptcy. As a result, an aggregate of
approximately 9,770,000 of the 10,000,000 shares of Common Stock authorized for
issuance under the Restated Articles currently are outstanding or issuable.
There are a total of 7,674,009 warrants outstanding at various exercise
prices. Of these, 4,674,009 warrants were issued in connection with borrowings
in the aggregate amount of $1,291,005 by the Company. In connection with these
loans, the creditors have been issued warrants to purchase 1,430,009 shares at
$0.50, 1,524,000 shares at $0.25, 920,000 shares at $0.125, and 800,000 shares
at $0.10. Also, 3,000,000 warrants have been issued to directors, officers, and
employees for services to the Company. The warrants issued to directors,
officers, and employees are not exercisable until the number of authorized
shares is increased.
The proposed increase in the number of shares of Common Stock
authorized for issuance will provide the Company with the flexibility necessary
to enable it to (a) raise additional capital through one or more public
offerings or private placements of shares of Common Stock or options, warrants,
convertible debt, convertible preferred stock, or other securities exercisable
or convertible into shares of Common Stock; (b) acquire additional assets or
businesses by using shares of Common Stock for a portion or all of the
consideration paid to the sellers; (c) repay existing indebtedness by issuing
shares of Common Stock in lieu of cash; (d) attract and retain directors,
officers, and key employees and motivate such persons to exert their best
efforts on behalf of the Company by issuing options to acquire shares of Common
Stock; or (e) make stock dividends to existing stockholders.
The Company has in excess of $20,000,000 of net operating loss (NOL)
carryover. The Company believes these carryforwards will make a strategic
acquisition more attractive. The Company needs to increase the number of
authorized shares to successfully negotiate any strategic acquisition which
would enable the Company to use the NOL to shelter income from Federal taxes,
thereby enhancing stockholder value.
The Board of Directors believes that the number of shares of Common
Stock currently authorized for issuance is not adequate to provide a sufficient
number of shares for transactions, such as those described above, when they may
arise in the future. Importantly, the Board of Directors believes that the
proposed increase in the number of authorized shares of Common Stock could be a
critical factor in the Company's ability to raise capital in order to acquire
new assets, fund business growth, and support possible acquisitions.
Approval of the proposed amendment to the Restated Articles will
require the affirmative vote of the holders of sixty percent (60%) of the total
number of the issued and outstanding shares of the Company's Common Stock. Upon
approval of the proposed amendment to the Restated Articles and filing of
Articles of Amendment with the Delaware Secretary of State, the authorized
shares of Common Stock will be available for issuance by action of the Board of
Directors for any of the reasons described above or for any other corporate
purpose. With the exception of certain extraordinary issuances, no further
stockholder approval will be required before the Company can complete any of the
transactions described above. In the event that the proposed amendment is not
approved by the Company's stockholders at the Meeting, the current Restated
Articles will remain in effect.
8
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PROPOSAL #4: QUASI-REORGANIZATION
---------------------------------
A Quasi-Reorganization is an accounting procedure that allows a company
to restructure its capital accounts to remove a deficit in retained earnings
without undergoing a legal reorganization. It is an elective accounting
procedure intended to restate assets and liabilities to current values and
eliminate any accumulated deficit in retained earnings. A deficit in retained
earnings limits the flexibility of the Company in considering or taking certain
actions that may be in the best interest of the Company and its stockholders
such as a stock repurchase program, and this proposal is intended to remove
those limitations.
The Company has consulted and agreed with its accountants concerning
the quasi-reorganization. The Company believes that a restated balance sheet
would improve the Company's ability to raise capital through both debt
refinancing and new equity offerings. These and other reasons lead the Company
to the decision that it would be advantageous to restate its balance sheet,
revalue its assets and liabilities to fair market value, and eliminate the
retained deficit.
Under Delaware law, the Company is permitted to pay dividends only out
of capital surplus (net assets in excess of stated capital) or, in the event
there is not surplus, then out of net profits for the year in which the
dividends are declared. The right to make a distribution to stockholders, in the
form of cash dividends or a repurchase of shares, gives the Board more
flexibility in creating or preserving value for stockholders. The Board of
Directors may determine that the current market price of the Company's stock
does not adequately reflect its level of earnings and that a selective purchase
of its own shares is the optimum use of excess capital. A repurchase of shares
reduces the number of shares outstanding and may have the effect of increasing
the earnings per share of the Company.
Generally accepted accounting principles permits a Quasi-Reorganization
of this type only if certain requirements and conditions are met. These
requirements include: (a) a deficit in retained earnings must be eliminated by a
reduction in paid-in-capital, (b) the Company must obtain approval from its
stockholders, (c) the Company must obtain the approval of its regulators, (d)
all of the Company's assets and liabilities must be restated to fair value, but
without any increase in net capital, and (e) no change in accounting methods is
permitted within twelve (12) months following the Quasi-Reorganization. In
addition, generally accepted accounting principles may require that the Company
demonstrate other characteristics consistent with a "fresh start". These
characteristics include substantial changes in ownership and management since
the deficit was incurred, current profitable operations, reasonable prospects
for continued profitable operations, and an adequate level of capital.
The accumulated deficit in the retained earnings account as of July 31,
1998 was $21,386,920 and the additional paid in capital accounts was
$21,118,835. If the proposal to increase the authorized share capital is
approved, the Company will have the available capital to convert existing debt
into equity. After the debt conversion is complete, the balance in the
additional paid in capital account will exceed the balance in the retained
deficit account, thereby allowing a complete write-off of the retained deficit
account against additional paid in capital. The Company has conducted a
preliminary evaluation of its assets and liabilities and has determined that the
overall difference between their book values and fair market values is not
significant. The Company does not anticipate a change in accounting methods in
the next twelve (12) months following the proposed Quasi-Reorganization.
The Company's deficit retained earnings were incurred as a result of
the discontinued operations of the Skolniks Bagel Bakery Restaurants,
unprofitable operations, and certain business practices of past management.
These factors resulted in several creditors petitioning the Company into
involuntary bankruptcy. A substantial change in ownership took place as a result
of the issuance of 1,000,000 shares of Common Stock to fund the Bankruptcy Plan
in December 1996; the issuance of 500,000 shares of Common Stock to the
Creditors' Trust, as required by the Plan of Reorganization of the bankruptcy;
and the issuance of 531,000 shares to fund operations subsequent to the
bankruptcy. The Company has replaced its Chief Executive Officer, Chief
Financial Officer, certain directors and all key employees with a focus on
upstanding, ethical business practices. The Company's recent activities have
included incurring substantial debt to save the Company from insolvency,
bringing in a new management team, refocusing the Company's operating strategy,
bringing in new lines of distribution and distributors, eliminating unprofitable
9
<PAGE>
and producing new product lines, and actively searching for a strategically
aligned merger candidate.
The Company has reviewed its future prospects for profitability and has
determined that the Company could reasonably anticipate profitability in the
foreseeable future. However, no assurances can be given that the Company will be
able to operate profitably in the future. The Board believes the Company will
meet all of the conditions set forth in Section 210 of the Codification of
Financial Reporting Policies for a Quasi-Reorganization; however, the Company
can provide no assurance that it will meet all of the conditions at the end of
the current fiscal year. It is anticipated that the actual Quasi-Reorganization
will be completed as determined by the Board of Directors by July 31, 2000 and
it would be reflected in the audited financial statements of the Company as of
July 31, 2000. In the event the Company is not profitable during fiscal year
2000, the Quasi-Reorganization and accompanying restatement of the Company's
balance sheet could be rejected by the regulatory agency.
The Board of Directors believes that adopting the Quasi-Reorganization
is in the best interests of the Company and its stockholders and therefore
recommends a vote "for" the Quasi-Reorganization.
10
<PAGE>
SKOLNIKS, INC.
1999 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned stockholder of SKOLNIKS, INC., a Delaware corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement of the Company, each dated May 20, 1999, and
hereby appoints Russell K. Swartz and Gary D. Mallery, and each of them, proxies
and attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1999 Annual
Meeting of Stockholders of the Company, to be held on July 16, 1999, at 9 a.m.,
local time, at the Courtyard by Marriott, 17010 N. Scottsdale Road, Scottsdale,
Arizona 85255 at any adjournment or adjournments thereof, and to vote all shares
of Common Stock that the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below.
1. ELECTION OF DIRECTORS:
|_| FOR the 6 nominees listed below, except
as indicated
|_| WITHHOLD AUTHORITY to vote for the 6 nominees
listed below
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
Louis F. Pignatelli, Russell K. Swartz, Gary D. Mallery, W. Sam Dennis,
Dennis DesLauriers, and Ronald Russell, Sr.
2. PROPOSAL TO RATIFY THE APPOINTMENT OF TOBACK, CPAs P.C. AS THE INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEARS ENDING JULY 31, 1999 AND 2000.
|_| FOR |_| AGAINST |_| ABSTAIN
3. PROPOSAL TO APPROVE THE COMPANY'S RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE
$.001 PER SHARE, THAT ARE AUTHORIZED FOR ISSUANCE FROM A MAXIMUM OF
10,000,000 SHARES TO A MAXIMUM OF 30,000,000 SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
4. PROPOSAL TO APPROVE THE QUASI-REORGANIZATION PLAN OF THE COMPANY'S
FINANCIAL STATEMENTS WHICH ALLOWS THE COMPANY TO RESTRUCT ITS CAPITAL
ACCOUNTS TO REMOVE THE DEFICIT IN RETAINED EARNINGS FROM PAST UNPROFITABLE
OPERATIONS AND ESTABLISH A NEW RETAINED EARNINGS ACCOUNT FOR THE
ACCUMULATION OF FUTURE EARNINGS WITHOUT UNDERGOING A LEGAL REORGANIZATION.
|_| FOR |_| AGAINST |_| ABSTAIN
and upon such other matters that may properly come before the meeting or any
adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, FOR THE ELECTION OF DIRECTORS; FOR THE RATIFICATION OF THE
APPOINTMENT OF TOBACK, CPAS P.C. AS THE INDEPENDENT AUDITORS OF THE COMPANY; FOR
THE APPROVAL OF THE AMENDMENT OF THE COMPANY'S RESTATED ARTICLES OF
INCORPORATION; FOR THE APPROVAL OF THE QUASI-REORGANIZATION; AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
A majority of such attorneys or
substitutes as shall be present and
shall act at said meeting or an
adjournment or adjournments thereof (or
if only one shall be present and act,
then that one) shall have and may
exercise all of the powers of said
attorneys-in-fact hereunder.
Dated:___________________________, 1999
_______________________________________
SIGNATURE
_______________________________________
SIGNATURE
(This Proxy should be dated, signed by
the stockholder(s) exactly as his or
her name appears hereon, and returned
promptly in the enclosed envelope.
Persons signing in a fiduciary capacity
should so indicate. If shares are held
by joint tenants or as community
property, both stockholders should
sign.)
